The term “section” in the context of Nidhi Companies is often associated with specific sections of the Companies Act, which governs the formation and operation of companies in India. Nidhi Companies are governed by Section 406 of the Companies Act, 2013.
Understanding Nidhi Companies under Section 406:
1. Section 406 of the Companies Act, 2013:
This section specifically deals with the provisions related to Nidhi Companies.
2. Definition of Nidhi Company:
According to Section 406, a Nidhi Company is a type of non-banking financial institution that primarily deals with borrowing and lending money among its members.
3. Objective of Nidhi Companies:
The primary objective of Nidhi Companies, as outlined in Section 406, is to cultivate the habit of thrift and savings among its members and to lend funds to them for mutual benefit.
4. Membership Criteria:
Section 406 specifies the eligibility criteria for becoming a member of a Nidhi Company. Members should be individuals and must comply with the rules laid out by the company.
5. Core Activities:
Nidhi Companies, as per this section, are restricted in their activities. They can only deal with funds received from their members and are prohibited from engaging in any other financial business.
6. Compliance Requirements:
Section 406 establishes the legal framework for the incorporation, membership, and operation of Nidhi Companies. It also mandates compliance with the rules and regulations set forth by the Ministry of Corporate Affairs (MCA).
7. Minimum Capital and Reserves:
The section stipulates the minimum capital requirements for Nidhi Companies and requires them to maintain specific reserves.
8. Lending and Borrowing:
Nidhi Companies, under Section 406, have limitations on the amount they can lend to their members and the terms under which such lending can occur.
9. Board of Directors:
The composition, powers, and responsibilities of the Board of Directors are also governed by this section.
Understanding Section 406 is crucial for anyone involved in the establishment or management of a Nidhi Company. It provides the legal framework that defines the structure, functioning, and limitations of Nidhi Companies to ensure their operations align with the broader objectives of financial inclusion and mutual benefit.