Annual Compliances of Nidhi Company are a kind of Non-banking Financial Companies (NBFCs) functioning on the principle of mutuality. Nidhi Companies deal with only its own members, accepting deposits and lending money only to its members. The principle of mutuality ordains the members of the Nidhi to provide for each other’s needs making it a kind of symbiotic relationship. The fund flows from ‘haves’ to ‘have-nots.’ It was actually invented as a way to save people from the clutches of predatory money lenders.


Nidhi Companies are governed by the Companies Act, 2013, Section 406 of the Companies Act, 2013 read with Nidhi Rules, 2014, which were recently amended ie., second time in 2020. Rule 3 (da) of Nidhi Rules, 2014 actually defines it as a company with the objective of cultivating the practice of savings amongst the members of Nidhi company, receiving of deposits, and lending to its own members, for their mutual benefit. Further, it needs to comply with the rules framed by the central government, especially for Nidhi Companies.

Nidhi Rules, 2014 also enumerate the requirements for being incorporated as a Nidhi Company:

Rule 4 lays down requirements for its memorandum-

  • (i) It shall be a public company and shall have a minimum paid-up equity share capital of 5 lakh rupees. It shall not issue preference shares.
  • (ii) The only object it can include in its Memorandum of Association is that of cultivating the practice of savings amongst its members, receiving deposits from, and lending to, its members only, for their mutual benefit.
  • (iii) It shall have the last words ‘Nidhi Limited’ as part of its name.

These are basic requirements for incorporation as a Nidhi Company. After incorporation of Nidhi Company, the company needs to comply with certain requirements within a year. Otherwise, it may lose its legal character.

What are the advantages of Nidhi Company?

  • As pointed out earlier, these companies were developed as a way to provide easy loans to the middle classes. The registration process is easier given that you don’t have to take prior approval from RBI, nor does one need to follow the stringent compliances that other companies need to follow.
  • Moreover, when compared with the minimum capital need for registering other NBFCs in India, the capital need for registering a Nidhi Company is very less (just INR 5 lakhs).
  • Further, it cannot allow any outsider (non-member) to invest or lend money in the company, raises the possibility of low funds if the investment by the members is not plenty and with that, the whole purpose of forming a Nidhi Company gets lost in the first place.


The company needs to fulfill its annual compliances within one year of incorporation. Otherwise, it might be asked to refund its deposits.

Rule 5 of the Nidhi Company Rules, 2014 lays down that-

a. Number of its members needs to be increased to at least 200 members within a year and Net Owned Funds to 10 Lakh rupees

b. The Net Owned Funds to deposit ratio shall not be more than 1:20

c. Unencumbered term deposits of upto 10% of the outstanding deposits.

If the company does not comply with these preliminary requirements, even after the 2nd financial year, it will not accept any further deposits from the commencement of the second financial year till it complies with these requirements besides being liable for penal consequences as provided in the Companies Act.

  • It should file form NDH-1 along with the prescribed fees within the period of 90 days from the end of the 1st financial year after its incorporation and, where applicable, the second financial year.
  • In case it is unable to gather 200 members or maintain a capital-deposit ratio of 1:20, it needs to file from NDH-2 along with the prescribed fees with the regional director for an extension of time. The Regional Director (“RD”) may consider the application and pass orders within thirty days of receipt of the application.
  • It is also required to file form NDH-3 along with the requisite fee. This is a half-yearly return which is required to be filed at the end of 30th September and 31st March every time every year. Under this return, details pertaining to Nidhi company, including the number of members (existing, newly admitted, and ceased), total deposits, loans, etc., are to be disclosed.


  • must have at least ‘7 shareholders’ and ‘3 directors.’
  • do not issue preference shares
  • issue fully paid-up equity shares
  • do not admit a body corporate or trust as a member, nor a minor shall be admitted.
  • branches can only be opened if it has earned net profits after tax continuously during the preceding three financial years.
  • in case of more than three branches, prior permission of the Regional Director needs to be taken, but none out of the State where it has its registered office.
  • application for deposit in a Nidhi Company shall be in accordance with rule 12 of the Nidhi Rules, 2013.
  • fixed deposits shall be accepted for a min. Period of 6 months and a maximum period of 60 months.
  • Recurring deposits shall be accepted for a min. period of 12 months and a maximum period of 60 months.
  • the maximum rate of interest on these deposits shall not exceed the max. Rate of interest as prescribed by the Reserve Bank of India(RBI). Which the Non-Banking Financial Companies (NBFC)can pay on their public deposits.
  • it can only provide a secured loan, i.e., loan against certain securities like gold, silver, immovable property, etc.


The point to keep in mind is that it is a welfare company, not actually a profit-making company. This is the reason why it has been prohibited to do any side-business. As they are not in vogue all over India, around 80% of Nidhi Companies are in Tamil Nadu. However, it becomes important to keep an eye on the functioning of these companies since they are given such heavy discounts on compliances. The amendments of 2020 were brought in this direction. Now these companies are required to makes some annexures and attachments with the NDH forms. They submit to the Ministry of Corporate Affairs.