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HomeUncategorizedManaging a Nidhi Companies becomes more Cumbersome

Managing a Nidhi Companies becomes more Cumbersome

Team TaxReturnWala

Nidhi Companies in India provides a decent opportunity for investors and borrowers to create an entity to operate business as a non-banking finance company. It opted to create an entity that could lend its members for their mutual benefit. Being fortunate, these entities with minimal disclosure requirements and compliances, made to use their entity structure to lend to people outside their business or used it for mobilizing funds to other corporates.

It was easy for a few members to constitute a Nidhi Company to divert funds or to operate a business outside the purview of regulatory oversight of the Ministry as there were the least restrictions and disclosures mandated on these companies for their investments, deposits, and state of members.

To address these issues and to introduce a stricter compliance mechanism for these entities, Government has now implemented changes in their statutory forms through the Nidhi (Amendment) Rules, 2023 which requires more disclosures from these entities on their fund disposal, the composition of members, and usage of funds.

New Compliance Norms for Nidhi Companies 

By proposing amendments through forms NDH-1, NDH-2, NDH-3, and NDH-4, Government made certain documents, disclosures, and certifications mandatory for these entities to be filed annually or on a compulsion basis which was earlier considered optional.

Form NDH – 1 (Return of Statutory Compliances )

The Form is now to be filed by Nidhi Companies before the expiry of 90 days period from the end of the first or second financial year from the date of incorporation.

  • The form requires a breakup of deposits with banks and other financial institutions which was earlier an optional disclosure to make along with PAN, residential proof of company members.
  • An Applicant is required to fill in the details regarding members and financials of the company
  • The ratio of net owned funds to deposits and whether the ratio at the closure of the financial year is not less than 1:20.
  • Late fees will be charged in case of delay in filing based on the period of delays as up to 30 days – 2x the normal fees and so on.
  • To be certified by a Chartered Accountant / Cost Accountant or a Company Secretary in practice.

Form NDH – 2 (Application to Regional Director and Intimation to the Registrar 

Form to be filed with the Regional Director for an extension in time or to the Registrar for intimating closure of a branch, or collection center or to withdraw unencumbered deposits as per Rule 14. It is governed by Rule 5(3), Rule 6(d), Rule 10(3), Rule 10 (6)(a) and Rule 14 of the Nidhi Rules ,2014 .

  • It is mandatory to be filed before the expiry of 30 days from the date of the end of the financial year. The extension from the Regional director can be granted for a year and prescribed fees are also to be deposited.
  • Requires disclosure about net owned funds, profits of the company, details of branches and collection centers, details of members and board resolution passed if any.
  • The form must be certified by a Chartered Accountant / Cost Accountant or a Company Secretary in practice.

Form NDH – 3 ( Return of Half-Year Ended ) 

The Form is to be filed following the mandate of filing half-yearly returns of the company as notified under Rue 21 of the Nidhi Rules, 2014. To be filed with the Registrar before the expiry of 30 days from the closure of each half year. The following details are required to be given-

  • Details of members, profits, deposits, and loans, financials of the company like paid-up capital, reserves, intangible assets, and net owned funds.
  • Details of litigations pending against the company
  • The form must be certified by a Chartered Accountant / Cost Accountant or a Company Secretary in practice.

NDH – 4 ( For applying for recognition as Nidhi Company and Updation of Status as Nidhis )

All Nidhi Companies which have been incorporated either before or after the commencement of Nidhi (Amendment) Rules 2019 are required to file Form NDH-4. It is governed by Section 406 of the Companies Act, 2013.

  • Details about members, deposits, branches, and financials of the company are to be given.
  • Attach a copy of the Notification for declaration of the company as Nidhi company and a certificate in relation to the number of members added, which should not be less than 200, to be signed by at least 2 directors.
  • Attach a copy of the resolution passed and details of deposits of the company and its members.

By adding strict disclosure norms through the above forms, the Government made it mandatory for Nidhi Companies to follow regulations and work in compliance with the Nidhi Rules, 2014. The provided norms will surely add more administrative challenges for these entities along with adding more compliance costs and reporting requirements for these companies.

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