How to Register a Nidhi Company in India: Incorporation, NDH-4 Declaration and Member Rules

A Nidhi takes deposits from, and lends to, its own members only. Every part of that closed circle is fenced by the Nidhi Rules, 2014, and the fences were tightened in 2019 and again in 2022. This guide covers registration for a company being formed now: the legal shape first, then the steps, then the tests that decide whether the application succeeds.

What a Nidhi legally is

The Companies Act, 2013 gives Nidhis a one-line definition. A "Nidhi" or "Mutual Benefit Society" means a company which the Central Government may, by notification in the Official Gazette, declare to be a Nidhi or Mutual Benefit Society (s.406(1), Companies Act 2013). The Central Government may also direct that any provision of the Act does not apply, or applies with modifications, to Nidhis (s.406(2), Companies Act 2013). So two documents govern a Nidhi: the Act for company machinery, and the Nidhi Rules, 2014 for everything that makes a Nidhi different.

Those rules are not the 2014 text any more. The Nidhi (Amendment) Rules, 2019 came into force on 15 August 2019 and inserted rule 3A, the Form NDH-4 declaration. The Nidhi (Amendment) Rules, 2022, published on 19 April 2022, inserted rule 3B, which is the route for companies formed after that date. A guide that reads only the 2014 text will tell a promoter to stop at incorporation. That is wrong.

A Nidhi is not a bank. Its memorandum may carry no object other than cultivating the habit of thrift and savings among its members, and receiving deposits from, and lending to, its members only, for their mutual benefit, with a narrow locker exception (rule 4(4), Nidhi Rules 2014). If the plan involves lending to non-members, the Nidhi is the wrong structure.

The public-company floor and capital

A Nidhi shall be a public company with minimum paid-up equity share capital of ten lakh rupees. The 2014 figure was five lakh rupees; the 2022 amendment substituted "ten lakh rupees" in rule 4(1), and Nidhis that already existed had eighteen months from commencement to comply (rule 4(1) and proviso, Nidhi Rules 2014, as amended by the Nidhi (Amendment) Rules, 2022). The 2019 amendment also dropped the words "to be incorporated under the Act" from rule 4(1), so the rule speaks of a Nidhi generally.

The Act sets the public-company floor: seven or more persons may form a public company by subscribing a memorandum (s.3(1)(a), Companies Act 2013), and a public company needs at least three directors (s.149(1)(a), Companies Act 2013). Plan for at least seven subscribers and three directors on day one.

Shares must be equity shares of nominal value not less than ten rupees each, and since 2019 they must be fully paid up (rule 7(1), Nidhi Rules 2014, with "fully paid up" inserted by the Nidhi (Amendment) Rules, 2019). A partly paid ten-rupee share does not satisfy the rule. A Nidhi may not issue preference shares (rule 4(2), Nidhi Rules 2014), and cannot issue debentures or any other debt instrument (rule 6(b), Nidhi Rules 2014).

The name and the objects clause

The memorandum must carry the company name with the last word "Limited" for a public limited company (s.4(1)(a), Companies Act 2013). A Nidhi must go further: it shall have the last words "Nidhi Limited" as part of its name (rule 4(5), Nidhi Rules 2014; the 2019 rules deleted the words "Company incorporated as a" from this sub-rule, without changing the meaning).

The objects clause is the narrowest of any company type. Draft it to mirror rule 4(4): thrift and savings among members, deposits from members, loans to members for mutual benefit. The one carve-out is locker facilities on rent to members, which are allowed only for Nidhis that have adhered to all the rules and only while rental income stays within twenty per cent of gross income at any point in a financial year (proviso to rule 6(e), Nidhi Rules 2014).

Step 1: incorporate the public company

Incorporation follows the ordinary section 7 route. File with the Registrar of the registered office's jurisdiction the memorandum and articles signed by all subscribers, plus a declaration by a professional engaged in the formation (advocate, chartered accountant, cost accountant or company secretary in practice) and by a person named in the articles as director, manager or secretary, that all requirements of the Act and rules have been complied with (s.7(1)(a)-(b), Companies Act 2013).

That makes a company. It does not make a Nidhi. A Nidhi is a company the Central Government has declared one, which is the next step.

Step 2: apply for the declaration on Form NDH-4

Rule 3A says the Central Government, on receipt of an application in Form NDH-4 along with fee from a public company for declaring it a Nidhi, and on being satisfied that the company meets the requirements under the rules, shall notify the company as a Nidhi in the Official Gazette (rule 3A, Nidhi Rules 2014).

