Sec 406 of Companies Act, 2013: NIDHI Companies and its application

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A NIDHI COMPANY refers to a business that is subject to the 2014 Nidhi rules and Section 406 of the Companies Act of 2013. The law governing the regulation of Nidhi companies enforces such businesses. In India, the Nidhi Company was only established to encourage its own members to practice frugal living and save money. As per the definition of a Nidhi company, a Nidhi company is a public limited company that follows unique rules as laid down by its members to be eligible to have shares at par value and voting rights that are proportionate to the number of shares held.

The Minimum Prerequisites to be a NIDHI Company:

• A Nidhi company must be a public company that doesn't allow corporations or trusts to join as members.

• Nidhi company shall have a minimum paid up equity share capital of 5 Lakh.

• No Nidhi shall issue preference shares.

• Every company incorporated as Nidhi shall have the last words "Nidhi Limited" as a part of its name.

• They are only allowed to take deposits from their own members and lend the money to only their own members.

• There should be no objective of Nidhi other than to cultivate the habit of thrift and savings amongst its members and receive deposits from lending to its members only, for their mutual benefit.

Post-incorporation requisites:

• Within a period of one year from the commencement of these rules, every Nidhi shall ensure that it has: not less than 200 members; net owned funds of 10 lakhs rupees or more; a ratio of net owned funds to deposits of not more than 1:20.

Thus, to regulate and maintain the NIDHI companies, the elaborated rules are dealt with in NIDHI Rules, 2014.