Failures to comply with the rules of Nidhi Company lead to penalties. In this article, you will gain insight into the different penalties of Nidhi Company.
In this article, you will gain insight into the different Penalties of Nidhi Company Failures. Under Section 406 Company Act 2013, a company incorporated as a Nidhi encourages its members to practice thrift and saving. Lending and borrowing money among its members are the primary function of a Nidhi Company. It is a type of Non-Banking Financial Company (NBFC).
This Mutual Benefit Company is obliged to submit a minimal amount of annual compliance, which is well-known as Nidhi Company Compliances. If any company is at fault, then it has to pay the penalty.
Nidhi Company Failures: Overview
First penalty
If a corporation doesn’t provide the required paperwork on time, the Nidhi Bank Operators may take legal action and penalties against them. The organization or Company and the related staff members could be fined up to Rs 5,000 if the corporation doesn’t comply with the compliance requirements. There different types of compliances that need to be followed to avoid Nidhi Company Failures are Post-Incorporation Compliances and Post- Incorporation General Compliances.
The necessary post Incorporation compliances to be followed by each Nidhi Company includes various conditions. The first condition is a minimum of seven people is required to make up a Nidhi Company, of whom three must be directors.
And members of Nidhi may not be minors, corporations, or trusts. The second condition says that the name of the Company must include the suffix “Nidhi Limited,” and it must also be a public organisation or business. The third condition is a minimum of ₹5 lakh needs to be paid up in shares.
Moreover, the Nidhi Company can only open branches if three fiscal years have passed with a profit after taxes. The fourth condition says that the loan’s interest rate cannot be more than 7.5 per cent more than the maximum rate of interest being provided on deposits.
It also states that preference shares already issued by the firm must be redeemed. The corporation is not allowed to issue preference shares. Lastly, it cannot accept a deposit representing more than twenty percent of net owned funds.
Post- Incorporation General Compliances are the compliances that are supposed to be met within a year after registering as a Nidhi Company. The first compliance is the Nidhi Company Failures should consist of at least 200 members after a year of its formation. The second one is a minimum of ₹20 lakhs must be the Net Owned Fund.
It is necessary that the ratio of net owned funds to deposit does not exceed one to twenty, or 1:20. Under Rule 14 of the 2014 Nidhi Rules, unencumbered term deposits must represent at least 10% of the total amount of outstanding deposits.
The third one says that within 30 days after formation, a chartered accountant needs to be appointed. And within six months after incorporation, the submission of form INC-20A needs to be done (to receive a certificate of business beginning). The mandatory Registers and books of accounts for the Nidhi Company must be maintained as well as the Company must call statutory meetings.
Second Penalty
The penalty states that if the violation persists, the Nidhi Company Failures will be subject to an additional fine of ₹ 500 per day. There are different compliances that should be maintained to avoid penalties. The compliances are namely Post- incorporation Annual Compliances and Event-Based Compliances.
Post- Incorporation Annual Compliances are the compliances to keep the government informed of the Company’s operations and the functional division. The conditions to be maintained are:
- Form NDH 1 is the Statutory Compliance Report, which is used to submit the documents to the Registrar, comprising all the information on members, deposits, loans, reserves, etc., for the entire financial year. The due date is around 90 days after the fiscal year end, with fees.
- Form NDH 2 is the Application or Request for an Extension of Time. The form can be filled out when the Company cannot get at least 200 members one year after the Company’s Incorporation. Another reason is if the Company failed to sustain a 1:20 Net Owned Fund to Deposit ratio. The due date falls within 30 days of the financial year’s end, together with the required fees. Form NDH 3 is the Half yearly return that is filled along with the Registrar of Companies. The due date is 30 days after the end of the six months. It must be appropriately certified by a working expert.
- Form NDH 4 is needed for filing a statement as a Nidhi Company application and status update. For the newly registered Nidhi company, the due date is 120 days following the passing of a year from the date of the Company’s incorporation. For the existing Company within one year of its incorporation date OR within six months of the day the Nidhi Rules 2019 go into effect, whichever comes first.
- Form AOC 5 is required for submitting financial records and other supporting documentation to the ROC, which is the Registrar of Companies. The due date for filling this form is after the annual general meeting but before 30 days.
- ITR 6 is the Income tax return, and it needs to be filled out by September 30.
- Form MGT 7 is the annual return and needs to be filled out after the annual general meeting but before 60 days.
Event-based compliances are needed to be filed only one time during the Nidhi Company registration in India. Additionally, these compliances must be adhered to whenever there is a change to the non-periodic structure of the Nidhi company. These compliances include any alteration or change in the name of the Company, update in the address for the registered office, choosing an auditor, having them leave, or getting them fired, modifying the objectives of the Company, transferring of shares, an increase in the Company’s authorized capital, hiring of key managerial personnel, or any additional event-based adjustments.
Conclusion
The primary purpose of a Nidhi Limited Firm Registration is to make it simple for the several essential stakeholders in the concerned Company to borrow money from one another. To do so, the Company needs to follow mandatory compliance. If it fails in doing so, a hefty amount of money needs to be paid as Nidhi Company Failures.
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