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Key Amendments for Incorporation of a Nidhi Company

  • April 27, 2022
  • Registrationwala
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Nidhi (Amendment) Rules, 2022

The Ministry of Corporate Affairs issued a notification on April 19, 2022, which introduces some important amendments made to the existing Nidhi Rules, 2014 by notifying Nidhi (Amendment) Rules, 2022 which will be applicable with effect on the date of its publication in the Official Gazette. Nidhi Company is a type of Non-Banking Financial Institute (NBFC) that provides lending and deposit services to its members exclusively. The term “Nidhi” in the Nidhi Company means “treasure”. Here, we are mentioning some of the key amendments from the released notification. 

Amendments to the Nidhi Rules, 2014                  

Additions:

1.    Rule 3(1) (AA) (AA) states that a Nidhi company “Branch” means a place other than the registered office of Nidhi.

Prior to this addition of Branch definition, there was a confusion amongst the stakeholders regarding the distinction between the registered office of a Nidhi company and its branches as not much rules defined regarding the branch opening of Nidhi under Rule 10. So, this addition now makes a clear distinction between the registered office of the Company and its Branches.

2.    Rule 3A was inserted in the Nidhi Rules by Nidhi (Amendment) Rules 2019 which came into force from August 15, 2019, which made it mandatory for Nidhi Companies to file form NDH-4 to declare itself as a Nidhi Company. In case of non-compliance of the rule, it shall not be allowed to file 

  • Form SH-7 (Notice to Registrar of any alteration of share capital)
  • Form PAS-3 (Return of Allotment).

This new amendment of 2022 further extends the restrictions inserting three more provisos (i.e., condition that must be accepted before an agreement can be made).

Fourth proviso: A company which has not, complied with the requirements of this rule, or fails to comply with such requirement on or after the commencement of the Nidhi (Amendment) Rules, 2022, or in case the application submitted by the company in Form NDH-4 is or has been rejected by the Central Government shall not be allowed raise any deposit from its members or provide any loan to its members under the provisions of these rules from the date of such non-compliance, or from the date of the commencement of the above said rules, or the date of rejection of the application in Form NDH-4, whichever is later.

Fifth proviso: If any company raises deposits in contravention of the fourth proviso, the same shall be deemed to have been raised in pursuance of Chapter V (Acceptance of Deposits by Companies) of the Act, and shall be subject to all the requirements under that Chapter, or under any other provisions of the Act or the rules made thereunder.

Sixth proviso: Rule 3A shall not apply to those companies which are incorporated as Nidhi on or after the commencement of the amendment rules. This is because a new Rule 3B is inserted vide this amendment which provides for totally different set of provisions to be followed by companies to comply with the requirement of filing form NDH-4.

3.    Rule 3B:

·         Nidhi companies are required to file form NDH-4 within 120 days, instead of 6o days as stated in the Rule 3A of Nidhi Rules, 2014, of its incorporation subject to fulfilment of the following conditions,

  • it has not less than 200 members
  • it has Net Owned Funds of 20 lakh rupees or more

·         Disqualification of a person as a director in 5 or more companies incorporated or declared as Nidhi, or is a promoter of 3 or more companies incorporated or declared as Nidhi, a very restrictive step taken by the MCA.

·         A specific period of 45 days is prescribed to either accept or reject the application in form NDH-4 by the MCA, while earlier no such time period was prescribed and many companies were awaiting response to the form filed by them for more than one to two years ago. If the MCA fails to convey its decision within the prescribed time period, the application shall be deemed to be accepted.

·         A proviso was inserted in rule 12 that in case of a Company being incorporated as a Nidhi, the declaration by the Central Government shall be obtained by the Nidhi before commencing the business and a declaration in this behalf shall be submitted at the stage of incorporation by the company.

·         In case a Nidhi is not complying with the rule, it shall not be allowed to file form SH-7 or PAS-3.

·         Rule 3B shall not be applicable to those companies which are incorporated under the Act before the date of commencement of the Nidhi (Amendment) Rule, 2022.

4.    Rule 5(5): Every Nidhi is required to file form NDH-1 which is a return of statutory compliances within 90 days from the close of the first financial year after its incorporation and where applicable, the second financial year. However, the Rule 5 has been made inapplicable for the companies incorporated as Nidhi on or after the commencement of the Nidhi (Amendment) Rules, 2022. This clearly means that form NDH-1 is no more relevant for newly incorporated entities and it will remain in force for only those companies which were incorporated before 19th April, 2022.

5.    Rule 6(l) (l): Under this clause, the Nidhi companies raise loans from banks or financial institutions or any other source for the purpose of advancing loans to its members. This resolved the confusion amongst the companies and professionals for applying for loans.

