Clarification on Rejection of  

NIDHI INCORPORATION

BACKGROUND:

In this Flash editorial, ROC shall discuss about the Latest Rejection of Incorporation of Nidhi Companies by respected CRC departments.

As per Rule 3 of Nidhi Rules, 2014, (d) “Nidhi” means a company which has been incorporated as a Nidhi with the object of cultivating the habit of thrift and savings amongst its members, receiving deposits from, and lending to, its members only, for their mutual benefit, and which complies with the rules made by the Central Government for regulation of such class of companies.

The concept of Nidhi Company very well accepted in the Companies Act, 1956 and Companies Act, 2013 u/s Section 206.

1.   Recent Rejection:

We have recently seen that our respected authority has rejected Incorporation Applications made by stakeholders seeking to incorporate Nidhi Companies. Extracts from some of the rejections are shown below: Due to confidentiality I am not mentioning SRN of any such form.

 REJECTION 1:

REJECTION 2:

REJECTION 3:

2.   Discussion on Rejection Reasons:

Point for Discussion:

    i.        As per Rejection letter, MCA has issued a circular on 12^th April, 2024 regarding such amendment in the Nidhi Rules. However, as per MCA website there is no such circular available on the MCA website as on 18^th April, 2024 regarding the same. (Screen shot of the same is given below)

NOTE: Proposed companies are being rejected based on the Nidhi Rules change, despite the lack of a circular on MCA's website. I would like to request that the respected authorities publish the circular so that all stakeholders are aware of the most recent modifications.

Further, such circular should be effective on the Proposed Companies getting filed on or after 12 April 2024.

   ii.        As per Rejection letter, it is mentioned that “suffix of Nidhi Company will be allowed only after filing of application under NDH-4 for being declared as Nidhi Company.

However, as per Rule 3 of Nidhi Rules, Extract given below

Declaration of Nidhis. – The Central Government, on receipt of application (in Form NDH-4 along with fee thereon) of a public company for declaring it as Nidhi and on being satisfied that the company meets the requirements under these rules, shall notify the company as a Nidhi in the official Gazette:

Provided that a Nidhi incorporated under the Act on or after the commencement of the Nidhi (Amendment)Rules, 2019 shall file Form NDH-4 within sixty days from the date of expiry of:-

a.    one year from the date of its incorporation or

b.    the period up to which extension of time has been granted by the Regional Director under sub-ruIe (3) of rule 5:

NOTE: As per the above rule Company needs to file NDH 4 within 60 days of one year from the date of its incorporation. Therefore, there is confusion between the rules and the rejection given by our respected department.

 iii.        if our respected authority has issued a circular on Nidhi Company's non-incorporation, as specified in the rejection letter. Then, our respected CRC department should be directed not to approve any Name application form for formation of Nidhi Company or to allow the filing of Spice Part B for incorporation of Nidhi Company.

The stakeholders have spent their money on the Name Application and Spice Part B. They are losing money unnecessarily because their incorporation was rejected due to circular which may be has been passed by filing of the applications.

Our respected authority should give effect the circular as mentioned in the rejection letter from prospective date instead of the retrospective date.

Conclusion:

After going over the provisions of the Companies Act, 2013 pertaining to Nidhi Incorporation and the present rejection letters given by the respected authority, the stakeholders should have the following clarity:

a)   As per law NDH -4 required to file after incorporation and as per rejection letter suffix “Nidhi Company” shall be allowed only after filing of NDH-4.

b)   As per Spice Part A, stakeholder can’t file the application of Name approval without affixation of suffix *Nidhi Company*.

There seems contradiction in the language of rejection letter and the law.

c)    As the stake holders has spent the money for Name approval Application and Spice Part B for Incorporation of LLP. Therefore, the circular should not implement from the retrospective effect and the stakeholders who have filed their application before that date should be allowed for Incorporation.

d)   As per rejection letter stakeholders are not allowed to incorporate the Nidhi Company, our respected authority should amend the forms in such a manner that stakeholders will not be able to file the application for incorporation of Nidhi Company.

Finally, I would want to emphasise that as professionals, we always respect the law, the authorities. We have always assisted professionals and stakeholders whenever the law has been amended or when the MCA v3 portal was created. We, as professionals, always serve as a link between the Ministry and stakeholders. We are writing this post in the aim of helping stake holders.

The goal of producing this post is just to provide clarification for the fraternity and stakeholders. As professionals, we received inquiries from numerous stakeholders to which we were unable to respond. That is why we are seeking clarification on the matter from our respected authority.

Author – CS Divesh Goyal, GOYAL DIVESH & ASSOCIATES Company Secretary in Practice from Delhi and can be contacted at csdiveshgoyal@gmail.com). 

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