Regulatory Law
Legal framework and regulatory bodies regulating the functioning of Nidhi Companies.
Nidhis are companies registered under Section 406 of the Companies Act, 2013 (or Section 620A of the Companies Act, 1956) and is regulated by the Ministry of Corporate Affairs (MCA). NBFCs are wholly or partially regulated by the RBI. Nidhis are one such class of NFBCs that is only partially regulated by the RBI i.e. in reference to the matters relating to their deposit acceptance activities. Unlike section 620A of the 1956 Act, the 2013 Act under Section 406 finally defines Nidhi Companies. This definition was first recommended to be added by the Sabanyagam Committee on Nidhis.
It was observed by the ‘Expert Committee’ that since Nidhis operate in a small area and cater the needs majorly of the middle and lower middle section of the society and the members are often well known to each other, certain norms prescribed for the NBFCs should be diluted when applied to these institutions
Nidhi companies are governed by Nidhi Rules, 2014. They are incorporated in the nature of Public Limited company and hence, they have to comply with two set of norms, one of Public limited company as per Companies Act, 2013 and another is for Nidhi rules, 2014. Nidhis are regulated by the provisions of the Companies Act in force. They also come under one class of NBFCs and hence RBI is empowered to issue directions to them in matters relating to their deposit acceptance activities. RBI has in recognition of the fact that these Nidhis deal with their shareholder-members only exempted the notified Nidhis from the core provisions of the RBI Act and other directions applicable to NBFCs.
However, unlike other NBFCs, no RBI approval is necessary to register the company, as RBI has specifically exempted this category of NBFC in India to comply with its core provisions such as the notified Nidhi companies are exempted from the provisions of Section 45-IA (Compulsory Registration with RBI), Section 45-IB (Maintenance of Liquid Assets) and Section 45-IC (Creation of Reserve Fund), it has been decided on the lines of Government advice to exempt the MBCs in existence as on January 9, 1997 and having NOF of Rs.10 lakh from the above mentioned provisions of the Act in terms of powers vested with the Bank under Section 45-NC of the Act and also from those provisions of NBFC Directions on Acceptance of Public Deposits and Prudential Norms which do not apply to notified nidhi companies.
“NIDHI” has launched by the Union Government National Initiative for Developing and Harnessing Innovations (NIDHI) is an umbrella programme conceived and developed by the Department of Science & Technology (DST), Government of India, for nurturing ideas and innovations (knowledge-based and technology-driven) into successful start-ups). RBI also issues some directives for the governance of this company. It is form of a public limited company.