Relevance: GS-3 : Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment.
Key Phrases: Nidhi (Amendment Rules), 2022 ,Ministry of Corporate Affairs, Fraudulent Activities, Non- Compliance ,Regulatory Compliance, Mutual Benefits
Why in News ?
- The corporate affairs ministry has tightened compliance requirements governing Nidhi companies and has notified Nidhi (Amendment Rules), 2022 amending the Nidhi Rules, 2014
- The new provisions will be applicable to Nidhi companies set up after 19 April.
Provisions of Nidhi (Amendment) Rules, 2022 :
- Declaration as Nidhi:
- Now, public companies seeking to function as Nidhis must obtain a prior declaration from the central government before accepting a deposit.
- Amended rules prohibit the non-compliant Nidhi companies to raise any deposit from its members or provide any loan to them.
- Accordingly, a public company set up as a Nidhi with share capital of ₹1 million needs to first get itself declared as a Nidhi from the Union government.
- This can be done by submitting an application showing a minimum membership of 200 and net owned funds of ₹2 million within 120 days of its incorporation.
- Criteria of Fit and Proper person:
- The promoters and directors of the company have to meet the criteria of fit and proper person as laid down in the rules.
- Timely Disposal:
- In case no decision is conveyed by the central government within 45 days of the receipt of applications filed by companies in form NDH-4, approval would be deemed as granted.
- This would apply for such companies which shall be incorporated after Nidhi (Amendment) Rules, 2022 .
What was the Need for the Amendment ?
- To protect the interests of the public and prevent possible illegal fund raising activities
- Significant increase in the number of Nidhi companies in recent years and instances of the public getting duped by fraudulent money-pooling activities.
- During 2014-2019, more than ten thousand companies got incorporated. However, only about 2,300 companies have applied in form NDH-4 for declaration. It has been noticed from examination of form NDH-4 that companies have not been complying with the applicable provisions of the Act and the Nidhi Rules 2014 (as amended)
- The ministry said that the declarations showed that companies have not been complying with the norms.
What are Nidhi Companies?
- A nidhi company is a type of company in the Indian non-banking finance sector, recognized under section 406 of the Companies Act, 2013.
- Their core business is BThey are also known as Permanent Fund, Benefit Funds, Mutual Benefit Funds and Mutual Benefit Company.,
- They are regulated by the Ministry of Corporate Affairs which is also empowered to issue directions to them in matters relating to their deposit acceptance activities.
- They are incorporated with the object of developing the habit of thrift and reserve funds amongst its members and also receiving deposits and lending to its members only for their mutual benefit.
- They are incorporated in the nature of Public Limited company and hence, they have to comply with two sets of norms, one of Public limited company as per Companies Act, 2013 and another is for Nidhi rules, 2014.
- Only individual members are allowed in Nidhi companies and it cannot give loans to companies.
Conclusion:
- Nidhi companies are a key player in the financial system as they mobilize funds from their members and give loans to them at a lower interest than commercial banks.
- A type of non-bank lenders that raise funds exclusively from their members and give loans to them, to improve their governance and protect public interest.
- Nidhi companies are very popular in South India.
Source: Live-Mint
Mains Question:
Q. What are Nidhi Companies? Explain their role in the financial system in mobilising funds. Also briefly comment upon the Nidhi( Amendment)Rules 2022 passed by the government.
