MCA Introduces stringent norms for Nidhi Companies
Summary of the notification issued by MCA on 19/04/2022
Key highlights of the amendments are as follows:
1. Criteria for Declaration as a Nidhi company: Any public company incorporated on or after 19/04/2022, which is desirous to be declared as Nidhi, shall within 120 days of its incorporation apply for the Central Government’s approval, subject to fulfilling the conditions with respect to number of members and net owned funds. A declaration that the promoters/directors meets the fit and proper criteria shall also be submitted along with the application. It is to be noted that for these companies that are incorporated on after 19/04/2022, minimum threshold criteria specified under Rule 5 shall not be applicable.
2. Minimum paid-up capital and Net Owned funds requirement: Minimum paid up capital and net owned funds required to be maintained by a Nidhi are increased to 10 lakhs and 20 lakhs from the existing requirement of 5 lakhs and 10 lakhs respectively. Existing Nidhi companies to meet this revised threshold within 18 months from the commencement date of this notification, which is 19/04/2022.
3. Prohibited transactions: Nidhi shall not carry out- a. any acquisition/purchase of securities of another entity (or) controlling the composition of Board of another company or any arrangement for change of its management (earlier this shall be undertaken subject to passing of a special resolution in general meeting and approval of Regional Director(RD)) b. raising of loans from banks/financial institutions/any other source to advance loans to its members.
4. Restriction on transfer of shares: A member shall not transfer more than 50% of his shareholding during the subsistence of the loan/deposit, subject to him/her maintaining the minimum shareholding requirement as per the Rules at all times.
5. Closure of a Branch: Closure of a branch, along with the exit plan, detailing paying off/recovery of existing deposits/loans, shall be approved by the Board. Prior approval of RD is required, as against the existing procedure to intimate RD post closure of the branch. Further, Nidhi shall close its operations in all such places, which are not its Registered office or branch, within 6 months from the commencement of this notification, i.e. 19/04/2022 and shall file intimation in this regard in Form NDH-2.
6. Declaration of Dividend: Approval of Regional Director and fulfilment of certain conditions to declare the dividend are done away with.
7. Consequence of Non-Compliance with Rules: A Nidhi Company shall not raise fresh deposits or provide loans to its members if it violates the provisions of the Rules or if its application in Form NDH-4 gets rejected by the Central Government. In case it raises deposits post such non-compliance, then such deposits shall be deemed to have been raised as per Chapter V (Acceptance of Deposits by Companies) of the Companies Act, 2013 and shall be subject to the requirements of that Chapter.
Author – CS Akshita Anand
Team Lead – Corporate Compliance