MCA Warns Against High-Return Promises by Nidhi Companies
Advisory urges investors to verify Nidhi status as MCA flags non-compliance and reiterates mandatory NDH-4 filing
- MCA cautions against unusually high-return promises
- Only 395 companies declared as Nidhis to date
- NDH-4 filing mandatory for Nidhi status
- Nidhi deposits are not covered by DICGC insurance
GG News Bureau
New Delhi, 24th Sept: The Ministry of Corporate Affairs (MCA) has issued an advisory cautioning the public against investing in Nidhi Companies without conducting proper background checks, particularly where unusually high returns are promised.
The advisory follows the examination of applications filed in Form NDH-4, during which the MCA found that several companies functioning as Nidhi Companies were not fully complying with applicable provisions of the Companies Act and Nidhi Rules.
The ministry also noted that several companies had not submitted their NDH-4 applications within the stipulated timeframe.
Under the applicable framework, every company seeking to function as a “Nidhi” is required to file Form NDH-4 to be declared or updated as a Nidhi. The MCA said members of the public should independently verify whether a company has been declared as a Nidhi by the Central Government before making financial decisions.
The ministry specifically warned against relying solely on promises of unusually high returns made by agents or through informal assurances.
Deposits Not Insured by DICGC
The MCA highlighted that deposits accepted by Nidhi Companies are not insured by the Deposit Insurance and Credit Guarantee Corporation (DICGC).
It cautioned that if a company fails or becomes involved in fraud, recovery of deposited money could be difficult or incomplete.
Nidhi Companies are mutual-benefit companies regulated by the MCA under the Companies Act, 2013 and Nidhi Rules, 2014. They are permitted to accept deposits and provide loans only to their members.
The regulatory framework was strengthened through amendments to Section 406 of the Companies Act, 2013 and the Nidhi Rules, 2014, effective from August 15, 2019. The amendments reintroduced the requirement for a company to be declared a Nidhi by the Central Government.
The MCA said 395 companies have been declared as Nidhis by the Central Government under the relevant provisions of the Companies Act, 1956 and 2013.
A list of active Nidhi Companies is available on the MCA portal for public verification.
