Govt cracks the whip on illegal lending
2 min read . Updated: 27 Feb 2023, 01:01 AM IST
PremiumNidhis or Mutual Benefit Societies have a large network in eastern India, especially Bihar, Jharkhand and West Bengal.
New Delhi: Central government authorities in Bihar have drafted state police and district administrations in a crackdown on lending and borrowing operations by ‘Nidhi companies’ which do not comply with reporting requirements under the Companies Act, two persons informed about the development said.
The drive to check the abuse of the Nidhi companies— a type of non-banking finance companies that facilitate borrowing and lending among its own members— comes in the context of complaints about entities that have allegedly duped investors, said one of the two persons quoted above.
The office of the Registrar of Companies (ROC) in Bihar has issued an advisory to state police and district administrations giving a district-wise breakup of Nidhi Companies that have failed to make the required disclosures to the RoC. The advisory covers around 550 entities, the second person said.
The advisory issued by Mohit Kumar, assistant registrar of companies, said these companies may be illegally lending and collecting money from the public by making them members of the company.
Nidhis or Mutual Benefit Societies have a large network in eastern India, especially Bihar, Jharkhand and West Bengal. Nidhis generally operate in small areas and cater to the needs of people from the middle and lower middle classes who are its members and often known to each other.
After incorporation under the Companies Act, these entities are required to declare themselves as Nidhis or Mutual Benefit Companies/Societies by filing specified forms to the RoC, following which they can engage in the business of lending, borrowing and accepting deposits. Engaging in these operations without making the relevant disclosures is a breach of the Act. The advisory issued by the Bihar Assistant RoC urged the police and district administration to take action against illegal entities under laws such as the Banning of Unregulated Deposit Schemes Act, 2019, said the second person quoted above. The advisory also suggested that a public awareness campaign on illegal operation of Nidhi companies be conducted. It also urged district administrations and district police authorities to share any complaints they receive on such illegal companies with the RoC office so that action can also be taken under the Companies Act against their directors if found guilty.
An e-mail sent to the spokesperson for the ministry of corporate affairs on Friday seeking comments for the story remained unanswered at the time of publishing.
One major head ache for the authorities is that some of the Nidhi companies use the term ‘Bank’ in their names which wrongly implies that they are commercial banks. The purpose of Nidhi companies is to cultivate the habit of thrift and savings among its members and to facilitate financial intermediation solely among its members. In FY22, 272 prosecutions were initiated against Nidhi companies for violations of the Companies Act.