Amendment rules of Nidhi, 2022

MCA NOTIFIES NIDHI AMENDMENT RULES, 2022

Under the Companies Act, 1956, a Nidhi or Mutual Beneﬁt Society meant a company which the Central Government declared as Nidhi or Mutual Beneﬁt Society by notiﬁcation in the oﬃcial gazette. Under the Companies Act, 2013, initially there was no need for a company to get declaration from Central Government to function as a Nidhi Company. Such companies were required to only incorporate as a Nidhi and meet requirements under sub-rule (1) of rule 5 of Nidhi Rules viz., minimum membership of 200, Net Owned Fund (NoF) of Rs. 10 lakh, NOF to deposit ratio of 1:20 and keeping 10% unencumbered deposits in schedule commercial banks or post offices within one year of commencement of Nidhi Rules, 2014.

A committee was constituted in the Ministry to make recommendations on the issues arising from the implementation of the Companies Act, 2013 etc. and it was, inter-alia, felt that the earlier provisions under the Companies Act, 1956 requiring the approval of the Central Government for declaration as Nidhi were appropriate since they provided a centralized and more restrictive frame work for regulation of such entities and accordingly section 406 of the Companies Act, 2013 was amended with eﬀect from 15.08.2019 to bring back the requirement of declaration as a Nidhi by the Central Government.

After the amendment in the Companies Act, 2013 w.e.f. 15.08.2019 and resultant amendments in Nidhi Rules, 2014 w.e.f. 15.08.2019, companies incorporated as Nidhis were required to apply to the Central Government in Form NDH-4 for declaration within 14 months of incorporation, if they were incorporated after the commencement of the Nidhi (Amendment) Rules w.e.f 15.08.2019 and within 09 months of commencement of the Nidhi (Amendment) Rules w.e.f 15.08.2019, if they were incorporated as Nidhis after 2014 but prior to 15.08.2019.

Under the Companies Act, 1956, about 390 companies were declared as Nidhi companies only. During 2014-2019, more than ten thousand companies get incorporated. However, only about 2,300 companies have applied in form NDH-4 for declaration. It has been noticed from examination of form NDH-4 that companies have not been complying with the applicable provisions of the Act and the Nidhi Rules, 2014 (as amended).

To safeguard the interest of general public, it has become imperative that before becoming its member, one must ensure declaration of a company as a Nidhi by the Central Government and towards this, few necessary/important amendments in the Rules have been carried out which are applicable to the Companies to be incorporated after Nidhi (amendment) Rule, 2022, as under:-

i. A Public Company incorporated as a Nidhi with a share capital of Rs. 10 lakhs; needs to first get itself declared as a Nidhi from the Central Government by applying in form NDH-4 with a minimum membership of 200 and NOF of Rs. 20 lac within 120 days of its incorporation.
ii. The Promoters and Directors of the company have to meet the criteria of fit and proper person as laid down in the rules.

iii. For timely disposal, it has also been provided in amended Rules that in case no decision is conveyed by the Central Government within 45 days of the receipt of applications filed by companies in form NDH-4, approval would be deemed as granted. This would apply for such companies which shall be incorporated after Nidhi (Amendment) Rules, 2022.

In exercise of the powers conferred by sub-section (1) of section 406 read with sub-sections (1) and (2) of section 469 of the Companies Act, 2013 (18 of 2013), the Central Government hereby makes the following rules, further to amend the Nidhi Rules, 2014, namely:-

1. Short title and commencement.– (1) These rules may be called the Nidhi (Amendment) Rules, 2022.

(2) They shall come into force on the date of their publication in the Official Gazette. 2. In the Nidhi rules, 2014 (hereinafter referred to as the said rules), in rule 3, in sub-rule (1), after clause (a), the following clause shall be inserted, namely:-

“(aa) „Branch‟ means a place other than the registered office of Nidhi”,

3. (1) In rule 3A of the said rules, after the third proviso, the following provisos shall be inserted, namely:-

“Provided also that no company, which has not complied with the requirements of this rule, or fails to comply with such requirement on or after the commencement of the Nidhi (Amendment) Rules, 2022, or in case the application submitted by the company in Form NDH-4 is or has been rejected by the Central Government, shall raise any deposit from its members or provide any loan to its members under the provisions of these rules from the date of such non-compliance, or from the date of the commencement of the above said rules, or the date of rejection of the application in Form NDH-4, whichever is later.

