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All About Nidhi Companies in India

Article by Drishti Saigal.


With the state of economy, it is the center and lower socio-economic class that have to bear the monetary burden.

In such a scenario the ordinary man’s bread and butter is affected as most investments cater to larger amounts. Even the savings in the bank give very little scope for growth. Nidhi companies in India give the simplest and handiest solutions for investment and savings with a wider potential scope for financial growth.

This is why these businesses are a great business opportunity at this point of time!

Nidhi companies are recognized under section 406 and incorporated as public companies under 620A of companies Act,1956. It is a type of Indian non-banking finance sector (NBFC) for the purpose of lending and borrowing with its members. 

They are governed by Nidhi Rules,2014 and are incorporated in the nature  of a limited company and hence they have to comply with two sets of norms of:
  1. Public Limited Company as per Companies Act, 2013
  2. Nidhi Rules, 2014
According to section 406 of the Companies Act, 2013 “NIDHI” means-
  • A company which has been incorporated as Nidhi with the object of cultivating the habit of thrift and savings amongst its members.
  • Receives deposits from and lends to its members only for their mutual benefit.
  • And complies with such rules as prescribed by central government for regulation of such class of companies.
Its investment structure consists of realigning funds within a growing group of members who benefit from returns at fixed durations.



In the Indian context it means treasure. However, in the Indian financial sector it refers to any mutual benefit society notified by the Central / Union government as a Nidhi company.

NIDHI company is one of the categories of NBFC; that is, it is the cheapest and easiest form of NBFC as well.

Beginning of a Nidhi company is useful for long run gains attributable to the character of investments and procedures. Once your business grows well, you can always convert to a fully fledged Non-Banking Financial company.

RBI GUIDELINES -The Reserve bank of India is empowered to issue directions to Nidhi companies in             matters relating to their deposit acceptance activities. RBI has also exempted Nidhi companies from the core provisions or regulations applicable on NBFC (Non-banking finance sector). No RBI approval is necessary to register a Nidhi company.


These rules shall thus be applicable to every company which has been declared as a Nidhi or a Mutual benefit society under 620A(1) of the Companies Act and the nature of these types of companies have been explained below:-

Nature of Nidhi Companies

Features of nidhi company
  • A Nidhi company is incorporated as a public company as per section 406 of the Companies Act, 2013.


  • You must have a minimum paid up equity share capital of Rs 5,00,000.


  • You should have a minimum of three directors and seven members at the time of application for registration.


  • You cannot issue preference shares; you can only issue right shares.


  • If you had already issued preference shares before the commencement of this Act then such preference shares are to be redeemed in accordance with the terms of issue of such shares.


  • You are not allowed to issue new preference shares at any time.


  • You can issue equity shares of a minimum value of Rs 10.


  • You are not liable for any service charges as no service charges shall be levied for issue of shares.


  • However, the savings account holder and a recurring deposit holder shall hold at least one equity share of rupees 10.


  • You should not exercise above 10% of the total voting rights.


  • You should have “NIDHI LIMITED” as a part of your name.


  • You need to  ensure within one year from the commencement that you have:
  1. Not less than 200 members
  2. Net owned funds of 10 lakh rupees or more
  3. Ratio of Net owned funds to deposits of not more than 1:20(i.e you can accept maximum deposits around 20 times of your net owned funds)
  4. Unencumbered term deposits of not less than 10% of the outstanding deposits as specified in Nidhi rule, 14.
  5. If you do not comply with point 1 and 3 above then you can apply for extension of time within 30 days to ROC in form NDH-2.


  • You need to file a Return of annual compliances in the form NDH-1 within 90 days from the close of the first year.


  • You cannot issue debentures or any other debt instrument in any form whatsoever.


  • You cannot open any current account with your members.


  • You cannot do any business of chit fund, hire purchase finance, leasing, finance, insurance or acquisition of securities issued by anybody corporate.


  • You cannot acquire another company by the purchase of securities , control the composition of the Board of directors of any other company in any manner or enter into any agreement for the change of its management -
unless you have passed a special resolution in the general meeting and you have also obtained the previous approval of the regional director having the appropriate jurisdiction.
  • You cannot accept deposits from or lend to any person other than your members.


  • You cannot pledge any of the assets lodged by your members as a security.


  • You cannot take deposits from or lend money to any Body corporate.


  • You cannot enter into partnership agreements for the borrowing and lending activities.


  • You cannot issue any advertisement in any form for soliciting deposit.


  • You cannot pay any brokerage or incentive for mobilizing deposits from members or for deployment of funds or for granting loans.


