Read the restrictions imposed on nidhi finance and what will be the aftermath of infringement of these prohibitions.
Introduction: Activities Prohibited In Nidhi Finance:-
A Nidhi Finance is a non-bank financial institution. It was established to let members lend and borrow funds. It functions on the mutual gain premise and instils the habit of saving in its members.
Nidhi Company should be enrolled in accordance with the rules of the Companies Act, 2013. The minimum capital required to establish these sorts of companies is Rs.10 lakh, increased via the Nidhi (Amendment) Rules, 2022. Because Nidhi Company is a Public Limited Company, the very last terms of its name must be “Nidhi Limited.”
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Criteria for Nidhi Finance Registration
- Nidhi Company incorporation requires a minimum of seven shareholders and three directors.
- A minimal level amount of Rs. 10 lacs is required.
- DIN is required for all directors.
- The ratio of net owned funds to deposits should be more than 1:20.
- A minimum of 200 shareholders are required.
- The fund’s net worth should be less than Rs. 10 lacs.
- Unencumbered deposits amounting to at least 10% of total outstanding deposits.
Formalities for Nidhi Company registration
The necessary documents must be presented to register a company as a Nidhi Finance:
- Letter of authorisation from the land of the owner of the area where the company is registered
- Identification documents
- Address verification for members
- Photographs of the company’s members
- The company’s digital signature certification
- Copies of members’ PAN cards.
Explain the Activities Prohibited in Nidhi Finances
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Shall not pay brokerage
A Nidhi Company is not permitted to pay any commission or brokerage for mobilizing member deposits, deploying funds, or awarding loans. It is a component of deposit solicitation. It shall not recruit someone to collect deposits and so forth.
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Follows Mutuality Concept
Nidhi Company accepts deposits and makes loans to its members. It upholds the mutuality concept and prohibits conducting the aforementioned business. Nevertheless, some of the firms listed above require an RBI license. Moreover, Nidhi Company cannot invest in any of the company’s securities. As a result, we can even understand the specific intent of the legislator in forbidding Nidhi Finances from engaging in any business that is not permitted.
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Advertisement is prohibited
Nidhi Company cannot promote deposits in the same way that other financial institutions do. However, Nidhi Company distributes advertisements to its member base for any event, such as the release of a new product.
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Restricted to form a partnership in its financing activities
It operates on the mutuality philosophy. It is not regarded as a fully commercial financial institution. As a result, it cannot create a partnership with other institutions to fund a large project.
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Not Permitted to Accept and Give Loans to Anyone
No Nidhi Company shall accept deposits from or give loans to any corporate entity; if we interpret this point correctly, it prohibits the Nidhi Company from taking payments or any investment from anybody corporate. However, investing in any other organisation is not limited to the conditions mentioned.
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They Are Not Authorized to Do Other Businesses
Nidhi registration shall only engage in borrowing and lending and is not permitted to do any other business on its essence. Moreover, Nidhi Company can also provide locker services to their members.
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Nidhi Company Can Not Take Deposits
Due to this constraint, Nidhi is immune from RBI approval because it solely deals with its members. If Nidhi is to interact with the broader public, it must evolve into a full-fledged NBFC.
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Pledge for Any of Its Members Assets as Security
This point safeguards the member’s rights. Let me illustrate this with an example. Assume the Company makes a loan to one of its members in exchange for gold. The company now owns the gold. As of now, Nidhi Company cannot guarantee this gold and obtain a loan from another firm.
The Activities Prohibited In Nidhi Company: Consequences for violations of Nidhi prescribed guidelines
The Reserve Bank of India supervises the Nidhi Companies’ actions; the possibility of the company being negligent quite minimal. An organisation must follow the extensive range of Nidhi Company rules and regulations outlined in the Nidhi Rules and the Amendment Rules. Furthermore, it must follow the Companies Act of 2013.
If someone does not comply with the Nidhi Rules and the Companies Act, 2013, the company and its personnel in violation would face a fine of up to ₹5,000. If the violation persists from the company’s perspective, it will be penalised. As a result, the defaulter must pay ₹500 every day until the infringement is resolved.
What Else Does Nidhi’s Provide Apart From the Finances?
Here are the reasons why one should go for registration of Nidhi company:
- Nidhi Companies help remote and rural populations in India by providing micro banking services. They provide micro banking services to areas in remote locations.
- Among the most prominent advantages of the Nidhi Company in India is encouraging its members to save. Everyone, from a six-year-old toddler to a 60-year-old man, desires to save. As Nidhi Company is stable, members will not restrict their saving habits.
- Another of the advantages of creating a Nidhi Company is that it comes with a very useful, user-friendly, and useful software named Nidhi Company software at quite a minimal price that allows you to conduct any Nidhi-related business activities conveniently.
- Nidhi Companies is at the forefront of serving the needs of people from low financial class and middle classes of society by providing financial assistance without the need for further documentation.
- Everyone in India appreciates saving, from a 6-year toddler to a 60 man. And the major goal of Nidhi firm is to foster the habit of saving among its members, which indicates that it is a sure and going concern business because the members would not stop saving at any point.
There is zero outside intervention in Governance; benefits for lower and middle classes, reasonable interest rates, secured deposits, and minimal paperwork and formalities are just a few of the benefits that make Nidhi enterprises a preferable choice for doing business. On Vakilsearch, you can read about such legal topics worldwide and add to your knowledge.
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