# Nidhi Company

A Nidhi company is a special class of company recognised under Section 406 of the Companies Act, 2013. The word 'Nidhi' literally means 'treasure' — and these companies are essentially community-based mutual benefit societies.

## Statutory Definition (Section 406)

A Nidhi company is a company incorporated:

1. As a Nidhi — i.e., specifically as this class of company;

2. With the object of cultivating the habit of thrift (cost cutting) and savings amongst its members;

3. For receiving deposits from, and lending to, its members ONLY;

4. For their mutual benefits;

5. And which complies with rules prescribed by the Central Government for regulation of such class of companies.

## Key Features Explained

Feature	Explanation
Object	Promote thrift and savings among members
Deposits	Accepted ONLY from members
Loans	Granted ONLY to members
Public Dealing	NOT permitted — strictly member-based
Regulation	Governed by Companies Act + CG-prescribed rules
Purpose	Mutual benefit of members

## Why Nidhi Companies Matter

They serve as a localised financial cooperative — common in southern India, especially Tamil Nadu.
Provide a safe, regulated way for small savers to deposit and borrow within a closed community.
Bridge the gap between informal money-lending and full-fledged banking.

## Memory Hook

'M-M-M' — Nidhi deals only with Members, for Mutual benefit, regulated by Ministry rules.

Worked example

### Example 1

Example 1: A group of 200 small traders in a town pools savings and forms 'Town Saver Nidhi Ltd.'. The company accepts deposits from these 200 members and lends only to them at reasonable rates. This is a valid Nidhi company under Section 406.

### Example 2

Example 2 - Not a Nidhi: XYZ Ltd. accepts deposits from the general public and lends to small businesses. Even if it calls itself a Nidhi, it is NOT one — Nidhis cannot accept deposits from or lend to non-members.

### Example 3

Example 3 - Compliance: A Nidhi company violates the CG rules by accepting a deposit from a non-member's friend. This breaches Section 406's requirement of dealing 'with members only' and CG rule compliance — exposing the Nidhi to penalties and possible loss of Nidhi status.

⚠️ Common exam mistakes

Believing Nidhi companies can accept deposits from the public — they cannot; ONLY members.
Confusing Nidhi with NBFCs — Nidhis are NOT NBFCs; they are governed by Section 406 and CG rules, not by RBI's NBFC regulations (though there's regulatory overlap).
Forgetting that the object MUST be 'thrift and savings' for mutual benefit — a profit-maximising lending company is not a Nidhi.
Missing the citation — Nidhi is governed by Section 406 (not Section 8 or Section 2).

Bare-Act text Section 406 · Companies Act, 2013 · click to expand

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 benefits, and which complies with such rules as are prescribed by the Central Government for regulation of such class of companies.

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