As per section 406 of the Companies Act, 2013, “Nidhi” means a company which has been incorporated as a Nidhi with the object of cultivating the habit of thrift and savings amongst its members, receiving deposits from, and lending to, its members only, for their mutual benefit, and which complies with such rules as are prescribed by the Central Government for regulation of such class of companies.
Nidhis are now exempted from complying the provisions of specified sections as notified by the Ministry of Corporate Affairs (MCA) vide notification G.S.R. 465(E) dated 5th June, 2015. The said notification was issued by exercising the powers conferred by clauses (a) and (b) of sub-section (1) of section 462 read with section 406 of the Companies Act, 2013 (18 of 2013).
Accordingly, certain provisions of the Companies Act, 2013 (CA 2013) shall not apply or shall apply with such exceptions, modifications and adaptations to Nidhis.
Exemptions to Nidhi Companies
Service of documents to Nidhi Members [Section 20]:
As per the provisions of sub-section (2) of section 20 of the Companies Act, 2013, a document may be served on any member by sending it to him by post or by registered post or by speed post or by courier or by delivering at his office or address, or by such electronic or other mode as may be prescribed.
A member may request for delivery of any document through a particular mode, for which he shall pay such fees as may be determined by the company in its Annual General Meeting (AGM).
Now, the above provisions shall apply to Nidhis subject to modifications that the document may be served only on members who hold shares of more than ONE THOUSAND RUPEES in face value or more than ONE PER CENT of the total paid-up share capital of the Nidhis whichever is less.
For other shareholders of Nidhis, document may be served by a Public Notice in newspaper circulated in the district where the Registered Office of the Nidhi is situated and publication of the same on the notice board of the Nidhi.
Private Placement by Nidhi [Section 42]:
As per notification, the provisions of sub-section (2), explanation I to sub-section (2), sub-sections (3), (5) and (7) of section 42 of the Companies Act, 2013 shall not apply to Nidhi companies.
In other words, Nidhi companies are required to comply with the provisions of sub-section (1), explanation II to sub-section (2), sub-sections (4), (6), (8), (9) and (10) of section 42 of the Companies Act, 2013.
Therefore, the offer of securities or invitation to subscribe securities of a Nidhi company shall be made to any number of persons in a financial year. In other words, a Nidhi company is free to make private placement to any number of persons and it shall not be deemed to be an offer to the public. [As Section 42(2) and the explanation I thereof is not applicable to Nidhi]
Nidhis are free to make fresh offer or invitation under section 42 even if the allotments with respect to any offer or invitation made earlier have been completed or even that offer or invitation has been withdrawn or abandoned by the company. [As Section 42(3) is not applicable to Nidhi]
Nidhi Company may accept subscription money in cash as the provisions of sub-section (5) of section 42 is not applicable to Nidhi. However, other companies shall note that all monies payable towards subscription of securities shall be paid through either cheque or demand draft or other banking channels but not by cash.
Nidhi Company may offer the private placement to any person without recording their name and there is no need to file the complete information about such offer with the Registrar because sub-section (7) of section 42 of CA 2013 shall not apply to Nidhi.
Voting rights to Nidhi Members [Section 47]:
In accordance with the provisions of sub-section (1) of section 47 of the companies Act, 2013, every member of a company limited by shares and holding equity share capital therein, shall have a right to vote on every resolution placed before the company. His voting right on a poll shall be in proportion to his share in the paid-up equity share capital of the company.
However, no member of a Nidhi Company shall exercise voting rights on poll in excess of 5% of total voting rights of equity shareholders. Thus, every member of a Nidhi Company shall have a right to vote on every resolution placed before the company and his voting right on a poll shall be subject to 5% of total voting rights of equity shareholders.
Further issue of share capital [Section 62]:
A company may increase its subscribed capital by the issue of further shares and such shares shall be offered to equity shareholders, employees and to any persons, if it is authorised by a special resolution.
The provision of section 62 shall not apply to a Nidhi company and therefore it can issue further shares to any person without seeking authorisation from its members.
