New Delhi: The government on Thursday warned the public against investing in non-compliant Nidhi companies that promise high returns and advised them to carry out due diligence before investing.
Nidhi companies are mutual-benefit companies that are allowed to accept deposits and provide loans only to their members. They are regulated by the Corporate Affairs Ministry under the Companies Act, 2013 and Nidhi Rules, 2014.
On Thursday, the ministry said it has come to its notice that many companies lure their members by promising unusually high returns.
"Hence, members of the public are 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," it said in a statement.
Only 395 entities have been declared as Nidhi companies. They are mandatorily required to make NDH-4 filing with the ministry for getting itself declared/ updated as Nidhi companies.
Deposits accepted by Nidhi Companies are not insured by the Deposit Insurance and Credit Guarantee Corporation (DICGC).
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According to the ministry, if a Nidhi company fails or faces fraud, recovery of deposited money can be very difficult or incomplete.
During examination of NDH-4 applications, the ministry said that many entities were not complying with the applicable provisions of the Act and rules made thereunder in toto.
"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," the statement said.
Under Section 620A of the erstwhile Companies Act, 1956, companies desirous of functioning as Nidhis used to be declared as Nidhis by the ministry.
As per Section 406 of the Companies Act, 2013, initially a company could get itself incorporated as a Nidhi and was required to follow the Nidhi Rules, 2014.
"However, Section 406 and the Nidhi Rules, 2014 were amended w.e.f. 15.08.2019, and the need for declaration of a company as a Nidhi by the Central Government was reintroduced on the lines of the Companies Act, 1956," the statement said.
