Annual Compliance for Nidhi Company

Annual compliance for Nidhi Company in India is a crucial part. It ensures that the company operates within the legal framework and maintains its recognition with regulatory authorities. This article will cover the essential compliance requirements that every Nidhi Company must follow each year, which include the forms to be filed, timelines, and penalties for non-compliance.

What is a Nidhi Company as per the Companies Act, 2013?

According to Section 406(1) of the Companies Act, 2013, a Nidhi Company is a type of non-banking financial company (NBFC) formed to promote the habit of saving and thrift among its members.

It is allowed to accept deposits from and lend money to its members only, this ensures that all transactions are done for the mutual benefit of the members. Nidhi Companies operate mainly to encourage small savings and can be started with a small capital investment. This makes them suitable for individuals who are looking to enter the financial sector in a regulated and community-based way.

Nidhi Company Registration in India

A Nidhi Company Registration in India falls under the Companies Act, 2013, and is governed by the rules laid down by the Ministry of Corporate Affairs (MCA). Its main purpose is to encourage savings and financial discipline among its members by allowing them to deposit and borrow money within the group.

As per the Nidhi (Amendment) Rules, 2022, the minimum capital required to start a Nidhi Company is Rs.10 lakh. It must be registered as a Public Limited Company, and the name should end with "Nidhi Limited" to comply with naming rules. Annual Compliance for Nidhi Company along with other compliances is mandatory to run it smoothly.

Pre-Incorporation Compliance for Nidhi Company

A Nidhi Company must meet certain legal requirements as per the Companies Act, 2013, and the Nidhi Rules, 2014, before registration. These pre-incorporation compliances are important to ensure the company is eligible for registration:

• The company must have at least seven members, and three of them should be directors.
• It must be registered as a Public Company, and the name should include the words “Nidhi Limited”.
• As per the latest MCA notification dated 16th July 2024, a company cannot use “Nidhi Limited” in its name unless it has been formally declared as a Nidhi or Mutual Benefit Society by the Central Government through a notification in the Official Gazette, under Section 406(1) of the Act.
• The minimum paid-up share capital required to start is Rs.5 lakh.
• Entities like minors, body corporates, and trusts are not allowed to become members.
• The main objective of the company must be to promote savings among its members.
• A Nidhi Company cannot issue preference shares. If a company or a Nidhi issued preference shares before the Companies Act, 2013, or the Nidhi Rules, 2014, came into effect, those shares must be redeemed according to the terms agreed upon at the time of their issuance. This means the company must follow the original conditions set for redeeming these shares, ensuring compliance with the current laws.
• A Nidhi Company cannot open new branches unless it has earned a net profit after tax for at least three consecutive financial years.
• The maximum rate of interest on loans provided by the company must not be more than 7.5% above the highest interest rate offered on deposits.

Post-Incorporation Compliances for Nidhi Company

Once a Nidhi Company is incorporated, it must follow certain rules to remain legally compliant. These compliances are divided into two parts: General Compliance and Annual Compliance.

General Compliance

A Nidhi Company must meet the following conditions within its first year:

• There should be at least 200 members within one year of incorporation for a Nidhi Company. This is mandatory under Nidhi Rules to ensure the company operates for the mutual benefit of its members. Non-compliance can lead to regulatory action.
• According to the Nidhi (Amendment) Rules, 2022, a Nidhi Company must maintain net owned funds of at least ?20 lakhs within one year of incorporation. This includes paid-up equity share capital and free reserves, after subtracting any losses and intangible assets.
• A Nidhi Company must follow the rule that its total deposits should not be more than 20 times its net owned funds. This means the company can only accept deposits up to a limit where the Net Owned Funds to Deposits ratio is 1:20. For example, if the net owned funds are Rs.20 lakhs, the company can accept deposits up to Rs.4 crores. This rule ensures financial stability and protects the interests of the members by limiting over-leveraging.
• As per Rule 14 of the Nidhi Rules, 2014, a Nidhi Company must keep at least 10% of its total deposits as unencumbered term deposits in a scheduled bank or post office. This ensures liquidity and financial security.
• A Nidhi Company is required to maintain proper books of accounts and statutory registers as per the Companies Act, 2013. These include records of members, loans, deposits, board meetings, and financial transactions. It is essential to keep these records up to date for transparency, regulatory compliance, and the smooth functioning of the company.
• A Nidhi Company must hold all statutory meetings as mandated by law, such as board meetings and members' meetings. These meetings are essential for discussion of important business matters, making decisions, and ensuring compliance with legal requirements. Regular meetings help maintain proper governance and keep members informed about the company's operations.

