Return of Nidhi Company for The Half-Year Ended [Form NDH-3]

Introduction:

Nidhi Company is an NBFC (Non-Banking Finance Company) that is registered under Section 406^[1] of the Companies Act of 2013. Mutual Benefit Finance Company is another name for Nidhi Companies. “Nidhi” refers to a company that has been incorporated as a Nidhi with the purpose of encouraging thrift and savings among its members, receiving deposits from and lending to its members only for their mutual benefit, and adhering to the rules established by the Central Government for the regulation of such companies.^[2] Nidhi Company is not defined in the Companies Act, 2013. The Companies Act of 2013 and the Nidhi Companies Rules of 2014 mandate every Nidhi Company to observe the rules and regulations set forth therein. The Ministry of Corporate Affairs regulates it, while the Reserve Bank of India oversees all of its financial transactions.

Object and Purpose of the Nidhi Company

The main business of such a company is to facilitate money lending among the company’s core members. This encourages members (or owners) to save money and invest it in the company. These funds are then utilized by the company to give loans and advances to its members (or shareholders) and purchase government-issued stocks, bonds, debentures, and securities.

Nidhi Company cannot deal with

Chit fund business, engaging in the business of advances or loans as an NBFC, leasing finance, hire purchase finance, acquisition of stocks/ shares/ bonds/ securities issued by any local authority.

Benefits of a Nidhi Company

Even though the Nidhi Company is governed by the Companies Act of 2013, it is exempt from some provisions of the Act because it exclusively deals with its members. One of the most significant advantages of the Nidhi Company is that it can take deposits from members and lend money without the intervention of the RBI. Nidhi Company is exempt from RBI requirements, hence there are no RBI requirements for them. They do not require an RBI license or a capital requirement of 2 crores.

They lend in gold loans and take fixed deposits, recurring deposits, and savings deposits. Another advantage of the Nidhi Company is that it is the cheapest type of NBFC, and anyone in India can start one.

Easy formation: Nidhi Company is simple to form because it requires fewer documents and has a simple registration process.

Minimum risk of nonpayment of loans: The main advantage of Nidhi Company is that it is simple to make donations, and members can loan money in the same way. Because the loan rate is lower, members are more likely to attract. In comparison to other financial businesses, the majority of the investments are safe and there is less danger.

Limited role of RBI: Although Nidhi Company is a sort of NBFC, it does not require RBI approval. Nidhi Companies have been exempted by the RBI and are subject to the Nidhi Rules of 2014. This is one of the most attractive aspects of the Nidhi Company, as forming any other sort of NBFC is far more complicated and regulated by the RBI.

Low capital requirement: Forming a Nidhi Company is also cost-effective, as it only requires a capital of Rs. 5 lakhs, which must be increased to Rs. 10 lakhs or more within a year of registration.

Companies covered under Rule 2 of Nidhi Rules, 2014 need to follow the provisions of Nidhi Rules, 2014

The following are the companies that are covered by Rule 2:^[3]

1. Every company that was declared a Nidhi or Mutual Benefits Company under Section 620A(1) of the Companies Act, 1956.
2. Every company that operates on the lines of a Nidhi company or a Mutual Benefit Society but has not applied for, or has applied and is awaiting notification to be a Nidhi or Mutual Benefit Society under Section 620A(1) of the Companies Act, 1956.
3. Every company that is incorporated as a Nidhi under Section 406 of the Companies Act, 2013.

Compliances after Incorporation of Nidhi Company

1. NDH-1: NDH-1 is a yearly statement filed with the ROC in accordance with the Nidhi Rules within 90 days of the financial year’s end. If you do not file this return on time, you will lose your Nidhi Company status from the central government.
2. NDH-2: Application to Ministry of Corporate Affairs for an extension if it is unable to add 200 members in its first financial year within 30 days of the end of the first financial year, and the Regional Director may issue instructions within 30 days of receiving the application.
3. NDH-3: NDH-3 is a half-yearly return filed to determine whether or not the Nidhi corporation is operating in accordance with the guidelines. This return must be filed within 30 days from the closure of half year.
4. NDH-4: A Nidhi company must file a one-time declaration of its existence as a Nidhi business in form NDH-4, along with a declaration that it has at least 200 members and net owned funds of Rs. 10 lakhs.

Provisions relating to filing a half-yearly return

Rule 21^[4] of the Nidhi Rules, 2014 explains that Nidhi company is required to file an eForm NDH-3 in accordance with Rule 21 of the Nidhi Rules, 2014. NDH-3 is a half-yearly report, every company must file it twice a year.

