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General Restrictions or Prohibitions on Nidhi Company

A Nidhi Company is a company registered under Section 406 of Companies Act, 2013. It is a non-banking finance company doing the business of lending and borrowing with its members or shareholders.

It is registered as a public company and should have “Nidhi Limited” as the last words of its name. Nidhi Company can be incorporated with a minimum seven members and out of these 7 members, 3 members must be the director of the company. However, Nidhi Company has various restriction and prohibitions which it must follow.

Rule 6 – General Restrictions on a Nidhi Company:

According to this Rule no Nidhi shall-

  • Carry on the business of chit fund or leasing finance or hire purchase finance or insurance or acquisition of securities issued by body corporates
  • Issue preference shares / debentures / any other debt instruments
  • Open any current account with its members
  • Accept deposits or lend to any person other than members
  • Advertise for itself asking for a deposit
  • Pledge any of the assets lodged by its members as security
  • Enter into any arrangement for the change of its  management, unless it has passed a special resolution in its general meeting and also obtained the previous approval of the Regional Director having jurisdiction over Nidhi
  • Pay any brokerage or incentive for mobilizing deposits from members or for deployment of funds or the granting loans
  • Carry on any business other than the business of borrowing or lending in its own name; provided that Nidhi is which have adhered to all the provisions of these rules may provide:
    • locker facilities on rent to its members subject to the rental income from such facilities
    • not exceeding 20% of the gross income of the Nidhi
    • at any point of time during a financial year.

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Note: This Post was last updated on January 18, 2023

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