Introduction

The regulation of Nidhi Companies in India has evolved significantly through successive amendments to the Nidhi Rules. Two of the most important provisions are Rule 3A (Declaration of Nidhis) and Rule 3B (Amendment Rules, 2022). Both provisions deal with the process of recognition of a public company as a Nidhi, but they differ in terms of timelines, conditions, and regulatory scrutiny. Understanding the distinction between these two rules is essential for promoters and directors who are planning to incorporate and operate Nidhi Companies.

Rule 3A – Declaration of Nidhis

Rule 3A was inserted through the Nidhi (Amendment) Rules, 2019. It provided that every public company desirous of being declared as a Nidhi must file an application in Form NDH-4 with the Central Government. Upon satisfaction, the Government would notify the company as a Nidhi in the Official Gazette.

For companies incorporated after the commencement of the 2019 Rules, NDH-4 had to be filed within sixty days from the expiry of one year of incorporation, or within sixty days of the expiry of any extension granted by the Regional Director.

If a company failed to comply, it could not file Form SH-7 or Form PAS-3. Later, with the 2022 amendment, the consequences became stricter — such companies were also prohibited from raising deposits or granting loans to members, and any deposits raised would be treated as deposits under Chapter V of the Companies Act.

Rule 3B – Stricter Framework Introduced in 2022

Rule 3B was introduced through the Nidhi (Amendment) Rules, 2022 and further tightened the compliance requirements. Unlike Rule 3A, Rule 3B sets pre-conditions that must be met at the very outset.

A public company must now apply in NDH-4 within 120 days of incorporation, provided it:

• Has a minimum of 200 members, and
• Has Net Owned Funds (NOF) of ₹20 lakh or more.

In addition, promoters and directors must satisfy the “fit and proper person” criteria, covering integrity, reputation, absence of criminal cases, insolvency, or regulatory disqualifications.

The Central Government must examine the application within 45 days. If no decision is taken, it is deemed approved. The company must then file the approval with the Registrar and file Form 20A (Commencement of Business) before commencing operations.

Non-compliance under Rule 3B results in the same restrictions as Rule 3A — inability to file SH-7 and PAS-3 — but the rule does not apply to companies incorporated before the 2022 amendment.

Key Differences Between Rule 3A and Rule 3B

Aspect	Rule 3A (2019 Amendment)	Rule 3B (2022 Amendment)
Timeline for NDH-4	Within 60 days from expiry of one year from incorporation (or extension granted).	Within 120 days of incorporation.
Eligibility Conditions	No explicit pre-conditions in the rule text, but subject to compliance with Nidhi Rules generally.	Minimum 200 members and ₹20 lakh Net Owned Funds mandatory.
Promoter/Director Scrutiny	No specific test mentioned initially; later amendments imposed restrictions on non-compliant companies.	Detailed “fit and proper person” criteria including integrity, absence of criminal cases, insolvency, defaulter status, etc.
Government Approval	Central Government notifies in Official Gazette after examining NDH-4.	Central Government examines NDH-4 within 45 days; deemed approval if no response.
Commencement of Business	Not specifically linked with approval; later amendments tied compliance to restrictions.	Business can commence only after government approval and filing of Form 20A.
Consequences of Non-Compliance	Company cannot file SH-7 and PAS-3; after 2022 amendment, cannot raise deposits or loans; deposits treated under Chapter V.	Company cannot file SH-7 and PAS-3; barred from operating as Nidhi without approval.
Applicability	Applies to companies incorporated after commencement of the 2019 Rules.	Applies to companies incorporated after commencement of the 2022 Rules.

---

Why the Shift from Rule 3A to Rule 3B?

Rule 3A was an important first step, but it allowed promoters up to one year before they had to prove compliance. This meant companies could continue using the “Nidhi” name without having adequate members or capital during the first year. The government observed misuse of this leeway.

Rule 3B closed this gap by demanding compliance at the time of incorporation itself. Companies are now required to mobilise capital, secure members, and ensure promoter eligibility within 120 days, rather than waiting for one year. This strengthens depositor protection and ensures that only genuine promoters enter the Nidhi space.