  • You cannot admit a body corporate or a trust as a member.


  • You cannot admit a minor as a member of a Nidhi. However investments for minors can be done when the legal guardian is the member of a Nidhi.


  • Nidhi companies are also known as Permanent fund, Benefit funds, Mutual Benefit Funds and Mutual Benefit company.


  • Nidhi companies are regulated by Ministry of corporate Affairs.(MCA)


  • You shall provide loans only to your members.


  • You can give loans to your members only against the below mentioned securities:
  1. Gold, silver and jewellery
  2. Insurance policies
  3. Immovable property
  4. Fixed deposit receipts, national savings certificates and other government securities
  • The rate of interest to be charged on any loan given by you shall not exceed seven and half percent above the highest rate of interest offered on deposits by Nidhi.


  • You can use the loans for personal uses like house repairing, a wedding in the family, etc.


  • You can accept various types of deposits i.e, recurring deposits, fixed deposits etc.


  • You can accept fixed deposits for a minimum period of six months and a maximum period of sixty months.


  • You can accept recurring deposits for a minimum period of twelve months and a maximum period of sixty months.


  • The maximum balance in a savings deposit account at any given time qualifying for interest shall not exceed one lakh rupees at any point of time and the rate of interest shall not exceed two percent above the rate of interest payable on savings bank account by nationalized banks.


  • You can offer interest on fixed and recurring deposits at a rate not exceeding the maximum rate of interest which is prescribed by the Reserve Bank of India which the NBFCs can pay on their public deposits.

Directors of a Nidhi Company

All You Need to Know about Directors of Nidhi Companies

The director shall be a member of a Nidhi company. The director of a Nidhi company shall hold the office for a term up to ten consecutive years on the Board of Nidhi and the director shall be eligible for reappointment only after the expiration of 2 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 Companies Act. Also, the person to be appointed as a director must not have been disqualified from the appointment as provided in section 164 of the Act.


Declaration of Dividend

You can not declare dividend exceeding 25% or such higher amount as may be specifically approved by the Regional Director for reasons to be recorded in writing.
This is further subject to the following conditions:
  1. An equal amount is transferred to General Reserve.
  2. That there has been no default in repayment of matured deposits and Interest.
  3. Also the rules applicable to Nidhi have been complied with.

Branches of a Nidhi Company

You can open branches only if you have earned Net profits after tax (NPAT) continuously during 3 preceding financial years.

You can open up to three branches within your district. However, you need to obtain the prior permission of the Regional Director for opening more than 3 branches.

You cannot open such branches, collection centers or by whatever name it is called outside the state where its registered office is situated unless the financial statements and annual returns are filed with the Registrar.

You cannot close any branch unless you publish an advertisement in the newspaper and fix a copy of such a advertisement or a notice informing such closure of the branch on the notice board of Nidhi for a period of at least 30 days and intimate the ROC (Registrar of companies).

Appointment of an Auditor

  1. You can not appoint or re-appoint an individual as auditor for more than one term of five consecutive years. Further, you shall not appoint or re-appoint an Audit firm as an Auditor for more than two terms of five consecutive years. Provided, that an Individual Auditor or the Auditor of an Audit firm shall be eligible for subsequent appointment after the expiration of two years from the completion of its term.
  2. The Auditor shall furnish a certificate which is also known as the Auditor’s Certificate every year to the effect that the company has complied with all the provisions contained in the Nidhi Rules, 2014. Such a certificate shall be annexed to the Audit report and in case of non-compliance of any Rule, the Rules which have not been complied with shall be specifically stated.

Other Compliances to be Followed by a Nidhi Company

  1. Every company covered under the rule 2 of Nidhi Rules,2014 shall file a half yearly return with the Registrar in Form NDH-3 within thirty days from the conclusion of each half year duly certified by a company secretary in practice or cost accountant in practice.


  1. You have to file Form NDH-4 within sixty days from the date of expiry of:


  • One year from the date of its incorporation
  • The period up to which extension of time has been granted by the Regional Director.


  1. The registrar of companies may call for such information or returns for the purpose of enforcing compliances from the Nidhi company as it is deemed necessary and may engage the services of Chartered Accountants, Company Secretaries in practice, cost accountants, or any firm thereof from time to time for assisting in the discharge of the duties.

Advantages of a Nidhi company

  1. Nidhi companies promote savings among the middle and the lower middle class people.


  1. Nidhi companies accept term deposits.


  1. Nidhi companies are an easy source of loan to the members of a Nidhi company and the loans are sanctioned with minimum documentation.