Annual Compliance for Nidhi Company

To continue operating legally and transparently, a Nidhi Company must follow certain annual compliance requirements. These annual compliance filing help the government to stay informed about the company’s financial position, activities, and membership status. Below is a list of key forms and their due dates:

• Form NDH-1 – Return of Statutory Compliance

Form NDH-1 is an important annual compliance requirement for every Nidhi Company. It provides a detailed summary of the company’s operations throughout the financial year. This includes information about its members, deposits accepted, loans granted, and reserves maintained.

This form helps regulatory authorities ensure that the company is operating within the framework set by the Nidhi Rules. The company must file Form NDH-1 within 90 days from the end of each financial year. It is submitted to the Registrar of Companies (ROC) using e-Form GNL-2 on the MCA portal. Timely submission of this form is essential to avoid penalties and demonstrate continued compliance with statutory norms.

• Form NDH-2 – Application for Extension

Form NDH-2 must be filed by a Nidhi Company when it fails to meet specific post-incorporation requirements. This includes not being able to achieve a minimum of 200 members within one year of incorporation or failing to maintain the mandatory net owned fund to deposit ratio of 1:20.

In such cases, the company must apply for an extension of time by submitting Form NDH-2. This form should be filed within 30 days from the end of the financial year and must be submitted to the Regional Director along with the applicable fees. Timely filing helps the company avoid penalties and continue operations while working toward compliance.

• Form NDH-3 – Half-Yearly Return

Form NDH-3 is a half-yearly return that provides key details about a Nidhi Company’s operations, which includes information on its deposits, members, and loans. This form must be certified by a practicing professional such as a Chartered Accountant (CA), Company Secretary (CS), or Cost and Management Accountant (CMA).

The company is required to file this return within 30 days from the end of each half-year. It must be submitted to the Registrar of Companies (ROC) to ensure ongoing compliance with the Nidhi Rules.

• Form NDH-4 – Declaration as a Nidhi Company

Form NDH-4 is used by companies to apply for official recognition as a Nidhi Company and to update their status accordingly. For newly incorporated companies, this form must be filed within 120 days after the completion of one year from the date of incorporation.

In the case of companies already in existence, the form must be submitted within one year from the date of incorporation or within six months from the date of commencement of the Nidhi Rules, 2019, whichever is later.

• Form AOC-4 – Financial Statement Filing

Form AOC-4 is used to file the company's financial statements and other required supporting documents with the Registrar of Companies (ROC). It must be submitted within 30 days of holding the Annual General Meeting (AGM), as per the compliance requirements under the Companies Act, 2013. Non-filing of this form within the stipulated time may attract penalties and affect the company’s legal standing. The information submitted must be accurate and duly verified by a practicing professional.

• Form MGT-7 – Annual Return

Form MGT-7 is used to file the annual return of a Nidhi Company and includes essential information such as shareholding structure, changes in the directorship, and details of the members. It must be submitted to the Registrar of Companies (ROC) within 60 days from the date of the Annual General Meeting (AGM). Timely and accurate filing of this form ensures transparency and compliance with the statutory requirements under the Companies Act, 2013.

• ITR-6 – Income Tax Return

Every Nidhi Company is required to file its income tax return annually with the Income Tax Department, regardless of whether it has earned any profit. This ensures that the company remains compliant with the Income Tax Act. The return must be filed using Form ITR-6 on or before 30th September of the relevant assessment year.

Note: All these forms must be filed on time to avoid penalties and to ensure the company remains in good standing with the authorities.

