Nidhi Companies in India are created for cultivating the habit of thrift and savings amongst its members. Nidhi companies are allowed to borrow from its members and lend to its members. Therefore, the funds contributed to a Nidhi company are only from its members (shareholders). Hence, Nidhi companies are mainly used to cultivate a habit of savings amongst a group of people.
Basics of Nidhi Company
Nidhi Companies are registered Limited Companies involved in taking deposits and lending to its members
The activity of a Nidhi Company does fall under the purview of Reserve Bank of India, as it is similar to a NBFC
However, as Nidhi Companies ONLY deal with its shareholder-members money, RBI has exempted Nidhi Companies from the core provisions of the RBI and other regulations applicable to a NBFC
Restrictions on Nidhi Company
Restrictions a Nidhi Company is subject to under Nidhi Rules, 2014. As per Rule 6 of Nidhi Rules, 2014, a Nidhi Company shall NOT:
Carry on the business of chit fund, hire purchase finance, leasing finance, insurance or acquisition of securities issued by anybody corporate.
Issue preference shares, debentures or any other debt instrument by any name or in any form whatsoever.
Open any current account with its members.
Acquire another company by purchase of securities or control 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.
Carry on any business other than the business of borrowing or lending in its own name.
Provided that Nidhis which have adhered to all the provisions of these rules may provide locker facilities on rent to its members subject to the rental income from such facilities not exceeding twenty per cent of the gross income of the Nidhi at any point of time during a financial year.
Accept deposits from or lend to any person, other than its members.
Pledge any of the assets lodged by its members as security.
Take deposits from or lend money to anybody corporate.
Enter into any partnership arrangement in its borrowing or lending activities.
Issue or cause to be issued any advertisement in any form for soliciting deposit: Provided that private circulation of the details of fixed deposit Schemes among the members of the Nidhi carrying the words “for private circulation to members only” shall not be considered to be an advertisement for soliciting deposits.
Pay any brokerage or incentive for mobilizing deposits from members or for deployment of funds or for granting loans.
PAN of all the members
Aadhaar Card of all the members
Valid Residential proof of all the members via Bank Statement, Driving License, Aadhaar Card, Utility Bill and Passport