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Acceptance of Deposits By Nidhi Company--Legal Aspects

Pragya Bhandari

Deposit is one of the best ways to raise fund in Nidhi company. The principal source of fund is the contribution from the members. The present write-up elaborates the provisions regarding acceptance of deposits by Nidhi companies as provided under the Companies Act, 2013 as well as Companies (Nidhi Companies) Rules, 2014.

1. Prologue

Section 406 of Companies Act 2013, amended vide the Companies (Amendment) Act, 2017 and Companies (Nidhi Companies) Rules, 2014 govern the Law and procedure for Nidhi Company. Nidhi Companies are regulated by Ministry of Corporate Affairs. For fulfilling the requirements of the company, deposits are one of the main sources available to a company to raise funds. Nidhi can deal with their shareholder-members only in accordance with the provisions contained in the Companies Act, 2013 and Rules framed therein and thus, their core business is borrowing and lending money only between their members.Reserve Bank of India is empowered to issue directions to them in matters relating to their deposit acceptance activities.

In pursuance of section 2(31) of the Companies Act, 2013, 'deposit' includes any receipt of money by way of deposit or loan or in any other form by a company, but would not include such categories of amount as may be prescribed in consultation with the Reserve Bank of India. Rule 11 to 14 of the Companies (Nidhi Companies) Rules, 2014 enshrines the provisions regarding limit for acceptance of deposits by Nidhi company, limitations or restrictions regarding deposits, type of deposits, application form for deposit, foreclosure of deposit account and un-encumbered term deposits. These are discussed in the present write-up.

2. Nidhi- Meaning of

Section 406 of the Companies Act, 2013 as substituted vide the Companies (Amendment) Act, 2017 deals with the provisions regarding Nidhi and its application etc. The Companies (Amendment) Act, 2017does not provide specific definition of term 'Nidhi' or 'Nidhi Companies', except stipulating that 'Nidhi' means a company which the Central Government may, by notification in the Official Gazette, declare to be a Nidhi. However, this new section has not been come into effect.

Prior to the Companies (Amendment) Act, 2017, Nidhi company is defined as 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 Companies (Nidhi Companies) Rules, 2014.

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