Move comes against the backdrop of a significant increase in the number of Nidhi companies in recent years
Move comes against the backdrop of a significant increase in the number of Nidhi companies in recent years
In order to protect the interests of the public and prevent possible illegal fundraising activities, the government has changed the rules for Nidhi companies, according to which their prior declaration will be mandatory for a certain class of such companies to start their business.
The move by the Ministry of Corporate Affairs also comes amid a significant increase in the number of Nidhi companies in recent years and instances where the public has been misled through fraudulent fund-raising activities.
Now public companies wishing to act as nidhis must obtain a prior declaration from the central government before accepting deposits, the ministry said in a press release on Wednesday.
Only about 390 companies were declared Nidhi companies under the Companies Act 1956. However, their numbers have risen sharply since the Companies Act 2013 was introduced in April 2014.
“More than ten thousand companies were created in the period 2014-2019. However, only about 2,300 companies have applied for Form NDH-4 for declaration. Examination of Form NDH-4 found that companies failed to comply with the applicable provisions of the Act and the Nidhi Rules 2014 (as amended),” the press release reads.
According to the ministry, it has become imperative to safeguard the interests of the general public that before becoming a member, one must ensure a company’s declaration as a Nidhi by the central government.
A joint-stock company incorporated as Nidhi with a share capital of 10 lakh should first declare as a Nidhi by applying for Form NDH-4 with a minimum membership of 200 and a Net Asset Value (NOF) of 20 lakh within 120 days of its incorporation.
In addition, founders and directors of the company in question must meet the “suitable and suitable person” criteria set out in the regulations.
“For timely availability, amended regulations also provided that if the central government fails to provide a decision within 45 days of receipt of applications submitted by companies on Form NDH-4, the permit will be deemed to have been granted.
“This would apply to such companies to be incorporated under the Nidhi (Amendment) Rules, 2022,” the press release reads.
Nidhi Corporations are non-bank financial institutions that engage in lending and lending business with their members.
Under the Amendment to the Companies Act 2013 and consequent changes to the rules effective 15 August 2019, companies incorporated as Nidhis were required to apply to the Government for a declaration on Form NDH-4 within 14 months of incorporation. The requirement applied to companies incorporated after the Nidhi Rules (Amendment) came into effect on August 15, 2019. The deadline was 9 months if such companies were incorporated as Nidhi after 2014 but before August 15, 2019.
