NIDHI COMPANIES: ECONOMY

NIDHI COMPANIES: ECONOMY

NEWS: Regulatory action against Nidhis, non-disclosure of beneficial ownership jump

 

WHAT’S IN THE NEWS?

The Ministry of Corporate Affairs (MCA) and Registrars of Companies (RoCs) have intensified actions against Nidhi companies and firms for defaulting on beneficial ownership disclosures, ensuring compliance with regulatory norms.

What are Nidhi Companies?

  1. Legal Recognition:
    • Recognized under Section 406 of the Companies Act, 2013.
    • Operates in the Non-Banking Financial Sector (NBFC-like entities).
  1. Purpose:
    • Promotes savings and mutual benefit by borrowing and lending exclusively among members.
  1. Registration:
    • Does not require an RBI license; registered under the Companies Act.
    • Must include "Nidhi Limited" in their name.
  1. Membership and Governance:
    • Minimum of 7 members required to start, with 3 members as directors.
    • Must maintain a minimum of 200 members and ₹20 lakh net owned funds within a year.

Prohibited Activities of Nidhi Companies

  1. Cannot engage in:
    • Chit funds.
    • Hire-purchase finance.
    • Leasing finance.
    • Insurance or securities business.
  1. Restrictions on Financial Transactions:
    • Cannot accept deposits or lend funds to non-members.
    • Cannot issue preference shares, debentures, or debt instruments.
  1. Prohibition on Current Accounts:
    • Cannot open current accounts with their members.

Source: https://www.livemint.com/companies/news/regulatory-action-against-nidhis-non-disclosure-of-beneficial-ownership-jump-11734351918698.html