Opening and Closing of Branches in Nidhi Companies – Rule 10 Explained

Introduction

Nidhi Companies are mutual benefit societies recognised under Section 406 of the Companies Act, 2013. Since they operate with public deposits, the law regulates not only how they raise and use funds but also where and how they expand operations. Rule 10 of the Nidhi Rules, 2014, as amended in 2022, lays down the conditions for opening and closing branches. These provisions ensure that only financially stable and compliant Nidhis are allowed to expand their footprint.

Eligibility to Open Branches

The first condition for opening branches is profitability. A Nidhi can open branches only if it has recorded net profits after tax continuously for the preceding three financial years. This prevents companies with weak financials from over-expanding and putting members’ deposits at risk.

Number of Branches Permitted

If the company satisfies the profitability condition, it may open up to three branches within the district where its registered office is situated. This gives Nidhis reasonable flexibility to serve their members locally without becoming overextended.

For any expansion beyond this limit, or for opening a branch outside the district, the Nidhi must obtain prior permission from the Regional Director by filing Form NDH-2 with the prescribed fee. Additionally, an intimation to the Registrar must be sent within thirty days of opening every branch.

Restrictions on Geographical Expansion

The law expressly prohibits Nidhis from opening branches outside the State in which their registered office is situated. This ensures that Nidhis remain small, regionally focused, and community-driven, rather than functioning like nationwide financial institutions.

Compliance Prerequisites

No Nidhi is allowed to open branches unless its financial statements and annual returns have been filed with the Registrar. This requirement reinforces that only compliant companies are permitted to expand operations.

Closure of Branches – Step-by-Step

Closing a branch is as carefully regulated as opening one. A Nidhi cannot close a branch unless:

1. The proposal to close the branch, along with a detailed plan for repayment of deposits and recovery of outstanding loans, is approved by the Board of Directors.
2. Prior approval of the Regional Director is obtained by filing Form NDH-2 at least sixty days before the proposed closure. The Regional Director must pass an order within thirty days of receiving the application.
3. After approval:
   • An advertisement in NDH-5 format must be published in a vernacular newspaper at least thirty days before closure.
   • A notice of closure must be displayed on the notice board of the registered office and the branch itself for at least thirty days.
   • An intimation to the Registrar must be filed in Form NDH-2 within thirty days of closure.

These conditions protect depositors by ensuring that closure does not jeopardise repayment or loan recovery.

Places of Business Other Than Branches – 2022 Amendment

The 2022 amendment introduced a stricter rule: any place where a Nidhi was carrying out operations but which was not registered as a branch or the registered office had to be closed within six months of commencement of the amendment. Intimation of such closure must also be sent to the Registrar in Form NDH-2. This provision was designed to curb the practice of Nidhis running unofficial centres without regulatory oversight.

Why These Rules Matter

The rules for opening and closing branches highlight the government’s approach towards Nidhis:

• Financial discipline first – only profitable Nidhis can expand.
• Controlled growth – branches restricted to three in a district unless approval is taken.
• Regional focus – no operations allowed outside the state.
• Transparency – branch openings, closures, and even informal centres must be reported and approved.
• Depositor protection – closure only allowed with repayment and recovery plans in place.

Conclusion

Rule 10 of the Nidhi Rules ensures that expansion and closure of branches is not a casual decision but a carefully monitored process. By requiring profitability, compliance with annual filings, prior approvals, and public intimation, the law balances growth opportunities with depositor safety.

For promoters and directors, the lesson is clear: plan expansion carefully, maintain profitability and compliance, and always seek the necessary approvals before opening or closing branches. For members, these rules provide assurance that their savings are not at risk due to reckless expansion or abrupt closures.

Frequently Asked Questions (FAQs) on Branches of Nidhi Companies

Q1. When can a Nidhi Company open branches?
A Nidhi can open branches only if it has earned net profit after tax for the last three consecutive financial years. Without consistent profitability, it cannot expand.

Q2. How many branches can a Nidhi open without special approval?
A Nidhi can open up to three branches within the same district without prior approval, provided it meets the profitability condition.

Q3. What if a Nidhi wants to open more than three branches or outside the district?
The company must obtain prior permission from the Regional Director by filing Form NDH-2 with the prescribed fee. It must also send an intimation to the Registrar within thirty days of opening any branch.

Q4. Can a Nidhi open a branch outside the state of its registered office?
No. Rule 10 clearly prohibits Nidhis from opening branches outside the state where their registered office is situated.

Q5. What compliance is needed before opening a branch?
A Nidhi must ensure that its financial statements and annual returns are up to date and filed with the Registrar. Without this, it cannot open new branches.

Q6. How can a Nidhi close one of its branches?
To close a branch, the Nidhi must:

• Get the proposal approved by its Board of Directors along with a plan to repay deposits and recover loans.
• Obtain prior approval from the Regional Director by filing Form NDH-2 at least sixty days before closure.
• Publish an advertisement in NDH-5 format in a local newspaper at least thirty days before closure.
• Display a notice of closure at the registered office and the branch for at least thirty days.
• Intimate the Registrar within thirty days of closure.

Q7. What happens to places where a Nidhi was operating without registering them as branches?
As per the 2022 amendment, any such place must be closed within six months, and an intimation of closure must be sent to the Registrar in Form NDH-2.

Q8. Why are these branch rules so strict for Nidhis?
Because Nidhis operate with public deposits, strict rules prevent reckless expansion, ensure transparency, and safeguard depositors. Only profitable, compliant, and approved companies can expand their operations.