Union Govt. amends rules governing “Nidhi companies”

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Union Govt. amends rules governing “Nidhi companies”

Recently, the Central Government has made amendments in the Nidhi Rules, 2014. These amendments have been made at a time when there has been a massive increase in the number of ‘Nidhi Companies’. The purpose of these amendments is to improve the governance of these companies, and to protect the interest of the public.

Key amendments to the “Nidhi Rules”:

  • A public company set up as a Nidhi with a share capital of Rs 10 lakh must first get itself declared as a ‘Nidhi’ company by the Central Government. Earlier, there was no requirement for any company to make such a declaration.
  • The promoters and directors of the company will have to fulfill the criteria laid down in the rules.

Nidhi Company

  • These are similar to Non-Banking Financial Companies (NBFCs). A Nidhi Company is formed to borrow and lend money from its members. It inculcates savings habits among its members. It works on the principle of mutual benefit.
  • It does not require obtaining a license from RBI, but does require approval under the Companies Act.
  • The Ministry of Corporate Affairs controls its operational matters. RBI has the power to issue directions for its deposit accepting activities.
  • It is not allowed to carry on business related to chit funds, hire-purchase finance, leasing finance, insurance or securities. It cannot accept cash deposits or lend to any person other than its members.
  • Only individual members are allowed to join Nidhi companies.

Source – The Hindu

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