Registrars of Companies turn up the heat on Nidhi companies for company law violations

New Delhi: Registrars of Companies (RoCs) across the country have turned up the heat on Nidhi companies and their directors for violations of company law, signalling close regulatory scrutiny over these non-bank lenders.

So far this year, 63 penalty orders have been issued against these companies and their directors for violations, against 33 over the same period a year ago, official data showed. These account for nearly a fourth of all adjudication orders issued by RoCs this year.

Breaches by Nidhi companies include not maintaining a registered office, not appointing a statutory auditor or filing audit reports, not reporting board resolutions to the RoCs, and operating without securing Nidhi company status from the government, the penalty orders issued by RoCs showed.

A Nidhi company is a non-banking finance company that accepts deposits from its members and lends only to them. Operating under Section 406 of the Companies Act, it must have at least 200 members within a year of its incorporation and maintain a certain ratio of capital base to deposits to prevent excessive leverage.

“There are various other forms of mutual benefit and lending institutions in the country, including micro-finance companies, chit funds, cooperative societies and small non-bank lenders to address the financial needs of people,” said this person, who did not wish to be named. These entities are subject to oversight from state governments, the Reserve Bank of India (RBI) and the ministry of cooperation.

“After the revamping of the statutory filing processes of companies, RoCs are now more focused on enforcement activities rather than spending their time and resources taking on record the statutory filings. This is leading to enhanced oversight of corporate governance,” the person added. 

In 2023 the ministry set up a centralised agency for voluntary closure, allowing businesses keen to down shutters anywhere in the country to approach the Centre for Processing Accelerated Corporate Exit (CPACE) in Manesar. It also integrated its statutory filing portal MCA21 with the National Single Window System (NSWS), which offers various central and state approvals in one place, for registering new businesses. Besides, several statutory filings now require only an online acknowledgement, not approvals from RoCs, which allows them to focus on enforcement and adjudication.

Queries emailed to the ministry of corporate affairs spokesperson on Wednesday remained unanswered at the time of publishing.