A Nidhi Company need to Raise Capital to Mandated Statutory Level for its Operations: Kerala HC rules on Challenge of S. 406 of Companies Act and Nidhi Rules [Read Order]
The court directed the competent Authorities to permit the petitioners to raise their capital within the threshold limit as per the Statutory requirement
Kerala High Court – Companies Act – Nidhi Rules – Nidhi Company – Capital raising – TAXSCAN
Kerala High Court – Companies Act – Nidhi Rules – Nidhi Company – Capital raising – TAXSCAN
In a recent petition challenging section 406 of the Companies Act, 2018, the Kerala High Court ruled that a Nidhi Company need to raise capital to mandated statutory level for its operations. The petitioners in these cases are stated to be 'Nidhi Companies", operating under the Companies Act, 1956.
The petitioners call into question the amendments brought to Section 406 of the Companies Act, 2016, through Act 1 of 2018, whereby, the obtention of declaration as a 'Nidhi Company' has been made mandatory; and they assert that this marks a deviation of the statutory regime applicable until now, taking it back to the era of the Companies Act, 1956, under which Section 620A thereof, required such declaration as a mandatory requisite.
The challenge was on the amendments brought into Section 406 of the Companies Act, 2013, through Act 1/2018; as also the corresponding amendments endrafted into the Nidhi Rules, 2014, namely Rules 3A and 23A thereof, as being illegal, unlawful and unconstitutional.
Sri.S. Manu, argued that the factum of Section 406 of 2013 Act having been originally drafted in such manner, without rigor having by small investors. He submitted that with such complaints becoming commonplace, inspections, enquiries and investigations were conducted under the Companies Act, 2018; and consequent ly, it was found that, unless their operations are well regulated and brought under an effective monitoring scanner, it would benefit no one, but would operate as a great detriment to bonafide investors, who are generally from small towns and who make small investments from their hard earned money.
The Court held that “the challenge to the amendments to Section 406 of the Companies Act, 2013, as also to the "Nidhi Rules, 2014" are left undecided and kept open for future consideration, if it becomes so warranted.”
Further held that until such time as the afore exercise is completed and the resultant order communicated to the petitioners in case where they comply with direction (a) above and make fresh application in "NDH 4" format, within the time frame fixed .
Justice Devan Ramachandran held that it was evident that unless the petitioners are able to raise their capital to the level as is statutorily mandated, they would not be able to operate as a 'Nidhi Company', much less obtain any benefit under the judgment.
The court directed the competent Authorities to permit the petitioners to raise their capital within the threshold limit as per the Statutory requirement.
To Read the full text of the Order CLICK HERE
Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates
