What is a Nidhi Company?
A Nidhi is a mutual-benefit company governed principally by section 406 of the Companies Act, 2013 and the Nidhi Rules, 2014, as amended. Its core object is cultivating the habit of thrift and savings among members and receiving deposits from, and lending to, members for their mutual benefit.
A Nidhi must be a public company and its name must end with "Nidhi Limited". It cannot issue preference shares. Its business is member-centric and is subject to specific restrictions under the Nidhi Rules.
Companies Act, 2013 - India Code Ministry of Corporate Affairs
Main Features and Benefits of a Nidhi
- Encourages savings and mutual financial assistance among members.
- Accepts deposits only from members and lends only to members, subject to the Rules.
- Operates through a public-company structure with separate legal personality.
- Member deposits and lending are regulated by specific Nidhi Rules rather than by unrestricted public deposit-taking.
- The model is designed for mutual benefit and local/member-based financial activity, not for general banking or unrestricted finance business.
Current Requirements for a New Nidhi Company
| Requirement | Current position |
|---|---|
| Company form | Must be incorporated as a public company. |
| Initial public-company membership | A public company is incorporated with at least 7 subscribers/members under the Companies Act, subject to the Nidhi-specific post-incorporation declaration requirements. |
| Directors | At least 3 directors, subject to the Companies Act and Nidhi Rules. |
| Paid-up equity capital | At least ₹10 lakh under rule 4 as amended in 2022. |
| Members for NDH-4 | At least 200 members for a new company applying under rule 3B. |
| Net Owned Funds | At least ₹20 lakh for declaration under rule 3B. |
| Form NDH-4 | Must be filed within 120 days of incorporation by a public company covered by rule 3B and desirous of being declared a Nidhi. |
| Promoters/directors | Must satisfy the prescribed fit and proper person criteria. |
| Name | Must end with "Nidhi Limited". |
| Preference shares | A Nidhi cannot issue preference shares. |
Steps to Register and Obtain Nidhi Declaration
- Promote a public company: identify subscribers, directors and the proposed Nidhi objects.
- Obtain DSC/DIN: arrange digital signatures and director identification requirements through the MCA incorporation process.
- Reserve the name: the proposed name must comply with company-name rules and end with "Nidhi Limited".
- File SPICe+ incorporation forms: submit the current MCA incorporation package with MoA, AoA, declarations, registered-office documents and linked forms.
- Obtain Certificate of Incorporation: the Registrar issues the certificate upon approval of incorporation.
- Build required membership and Net Owned Funds: for a company covered by rule 3B, reach at least 200 members and ₹20 lakh Net Owned Funds.
- File Form NDH-4 within 120 days: apply to the Central Government for declaration as a Nidhi and provide the prescribed fit-and-proper declarations for promoters and directors.
- Await Central Government decision: Nidhi business should commence only after approval is obtained in accordance with the 2022 framework.
- Complete banking, PAN/TAN and other registrations: comply with tax, banking, employment and sector-specific requirements applicable to the company.
A new public company should not assume that merely having "Nidhi Limited" in its name authorises deposit-taking or lending under the Nidhi Rules.
Documents Commonly Required
Promoters, directors and subscribers
- PAN and prescribed identity/address proof;
- photographs and contact particulars;
- Digital Signature Certificates for authorised signatories;
- DIN details or DIN allotment through the incorporation process;
- subscriber and director declarations/consents;
- information needed for fit-and-proper declarations when filing NDH-4.
Registered office
- ownership document or rent/lease agreement, as applicable;
- owner's no-objection certificate where required;
- recent utility bill or other prescribed registered-office proof.
Company documents
- Memorandum of Association containing permitted Nidhi objects;
- Articles of Association;
- SPICe+ and linked incorporation forms;
- Form NDH-4 and supporting declarations/documents at the declaration stage.
Deposits, Net Owned Funds and Member Lending
A Nidhi can accept deposits from and lend to its members only, subject to the limits, conditions and security requirements in the Nidhi Rules.
Under the Rules, the ratio of Net Owned Funds to deposits is subject to the prescribed ceiling. The Nidhi must also maintain the prescribed level of unencumbered term deposits in relation to outstanding deposits.
