Nidhi company

A Nidhi company, is one that belongs to the non-banking Indian Finance sector and is recognized under section 406 of the Companies Act, 2013. Their core business is borrowing and lending money only between their members. Reserve Bank of India is empowered to issue directions to them in matters relating to their deposit acceptance activities. Basically a “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, General restrictions on Nidhi companies are that no Nidhi shall:

♤ Carry on the business of Chit Fund, Hire Purchase Finance, Leasing Finance, Insurance or Acquisition of Securities issued by anybody corporate;

♤ Issue - Preference Shares, Debentures or Any Other Debt Instrument by any name or in any form whatsoever; Open any Current Account with its members;

♤ 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 Nidhi;

♤ Carry on any business other than the business of borrowing or lending in its own name;

♤ Accept Deposits from or lend to any person, other than its members;

♤ Pledge any of the assets lodged by its members as security;

♤ Take Deposits from or lend money to anybody corporate;

♤ Enter into any Partnership Arrangement in its borrowing or lending activities;

♤ Issue or cause to be issued any advertisement in any form for soliciting deposit;

♤ Pay any brokerage or incentive for mobilizing deposits from members or for deployment of funds or the granting loans.

But in recent times, certain chit fund scam (done in money market and capital market material) has happened by these which calls for greater regulation of these companies.