Friday, May 31, 2024
Friday, May 31, 2024

Closing a Nidhi Company: A Detailed Process

by Vartika Kulshrestha
Closing a Nidhi Company

Nidhi companies, often referred to as mutual benefit companies, have gained popularity in India for their unique financial services approach. These entities are primarily created to promote savings among their members and provide them with credit facilities. However, there may come a time when a Nidhi company needs to close its operations for various reasons. In this article, we will delve into the detailed process of closing a Nidhi company, shedding light on the legal obligations and necessary steps involved.

Before diving into the process of closing a Nidhi company, it’s essential to grasp the nature of these entities. Nidhi companies are unique in that they function primarily for the benefit of their members. They operate within a specific set of rules and regulations and are primarily governed by the Nidhi Rules, 2014, and the Companies Act, 2013.

Reasons for Closing a Nidhi Company

There are various reasons why closing a Nidhi company can happen:

  • Loss of Members: Closing a Nidhi company depends on the involvement and contributions of its members. It might not be able to function in the long run if a sizable portion of members leave.
  • Financial instability: Insolvency and other financial issues may necessitate a Nidhi company’s closure.
  • Regulatory Compliance Issues: Non-compliance with the statutory requirements and regulations can result in the company’s closure.
  • Change in Objectives: If the company’s objectives or purposes change significantly, it might necessitate closing and re-registering under a different structure.

Keeping the Ethical Closure

A Nidhi company’s closure must be carried out with the highest ethical standards. This involves making certain that no resources or assets are misappropriated for one’s benefit or at the expense of other participants or stakeholders. Directors and officers of the company may face legal repercussions for any irregularities in the process of closing a Nidhi Company.

Preparing for Closure

Before proceeding with the formal process of closing a Nidhi company, it is crucial to undertake some preparatory steps:

  • Board Resolution: The board of directors should pass a resolution indicating their intention to close the Nidhi company. This resolution should be duly recorded in the minutes of the meeting.
  • Members Approval: Seek the approval of the company’s members to dissolve the Nidhi company. This typically requires a special resolution passed by at least three-fourths of the members.
  • Notify Regulatory Authorities: Inform the Registrar of Companies (RoC) and the concerned Regional Director about the company’s decision to close. The RoC will then publish a notice in the Official Gazette to invite objections, if any.

Clearance of Liabilities

One of the most critical aspects of closing a Nidhi company is settling its liabilities. This includes repaying deposits, loans, and other financial obligations. The process may involve:

  • Repayment of Deposits: Ensure that all the deposits from members are repaid following the Nidhi Rules. Members should be provided with a written statement of their account, indicating the balance to be paid.
  • Settling Loans: If the Nidhi company has provided loans to members, these must be recovered before closing. Any unpaid loans should be pursued and collected.
  • Clearing Debts: Clear all outstanding debts and obligations owed by the Nidhi company to third parties, including creditors, vendors, and service providers.
  • Disposal of Assets: Sell the company’s assets to generate funds for clearing liabilities. Ensure that the process adheres to legal requirements.

Compliance with Legal Formalities

The legal formalities involved in closing a Nidhi company are crucial to avoid legal consequences. These include:

  • Filing of Form NDH-2: File Form NDH-2 with the RoC, along with the requisite documents. This form contains information about the members and the reasons for closing the Nidhi company.
  • Pending Litigation: Resolve any pending legal disputes or litigation involving the Nidhi company.
  • Closure of Bank Accounts: Close the company’s bank accounts and settle any outstanding dues. During the closure process, legal claims and disputes may arise from various stakeholders. 

Nidhi companies should be prepared to address these issues efficiently. Legal counsel may be required to resolve any pending legal matters and to ensure that the closure process proceeds without undue hindrances.

Distributing Assets and Profits

The members should split up any remaining assets and profits (if any) after the liabilities have been paid off. Usually, this is carried out in accordance with the bylaws of the business or as the members themselves specify.

  • Member-Based Operations: Nidhi Companies can only deal with their members and the distribution of assets and profits is also limited to members.
  • Net Owned Funds (NOF): Nidhi Companies are required to increase their NOF to at least 10 lakh rupees or more.
  • Dividend Declaration: Profits can be distributed to members in the form of dividends, subject to the provisions in the Nidhi Rules and the company’s by-laws. The rate of dividend is not to exceed a certain percentage as prescribed by the regulatory authority.
  • Reserve Fund: A Nidhi Company must transfer at least 10% of its gross income annually to the reserve fund before declaring a dividend.
  • Unencumbered Term Deposits: At least 10% of the outstanding deposits must be in unencumbered term deposits with a scheduled commercial bank or post office deposits in its own name.

Filing of Final Documents

After all the above steps are completed, for the completion of process of closing a Nidhi company must file the following final documents with the RoC:

  • NDH-1: Annual return of statutory compliances within 90 days of the financial year-end.
  • NDH-2: Application for extension of time if compliance with rules is not met (as needed).
  • NDH-3: Half-yearly return detailing financial position and member details.
  • Form SH-7: Notification of change in authorized capital (if applicable).
  • Form PAS-3: Return of allotment of shares within 30 days of allotment.
  • Form DIR-12: For changes in directorship within 30 days of change.
  • Form MGT-14: Filing of resolutions with RoC within 30 days of the Board meeting.
  • MGT-7: Annual return within 60 days of AGM.
  • AOC-4: Filing of financial statements within 30 days of AGM.
  • Income Tax Returns: Annually by the specified due date.
  • ADT-1: For auditor appointment within 15 days of AGM.
  • DPT-3: Return of deposits annually.

Cancellation of Nidhi Company Registration and Public Announcement

To cancel a Nidhi Company registration and make a public announcement, the following steps are typically involved:

Board Resolution: Initiate with a resolution by the company’s Board of Directors.

Clear Debts: Ensure all debts are paid or settled with creditors.

Members’ Approval: Obtain approval from members through a special resolution.

File with RoC: Submit Form STK-2 and other necessary documents to the Registrar of Companies.

Public Announcement: Publish a notice in a newspaper about the company’s closure and invite claims.

Affidavit and Indemnity Bond: Directors must submit an affidavit and indemnity bond.

Appoint Liquidator: If needed, appoint a liquidator to settle accounts and distribute assets.

RoC Notification: Await the RoC’s notice of striking off the company’s name.

Dissolution Notice: The RoC issues a public notice that the company is dissolved.


Closing a Nidhi company is a complex process that involves several legal and financial intricacies. Understanding the reasons for the closure, adhering to the legal provisions, and meticulously managing assets and liabilities are all essential for a smooth closure. Nidhi companies play a significant role in financial inclusion, but when the need for closure arises, following the proper procedures is crucial to protect the interests of all stakeholders and maintain the integrity of the financial sector.

In conclusion, the closure of a Nidhi company requires a comprehensive understanding of the legal obligations and a commitment to fulfilling them diligently. By following the outlined process, Nidhi companies can ensure a responsible and lawful closure, preserving the trust and integrity of financial institutions in India.

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