Nidhi Company is a company registered under Companies Act and notified as a Nidhi company by Central Government under Section 406 of the Companies Act,2013 (Section 620A of Companies Act, 1956). It is a non-banking finance company doing the business of lending and borrowing with its members or shareholders.
Nidhi company is incorporated as Public Limited company under the companies act,2013. Nidhi Companies are monetary business companies operating in India and can be classified as Non Banking Financial Companies (NBFC) and Banking Companies. However, unlike NBFCs and Banking Companies a Nidhi company does not require a license from the Reserve Bank of India (RBI) to operate.
Regulatory Framework of Nidhi Companies:
- General restriction or prohibition on Nidhi Company:
There are certain restriction or prohibition on Nidhi Company imposed by the Nidhi Rules, 2014 and the same are mentioned below:
(a) No Nidhi company can carry on the business of chit fund, hire purchase finance, leasing finance, insurance or acquisition of securities issued by any body corporate;
(b) No issue of preference shares, debentures or any other debt instrument by any name or in any form whatsoever;
(c) Nidhi company cannot open any current account with its members;
(d) Nidhi company cannot 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;
Explanation.- For the purposes of this sub-rule, “control” shall have the same meaning assigned to it in clause (27) of section 2 of the Act;
(e) Nidhi Company shall not carry on any business other than the business of borrowing or lending in its own name.
- Rule for Directors of Nidhi Company
- The Director shall be a member of Nidhi.
2. The Director of a Nidhi shall hold office for a term up to ten consecutive years on the Board of Nidhi.
3. The Director shall be eligible for re-appointment only after the expiration of two years of ceasing to be a Director.
4. Where the tenure of any Director in any case had already been extended by the Central Government, it shall terminate on expiry of such extended tenure.
5. The person to be appointed as a Director shall comply with the requirements of sub-section (4) of section 152 of the Act and shall not have been disqualified from appointment as provided in section 164 of the Act.