MCA Advisory: Verify Nidhi Company Status Before Dealing With It

The Ministry of Corporate Affairs (MCA), in an advisory issued on September 24, 2026, has cautioned the public against making financial decisions involving Nidhi companies without adequate background checks. The MCA has particularly flagged instances where unusually high returns are promised.

The advisory follows the Ministry’s examination of Form NDH-4 applications. The examination brought to light instances of non-compliance with the Companies Act, 2013 and the Nidhi Rules, 2014, including cases where companies functioning as Nidhis had not filed Form NDH-4 within the prescribed time.

A company’s incorporation or use of the term “Nidhi” should not, by itself, be treated as confirmation of its regulatory status. The status of the entity should be independently verified before entering a financial arrangement with it.

Nidhis are mutual-benefit companies governed by Section 406 of the Companies Act, 2013 (Companies Act) and the Nidhi Rules, 2014 (Nidhi Rules). Their activities are centred on accepting deposits from and lending to their members.

The regulatory framework has evolved over time. Under Section 620A of the Companies Act, 1956, the Central Government could declare a company as a Nidhi. The Companies Act, 2013 initially did not require such declaration, but the requirement was reintroduced with effect from August 15, 2019. Rule 3A of the Nidhi Rules, 2014, introduced through the 2019 amendment, provides for an application in Form NDH-4, following which the Central Government, on being satisfied that the prescribed requirements are met, notifies the company as a Nidhi in the Official Gazette.

The Nidhi (Amendment) Rules, 2022 introduced a more detailed process for new applicants through Rule 3B. A public company seeking Nidhi status is required to apply in Form NDH-4 within 120 days of incorporation, provided it has at least 200 members and Net Owned Funds of ₹20 lakh or more. The application must also contain the prescribed fit-and-proper declarations relating to its promoters and directors.

The consequences of failing to obtain or maintain the required status can be substantial. Under Rule 3A, a company that has not complied with the applicable requirements, or whose NDH-4 application has been rejected, cannot raise deposits from or provide loans to members under the Nidhi Rules. A deposit raised thereafter is deemed to have been raised under Chapter V (acceptance of deposits) of the Companies Act and is consequently subject to the provisions governing acceptance of deposits.

Contravention of those requirements can therefore attract Section 76A of the Companies Act, which provides for a company fine of not less than ₹1 crore or twice the amount of the deposit accepted, whichever is lower, subject to a maximum of ₹10 crore. Officers in default may face imprisonment of up to seven years and a fine ranging from ₹25 lakh to ₹2 crore. Where the contravention is committed knowingly or wilfully with an intention to deceive, Section 447, concerning fraud, may also apply.

Even a declared Nidhi remains subject to operational restrictions, including a limit on deposits to twenty times its Net Owned Funds under Rule 11 of the Nidhi Rules, 2014, and a prohibition on accepting deposits from or lending to persons other than its members under Rule 6(f) of the Nidhi Rules, 2014. Further, following the 2024 amendment, a company cannot use the words “Nidhi Limited” in its name unless it has been declared as a Nidhi under Section 406(1).

The MCA has stated that 395 companies have been declared under the 1956 or 2013 Act, with a list published on November 3, 2025, on the MCA portal. Out of which, 298 are active, 55 have been converted, dissolved or struck off, and 42 are under liquidation or strike-off proceedings.

The Ministry has also cautioned against relying on informal assurances of high returns. Nidhi deposits are not insured by the Deposit Insurance and Credit Guarantee Corporation (DICGC) and in the event of default or fraud, depositors may face uncertainty and delays in recovering their funds, with recovery potentially being incomplete.