About

“Nidhi” is a Hindi word, which means finance or fund. Nidhi means a company which has been incorporated exclusively with the object of developing the habit of thrift and reserve funds amongst its members, receiving deposits, and lending to its members only for their mutual benefit. 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. A Nidhi Company works through its members. Any person who is a member of a Nidhi can make deposits and borrow or take loans when need be.

Nidhi is are also known as ‘Mutual Benefit Companies’, terms given to it by the ‘Sabanyagam Committee on Nidhis’ and the ‘Expert Committee on Nidhi’ to distinguish it from other Co-operative societies and Banks which may engage in a similar kind of activity. The basic function of a Nidhi is to promote the savings and utilization of funds by its members and to safeguard the financial conditions of its members.

NIDHI RULES 2014

Nidhi companies are governed by Nidhi Rules, 2014. They are incorporated in the nature of Public Limited Company and hence, they have to comply with two set of norms, one of Public limited company as per Companies Act, 2013 and another is for Nidhi rules, 2014. Nidhis are regulated by the provisions of the Companies Act in force
They also come under one class of NBFCs and hence RBI is empowered to issue directions to them in matters relating to their deposit acceptance activities. RBI has in recognition of the fact that these Nidhis deal with their shareholder-members only exempted the noticed Nidhis from the core provisions of the RBI Act and other directions applicable to NBFCs.
However, unlike other NBFCs, no RBI approval is necessary to register the company, as RBI has specially exempted this category of NBFC in India to comply with its core provisions such as the noticed Nidhi companies are exempted from the provisions of Section 45-IA (Compulsory Registration with RBI), Section 45-IB (Maintenance of Liquid Assets) and Section 45-IC (Creation of Reserve Fund), it has been decided on the lines of Government advice to exempt the MBCs in existence as on January 9, 1997 and having NOF of Rs.10 lakh from the above mentioned provisions of the Act in terms of powers vested with the Bank under Section 45-NC of the Act and also from those provisions of NBFC Directions on Acceptance of Public Deposits and Prudential Norms which do not apply to noticed nidhi companies

Question regarding the regulatory powers of RBI upon a Nidhi was raised in the case of Puraswalkam Santhatha Sanga Nidhi Ltd. v. Reserve Bank of India wherein restrictions were placed on Nidhi Companies by a notification issued by the RBI under Section 45-I of the RBI Act, 1934. The notification placed restrictions on the rate of interest and payment of brokerage and commission etc on Nidhi Companies. The Madras High Court in this case held that RBI hold power to issue directions to all financial institutions carrying on trading or activities relating to advancing of loans. The Court stated that since Nidhis are engaged in the activity of advancing loans to its members it falls squarely within the definition of a ‘Financial Institution’ and there RBI was empowered to issue directions with intention to regulate credit system of the country.

Further, S. 406 empowers the Central Government to notify a company to be a Nidhi company. Central Government is also empowered to notify the which all provisions of the Companies Act may or may not be applicable to a Nidhi Company along with any modification or exception to any procedure that may apply to it.