  1. They provide one of the secured means of documentation.


  1. They guarantee secured investments by virtue of rigid membership structure.


  1. They provide secured loans which are obtainable at rather affordable rates for purposes like house construction or repairs.


  1. Nidhi companies also accept collateral in variety of jewels or mortgage of property.


  1. The registration of Nidhi companies is simple and less complex as compared to other types of finance companies like NBFC which require RBI license to start.


  1. Nidhi companies are separate legal entity and the directors of a Nidhi company have zero liability to the creditors of a Nidhi company.


  1. A Nidhi company has ‘perpetual succession’ i.e, it is unaffected by the death of any member.


  1. It enjoys higher credibility compared to Mutual profit organizations.

Procedure of Incorporation or Registration of a Nidhi company

How You Can Incorporate or Register Your Nidhi Company in India

NIDHI companies are incorporated as public companies and hence all the prerequisites of a public company will be applicable to a NIDHI company.


Related Read: How You Can Start a Private Limited or a One Person Company: An Easy and In-Depth Guide


Now, before I begin, here is the link to the forms of MCA which you need during the registration of a Nidhi company.

First, you need to obtain a DSC (Digital Signature Certificate) and the directors need to obtain a DIN (Director’s Identification Number).
  • DSC is required for the registration of the company and other applications with the Ministry of Corporate affairs.
  • It is issued by the Certifying Authority and it is valid for 1 or 2 years.
  • The shareholders are required to file e-MOA and e-AOA by affixing DSC’s.
  • The documents required for obtaining a Digital Signature Certificate are given below-
  1. Passport size photo of the Applicant.
  2. Self attested Address proof and PAN card of the applicant.

The next step is to apply for the DIN (Director’s Identification number) which is a Unique Identification Number for the Director which is issued by the Ministry of Corporate Affairs. It is mandatory to have a DIN to be appointed as a director in the company and the same can be used for appointment in any other company or for appointment as a designated partner in a LLP.


  1. For Existing Companies
  • You have to file DIN 3 with Identity proofs (PAN, Aadhaar card, Address proof)


  1. Post January 2018
  • Now, DIN can be applied within SPICe form (INC-32) for up to 3 directors.
  • If the applicant wants to incorporate with more than 3 Directors and more than 3 persons don’t have a DIN, then in such a situation applicant has to incorporate the company with 3 directors and later on after incorporation he can appoint new directors.

Section 7 of the Companies Act, 2013 lays down the procedure for the incorporation of a company. A minimum of seven persons can incorporate a company, with or without a limited liability to form a public limited company and the guidelines will also be applicable to a Nidhi company.

The guidelines are as follows:-


Guidelines to be followed by Nidhi Companies
Lots of Guidelines down below!
  1. You need to subscribe your name to the Memorandum and Article of Association of the proposed company and submit an application to the ROC (Registrar of Companies) of the state in which the registered office of the company is to be situated.

  1. You are required to fill an e-form INC 1 with the Ministry of corporate affairs to check availability of name. It should end with suffix “Nidhi Ltd”. You can make a fresh application in case the proposed name is rejected.

Till now, an applicant could seek reservation of name for a proposed company or an existing company could change the company name by submitting an application to ROC by filing e-form INC-1.

This can now be done in two ways:


  1. A company can be incorporated via RUN (Reserve Unique name) form. It only gives one chance for applying and in case of rejection of the name due to any similarity of the name with a registered company, LLP, Trademark or due to non-adherence of companies rules there are no second chances.

In case of rejection an applicant has to file another RUN form with prescribed fees. DSC and DIN is not required for filing a RUN form; only a MCA account is mandatory.

However, with effect from March 23, 2018, Ministry has decided to permit two proposed Names and one re-submission (RSUB) while reserving Unique Names for the Companies.


  1. You can apply for a proposed name via SPICe (Simplified Proforma for Incorporating Company Electronically) through INC-32 but only one name can be applied through this which is similar to the provision of RUN.

In case of a rejection you will get another chance to fill the same without any further charges of RS 1000/-.

If you do not get a approval even on the second time then you can file it again which is cheaper than the RUN form. The whole process including name approval and Incorporation of the company takes around 2-3 days.

There is no ROC fees upto Rupees 10 lakh of authorized capital for Incorporation of company. The SPICe serves the purpose of Application for allotment of DIN, Reservation of company name, Incorporation of a new company, Application for PAN AND TAN.


  1. The promoters are required to file the e-memorandum of association in form no-INC-33 which includes-


  • Name clause stating the name of the company. The name of the company shall not be similar to any king, queen or any existing company without their permission. It must be registered with 3 alternative names from which ROC will select any one name.


