GOVERNANCE PROVISIONS FOR NIDHI COMPANIES

Rules relating to Directors [Rule 17]

The Director shall be a member of Nidhi.

The Director of a Nidhi shall hold office for a term up to ten consecutive years on the Board of Nidhi.

The Director shall be eligible for re-appointment only after the expiration of two years of ceasing to be a Director.

Where the tenure of any Director in any case had already been extended by the Central Government, it shall terminate on expiry of such extended tenure.

The person to be appointed as a Director shall comply with the requirements of sub-section (4) of Section 152 of the Act and shall not have been disqualified from appointment as provided in section 164 of the Act.

Dividend [Rule 18]

A Nidhi shall not declare dividend exceeding twenty five per cent or such higher amount as may be specifically approved by the Regional Director for reasons to be recorded in writing and further subject to the following conditions, namely:.

• an equal amount is transferred to General Reserve;
• there has been no default in repayment of matured deposits and interest; and
• it has complied with all the rules as applicable to Nidhis.

Auditor [Rule 19]

No Nidhi shall appoint or re-appoint an individual as auditor for more than one term of five consecutive years.

No Nidhi shall appoint or re-appoint an audit firm as auditor for more than two terms of five consecutive years. An auditor (whether an individual or an audit firm) shall be eligible for subsequent appointment after the expiration of two years from the completion of his or its term. For the purposes of this proviso:

• in case of an auditor (whether an individual or audit firm), the period for which he or it has been holding office as auditor prior to the commencement of these rules shall be taken into account in calculating the period of five consecutive years or ten consecutive years, as the case may be;
• appointment includes re-appointment.

Prudential norms [Rule 20]

Every Nidhi shall adhere to the prudential norms for revenue recognition and classification of assets in respect of mortgage loans or jewel loans as contained hereunder.

Income including interest or any other charges on non-performing assets shall be recognised only when it is actually realised and any such income recognised before the asset became non-performing and which remains unrealised in a year shall be reversed in the profit and loss account of the immediately succeeding year.

In respect of mortgage loans, the classification of assets and the provisioning required shall be as under. A Nidhi may make provision for exceeding the percentage specific herein.

NATURE OF ASSET PROVISION REQUIRED

Standard Asset No provision

Sub-standard Asset 10% of the aggregate outstanding amount

Doubtful Asset 25% of the aggregate outstanding amount

Loss Asset 100% of the aggregate outstanding amount

The estimated realisable value of the collateral security to which a Nidhi has valid recourse may be reduced from the aggregate outstanding amount, if the proceedings for the sale of the mortgaged property have been initiated in a court of law within the previous two years of the interest, income or instalment remaining unrealised.

In case of companies which were incorporated on or before 26-07-2001, such companies shall make provisions in respect of loans disbursed and outstanding as on 31-03-2002 for income reversal and non-performing assets to the extend of Un-provided balance on equal basis over the three years ending on 31 – 03 – 2015, 31 – 03 – 2016 and 31 – 03 – 2017.

The Notes on the financial statements of a year shall disclose-

• the total amount of provisions, if any, to be made on account of income reversal and non-performing assets remaining unrealised;
• the cumulative amount provided till the previous year;
• the amount provided in the current year; and
• the balance amount to be provided.

Such disclosure shall continue to be made until the entire amount to be provided has been provided for.

In respect of loans against gold or jewellery.

• the aggregate amount of loan outstanding against the security of gold or jewellery shall either be recovered or renewed within three months from the due date of repayment;
• if the loan is not recovered or renewed and the security is not sold within the aforesaid period of three months, the company shall make provision in the current year’s financial statements to the extent of unrealised amount or the aggregate outstanding amount of loan including interest as applicable;
• no income shall be recognised on such loans outstanding after the expiry of the three months period specified in (a) above or sale of gold or jewellery, whichever is earlier; and
• the loan to value ratio shall not exceed 80 per cent. The term “loan to value ratio” means the ratio between the amount of loan given and the value of gold or jewellery against which such loan is given.

Filing of half yearly return [Rule 21]

Every company covered under rule 2 shall file half yearly return with the Registrar in Form NDH – 3 along with such fee as provided in Companies (Registration Offices and Fees) Rules, 2014 within thirty days from the conclusion of each half year duly certified by a company secretary in practice or chartered accountant in practice or cost accountant in practice.

Auditor’s certificate [Rule 22]

The Auditor of the company shall furnish a certificate every year to the effect that the company has complied with all the provisions contained in the rules and such certificate shall be annexed to the audit report and in case of non-compliance, he shall specifically state the rules which have not been complied with.

Power to enforce compliance [Rule 23]

For the purposes of enforcing compliance with these rules, the Registrar of companies may call for such information or returns from Nidhi as he deems necessary and may engage the services of chartered accountants, company secretaries in practice, cost accountants, or any firm thereof from time to time for assisting him in the discharge of his duties.

In respect of any Nidhi which has violated these rules or has failed to function in terms of the Memorandum and Articles of Association, the concerned Regional Director may appoint a Special Officer to take over the management of Nidhi and such Special Officer shall function as per the guidelines given by such Regional Director.

An opportunity of being heard shall be given to the concerned Nidhi by the Regional Director before appointing any Special Officer.

Penalty for non-compliance [Rule 24]

If a company falling under rule 2 contravenes any of the provisions of the rules prescribed herein, the company and every officer of the company who is in default shall be punishable with fine which may extend to five thousand rupees, and where the contravention is a continuing one, with a further fine which may extend to five hundred rupees for every day after the first during which the contravention continues.