A Nidhi Company is a company that has been incorporated as a Nidhi with the following objects:
Cultivating the habit of thrift (cost-cutting) and savings amongst its members
Receiving deposits from its members
Lending to its members only
For their mutual benefit
## Key Features
Operates only with its members (closed group).
Cannot receive deposits or lend to non-members.
Must comply with rules prescribed by the Central Government for regulation of such class of companies.
## Purpose
The primary purpose is mutual benefit — encouraging savings and providing credit facility within a member community.
## Regulatory Framework
Governed by Section 406 of the Companies Act, 2013.
Subject to Nidhi Rules prescribed by the Central Government.
Worked example
### Example 1
Example 1: Sahyog Nidhi Limited is formed by 500 persons in a village to encourage savings and provide loans amongst themselves only. It does not accept deposits from the general public. It qualifies as a Nidhi Company under Section 406.
### Example 2
Example 2: Mutual Welfare Nidhi Ltd. accepts deposits from non-members and lends to outsiders. This violates the core requirement that a Nidhi may deal only with its members. It would be in contravention of Section 406.
⚠️ Common exam mistakes
Confusing Nidhi with NBFC — Nidhi deals only with members; NBFC deals with general public.
Forgetting that Nidhi must be incorporated as a public company (under Nidhi Rules) — not as a private company.
Thinking 'thrift' means just savings — it includes the broader concept of cost-cutting and prudent financial habits.
Assuming Nidhi can lend to anyone for profit — lending is restricted to members and for mutual benefit.
Bare-Act text Section 406 · The Companies Act, 2013 · click to expand
Section 406 – Power to modify Act in its application to Nidhis: 'Nidhi' means a company which has been incorporated as a Nidhi with the object of cultivating the habit of thrift and savings amongst its members, receiving deposits from, and lending to, its members only, for their mutual benefit, and which complies with such rules as are made by the Central Government for regulation of such class of companies.