Fixed deposits and recurring deposits are governed by prescribed minimum/maximum periods and interest conditions. Loan limits depend on the Nidhi's deposits and the type/value of permitted security.
Activities Prohibited or Restricted for Nidhis
- Chit fund, hire-purchase finance, leasing finance and insurance business.
- Acquisition or purchase of securities of another company, control of another company's board, or arrangements for change of its management as prohibited by the Rules.
- Issue of preference shares, debentures or other debt instruments prohibited by the Rules.
- Opening a current account with members.
- Accepting deposits from or lending to persons other than members.
- Unrestricted public solicitation of deposits contrary to the Nidhi Rules.
- Raising loans from banks, financial institutions or other sources for the purpose of advancing loans to members, as prohibited by the 2022 amendment.
Opening and Closing Branches
Branch expansion is subject to the profitability, filing and geographical conditions prescribed in rule 10. A Nidhi cannot treat branch expansion in the same way as an ordinary trading company.
The 2022 amendment also tightened branch-closure procedure. Closure requires Board approval of the repayment/recovery plan and prior approval of the Regional Director through the prescribed process. After approval, public notice requirements apply before closure.
Important Statutory Compliance for a Nidhi Company
| Compliance | Purpose / general timeline |
|---|---|
| NDH-4 | For a new public company covered by rule 3B, application for declaration as Nidhi within 120 days of incorporation after meeting the prescribed conditions. |
| NDH-1 | Return of statutory compliances where applicable under rule 5 for companies to which that rule applies. |
| NDH-2 | Application to the Regional Director for specified approvals/extensions under the Nidhi Rules, where applicable. |
| NDH-3 | Half-yearly return in the prescribed circumstances and timeline. |
| AOC-4 | Filing of financial statements under the Companies Act within the applicable period after the AGM. |
| MGT-7 / applicable annual-return form | Annual return under the Companies Act within the prescribed period after the AGM. |
| Income-tax return and tax audit | As applicable under the Income-tax Act, 1961. |
| Auditor reporting | The statutory auditor must report/certify matters required under the Companies Act and Nidhi Rules. |
The applicability of NDH-1/NDH-2 differs for companies incorporated before and after commencement of the 2022 amendment because rule 5 was expressly made inapplicable to companies incorporated as Nidhis on or after that amendment. Verify the company's incorporation date and status before selecting a form.
Penalties and Consequences of Non-Compliance
Non-compliance can lead to statutory penalties under the Companies Act, the Nidhi Rules and the relevant filing provisions. More importantly, a company that fails to comply with the Nidhi declaration requirements, or whose NDH-4 application is rejected, may be barred from raising deposits from members or providing loans under the Nidhi Rules.
Deposits raised after the date of specified non-compliance can be treated as deposits raised under Chapter V of the Companies Act and become subject to the requirements applicable under that Chapter and other relevant provisions.
Consequences therefore depend on the exact contravention. A generic fixed penalty figure should not be used without checking the current section, adjudication provision and filing default.
Frequently Asked Questions
What is the minimum paid-up capital for a Nidhi company?
The minimum paid-up equity share capital under rule 4, after the 2022 amendment, is ₹10 lakh.
Does a newly incorporated Nidhi need 200 members?
A new public company seeking declaration under rule 3B must have at least 200 members when it applies in Form NDH-4.
What is the current Net Owned Funds requirement for a new Nidhi?
Rule 3B requires Net Owned Funds of at least ₹20 lakh for the declaration application.
When must Form NDH-4 be filed?
For a public company incorporated after commencement of the Nidhi (Amendment) Rules, 2022 and seeking declaration as a Nidhi, Form NDH-4 is to be filed within 120 days of incorporation after satisfying the prescribed conditions.
Can a Nidhi accept deposits from the public?
No. Its deposit-taking and lending activities are confined to members and are governed by the conditions in the Nidhi Rules.
Can a Nidhi issue preference shares?
No. The Nidhi Rules prohibit a Nidhi from issuing preference shares.
Official Legal Resources
Companies Act, 2013 - India Code Nidhi Rules, 2014 - MCA Nidhi (Amendment) Rules, 2019 - MCA Nidhi (Amendment) Rules, 2022 - MCA MCA Portal