Provided also that if any deposit raised by a company after the date of non-compliance, or the date of commencement of the above said rules, or the date of rejection of the application in Form NDH-4, whichever is later as referred to in the fourth proviso shall be deemed to have been raised in pursuance of Chapter V of the Act, and shall be subject to all the requirements under that Chapter, or under any other provisions of the Act or the rules made thereunder, as the case may be. Provided also that nothing in this rule shall apply to companies incorporated as Nidhi on or after the commencement of the above said rules.” (3)(2) After rule 3A, of the said rules, the following rule shall be inserted, namely:- “

3B. (1) On and after commencement of Nidhi (Amendment) Rules, 2022, public company desirous to be declared as a Nidhi shall apply, in Form NDH-4, within a period of one hundred twenty days of its incorporation for declaration as Nidhi, if it fulfils the following conditions, namely:-

(I) it has not less than two hundred members; and

(II) it has Net Owned Funds of twenty lakh rupees or more.

(2) The company shall also attach, along with Form NDH-4, the declaration with regard to fulfilment of fit and proper person criteria, as per this sub-rule, by all the promoters and directors of the company.

(3) For the purpose of determining as to whether any promoter or director is a „fit and proper person‟, the following shall be taken into account, namely:-

(a) integrity, honesty, ethical behaviour, reputation, fairness and character of the person; and

(b) the person not incurring any of the following disqualifications, namely:-

(i) criminal complaint or information under section 154 of the Code of Criminal Procedure, 1973 (2 of 1974) has been filed by a person authorised by the Central Government against such person and which is pending;

(ii) charge sheet has been filed against such person by any enforcement agency in matters concerning economic offences which is pending;

(iii) an order of restraint, prohibition or debarment has been passed against such person by any regulatory authority or enforcement agency in any matter concerning company law, securities laws or financial markets which is in force;

(iv) an order of conviction has been passed against such person by a court for any offence involving moral turpitude;

(v) such person has been declared insolvent and not been discharged;

(vi) such person has been found to be of unsound mind by a court of competent jurisdiction and the finding is in force;

(vii) such person has been categorised as a willful defaulter;

(viii) such person has been declared a fugitive economic offender;

(ix) such person is a director in five or more companies incorporated or declared as Nidhi, or is a promoter of three or more companies incorporated or declared as Nidhi.

(4) The Central Government, shall examine the application filed in Form NDH-4 and convey its decision within a period of forty five days to the company: Provided that in case a decision on an application filed in form NDH-4 is not taken by the Central Government within the aforesaid period of receipt of such application, the same shall be deemed as approved.

(5) On being satisfied that the company meets the requirements under sub- rules (2) and (3), the Central Government, shall notify in the Official Gazette, declaring it as a Nidhi or Mutual Benefit Society, as the case may be: Provided that the decision of the Central Government approving the application, shall be filed by the company with the Registrar alongwith Form 20A required under section 10A of the Act:

Provided that the decision of the Central Government approving the application, shall be filed by the company with the Registrar alongwith Form 20A required under section 10A of the Act: Provided further that such company shall commence its business only once the decision of the Central Government approving its application is obtained from the Central Government pursuant to the declaration given under rule 12 of the Companies (Incorporation) Rules, 2014.

(6) In case a company does not comply with the requirements of sub- rule (1) of this rule, it shall not be allowed to file Form No. SH-7 (Notice to Registrar of any alteration of share capital) and Form PAS-3 (Return of allotment).

(7) The provisions of this rule shall not be applicable to a public company incorporated under the Act before the date of commencement of the Nidhi (Amendment) Rules, 2022.

In rule 4 of the said rules, in sub-rule (1), –

(a) for the words “five lakh rupees”, the words “ten lakh rupees” shall be substituted;

(b) the following proviso shall be inserted, namely:- “Provided that every Nidhi existing as on the date of commencement of the Nidhi Amendment Rules,2022, shall comply with this requirement within a period of eighteen months from the date of such commencement”