Nidhi Company

Requirement for Branch Opening by Nidhi Company

After the registration of a Nidhi company, promoter should know the regulatory requirement about the name of branches allowed in a district or state. In this article, we will discuss the legal requirement for branch opening by Nidhi Company. 

What is a Nidhi Company?

A Nidhi Company is a type of NBFC that borrows from members and lends to members only. The principal source of fund is the contribution from its members. The Reserve Bank issues directions to the Nidhi Company in matters related to deposit acceptance activities.

What is the regulatory requirement for branch opening by Nidhi Company?

Ministry of Corporate Affairs (MCA) in accordance with Section 406^[1] of Companies Act 2013 and Companies (Nidhi Companies) Rules, 2014 regulate the Nidhi Companies.

Nidhi Companies are created for cultivating the habit of saving amongst the members and accept/lend funds only from/to its members and there are separate rules being enforced on Nidhi Companies to safeguard the protection of stakeholder’s interests and to ensure good corporate governance in the business of Nidhi Companies.

Rule 10 of Companies (Nidhi Companies) Rules, 2014 deal with the opening of branches by Nidhi Companies. Nidhi Companies are allowed to open a branch if it complies with the conditions prescribed under the rule 10.

Provisions for branch opening by Nidhi

The below mentioned provisions shall apply to the Nidhi Company-

• Require a good track record of profit

A Nidhi may open branches only if it has earned net profits after tax continuously during the preceding 3 financial years.

• Maximum Branches allowed to Nidhi

A Nidhi may open up to 3 branches within the district, it cannot open any branch outside the district without prior approval of Regional Director.

If a Nidhi proposes to open more than 3 branches within the district or any branch outside the district, it shall obtain the prior permission of the Regional Director and about the opening of every branch within 30 days of such opening, an intimation is to be given to the Registrar.

• Branches outside the state

Outside the State where its registered office is situated, Nidhi Company would not open branches or collection centres or offices or deposit centres, or by whatever name called.

• Up to date Compliance required

Unless financial statement and the annual return (up to date) are filed with the Registrar, Nidhi Company shall not open any branches or collection centres or offices or deposit centres, or by whatever name called.

Closure of Branch by Nidhi Company

Nidhi Company shall not close any of its branches until it complies with the conditions prescribed under rule 10 (6).

• Advertisement in Newspaper

At the place where the Nidhi Company carries on business, it shall publish an advertisement in a newspaper in vernacular language at least 30 days prior to such closure for informing the public about such closure.

• Publish on Board

A copy of such advertisement or a notice informing such closure of the branch will be fixed on the notice board of Nidhi for a period of at least 30 days from the date of which advertisement was published.

• Intimation to ROC

Nidhi will intimate Registrar within 30 days of such closure.

Conclusion

It is mandatory for the Nidhi Company to adhere by the requirements of branch opening by Nidhi Company. Non-compliance can lead to levy of hefty penalties. For more information on Nidhi Company, contact Enterslice.

Read our article: Checklist for Audit of Nidhi Company