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Compliance norms tightened for Nidhi firms

anamika sinha
Nidhi firms, Ministry of corporate affairs, NBFC, Nidhi companies, Form NDH-4, AMRG & Associates

The Ministry of corporate affairs (MCA) has tightened compliance norms for Nidhi companies, a kind of non-banking financial companies (NBFCs), which are created to borrow and lend money among its members.

The move comes in the backdrop of the government revising corporate norms to ensure that investors are not duped through fraudulent activities. The ministry has advised investors to verify the status of a Nidhi company from the notification issued by the Centre in official gazette before making any investment or deposit. Although there is no updated data on the number of such entities registered with the MCA, sources say there are around 350 such companies. A major part of them are in the southern part of the country.

The government has amended the provisions related to Nidhis under the Companies Act, which now requires Nidhi companies to apply to the Centre for updation of their status and declaration as a Nidhi company in Form NDH-4.

The time frame for this exercise is restricted to one year from the date of incorporation or within nine months of the Nidhi Amendment Rules - August 15, 2019, whichever is later. This means that firms incorporated as Nidhi before the amendment rules (August 15, 2019) will have to apply within one year from the date of its incorporation or within 9 months of the amendment rules, whichever is later. Companies incorporated as Nidhi on or after August 15, 2019 will have to apply within 60 days of expiry of one year from the date of incorporation or the extended period.

An official source said the idea is to make regulatory regime for Nidhi companies more effective as well as to accomplish the objectives of transparency and investor friendliness. AMRG & Associates chief executive Gaurav Mohan said in case a company does not comply with mandated requirements, the entity and every officer of the company which is in default shall initially be punishable with fine which may extend to Rs 5,000 and a further fine in case of continuous violations.

"Nidhi being a company incorporated with the objective of cultivating the habit of thrift and savings among its members, receiving deposits from and lending to its members only for their mutual benefit, these stringent measures would lead to greater transparency and will be a step forward in invoking investor friendliness in the economy," he noted.