  • Object clause stating the object of carrying on business activity and the business activities that shall be undertaken by the company which is divided in two types - Main object and Ancillary object.


  • Registered office clause stating the office where main business activity or business shall be carried out. It must be registered with ROC through form INC-22 and it shall also disclose information regarding branches if any. However, INC-22 has now been merged in INC-32.


  • Capital clause mentioning about the paid up capital of the company.


  • Liability clause disclosing the liability structure of the company which may be limited or unlimited. However, generally the liability of the member is limited i.e. only up to unpaid call amount.


  • Any information mentioning promoters/directors of the company.


  1. Article of association shall mention about the directors of the company and how they shall carry out the affairs of the company. It provides for the internal management of the company. It is considered as bye-laws of the company and contains set of rules and regulations or terms and conditions through which the company is run. You have to submit this in INC- 34.


  1. You should submit Memorandum and articles of the company duly signed by the subscribers in the prescribed manner.


  1. You should submit an affidavit by all the subscribers to the memorandum and from persons named in the articles as the first directors that they have not been convicted in any offence related to promotion, formation or management of any company and they should not be guilty of any fraud or misfeasance or of any breach of duty relating to any company under the Act or under any previous Companies Act during the last five years.


  1. An affidavit should be submitted by all the persons above that all the documents filed with the ROC for registration of the company contain information that is correct and complete and true to the best of his/her knowledge and belief.


  1. A declaration should be submitted that all the requirements of the Act and the rules made have been complied with in respect of the registration of the company. A declaration should be signed by-


  • An advocate of the Supreme Court or of a High court or an attorney or pleader entitled to appear before a high court.
  • Or a practicing secretary or chartered accountant.
  • Or a person named in articles as a director or manager.
  • Or the company secretary of the company.


  1. You should submit the address for correspondence until the registered office of      the company is established along with the full name, residential address, nationality and other details of every subscriber to the memorandum with proof of identity.


  1. You should submit the particulars of the persons mentioned in the articles as the first director of the company. (Full name, residential address, nationality, Director Identification number etc)


  1. You should submit the particulars of the Interests of the persons named as the first directors of the company in other firms or bodies corporate along with their consent to act as directors of the company.


  1. Any agreement regarding the appointment of directors is to be enclosed.


  1. You should submit statutory declaration of compliance in Form I under section 4 and 5.


  1. You should also submit power of attorney to correct Memorandum of association and articles of association.


  1. You should submit the original letter approving the name of the company.


  1. The required stamp duty prescribed by the stamp Act is to be paid on “Memorandum of Association” and “Articles of association”.


  1. The Registration fees for the form I and also the Memorandum and Article of association is required to be paid. Thus, Form 1 is filed declaring the compliance to the legal requirements prescribed by the Act.(Now can be done through SPICe or RUN)


  1. The above documents have to be filed along with required filing fees by demand draft in favour of the Registrar.


  1. If the registrar is satisfied and the conditions regarding the registration are fulfilled, Certificate of Incorporation/ commencement and Corporate Identity Number (CIN) shall be issued after the system auto-generates the PAN and TAN forms which have to be affixed with digital signature. These forms have to be uploaded on MCA Portal. The CIN can also be tracked online on MCA portal.


  1. In order to get a certificate of incorporation, first you need to fill out all the details in the incorporation form of SPICe OR RUN. Later the PAN (Permanent Account number) and TAN (Tax deduction and collection Account number) of the company will be issued after the application is done for the same in form 49A for PAN and form 49B for TAN. This procedure will guide you on how to get a Certificate of Incorporation issued by the Income tax department and the e-forms to be uploaded can be downloaded from the link


  1. The total cost of registering a Nidhi company is approximately 50 to 55 thousand including professional fees and GST.


  1. Post the registration of a Nidhi company you have to open a bank account and as per the Nidhi Rules you should you should deposit the capital amount within 2 months from the date of Incorporation.


  1. You should also complete the other compliances like appointing an Auditor, raising the number of members to 200 and printing all the Nidhi forms.

Conclusion

However, I would like to conclude by saying that there are about 333 Nidhi companies in India which are duly approved by the Central Government under section 620A of the Companies Act, 1956.

This has led to the formation of a NIDHI software that can digitize your business forms and make your association more successful and responsive. It can spare you time and cash and it can also decrease the hours expected to perform such task.

If you want to hire a lawyer to help you start this off this business, read how to create a power of attorney first.


Read Next:
Drishti Saigal is a Bachelor of Laws - LLB student at Svkm's Jitendra Chauhan College, Mumbai. Connect with her on LinkedIn.

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