Introduction

The regulation of Nidhi Companies has always been a sensitive matter because they deal directly with public deposits and loans. To bring greater transparency and control, the Ministry of Corporate Affairs introduced amendments to the Nidhi Rules, 2019 and further strengthened them in 2022. One of the most important provisions is Rule 3A on Declaration of Nidhis, which sets out how and when a public company can be officially recognised as a Nidhi. This article examines the rule in detail, explains the timelines, and highlights the consequences of non-compliance.

Understanding Rule 3A

Rule 3A requires a public company that wishes to be declared as a Nidhi to submit an application in Form NDH-4 to the Central Government along with the prescribed fee. Once the Central Government is satisfied that the company meets all the requirements under the rules, it issues a notification in the Official Gazette declaring that company as a Nidhi. This official declaration is important because only after such recognition can a company legally carry on the activities of a Nidhi.

For companies incorporated after the commencement of the Nidhi (Amendment) Rules, 2019, a specific timeline has been prescribed. They must file NDH-4 within sixty days from the expiry of one year from incorporation. If the company has been granted an extension by the Regional Director under Rule 5(3), then NDH-4 must be filed within sixty days of that extended period. The law also allows companies to file NDH-4 earlier if they meet the requirements, instead of waiting until the end of the one-year period.

Consequences of Not Filing NDH-4

The amendment made it clear that failure to comply with Rule 3A has serious consequences. A company that does not file NDH-4 or whose application is rejected will not be permitted to file certain essential forms with the Registrar of Companies. Specifically, such a company cannot file Form SH-7 for alteration of share capital or Form PAS-3 for return of allotment. In other words, the company will be restricted from altering its share capital or issuing new shares, both of which are important for raising funds and managing ownership.

Even more importantly, the amendment introduced in 2022 went a step further. It provided that a company which fails to comply, or whose NDH-4 application is rejected, will be barred from raising deposits from its members or giving loans to them. This restriction applies from the date of non-compliance, from the date of commencement of the 2022 rules, or from the date of rejection of the NDH-4 application, whichever is later.

The law also states that any deposits raised after the date of such non-compliance will be treated as deposits under Chapter V of the Companies Act, 2013, which regulates acceptance of deposits by companies in general. This means that the company will now have to comply with much stricter provisions, including obtaining approvals and fulfilling additional conditions that are otherwise not applicable to Nidhis.

Why Rule 3A is Significant

Rule 3A plays a crucial role in ensuring that only genuine and financially sound companies operate as Nidhis. It prevents promoters from misusing the Nidhi framework to collect deposits without adequate capital or proper governance. By requiring NDH-4 approval within a strict timeline, the government has ensured that companies either comply early or lose their ability to function as a Nidhi.

The restriction on filing SH-7 and PAS-3 further acts as a deterrent. A company that fails to obtain Nidhi status cannot expand its capital base or issue new shares, limiting its scope of business. Similarly, the bar on raising deposits and granting loans without approval ensures that members’ money is not put at risk by companies that do not have government recognition.

Legal References

The foundation of Rule 3A lies in the Nidhi Rules, 2014, which were amended in 2019 and again in 2022. The legal backing also comes from the Companies Act, 2013, particularly Chapter V on acceptance of deposits and Section 406 dealing with Nidhis. These references establish that Rule 3A is not an isolated rule but part of the broader framework for corporate regulation in India.

Conclusion

Rule 3A of the Nidhi (Amendment) Rules is a decisive step towards tightening control over companies that intend to operate as Nidhis. It introduces a strict timeline for filing NDH-4, makes government approval mandatory, and imposes serious restrictions for non-compliance. For promoters, this means that compliance with Rule 3A is not optional but absolutely necessary. Failure to follow the rule does not just attract penalties, it practically disables the company from functioning as a Nidhi by blocking its ability to raise deposits, give loans, or alter its share capital.

The message is clear: a Nidhi Company must seek timely approval through NDH-4, maintain proper documentation, and ensure compliance within the prescribed period. Only then can it build trust with members and operate within the boundaries of the law.

Frequently Asked Questions (FAQs) on Rule 3A – Declaration of Nidhis

Q1. What is Rule 3A of the Nidhi (Amendment) Rules?

Rule 3A requires a public company that wishes to be declared as a Nidhi to file an application in Form NDH-4 with the Central Government. Once satisfied, the Government issues a notification in the Official Gazette declaring it as a Nidhi.

Q2. What is the timeline for filing NDH-4 under Rule 3A?

For companies incorporated after the 2019 amendment, NDH-4 must be filed within 60 days from the expiry of one year from incorporation, or within 60 days from the expiry of an extension granted by the Regional Director under Rule 5(3). A company may also file NDH-4 earlier if it fulfils the requirements.

Q3. Can a company start operating as a Nidhi before NDH-4 approval?

No. A company cannot legally operate as a Nidhi or carry out deposit-taking and loan-giving activities until it has received approval and has been declared as a Nidhi by the Central Government.

Q4. What happens if a company does not file NDH-4 or its application is rejected?
The company will face strict restrictions:

• It cannot file Form SH-7 (alteration of share capital) or Form PAS-3 (return of allotment).
• It cannot raise deposits or provide loans to members.
• Any deposits raised will be treated as deposits under Chapter V of the Companies Act, 2013 and subject to all related compliances.

Q5. Do these restrictions apply immediately?

Yes. They apply from the date of non-compliance, the date of commencement of the 2022 Amendment Rules, or the date of rejection of NDH-4, whichever is later.

Q6. What happens to deposits raised after non-compliance?

Any deposit raised after the date of non-compliance or rejection of NDH-4 is deemed to be under Chapter V of the Companies Act, 2013. This means the company must comply with all deposit-related provisions that are normally applicable to other public companies.

Q7. Are there any exceptions to Rule 3A?

Yes. Rule 3A does not apply to companies that are directly incorporated as Nidhis after the commencement of the 2022 Amendment Rules.

Q8. Why is Rule 3A important for promoters?

Rule 3A ensures that only genuine companies with adequate membership and financial strength can function as Nidhis. For promoters, timely NDH-4 filing and approval are critical because non-compliance blocks core business activities like raising deposits, issuing loans, and altering share capital.