Is Director Salary Allowed in Nidhi Company?

Narendra Kumar

05 Sep, 2022

Section 406 of the Companies Act 2013 deals with the Act in relation to an application to Nidhi. Nidhi means a company which has been incorporated into an object of cultivating the habit of thrift and savings amount its members. The functioning of Nidhi company is limited to receiving deposits from and lending to its members only for their mutual benefit and also which complies with such rules as prescribed by the Central Government for such class of companies. In this article described about is director salary allowed in nidhi company?

Applicability

The Central government has made Nidhi Rules 2014^[1] for the purpose of carrying out the objectives for which the Nidhi is formed. These rules are applicable to:

• Every company which is declared as a Nidhi or Mutual Benefits under section 620A of the Companies Act 1956
• Every company which functions on the lines of Nidhi company or mutual benefit society which has either applied for or is waiting for any notification to be Nidhi Company Registration or Mutual Benefit Society under section 620A(1) of the Companies Act, 1956
• Every company incorporated as a Nidhi pursuant to section 406 of the Companies Act, 2013

Director

The director shall be a member of the Nidhi Company. He shall hold the office for the period of 10 consecutive years on the Board. He shall be eligible for re-appointment only after the expiration of 2 years of ceasing to be a director. Where in case if the tenure of any director is extended by the Central government it shall terminate on expiry of such an extended period. The person appointed as a director.  The person to be appointed as a Director shall comply with the requirements of Section 152(4) of the Act and shall not have been disqualified as provided in Section 164 of the Act.

Director Salary: Can a Director be a Salaried Person?

Yes, a director can get a salary in a Nidhi company. There are no legal hassles in this but one may have to go through their employment agreement if it contains any restrictions.

Exemption

As per second proviso to section 197(1), the remuneration to the director who is neither a managing director nor a whole time director or manager for performing special services to the Nidhi as specified in the articles of association may be paid by way of monthly payment subject to the approval of the company in the general meeting and also to the provisions of section 197.

Provided no Approval from the Company is Required at the General Meeting if the:

• Nidhi does not have a managing director or whole-time director or manager.
  • The remuneration payable during the financial year to all the directors of the Nidhi does not exceed 10% of the net profits of such Nidhi or fifteen lakh rupees whichever is less
  • Remuneration payable under clause b is approved by a special resolution passed on behalf of the Nidhi
• The percentages aforesaid shall be excluding any fees payable to the director under subsection 5.
• Notwithstanding anything contained in subsection (1) and (2) with respect to provisions under Schedule V if in any fiscal year a company has made no profits or its profits are inadequate the company shall not pay to its directors including the managing director or whole-time director or manager by way of remuneration any sum excluding any fees payable to director under subsection (5) hereunder except in accordance with provisions of Schedule V.
• The remuneration payable to the directors of the company including any managing or whole-time director or manager shall be determined in accordance with the provisions of this section or either by the articles of the company or by the special resolution passed by the company in the general meeting and the remuneration payable to a director determined above shall be including the remuneration payable to him the services rendered by him in any other capacity.

Read our article:A Complete Guide on How to Register a Nidhi Company