Penalties for Non-Compliance of Nidhi Company

1. Failure to Comply with Nidhi Rules
   ?5,000 penalty + ?500/day for continuing default (Section 406 of Companies Act, 2013)
2. Not Filing Statutory Returns (NDH-1, NDH-2, NDH-3)
   Late filing fees + Additional penalties imposed by RoC
3. Operating Without Minimum 200 Members or Net Owned Funds
   Company may be barred from accepting deposits
4. Accepting Deposits from Non-Members
   Treated as public deposit violation – strict regulatory action
5. Failure to Maintain Required Ratio (1:20 Net Owned Fund to Deposits)
   Company may face restrictions or de-registration
6. Not Using "Nidhi Limited" in Name
   Penalty for misrepresentation under Companies Act
7. Non-Compliance with Financial Statement Filings (AOC-4, MGT-7)
   Monetary fines for company and responsible directors
8. Improper Use of Funds or Loans to Non-Members
   Penal action under RBI and MCA norms

Event-Based Compliance of a Nidhi Company

Event-based compliances are necessary whenever there is a significant change in a Nidhi company's structure or operations. These changes are typically non-periodical, which means they are triggered by specific events rather than occurring regularly. These compliances must be filed whenever certain events happen. This ensures that the company's details are accurately updated with the Registrar of Companies (ROC) and remain in line with the legal framework.

Here are some common event-based compliances for Nidhi companies:

1. Change in Company Name

If a Nidhi Company changes its name, it must file the required forms with the Registrar of Companies (ROC) along with a special resolution passed by shareholders. The new name must comply with MCA guidelines and retain the "Nidhi Limited" suffix.

2. Change in Registered Office Address

Whenever a Nidhi Company changes its registered office address, it must inform the Registrar of Companies (ROC) by filing the prescribed form within the specified timeline to ensure official records are updated.

3. Appointment, Resignation, or Removal of Director

Any change in the board of directors, such as the appointment, resignation, or removal of a director, must be officially reported to the Registrar of Companies (ROC) by filing the necessary compliance forms within the prescribed time.

4. Appointment, Resignation, or Removal of Auditor

Just like with directors, any change involving the company’s auditor, whether it is their appointment, resignation, or removal, must be reported to the Registrar of Companies (ROC) through the appropriate event-based compliance filings.

5. Amendment in the Company’s Objectives

If a Nidhi company amends its memorandum or changes its primary business objectives, it is required to notify the Registrar of Companies (ROC) by submitting the necessary forms. This ensures that the company’s records are updated to reflect the revised objectives or purpose.

6. Transfer of Shares

Whenever there is a transfer of shares within a Nidhi company, it must be properly documented and filed with the Registrar of Companies (ROC). This ensures that the company’s shareholder records are accurate and up to date, which reflects any changes in ownership.

7. Increase in Authorized Capital

If a Nidhi company decides to increase its authorized capital, it is required to notify the Registrar of Companies (ROC) by submitting the necessary documentation. This ensures that the company's updated capital structure is officially recorded and compliant with regulations.

8. Appointment of Key Managerial Personnel (KMP)

If a Nidhi company appoints key managerial personnel, such as a CEO or CFO, the company must report the appointment to the Registrar of Companies (ROC). This ensures that the company remains compliant with regulatory requirements and that the leadership changes are officially recorded.

9. Other Event-Based Changes

Any significant changes or events that affect the company’s structure or operations must be reported to the Registrar of Companies (ROC) as event-based compliances. This includes alterations to bylaws, changes in shareholding, or any other impactful modifications.

New Compliance Rules for Nidhi Companies

In 2022, the Ministry of Corporate Affairs (MCA) introduced stricter compliance rules for Nidhi Companies through the Nidhi (Amendment) Rules. As per these updated rules, a public company that is incorporated as a Nidhi with a minimum share capital of Rs. 10 lakh must submit the NDH-4 form to the central government within 120 days of incorporation. The company must also apply for recognition as a Nidhi company.

Additionally, to operate as a Nidhi company, the company is required to have at least 200 members and a net-owned fund (NOF) of Rs. 20 lakh. The company must receive consent from the central government within 14 months from the date of its incorporation. If the company does not receive a response within 45 days of submitting the NDH-4 form, the approval will be automatically deemed granted.

These regulations ensure that Nidhi companies adhere to set standards for financial stability and operational transparency.

Conclusion

A Nidhi Company requires strict adherence to compliance rules set by the Ministry of Corporate Affairs (MCA). Timely filings an annual compliance for Nidhi Company is essential to maintain legal standing and avoid penalties. Staying updated with regulations helps you focus on your company's main objective of promoting savings among members.

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