6.    Rule 8(4): A member of a Nidhi company shall not transfer more than 50% of his/her shareholding during the subsistence of a loan or deposit and shall at all the times retain the minimum number of shares required under of rule 7(3) which is at least a minimum of 10 equity shares or shares equivalent to ₹100.

7.    Rule 10(3): Following the words, “Regional Director”, the words “by applying in Form NDH-2 along with fee specified in the Companies (the Registration Offices and Fees) Rules, 2014”, is inserted. If a Nidhi proposes to open more than three branches within the district or any branch outside the district, it shall obtain the prior permission of the Regional Director by applying in Form NDH-2 along with fee specified in the Companies (the Registration Offices and Fees) Rules, 2014 and an intimation is to be given to the Registrar about opening of every branch within thirty days of such opening. Form NDH-2 was earlier used for applying for extension of time under Rule 5 but now it has changed.

8.    Rule 10(7): Any unregistered office or a branch, where a Nidhi carries on its operation shall be closed within a period of six months from the date of commencement of the Nidhi (Amendment) Rules, 2022 and intimation shall be sent to the Registrar in this regard in Form NDH-2.

9.    Rule 12(1): Rule 12(1) after the word, “gold” the word “silver” shall be inserted. Rule 12(1) is about particulars which shall be there in the application form for deposits.

10.  Rule 14: Phrase “approval of the Regional Director” is to be augmented before the words “by making application in Form NDH- 2 along with fee specified in the Companies (the Registration Offices and Fees) Rules, 2014”. Form is specified for taking prior approval of RD to withdraw from unencumbered term deposits in case of unforeseen commitments.

11.  Rule 15(1): In case of joint shareholders, the loan shall be provided to the member whose name appears first in the Register of members. There was a confusion amongst Nidhis and professionals that in case of joint shareholders, in whose name the loan shall be disbursed, which is now made clear with this amendment.

12.  Rule 20(6): after the word “gold”, wherever it occurs, the words “or silver” shall be inserted. Rule 20 is about the prudential norms.

13.  In Form NDH-3 serial no. 8, (vii) Net Owned Fund: _____ is added.

14.  NDH-5 Form inclusion, to close an office or branch of a Nidhi company.


Substitutions:

 

1.    Rule 4(1) (a):

  • The minimum paid up equity share capital of Nidhi Companies is raised from ₹5 lakhs to ₹10 lakhs.
  • All the registered Nidhi companies incorporated before the date of commencement of the amendment rules shall be required to comply with the amended condition within 18 months from the date of commencement of these rules i.e., April 1, 2022.

2.    Rule 6(d): This rule provides for general restrictions or prohibitions which a Nidhi Company has to keep into consideration like acquiring or purchasing securities of any other company or controlling the composition of the Board of Directors of any other company in any manner whatsoever or enter into any arrangement for the change of its management unless it has passed a special resolution in its general meeting and also obtained the previous approval of the Regional Director having jurisdiction over such Nidhi.

3.    Rule 9:

·         Every Nidhi shall maintain an NOF (Net Owned Funds) of not less than ₹20 lakhs instead of the previous set limit of ₹10 lakhs.

·         Also, every Nidhi existing as on the date of commencement of the Nidhi (Amendment) Rules, 2022 shall comply with this requirement within a period of 18 months from the date of such commencement which is a very difficult task for those Nidhis which got incorporated in recent 3 years period.

4.    Rule 10(6) (a): In the existing provisions, neither there was a requirement of conducting Board Meeting to approve the proposal to close the branch along with the plan as to how the existing deposits have been or shall be paid off and how the existing loan shall be recovered nor any prior approval of the RD was required.

5.    Rule 18 Dividend: A Nidhi shall not declare dividend exceeding twenty-five per cent in a financial year. This is a restricting and welcoming change as well. In the existing provisions, if a Nidhi intended to declare dividend exceeding 25% it was allowed to do so subject to obtaining specific approval by the Regional Director for reasons to be recorded in writing, however now there’s no such option left. Secondly, the conditions subject to which a Nidhi was allowed to declare dividend are now removed.

6.    Form NDH-2 heading: In place of “Application for extension of time”, the heading “Application to Regional Director and Intimation to Registrar” shall be substituted. The purpose of form NDH-2 is changed.

7.    Form NDH-2: Application filed for

a.      extension of time or

b.      for permission of Regional Director for opening of branch or

c.       for permission of Regional Director for closing of branch or

d.      for intimation to Registrar for opening or closing of branch or

e.       for intimation to Registrar for closure of collection centres etc., or

f.       for permission of Regional Director for withdrawal of unencumbered deposits.

Purposes of filing form NDH-2 substituted.

Omission:

Rule 10(4), (5): the words “or collection centres or offices or deposit centres, or by whatever name called” has been omitted. With this change, Nidhis can now open collection centres or offices or deposit centres outside the State where its registered office is situated and also without filing financial statement and annual returns.


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