A Nidhi company is one that belongs to the non-banking Indian Finance sector and is recognized under section 406 of the Companies Act, 2013. Their core business is borrowing and lending money only between their members.
They are also known as Permanent Fund, Benefit Funds, Mutual Benefit Funds and Mutual Benefit Company. It is regulated by Ministry of Corporate Affairs. Reserve Bank of India is empowered to issue directions to them in matters relating to their deposit acceptance activities. However, in recognition of the fact that these Nidhi Company deal with their shareholder members only.
Nidhi Companies were existed even prior to the existence of companies Act 1913. The basic concept of Nidhi is “Principle of Mutuality” (“Paraspara Sahayata”). Thus Nidhi function for the common benefit advantage of all their Members/Share holders..
Nidhi may be a special category of company with sure restrictions associated with its object, membership, share capital, and web in hand fund and deposit. It should have word Nidhi restricted in its name. This should be incorporated underneath the Nidhi Rules 2014
- Carry on the business of Chit fund, rent purchase finance, leasing finance, insurance or acquisition of securities issued by anybody corporate;
- Issue preferred stock, debentures or the other certificate of indebtedness by any name or in any kind whatsoever;
- Open any accounting with its members;
- acquire another company by purchase of securities or management the composition of the Board of administrators of the other company in any manner any or enter into any arrangement for the modification of its management, unless it’s passed a special resolution in its general meeting and conjointly obtained the previous approval of the Regional Director having jurisdiction over such Nidhi.
- Keep it up any business aside from the business of borrowing or disposition in its own name. Nidhi that have adhered to all or any the provisions of those rules could give locker facilities on rent to its members subject to the financial income from such facilities not extraordinary twenty per cent of the gross income of the Nidhi at any purpose of your time throughout a fiscal year.
- Settle for deposits from or lend to anyone, aside from its members;
- Pledge any of the assets lodged by its members as security;
Nidhi Company is governed by Nidhi Rules, 2014. Nidhi companies are incorporated in the nature of Limited company and hence,
They have to comply with two set of norms, one of Public limited company as per Companies Act, 2013 and another is for Nidhi Rules, 2014.
No RBI approval is necessary to register the Nidhi Company. RBI has specifically exempted this category of NBFC in India to comply with its core provisions such as registration with RBI etc.