Introduction

The Ministry of Corporate Affairs notified the Nidhi (Amendment) Rules, 2022 with an objective to regulate Nidhi companies more strictly and to ensure that only genuine companies are allowed to function as Nidhis. Earlier, many promoters were incorporating public companies and using the name “Nidhi” without adequate scrutiny. This led to misuse and depositors facing financial risks. The amendment, especially Rule 3B, has brought in a mandatory approval process through Form NDH-4. In this article, we will understand the requirements under Rule 3B, its implications, and the consequences of non-compliance.

Applicability of Rule 3B

According to the amendment, any public company which wants to be declared as a Nidhi on or after the commencement of these rules must apply in Form NDH-4 within 120 days of its incorporation. The application will be considered only if the company fulfils two basic conditions:

• It has a minimum of 200 members.
• It has a minimum of ₹20 lakh Net Owned Funds.

This means that promoters cannot simply incorporate a company and call it a Nidhi without meeting these minimum benchmarks.

Fit and Proper Person Criteria

The rules also introduced a new layer of scrutiny by requiring a declaration from promoters and directors that they are “fit and proper persons.” The government will assess their eligibility based on:

• Integrity, honesty, ethical behaviour, and reputation.
• Absence of criminal complaints, charge sheets, or convictions.
• Not being insolvent, a willful defaulter, or a fugitive economic offender.
• Not holding excessive directorships in other Nidhi companies.

This ensures that the management of Nidhis remains credible and accountable.

Approval Process by Central Government

Once the application is filed in NDH-4, the Central Government is required to examine it and communicate its decision within 45 days. If no decision is given within this period, the application is deemed approved. After receiving approval, the company must file the decision with the Registrar of Companies along with Form 20A (Commencement of Business). Only after this step can the company legally commence its operations as a Nidhi.

Restrictions in Case of Non-Compliance

The amendment has also introduced restrictions on companies that do not comply with Rule 3B. A company that fails to apply in NDH-4 or does not fulfil the conditions cannot file:

• Form SH-7 (alteration of share capital), and
• Form PAS-3 (return of allotment).

This means the company will be blocked from altering its share capital structure or issuing new shares, which are essential for its functioning.

Reference with the Law

These provisions are contained in Rule 3B of the Nidhi Rules, 2014, as amended by the Nidhi (Amendment) Rules, 2022, read with section 406 of the Companies Act, 2013. The requirement of Form 20A flows from section 10A of the Companies Act, 2013.

Penalty for Non-Compliance

Rule 24 provides that if a company contravenes any of the provisions, the company and every officer in default shall be punishable with a fine up to ₹5,000, and where the contravention continues, with a further fine up to ₹500 for every day. This highlights that delay or neglect in filing NDH-4 can result in significant financial liability.

Conclusion

The Nidhi (Amendment) Rules, 2022 have made it clear that the approval of the Central Government through Form NDH-4 is mandatory for a company that wishes to operate as a Nidhi. The conditions relating to membership, capital, and promoter eligibility are aimed at protecting public deposits and improving transparency. Promoters must carefully prepare before incorporation and ensure compliance within the prescribed timeline. Non-compliance not only attracts penalties but also restricts the company from carrying out basic corporate actions.

Frequently Asked Questions (FAQs) on Nidhi (Amendment) Rules, 2022 – Rule 3B

Q1. What is Rule 3B of the Nidhi (Amendment) Rules, 2022?

Rule 3B requires every public company that wants to be declared as a Nidhi to apply in Form NDH-4 within 120 days of incorporation, provided it has at least 200 members and Net Owned Funds of ₹20 lakh or more.

Q2. What is Form NDH-4?

Form NDH-4 is the application form that a public company must file with the Central Government to get approval for recognition as a Nidhi Company. Without this approval, the company cannot commence Nidhi operations.

Q3. What are the eligibility conditions to apply in NDH-4?

• Minimum 200 members.
• Net Owned Funds of ₹20 lakh or more.
• Promoters and directors must satisfy the “fit and proper person” criteria.

Q4. What does ‘fit and proper person’ mean under the rules?

It refers to promoters and directors who have integrity, honesty, and reputation, and do not have criminal cases, insolvency issues, conviction orders, or excessive involvement in other Nidhis.

Q5. How much time does the Central Government take to decide on NDH-4?

The Central Government is required to communicate its decision within 45 days of receiving NDH-4. If no decision is given, the application is deemed approved.

Q6. Can a company start business as a Nidhi without NDH-4 approval?

No. A company can commence business as a Nidhi only after getting approval from the Central Government and filing Form 20A with the Registrar of Companies.

Q7. What happens if a company does not file NDH-4 within 120 days?

Such a company will not be allowed to file key forms like SH-7 (alteration of share capital) or PAS-3 (return of allotment). This practically restricts its growth and fund-raising ability.

Q8. What is the penalty for not complying with Rule 3B?

The company and every officer in default are liable for a fine up to ₹5,000. If the contravention continues, an additional fine of ₹500 per day will apply.

Q9. Does Rule 3B apply to all Nidhi Companies?

No. It applies only to public companies incorporated on or after the commencement of the Nidhi (Amendment) Rules, 2022. Companies incorporated before the amendment have different compliance timelines.

Q10. Why were these amendments introduced?

The amendment was made to prevent misuse of the Nidhi structure and to protect depositors. It ensures that only financially strong and credible companies, with clean promoters, can operate as Nidhis.