What is a Nidhi Company?
A Nidhi Company is, in fact, a Non-Banking Financial Company as defined in sec 2(1)(c) Clause 46 of the companies Act of 2013. Its main function is to save and promote the members’ monetary funds by taking deposits and offering loans only to its members. Also, known as Permanent Funds, Benefit Funds, Mutual Benefit Funds, or Mutual Benefit Companies, Nidhi Companies operate based on the hypothesis of mutual benefit.
Key Features of Nidhi Companies
- Public Company Status:
Nidhi Companies can be formed only by way of registering as a public company. - Minimum Capital Requirement:
Where they must have a minimum paid-up equity share capital of Five lakh of Indian Rupees. - Membership Criteria:
A Nidhi Company must obtain a minimum of 200 members within one year of incorporation. - Net Owned Funds:
Net owned funds cannot be less than 10 lakhs Indian Rupees. - Unencumbered Term Deposits:
To provide appropriate securities, these companies must have unencumbered term deposits not less than 10 percent of their total deposit outstanding. - Naming Rules:
This name must be ended with “Nidhi Limited”.
Nidhi Companies and the UPSC Examination
Nidhi Companies are important for the aspirants preparing for the UPSC Exam to understand the background and importance of the same. They seem to embody an essential component of the current and future socio-economic financial reforms in India. UPSC questions may pertain to legal provisions governing NBFCs, purpose or distinguishing features of NBFCs including UPCS.
Is a Nidhi Company Under RBI?
In fact, Nidhi Company falling under the NBFC, but Nidhi companies regulated by the Ministry of corporate affairs not by Reserve bank of India. These are not governed by the core provisions of the RBI Act because their operations are highly circumscribed—they are able only to undertake transactions with their members.
Who is Eligible for a Nidhi Company?
- Membership:
Unlike other companies, only individuals are legally capable of becoming members of the Nidhi Company. Organizations or corporate bodies are excluded. - Minimum Members for Incorporation:
There must be at least seven members at the time of incorporation of a Nidhi Company, out of which three are directors.
Regulatory Framework for Nidhi Companies
- Ministry of Corporate Affairs (MCA):
Nidhi Companies are mainly governed by the provisions of the Ministry of Corporate Affairs. - Operational Restrictions:
- Lending and Borrowing: Restricted to members only.
- Partnerships and Advertisements: Unable to form partnerships, and banned from advertising to the public for deposits.
- Brokerage: Forbids the payment of incentives for mobilization of deposits.
- Business Limitations:
- Is prohibited from acquiring a company or managing its Board of Directors without special resolution and approval of the Regional Director.
- Debarred from the businesses related to chit funds, hire purchase, leasing finance or insurance business.
- Locker Facilities:
Again, as allowed, income from rentals of locker facilities may not be more than 20% of the total income of the Nidhi.
Conclusion
The concept of Nidhi Companies is a sound financial model for creating collective benefits and reciprocal advantage of its members with compliance of all legal provisions. Knowledge of their frameworks, processes as well as the shortcomings characterizing them are important to people in the fields of finance, law and governance. It is therefore useful for any person, be it one in business, a student, a UPSC aspirant, to have a healthy understanding of Nidhi Companies in the overall structure of financial and regulatory systems in India.