Conclusion

Both Rule 3A and Rule 3B reflect the government’s attempt to regulate Nidhi Companies and prevent misuse of the model. Rule 3A gave promoters a window of one year to establish themselves before applying for recognition, while Rule 3B has made the framework much stricter by requiring immediate compliance in terms of members, capital, and promoter eligibility.

For promoters, the practical message is clear:

• If your company is incorporated after the 2019 amendment but before 2022, Rule 3A governs your compliance.
• If your company is incorporated after the 2022 amendment, Rule 3B applies and compliance must be ensured from the very beginning.

Failure to comply with either rule has serious consequences, including restrictions on filing key forms, prohibition on raising deposits, and loss of Nidhi status. Timely filing of NDH-4 with proper documentation is therefore not just a legal obligation but the foundation of a sustainable Nidhi business.

Frequently Asked Questions (FAQs) on Rule 3A vs Rule 3B

Q1. What is the main difference between Rule 3A and Rule 3B of the Nidhi Rules?
Rule 3A, introduced in 2019, required companies to apply in NDH-4 within 60 days after completing one year of incorporation (or any extended time). Rule 3B, introduced in 2022, shifted this timeline and made it stricter by requiring NDH-4 to be filed within 120 days of incorporation itself.

Q2. What conditions must be met under Rule 3A?
Under Rule 3A, the company had to comply with general requirements under the Nidhi Rules and file NDH-4 within the prescribed timeline. There were no detailed pre-conditions, though later amendments restricted non-compliant companies from raising deposits or altering share capital.

Q3. What additional conditions are introduced under Rule 3B?
Rule 3B makes it mandatory that the company has:

• At least 200 members, and
• Net Owned Funds (NOF) of ₹20 lakh or more.
  It also requires promoters and directors to meet the “fit and proper person” criteria, covering integrity, absence of criminal cases, insolvency, or regulatory disqualifications.

Q4. How is the approval process different under both rules?

• Under Rule 3A, the Central Government notified the company as a Nidhi in the Official Gazette after examining NDH-4.
• Under Rule 3B, the Government must examine the application within 45 days; if no decision is given, it is deemed approved. The company must then file Form 20A and can commence business only after approval.

Q5. What happens if NDH-4 is not filed under Rule 3A?
A company failing to comply with Rule 3A could not file Form SH-7 (alteration of share capital) or Form PAS-3 (return of allotment). After the 2022 amendment, it was also barred from raising deposits or loans, and any deposits raised were treated as deposits under Chapter V of the Companies Act.

Q6. What are the consequences of non-compliance under Rule 3B?
If a company fails to meet the requirements of Rule 3B or does not file NDH-4 within 120 days, it cannot file SH-7 or PAS-3 and is barred from commencing business as a Nidhi. Without approval, it cannot legally raise deposits or provide loans.

Q7. Do these rules apply to all Nidhi Companies?
No. Rule 3A applies to companies incorporated after the commencement of the 2019 amendment. Rule 3B applies to companies incorporated after the commencement of the 2022 amendment. Companies incorporated as Nidhis directly after the 2022 rules are not required to follow Rule 3A.

Q8. Why did the Government bring Rule 3B when Rule 3A already existed?
Rule 3A allowed companies one year before proving compliance, which led to misuse by promoters who started operating without adequate members or capital. Rule 3B removed this gap by demanding proof of compliance within 120 days of incorporation, strengthening depositor protection and credibility.

Q9. Can NDH-4 approval be deemed under Rule 3B?
Yes. If the Central Government does not convey its decision within 45 days of filing NDH-4, the application is deemed approved. This provision ensures that companies are not left waiting indefinitely.

Q10. What should promoters keep in mind when choosing between Rule 3A and Rule 3B compliance?
The choice is not optional; it depends on the incorporation date. Promoters must check whether their company was incorporated under the 2019 framework or after the 2022 amendment. Accordingly, they must file NDH-4 within the prescribed timeline and ensure all eligibility conditions are met.