New Delhi: The government on Thursday issued an advisory to the public about ‘Nidhi companies’ and their functioning, warning against investment decisions without proper background checks, especially if there is a promise of high returns.
The ‘Nidhi companies’ are mutual-benefit companies regulated by the Ministry of Corporate Affairs (MCA) under the Companies Act, 2013 and the Nidhi Rules, 2014, which can accept deposits and give loans only to their members.
“During examination of NDH-4 applications by MCA, it was noticed that many ‘Nidhi’ Companies are not complying with the applicable provisions of the Act and rules made thereunder in toto,” said the Ministry of Corporate Affairs in a statement.
“It has also been observed that many of the companies functioning as Nidhi companies have not submitted their NDH-4 application within the stipulated time frame prescribed under Nidhi Rules,” it added.
Many such companies lure their members by promising unusually high returns.
Hence, the public is advised not to rely solely on promises of unusually high returns by agents or informal assurances while making financial decisions and to independently verify whether the company has been declared as a Nidhi by the Central government and should carefully consider the term, said the ministry.
The deposits accepted by Nidhi Companies are “NOT insured by the Deposit Insurance and Credit Guarantee Corporation (DICGC). If the company fails or faces fraud, recovery of deposited money can be very difficult or incomplete”, the advisory stated.
Under the provisions of Section 620A of the erstwhile Companies Act, 1956, companies desirous of functioning as Nidhis used to be declared as “Nidhis” by the Central Government.
Under Section 406 of the Companies Act, 2013, initially a company could get itself incorporated as a Nidhi and function as a Nidhi but was required to follow various Rules under the Nidhi Rules, 2014. A list of 395 companies declared as Nidhis by the Central government is already placed on the MCA website for information.
(IANS)
