The Company Law Committee has made a host of recommendations for stricter regulation of Nidhi companies, including more due diligence at the incorporation stage, restricting validity of Nidhi status to about five years, and empowering the Centre to formulate schemes for their restructuring.
The recommendations come after the failure of leading Nidhis, involving crores of rupees and lakhs of depositors, due to imprudent lending and mismanagement.
The 11-member committee is headed by Rajesh Verma, Secretary, Ministry of Corporate Affairs.
Nidhis are companies incorporated to receive deposits from, and lend to members for mutual benefit. They are regulated by the Reserve Bank of India (RBI) for deposit taking and by the Department of Company Affairs (DCA) for operational matters and deployment of funds.
The committee suggested that the Central Government should prescribe rules and only companies that fulfil the prescribed financial and non-financial criteria should be declared as Nidhis.
The declaration notification for each Nidhi may also specify additional restrictions or conditions, as deemed necessary and reasonable by the Central Government, and the Government should have the power to revoke the declaration in the event of non-compliance, the panel recommended
It proposed granting Nidhi status for a specified period (approximately five years), after which the Nidhis may apply for renewal, subject to compliance with the Companies Act (CA) 2013.
The committee suggested that the Central Government should have the power to formulate schemes for restructuring (merger, amalgamation or takeover) of Nidhis that are sick, financially weak or mismanaged.
Additionally, Nidhis not financially viable should be wound up through liquidation.
The panel suggested that existing Nidhis should be mandated to comply with the new requirements within a reasonable transitional period (two to three years).
Post-demonetisation scene
The committee noted there were repeated violations by Nidhis and many were incorporated after demonetisation. There are reportedly nearly 10,000 Nidhis currently.
Observing the disproportionately higher presence of Nidhis in some states, the panel said this brought into question the intention of the promoters.
It called for increased oversight to ensure only diligent players are in existence.
The committee stressed on robust and time-bound checks ahead of granting Nidhi status.