Nidhi Companies must submit this eForm within 30 days after the end of each half-year. For a half year ending on September 30th, the due date of the form will be October 30th, and for another half year ending on March 31st, the due date of the form will be April 30th.

Contents in eForm NDH-3

1. Field 1 and 2 deal with the general information (i.e., Corporate Identification Number of the Company, Global Location Number of the company, Name of the company, Address of the registered office of the company, email id.)
2. Field 3 deals with the Branch details it contains the total number of branches, number of branches opened and closed during the half-year, and name and address of the branches.
3. Field 4 deals with the Membership it contains the total number of members admitted and ceased during the half-year and the total number of members at the beginning of the half-year and the end of the half-year.
4. Field 5 deals with the Deposit details it contains category wise (i.e., Fixed Deposit, Recurring Deposit, Savings Deposit, Cumulative Deposit, etc.,) the balance of outstanding deposits, the balance of deposits at the beginning of the half-year, deposits received during half-year, repaid amount during the half-year and balance of deposits at the end of half-year. The amount shall be equal to or greater than zero.
5. Field 6 deals with Details of Loans it contains Category wise balance of loans (i.e., Loans against immovable property, loans against the deposit, loans against jewels, or any other loans), the balance of loans at the beginning of the half-year and at the end of the half-year and the loans which are disbursed and realized during the half-year for all category wise of loans. The amount shall be equal to or greater than zero.
6. Field 7 deals with details of litigation it contains the cases and amount for the suit filed accounts at the beginning of the half-year and filed during the half-year, disposed during the half-year, and outstanding at the end of the half-year. The number shall be equal to or greater than zero.
7. Field 8 deals with the Financial Information it contains the ratio of net owned funds to deposits, the total amount of unencumbered term deposits, the total number of banks where deposits are placed, percentage of unencumbered term deposits to the total deposits outstanding, amount of paid-up share capital and amount of paid-up preference share capital (it contains amount outstanding at the beginning of the half-year, redeemed during the period and outstanding at the end of half-year).
8. Field 9 contains the Half-year end date.
9. Finally, Declaration contains the serial number and date of board resolution authorizing the signatory to sign. The eForm is digitally signed by the Director, Managing Director, Manager, CEO, CFO, or Company Secretary.

Attachments with the Form

These are mandatory:

1. List of all members with PAN and complete residential address.
2. Amount of deposit accepted from each other.

These are optional:

1. List of the members who joined during the half-year period along with PAN and complete residential address of the members.
2. Copy of advertisement along with a copy of intimation given to the registrar.
3. List of all members who ceased during the period with PAN and complete residential address.
4. Any additional attachments if any

Certificate by practicing professional: A company secretary in practice or a chartered accountant in practice or a cost accountant in practice must certify the form NDH-3 with Membership Number.

On successful submission of the eForm NDH-3, SRN and Challan will be generated. After that when an eForm is approved/rejected by the authority, an acknowledgment of the same is sent to the official email id of the company.

Penalty for Non-Compliance^[5]

If a company falling under Rule 2 violates any of the provisions of the rules prescribed herein, the company and every officer of the company who is in default shall be punished with a fine of up to five thousand rupees, plus a further fine of up to five hundred rupees for each day after the first during which the contravention continues.

Conclusion

The evolving financial sector has ushered in a new trend of forming Nidhi Companies, which are people-friendly and give appealing benefits to their members. They provide members with straightforward and helpful credits as well as a time frame for reimbursement. Despite the numerous advantages of Nidhi Company, it still has a long way to go as more and more individuals choose in the future. Filing of Returns will be helpful to the concerned authority as well as to the members to know the information about the Nidhi company.

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References:

^[1] Section 406 of the Companies Act, 2013 deals with Power to modify Act in its application to Nidhis.

^[2] Rule 3(da) of Nidhi Rules, 2014.

^[3] Rule 2 of Nidhi Rules, 2014 deals with the Application part.

^[4] Rule 21 deals with filing of Half Yearly Return.

^[5] Rule 24 of NIdhi Rules, 2014.

Other Sources:

1. CS Divesh Goyal, Nidhi Company -Companies Act-2013, (06 August, 2021, 02:25 PM), https://taxguru.in/company-law/nidhi-company-companies-act-2013.html
2. Deepak Sharma, A guide for Nidhi Half Yearly return NDH-3, (07 August, 2021, 11: 45 AM), https://www.lawfox.in/post/a-guide-for-nidhi-half-yearly-return-ndh-3
3. Compliances of Nidhi Company, (07 August, 2021, 03:00 PM), https://legalsuvidha.com/blog/detail/compliances-of-nidhi-company