An Overview of Fit and Proper Criteria for Nidhi Finance Company Promoter

Intending to protect the interests of the public, the Ministry of Corporate Affairs has amended rules governing Nidhi companies, whereby it is mandatory for the promoters to meet the Fit and Proper Criteria for Nidhi Finance Company as laid down in the rules. Therefore, in this write-up, we will discuss the Fit and Proper Criteria for Nidhi Finance Company Promoters.

Overview-Fit and Proper Criteria for Nidhi Finance Company Promoters

Suppose you plan to start a Nidhi Company or run a Nidhi company. However, you are not sure about the recent updation of status by Nidhi and are already confused with the amount of compliance you need to follow. In that case, we have some good news for you.

As per the New Rules, the public companies which want to run a Nidhi Company need to obtain a prior declaration by the Government of India before accepting deposits. The changes are made to ensure the protection and safety of the general public.

 After various recommendations from the committee formed for Nidhi Company, the Government of India has amended the Nidhi rules 2014 as amended by Nidhi (amendment) rules 2019^[1] and come up with Nidhi (amendment) rules 2022.

With new rules, the government has attempted to streamline the things to get Nidhi company get themselves stated as Nidhi Company by getting their NDH4 Approved within strict timelines specified by these rules. However, to safeguard the general public’s interest, the government wants that before becoming a Nidhi company, one must ensure the company’s declaration as a Nidhi by the Central Government. For the same, a few necessary amendments in the Rules have been performed, which are applicable to the Companies to be registered after Nidhi (Amendment) Rule, 2022.

Amendment- Nidhi (Amendment) Rules,2022

As per the Amendment, the Nidhi Finance Company Shall File NDH-4 within 120 days from its incorporation date. It shall comply with the below-mentioned Requisites-

• Before filing NDH-4, NidhiCompany must have a minimum of 200 Members. Also, the Net Owned Fund should not be less than 20 Lakh. 
• The Promoters and Directors of the Nidhi Finance company must meet the criteria of fit & proper person as laid down in the rules.

Key Amendments in meeting the Fit and Proper Criteria for Nidhi Finance Company Promoter

• Nidhi Company can start its business only after getting approval of NDH-4 by filing form 20A.
• Government must approve NDH-4 within 45 days of filing. If the government has not given any revert or approval, NDH-4 will be considered approved. 
• After getting approval of NDH-4, Form 20A needs to be filed. It means that the promoter can only commence the business of the Nidhi company after getting the NDH-4 approval.
• NDH-1 and NDH-2 filling are not applicable for companies incorporated after the commencement of these rules. 
• For Existing companies before the commencement of these amendment rules, the Minimum Capital for Nidhi company is ten lakhs; this condition needs to be fulfilled within 18 months from the date of commencement of these rules. 
• The Nidhi Finance company shall not raise loans from a bank or any financial institution for advancing loans to its members,
• A member is not allowed to transfer more than 50% of his shareholding (as on the date of getting a loan/making of deposit) during the subsistence of such loan/deposit.
• Net Owned Fund limit should be 20 lakh and be fulfilled within 120 days (4 months) of Incorporation for new and existing Nidhi companies. This rule is relaxed & those companies will have a time duration of 18 months from the commencement date of these rules to maintain this NOF limit.

To comply with the Fit & Proper criteria, the Promoter of Nidhi Company shall comply with the below-mentioned criteria-

• The Promoter of Applicant Company needs to attest a Declaration that clarifies that all the Fit & Proper Criteria are met by the Promoters & Directors of the Company as specified in the NDH – 4 Application Form.
• The Uprightness, Potency, Moral and Ethical Behavior, Unbiasedness, Reputation, and Character of the Promoters of the Applicant Company.

The Promoters of the Nidhi Finance Company should not be involved in any of the below-mentioned criteria, which may result in an immediate disqualification –

• No complaints shall be filed or pending against the Promoters of Nidhi Finance Company under Sec 154 of CrPC (The Code of Criminal Procedure 1973.
• No Restraining, Prohibition or Department Order passed against the Promoters of Nidhi Company on criminal or civil matters relating to Company Laws, Securities Laws, Financial Market in Force.
• Any Order passed of Convictions filed against the Promoters and Directors of the Applicant Company affects the moral and ethical character.
• Involvement in any offenses declared any not yet discharged.
• The Promoters of Nidhi Company should not be declared of unsound mind.
• The Promoters of the Nidhi Company should not be declared as Wilful Defaulters.
• The Nidhi Company promoters should not be declared Fugitive for any Economic Offences. 
• The Nidhi Finance Company promoters should not be appointed as Promoters of 3 or more Nidhi Companies.

Conclusion

The amendments of the Nidhi (Amendment) Rules, 2022, have replaced The Nidhi Rules 2014. The Nidhi (Amendment) Rules, 2022 were enforced to serve the public interest, with the primary objective being directed on the declaration of the Applicant (Nidhi Finance Company) by the Central Government of India. As per the amendment, the company’s promoter must comply with the Fit and Proper Criteria.