MCA cautions against investing in Nidhi companies without due diligence

New Delhi: The Ministry of Corporate Affairs has cautioned about ‘Nidhi Companies’ and their functioning, warning the common public against investing in them without proper background check, “especially if there is a promise of high returns.” Nidhi companies are mutual-benefit companies regulated by MCA under the Companies Act,2013 and Nidhi Rules, 2014. They can accept deposits and give loans only to their members.

“It has come to the notice that many companies lure their members by promising unusually high returns,” MCA said, adding members of the public are advised not to rely solely on promises of unusually high returns by agents or informal assurances while making financial decisions. Potential investors should independently verify whether the company has been declared as a Nidhi by the Central Government and carefully consider the term.

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The ministry said it noticed that many ‘Nidhi’ Companies are not complying with the applicable provisions of the law. Every company functioning as Nidhi is required to file application in Form NDH-4 or getting itself declared or updated under this category.

“It has also been observed that many of the companies functioning as Nidhi company have not submitted their NDH-4 application within the stipulated time frame prescribed under Nidhi Rules,” an MCA statement said.

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It is to be noted that, the deposits accepted by Nidhi Companies are not insured by the Deposit Insurance and Credit Guarantee Corporation (DICGC). “If the company fails or faces fraud, recovery of deposited money can be very difficult or incomplete,” MCA added.