New Delhi, Aug 24 (IANS): The Ministry of Corporate Affairs has cautioned the public and stakeholders of 'Nidhi' businesses as none of the the companies scrutinised by the government so far have been able to satisfy the requisite criteria for being declared a Nidhi company.

The business of Nidhi companies involves borrowing from members and lending to members only. They are a class of non-banking financial companies (NBFC) and are generally known by several names including Nidhi, permanent fund, benefit funds, mutual benefit funds, and mutual benefit company.

Under section 406 of the Companies Act, 2013, and Nidhi Rules, 2014 (as amended), companies incorporated as Nidhi companies need to apply to the Central government in form NDH-4 for declaration as a Nidhi company.

"It has been observed that companies have been applying to the Central government for declaration as Nidhi under the CA, 2013 but of the 348 number of forms scrutinized upto August 24, 2021, not a single company could satisfy the requisite criteria for it to be declared as a Nidhi Company by the Central government," a statement by the ministry said.

Further, there are large number of companies which though functioning as Nidhi company have not yet applied to the Central government for declaration as Nidhi Company which is violation of the CA, 2013 and Nidhi Rules, 2014, it added.

The ministry has advised stakeholders are advised to verify the antecedents of the company functioning as a Nidhi company and ensure that the company has been declared as a Nidhi company by the Centre before becoming its member and depositing or investing their hard-earned money in such companies.