For a company incorporated after the 2022 amendment, rule 3B sets the timetable. A public company desirous of being declared a Nidhi shall apply in Form NDH-4 within one hundred twenty days of its incorporation, if it fulfils both conditions: (I) it has not less than two hundred members, and (II) it has Net Owned Funds of twenty lakh rupees or more (rule 3B(1), Nidhi Rules 2014, as inserted in 2022).

Read that against the capital rule: the paid-up floor is ten lakh rupees, but the Net Owned Funds test for the declaration is twenty lakh rupees, and the membership test is two hundred. A promoter who has seven subscribers and ten lakh rupees on the incorporation date is nowhere near the declaration. The membership drive and the funding must be largely in hand inside the 120-day window.

What the application must carry and how it is decided:

• A declaration that all promoters and directors meet the "fit and proper person" criteria (rule 3B(2), Nidhi Rules 2014).
• The criteria look at integrity, honesty, ethical behaviour, reputation, fairness and character, and disqualify, among others, a person with a pending criminal complaint or charge sheet in economic offences, an order of conviction for an offence involving moral turpitude, an undischarged insolvent, a wilful defaulter, a fugitive economic offender, and a person who is a director in five or more companies incorporated or declared as Nidhi or a promoter of three or more (rule 3B(3), Nidhi Rules 2014).
• The Central Government examines the application and conveys its decision within forty-five days; if it does not decide within that period the application is deemed approved (rule 3B(4), Nidhi Rules 2014).
• On approval the Central Government notifies the company in the Official Gazette as a Nidhi, and the company files the decision with the Registrar along with Form 20A under section 10A (rule 3B(5), Nidhi Rules 2014). The company shall commence business only once the Central Government's approval is obtained (proviso to rule 3B(5), Nidhi Rules 2014).

The consequence of missing the window is serious. A company that does not comply with rule 3B(1) is not allowed to file Form SH-7 (alteration of share capital) or Form PAS-3 (return of allotment) (rule 3B(6), Nidhi Rules 2014). PAS-3 is how shares are allotted, so a Nidhi that misses the application cannot bring in member share capital.

Which rule applies to which company

The route depends on when the company was incorporated.

• After 19 April 2022: rule 3B, the 120-day application above. Rule 3B does not apply to a public company incorporated before the date of commencement of the 2022 rules (rule 3B(7), Nidhi Rules 2014).
• Between 15 August 2019 and the 2022 rules: rule 3A's first proviso, which required Form NDH-4 within sixty days from the expiry of one year from incorporation, or of any extension the Regional Director had granted under rule 5(3) (rule 3A, first proviso, Nidhi Rules 2014).
• Older Nidhis: the one-year member and funds tests of rule 5 and the Form NDH-2 extension route were for these companies. Rule 5(5), inserted in 2022, says rule 5 does not apply to companies incorporated as Nidhi on or after the commencement of the 2022 rules (rule 5(5), Nidhi Rules 2014). A company being formed today should not plan around Form NDH-2.

The 2022 amendment also added a proviso that a company which has not complied with rule 3A, or whose NDH-4 application is rejected, shall not raise any deposit from its members or provide any loan to its members from the date of the non-compliance or rejection (rule 3A, additional proviso inserted in 2022).

The Nidhi Rules are amended from time to time, so check the current notified text on the MCA website before you file.

Membership: who can and cannot join

A Nidhi shall not admit a body corporate or a trust as a member (rule 8(1), Nidhi Rules 2014). Companies, LLPs and trusts cannot be members. A minor cannot be admitted as a member, though deposits may be accepted in a minor's name if made by a natural or legal guardian who is a member (rule 8(3), Nidhi Rules 2014). Membership must not be reduced to less than two hundred members at any time, except as the rules otherwise permit (rule 8(2), Nidhi Rules 2014).

Since 2022, a member shall not transfer more than fifty per cent of his shareholding, as on the date of availing a loan or making a deposit, while that loan or deposit subsists, and must always keep the minimum shares required by rule 7(3) (rule 8(4), Nidhi Rules 2014).

Every deposit holder must also hold shares: at least ten equity shares or shares equivalent to one hundred rupees, and at least one ten-rupee equity share for a savings account or recurring deposit holder (rule 7(3), Nidhi Rules 2014). No service charge may be levied for issue of shares (rule 7(2), Nidhi Rules 2014).

