Context: Recently, the Company Law Committee has made a host of recommendations for stricter regulation of Nidhi companies.

• Their suggestion includes more due diligence at the incorporation stage, restricting validity of Nidhi status to about five years, and empowering the Centre to formulate schemes for their restructuring.

Key suggestions

• The committee suggested that the Central Government should prescribe rules and only companies that fulfil the prescribed financial and non-financial criteria should be declared as Nidhis.
• It proposed granting Nidhi status for a specified period (approximately five years), after which the Nidhis may apply for renewal, subject to compliance with the Companies Act (CA) 2013.
• The committee suggested that the Central Government should have the power to formulate schemes for restructuring (merger, amalgamation or takeover) of Nidhis that are sick, financially weak or mismanaged.
• Additionally, Nidhis not financially viable should be wound up through liquidation.
• The panel suggested that existing Nidhis should be mandated to comply with the new requirements within a reasonable transitional period (two to three years).
• The committee stressed on robust and time-bound checks ahead of granting Nidhi status.

Nidhi company

• It is a type of company in the Indian non-banking finance sector, recognized under Companies Act, 2013.
• These companies deal with their shareholder-members only.
• It is dependent on the principle of mutual benefit.

Objectives

• To borrow and lend money between their members only for their mutual benefit.
• To develop the habit of thrift and reserve funds amongst its members.

Governing Laws

• They are regulated by Ministry of Corporate Affairs.
• They do not need to register for a license from the Reserve Bank of India (RBI).
• A Nidhi company can be started with an initial capital of Rs.5 lakh and requires at least seven people to start with (minimum 7 members).

Prohibitions

• A Nidhi Company cannot deal with: Chit funds, Hire-purchase finance, Leasing of finances, Insurance business and Securities business.
• It can neither accept deposits nor lend funds from and to any other person except members.