A Nidhi company is a company that is recognised under section 406 of the Companies Act, 2013 read with Nidhi Rules 2014. Their core functions are borrowing and lending money among its members and fall under the non-banking Indian finance sector. It is a company that has been incorporated with the express purpose of cultivating the habit of thrift and savings among its members. They are known by different names such as Benefit Funds, Permanent Fund, Mutual Benefit Funds, or Mutual Benefit Company.

Prerequisites For Forming a Nidhi Company

To establish a Nidhi Company, the following criteria must be met:

  • The company must have the suffix “Nidhi Limited” in its name
  • The company must be a Public Company.
  • Minor, Body Corporate and a Trust cannot be admitted as members to Nidhi.
  • The minimum paid-up share capital must be Rs. 5 lakh.
  • The company cannot issue preference shares, in the case where such shares have been issued by the company prior to the commencement of the Act, the same shall be redeemed.
  • The primary objective of the company must be to inculcate the habit of savings in its members.

Post Incorporation Requirements of a Nidhi Company

Within one year of incorporation, a Nidhi company must satisfy the following conditions:

  • The minimum number of members must be 200.
  • The Net owned funds must be Rs. 10 lakhs. (Net owned funds is the aggregate of paid-up capital and free reserves reduced by the accumulated and intangible assets as appearing in the last balance sheet.)
  • The net owned funds and the deposits shall be in a ratio not exceeding 1: 20 that is Net Owned Funds: Deposits = 1:20.
  • Unencumbered term deposits should be not less than 10 % of the outstanding deposits as specified in Rule 14 of Nidhi Rules 2014.

Registration Process of a Nidhi Company

To apply for registration the Nidhi Company must have a minimum of 7 members and 3 Directors. On fulfilling this condition the Nidhi Company can follow the below-mentioned process:

  • Apply for Director Identification Number (DIN) and Digital Signature Certificate.
  • Go for Name Approval by using Reserve Unique Name (RUN) Service of MCA.
  • Prepare the Articles of Association and Memorandum of association according to the objects of the company and all other documents.
  • File for Incorporation Form SPICe+.
  • Apply for PAN and TAN.

For obtaining incorporation the following documents will be required:

  • Copy of PAN Card of Directors and Shareholders.
  • Identity proof for Directors and Shareholders like Voters ID, Passport, Driving License.
  • Address proof of Directors and Shareholders like Bank statements, utility bills.
  • Passport size photographs.
  • Registered office – property proof. a) If the property is owned then – Utility Bill + Ownership document + NOC. b) If the property is rented – Utility bill + Rent Agreement +NOC.

Restrictions on Nidhi Companies

As per Rule 6 of Nidhi rules 2014, a Nidhi Company cannot perform the following activities:

  • Conduct the business of chit fund, leasing finance, and hire purchase. It cannot acquire securities issued by a body corporate.
  • Issue preference shares, debentures, or any debt instrument by any name or in any form whatsoever.
  • Open any current account with its members.
  • Make any acquisitions or arrangements or concessions until the same is adopted in the General Meeting by a special resolution and is approved by the Regional Director.
  • Perform any business other than borrowing/ lending in its own name.
  • Lend to or accept funds from anyone other than its members.
  • Lend to or accept funds from body corporate.
  • Enter into any partnership arrangement in their borrowing or lending operation.
  • Act of publicity for seeking any deposits in any form.
  • Pledge any of its assets lodged by its members as security.
  • Pay any brokerage or incentive for granting loans or deployment of funds or mobilise deposits from its members.


  • If the company adheres to all the provisions of the rules mentioned, it can provide locker facilities to its members provided the income from locker rent does not exceed 20 % of the gross income of the Nidhi at any point of time during the Financial year.
  • Private circulation of the details of fixed deposit schemes among members bearing the words “for private circulation to members only” will not be taken as an advertisement.

Filing Compliance With ROC As Per Nidhi Rules 2014

Forms NDH -1 and NDH -3 must be duly filed with the requisite fees and must be certified by a professional.

Loans Under Rule 15 of Nidhi Rules 2014

The following are the limits to the loan set against deposit made:

A Nidhi company that has not made profits continuously in the three preceding financial years, shall not make any fresh loans exceeding 50% of the maximum amounts of loans specified above. A member shall not be eligible for any loan if he has defaulted on any prior loan repayment.
The loans can be granted only against the following security

  • Gold/Jewellery
  • Property
  • Fixed Deposit
  • Insurance Policy

Nidhi Companies cannot grant a personal loan, vehicle loan, hire purchase, or microfinance. Nidhi companies are formed for the purpose of inculcating the habit of saving among their members and is governed by the Companies Act. Although Nidhi companies are non-banking finance companies they are excluded from the core provisions of the RBI Act and other directions applicable to NBFCs.

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