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Regulations and Restrictions for Nidhi Companies:

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” means a company which has been incorporated as a Nidhi with the object of cultivating the habit of thrift and savings amongst its members, receiving deposits from, and lending to, its members only, for their mutual benefit, and which complies with such rules as are prescribed by the Central Government for regulation of such class of companies.[Section 406]


According to Rule 4 of Nidhi Rules, 2014; a Nidhi Company shall be a public company and must have a minimum paid up equity share capital of five lakh rupees. The Nidhi Company shall have only one object in its memorandum that is of cultivating the habit of thrift and savings amongst its members, receiving deposits from, and lending to, its members only, for their mutual benefit. Every Company incorporated as a “Nidhi” shall have the last words ‘Nidhi Limited’ as part of its name.


Rule 5 say, every Nidhi shall, within a period of one year from the commencement of these rules, ensure that it has:


(a) Not less than two hundred members.


(b) Net Owned Funds of ten lakh rupees or more.


(c) Unencumbered Term Deposits of not less than ten per cent of the outstanding deposits.


(d) Ratio of Net Owned Funds to deposits of not more than 1:20.

The process of incorporation of a Nidhi company is same as of incorporation of a public company limited by


 Loans & Directors

 Relevant rules in the Nidhi Rules, 2014 as under:-


  • A Nidhi shall provide loans only to its members.
  • For the purposes of sub-rule (2), the amount of deposits shall be calculated on the basis of the last audited annual financial statements.
  • A Nidhi shall give loans to its members only against the following securities, namely:-
    • Gold, Silver and Jewellery
    • Immovable Property
    • Fixed Deposit receipts, National Savings Certificates, other Government Securities and
    • Insurance Policies


  • The Director shall be a member of Nidhi.
  • The Director of a Nidhi shall hold office for a term up to ten consecutive years on the Board of Nidhi.
  • The Director shall be eligible for re-appointment only after the expiration of two years of ceasing to be a Director.
  • The person to be appointed as a Director shall comply with the requirements of subsection (4) of section 152 of the Act and shall not have been disqualified from appointment as provided in section 164 of the Act.


Branches of Nidhi Companies


A Nidhi Company has to satisfy certain criteria as provided by MCA to open branches which are as


  • Nidhi Company may open up to three branches within a revenue district if it has earned a profit for last three continuous years;
  • Nidhi Company may open beyond three branches outside the revenue district subject to above condition and prior permission of MCA; and
  • Nidhi Company can’t open branches or collection centres or offices or deposit centres, by whatever name called, outside the state of its Registered Office.


Non-Permissible activities for Nidhi Companies


Pursuant to Notifications GSR 555 (E) dated July 26, 2011 and GSR 308 (E) dated April 30, 2002, MCA directed Nidhi Companies to not carry out certain activities such as:-

(i) Carrying on the business of chit fund, hire purchase finance, leasing finance, insurance or acquisition of shares or debentures issued by any body corporate except the shares of another Nidhi Company, if specifically permitted by MCA;

(ii) Opening any new current account with its members;

(iii) Admitting as member, any body corporate or trust;

(iv) Issuing any equity share of nominal value less than rupees 10/- except in case of Nidhi Companies incorporated on and after July 26, 2001:

(v) Levying service charge for issue of shares to members;

(vi) Making any preferential allotment of shares to any persons or group of persons but shall make only rights issue of shares and the unsubscribed portion can be apportioned by the Board of Directors in terms of Section 81 of the Companies Act, 1956;

Provided that this restriction shall not apply to allotment of shares up to the face value of

Rs.100/- to new deposit holders or borrowers and in respect of qualification shares held by Directors.


(vii) Acquiring another company by purchase of shares or control of composition of Board of Directors otherwise than through amalgamation or merger under the Act and subject to the regulations applicable to Nidhi Companies in force;

(viii) Carrying on any business other than the business of borrowing or lending in its own name and allow use of its name by any other body corporate whose main object is to earn profit by borrowing and lending;

(ix) Entering into any financial dealing with any person other than its members;

(x) Pledging any type of security lodged with it by its members;

(xi) Taking further deposits from or lends further money to any body corporate;

(xii) Entering into any partnership arrangement in its borrowing or lending activities;

(xiii) Issuing or causing issuance of any advertisement in any form for soliciting deposit. However, Private circulation of the details of fixed deposit schemes among the members shall not be considered to be “advertisement” inviting deposits;

(xiv) Paying any brokerage or incentive for mobilizing deposits from members or for deployment of funds or for granting loans;

(xv) Issuing prepaid interest warrant; and

(xvi) Entering into any arrangement for the change of its management without a special resolution passed in its general meeting and approval of MCA.

Nidhi Company Governing Law


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.