The Ministry of Corporate Affairs (MCA) on Thursday warned against investing in Nidhi companies that promise “unusually high” returns. The ministry said that many companies functioning as Nidhis are not complying with statutory requirements, while just 395 companies have so far been declared as Nidhis by the central government.
The warning follows the MCA’s examination of applications filed by Nidhi firms which found violations of provisions under the Companies Act and the Nidhi Rules, 2014. These included failure by several companies to submit the mandatory NDH-4 application within the prescribed time.
“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. It has also been observed that many of the companies functioning as Nidhi company have not submitted their NDH-4 application within the stipulated time frame prescribed under Nidhi Rules,” the ministry said.
The MCA also cautioned the public against relying on claims made by such companies or their representatives. It advised potential investors to independently verify whether a company has been declared as a Nidhi by the central government before depositing money with it.
Further, the ministry said that deposits accepted by Nidhi companies are not insured by the Deposit Insurance and Credit Guarantee Corporation (DICGC), which provides insurance cover of up to Rs 5 lakh on bank deposits. “If the company fails or faces fraud, recovery of deposited money can be difficult or incomplete,” the MCA said.
Nidhi companies, which are governed by the Companies Act and Nidhi Rules, are allowed to accept deposits and provide loans only to their members.