Net Owned Funds

Every Nidhi shall maintain Net Owned Funds, excluding preference share proceeds, of not less than twenty lakh rupees. The 2014 text said ten lakh rupees; the 2022 amendment substituted "twenty lakh" in rule 9, with eighteen months for existing Nidhis to comply (rule 9 and proviso, Nidhi Rules 2014, as amended in 2022).

What a Nidhi may never do

Rule 6 is a prohibition list. In summary, no Nidhi may:

• carry on chit fund, hire purchase finance, leasing finance or insurance business, or acquire securities issued by any body corporate (rule 6(a));
• issue preference shares, debentures or any debt instrument (rule 6(b));
• open a current account with its members (rule 6(c));
• acquire or purchase securities of any other company, control the composition of the board of any other company, or enter into any arrangement for the change of its management (rule 6(d), as substituted in 2022);
• carry on any business other than borrowing or lending in its own name, subject to the locker proviso (rule 6(e));
• accept deposits from or lend to any person other than its members (rule 6(f));
• pledge assets lodged by its members as security (rule 6(g));
• take deposits from or lend money to any body corporate (rule 6(h));
• enter into any partnership arrangement in its borrowing or lending activities (rule 6(i));
• issue any advertisement soliciting deposits, though private circulation of fixed deposit scheme details among members marked "for private circulation to members only" is not an advertisement (rule 6(j) and proviso);
• pay any brokerage or incentive for mobilising deposits, deploying funds or granting loans (rule 6(k)); or
• raise loans from banks, financial institutions or any other source for the purpose of advancing loans to members (rule 6(l), inserted in 2022).

All of these are in the Nidhi Rules, 2014. The earlier rule 6(d) allowed acquisitions with a special resolution and prior Regional Director approval; that route no longer reads that way after the 2022 substitution.

The registration sequence

• Assemble the membership first. At least seven subscribers to incorporate, and a pipeline of two hundred individual members, because the NDH-4 application needs them inside 120 days.
• Fix the name ending in "Nidhi Limited" and draft objects confined to rule 4(4).
• Capitalise with at least ten lakh rupees of fully paid up equity, face value ten rupees or more, no preference shares.
• Incorporate under section 7. The certificate of incorporation starts the 120-day clock.
• Raise Net Owned Funds to twenty lakh rupees or more and complete the fit and proper declarations for every promoter and director.
• File Form NDH-4 within 120 days of incorporation with the declarations attached (rule 3B).
• Do not commence business until the Central Government's approval is obtained, then file the decision with the Registrar with Form 20A.

What to do now

• Next step: confirm you can reach two hundred individual members and twenty lakh rupees of Net Owned Funds inside 120 days of incorporation, and that every promoter and director clears the fit and proper test (rule 3B(1)-(3), Nidhi Rules 2014).
• Deadline: Form NDH-4 within one hundred twenty days of incorporation (rule 3B(1), Nidhi Rules 2014).
• Consequence of missing it: no Form SH-7 or PAS-3 may be filed (rule 3B(6), Nidhi Rules 2014).

Have a CA review your facts before you act or file.

FAQ

Is incorporation enough, or must we be declared a Nidhi?
Declared. A Nidhi is a company the Central Government declares one on application in Form NDH-4 (rule 3A, Nidhi Rules 2014; s.406(1), Companies Act 2013).

Is there a separate incorporation form for a Nidhi?
No. A Nidhi is incorporated as a public company on the ordinary section 7 route, then applies on Form NDH-4 for the declaration (s.7(1), Companies Act 2013; rule 3B(1), Nidhi Rules 2014).

Can a company or trust become a member?
No. A Nidhi shall not admit a body corporate or trust as a member (rule 8(1), Nidhi Rules 2014).

How much capital do we need?
Ten lakh rupees paid-up equity, fully paid up (rule 4(1) as amended in 2022 and rule 7(1), Nidhi Rules 2014). Net Owned Funds of twenty lakh rupees are needed for the declaration and must be maintained (rule 3B(1)(II) and rule 9, Nidhi Rules 2014).

Can the Nidhi advertise its deposit schemes?
No advertisement soliciting deposits; only private circulation among members marked "for private circulation to members only" (rule 6(j) and proviso, Nidhi Rules 2014).

Can the Nidhi lend to a member's company?
No. It may not take deposits from or lend to a body corporate, or to anyone other than members (rule 6(f) and (h), Nidhi Rules 2014).

---

See Also

• How to Register a Private Trust in India: Deed, Registration and the Four Certainties
• Company incorporation under section 7: the filing pack, the certificate and liability for false papers
• New Pvt Ltd: Your First 90 Days of Compliance