Challenge on Unconstitutionality of Nidhi Rules 2014 as per Companies (Amendment) Act 2017: Madras HC directs to Submit Fresh Reply on Rectifying defects [Read Order]

In a recent case, the Madras High Court has directed the petitioner to submit a fresh reply by rectifying the defect while challenging the unconstitutionality of Nidhi Rules 2014 as per the Companies (Amendment) Act 2017.

Vaasavi Nidhi Ltd, the petitioner challenged the orders passed by the respondent, rejecting the application in e-Form NDH-4 filed by the petitioner, and to direct the respondents to accept the Form NDH-4 filed by the petitioner.

The Division Bench held that “The writ petitions have been instituted to assail the order passed by the second respondent dated 23.06.2023 rejecting the application filed by the petitioner in Form NDH-4 and to declare the amendment made substituting Section 406 of The Companies Act 2013 with new Section 406 as per The Companies (Amendment) Act 2017 (Act 1 of 2018) published vide gazette dated 03.01.2018 and notified with effect from 15.08.2019 requiring the Nidhi Companies which are already incorporated as Nidhi Companies to once again get a declaration as Nidhi by the Central Government is illegal, excessive, arbitrary and unconstitutional and strike down the same; to declare the amendment made to Nidhi Rules 2014 by Nidhi (Amendment) Rules 2019 vide notification dated 01.07.2019 with effect from 15.08.2019 by inserting Rule 3A and Rule 23A are illegal, excessive, arbitrary and unconstitutional and strike down the same.

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Further to declare the amendment made to Nidhi Rules 2014 by Nidhi (Amendment) Rules 2022 vide notification dated 19.04.2022 with effect from 19.04.2022 by inserting provisos to Rule 3A and Rule 23A are illegal, excessive, arbitrary and unconstitutional and strike down the same.

The counsel appearing on behalf of the writ petitioner restricted his prayer by submitting that the second respondent passed orders on the application beyond the time limit of 45 days fixed to dispose of the application. In the present case, the application in Form NDH-4 was filed by the petitioner on 15.04.2020, but the same was rejected by the second respondent in proceeding dated 23.06.2023.

A perusal of the impugned order would reveal that certain observations against the petitioner are made with reference to the particulars available in the application and consequently the rejection order was passed. The learned counsel for petitioner would submit that the petitioner will be satisfied if the subsequent reply/explanation given by the petitioner is taken into consideration and a fresh order is passed, by affording opportunity to the petitioner, on merits and in accordance with law.

The Senior Panel Counsel appearing on behalf of the respondents would submit that reasons are stated in the order impugned. The application was rejected on merits. The larger relief sought for in one of the writ petitions is to declare the provisions of law as null and void.

Upon considering the submissions made by the counsel for the petitioner and the Additional Solicitor General appearing for the respondents and in view of the aforesaid order passed by the Division Bench, a single bench of Justice Krishnan Ramasamy held that the petitioners state that they had submitted their respective replies to the impugned orders dated 18.10.2023, 04.03.2024, 24.11.2023, 05.07.2022 and 22.04.2024. Apart from the said replies, the petitioners are at liberty to submit a fresh reply regarding the compliance of the defects stated in the said impugned orders, within a period of two weeks from the date of receipt of a copy of the order.

On receipt of any such replies/explanations from the petitioner, the second respondent shall provide an opportunity to the writ petitioners and thereafter pass appropriate final orders on merits and in accordance with law within a period of four weeks from the date of filing of replies by the respective petitioners. However, the legal issue regarding the validity of the provisions of law is left open.

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