No Amendments of S. 406 of Companies Act can be made Which Ceases Operations of Nidhi Companies: Kerala HC on Nidhi Companies Case [Read Order]
The Bench opined that an opportunity be given to see whether the “Nidhi Act” and the “Nidhi Rules” can be allowed to operate, without causing an oppressive impediment to the petitioners, in either obtaining registration, or in continuing with their operations, as the case may be
Kerala High Court – Nidhi Companies – Nidhi Companies Case – Nidhi Companies financial regulations – taxscan
Kerala High Court – Nidhi Companies – Nidhi Companies Case – Nidhi Companies financial regulations – taxscan
The Kerala High Court held that any financial activity ought to be regulated reasonably within the ambit of law, and it cannot glissade into a situation where its operations become impossible, or are defeated by oppressive or impossible restrictions and regulations.
The petitioners stated to be 'Nidhi Companies' operating under the Companies Act, 1956, called 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. The petitioner asserted 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 “Nidhi Companies” apprehended that amendment to Section 406 of the Companies Act, 2013 will authorise the Government to bring in changes to the Nidhi Rules, 2014, to draft Rules 3A and 23A thereby rendering their existence & operations impossible.
A Single Bench of Justice Devan Ramachandran observed that “in the case of any right vested to any individual or class of persons/entities, necessary regulatory mechanism and reasonable restrictions are desideratum, if not imperative, especially when public money is involved. Such cannot be challenged if they are reasonable in nature and are within the constitutional perimeter”.
It was found that at first blush, the regulatory mechanism appears to be far less exacting than what the Reserve Bank holds over financial entities like banks or NBFCs; this is admitted by all the petitioners' counsel.
The Bench opined that an opportunity be given to see whether the “Nidhi Act” and the “Nidhi Rules” can be allowed to operate, without causing an oppressive impediment to the petitioners, in either obtaining registration, or in continuing with their operations, as the case may be.
The court refused to decide on the amendments to Section 406 of the Companies Act, 2013, as also to the “Nidhi Rules, 2014” as impelled in these writ petitions, and granted liberty to each of the petitioners to approach the competent Authority, for compounding the offences alleged against them; thus leading to the imposition of the least sum of penalty, as permissible in law, however, subject to the evaluation and determination of such, on a case-to-case basis by the competent Authority.
To Read the full text of the Order CLICK HERE
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