Restrictions on purchase by company or giving of loans by it for purchase of its shares [Section 67]:
In the provision of sub-section (1) of the CA 2013, it is clearly stated that a company limited by shares or by guarantee and having a share capital shall NOT have power to buy its own shares unless the consequent reduction of share capital is effected under the provisions of this Act.
After this notification a Nidhi company may purchase its shares from a member on his ceasing to be a depositor or borrower and it shall not be considered as reduction of capital u/s 66 of the Companies Act, 2013.
Declaration of Dividend by Nidhi Company [Section 123]:
No dividend shall be paid by a company in respect of any share therein except to the registered shareholder of such share or to his order or to his banker and shall not be payable except in cash:
Further, any dividend payable in cash may be paid by cheque or warrant or in any electronic mode to the shareholder entitled to the payment of the dividend.
But in case of a Nidhi Company, any dividend payable in cash may be paid by crediting the same to the account of the member, if the dividend is not claimed within 30 days from the date of declaration of the dividend.
Punishment for failure to distribute dividends [Section 127]:
If a dividend has been declared by a company but has not been paid or the warrant has not been posted within 30 days from the date of declaration every director and the company shall be punishable as per the provisions of section 127 of the Companies Act, 2013.
However, it shall be sufficient compliance of the provisions of the section 127 of the Companies Act, 2013, where the dividend payable to a member is ONE HUNDRED rupees or less, if the declaration of dividend is announced in the local language in one local newspaper of wide circulation and announcement of the said declaration is also displayed on the notice board of the Nidhis for at least THREE MONTHS.
Right of Member to Copies of Audited Financial Statement [Section 136]:
In the case of members of any Nidhi Company who do not individually or jointly hold shares of more than ONE THOUSAND RUPEES in face value or more than ONE PER CENT of the total paid-up share capital whichever is less, it shall be sufficient compliance with the provisions of the section 136 of CA 2013 if:
- i) An intimation is sent by public notice in newspaper circulated in the district in which the Registered Office of the Nidhi is situated stating the date, time and venue of Annual General Meeting; and
- ii) The financial statement with its enclosures can be inspected at the registered office of the company; and
- ii) The financial statement with enclosures are affixed in the Notice Board of the company; and
- iv) A member is entitled to vote either in person or through proxy.
Therefore, if the above conditions are satisfied by a Nidhi company then there is no need to send copy of financial statement to all such members of the company.
Right of persons other than retiring directors to stand for directorship [Section 160]:
The Central Government has reduced the amount of requisite deposit u/s 160 of CA 2013 to Rs. 10,000 from Rs. 1,00,000 for a Nidhi Company.
Accordingly, a person who is not a retiring director shall be eligible for appointment to the office of a director of a Nidhi company if he or some member intending to propose him as a director has left a notice signifying his candidature as a director along with the deposit of TEN THOUSAND RUPEES instead of one lakh rupees.
Loan to Directors [Section 185]:
There is no need to comply with the provisions of section 185 of the Companies Act, 2013 for a Nidhi company provided the following two conditions are satisfied:
- The loan is given to a director or his relative in their capacity as members; and
- Such transaction is disclosed in the annual accounts by a note.
Managerial Remuneration in Nidhi [Section 197]:
The provisions of section 197 shall be read as under in case of a Nidhi company:
The remuneration of a director who is neither managing director nor whole-time director or manager for performing special services to the Nidhis specified in the articles of association may be paid by way of monthly payment subject to the approval of the company in general meeting and also to the provisions of section 197:
Provided that no approval of the company in general meeting shall be required where,-
- (a) a Nidhi does not have a managing director or a whole-time director or a manager;
- (b) the remuneration payable during a financial year to all the directors of the Nidhi does not exceed ten per cent. Of the net profits of such Nidhi or fifteen lakh rupees, whichever is less; and
- (c) a remuneration payable under clause (b) is approved by a special resolution passed in this behalf by the Nidhi.
Fee for filing, etc. [Section 403]:
In case of a Nidhi Company, the filing fees in respect of every return of allotment under sub-section (9) of section 42 of the CA 2013 shall be calculated at the rate of ONE RUPEE for every one hundred rupees or parts thereof on the face value of the shares included in the return but shall not exceed the amount of normal filing fee payable.