Rules 17 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Rules 17 to 19 deal with three people and one payout: who may be a director of a Nidhi and for how long, how much dividend the Nidhi may declare, and how long an auditor may stay. This article reads the rules as amended up to G.S.R. 413(E) dated 16 July 2024; later amendments should be checked. Rule 18 was substituted by G.S.R. 301(E) of 19 April 2022. For director appointments and changes, see our appointment of director service.
A Nidhi director must be a member, may hold office for up to ten consecutive years, and can return only after two years. A Nidhi may not declare dividend exceeding twenty five per cent in a financial year. An individual auditor may serve one term of five consecutive years, a firm two terms, with a two-year gap before reappointment and earlier years counted.
Rule 17: directors
17(1): a member. "The Director shall be a member of Nidhi." A person who is not a member cannot sit on the Board.
17(2): ten consecutive years. "The Director of a Nidhi shall hold office for a term up to ten consecutive years on the Board of Nidhi."
17(3): two-year gap. "The Director shall be eligible for re-appointment only after the expiration of two years of ceasing to be a Director."
17(4): extended tenures end. "Where the tenure of any Director in any case had already been extended by the Central Government, it shall terminate on expiry of such extended tenure."
17(5): the Act's tests. The person to be appointed "shall comply with the requirements of sub-section (4) of Section 152 of the Act and shall not have been disqualified from appointment as provided in section 164 of the Act." Neither section is reproduced in the Rules. See our posts on section 152 and section 164.
| Sub-rule | Requirement |
|---|---|
| 17(1) | Director must be a member |
| 17(2) | Term up to ten consecutive years |
| 17(3) | Re-appointment only after two years of ceasing to be a Director |
| 17(4) | Tenure extended by the Central Government ends on expiry of the extension |
| 17(5) | Compliance with section 152(4); no disqualification under section 164 |
In a Nidhi, a director's ten-year period is a continuous count of years on the Board. A person who has completed ten consecutive years cannot continue; re-appointment is possible only after two years from ceasing to be a director. The Rules do not say how a part-year is counted, and this article does not supply a rule.
Note that rule 3B, for new Nidhis, tests promoters and directors on a fit and proper basis, with a count test of five or more Nidhi directorships; see our article on rule 3B. That is a separate test and not part of rule 17.
Rule 18: dividend (substituted in 2022)
As substituted by G.S.R. 301(E): "A Nidhi shall not declare dividend exceeding twenty five per cent in a financial year." The earlier text of rule 18, with its Regional Director approval for a higher amount and its three conditions, was replaced and is no longer the rule.
Two observations from the words:
- The cap is twenty five per cent in a financial year. The rule is silent on what the percentage is of; the text does not say. Dividend is declared on share capital under the Act, whose section is covered in our post on section 123 of the Companies Act, 2013, but rule 18 itself names no base.
- The rule contains no route to a higher amount. Nothing in the substituted text allows an approval to exceed it.
Because a deposit application form must state the dividend declared in the preceding three financial years under rule 12(1)(f), the dividend history is also a disclosure item; see our article on rule 12.
Rule 19: auditor
19(1): individuals. "No Nidhi shall appoint or re-appoint an individual as auditor for more than one term of five consecutive years."
19(2): firms. "No Nidhi shall appoint or re-appoint an audit firm as auditor for more than two terms of five consecutive years."
Proviso: the gap. "An auditor (whether an individual or an audit firm) shall be eligible for subsequent appointment after the expiration of two years from the completion of his or its term."
Explanation. For the purposes of the proviso:
- (i) the period for which an auditor, individual or firm, "has been holding office as auditor prior to the commencement of these rules shall be taken into account in calculating the period of five consecutive years or ten consecutive years, as the case may be"; and
- (ii) appointment includes re-appointment.
| Auditor | Maximum | Gap before return |
|---|---|---|
| Individual | One term of five consecutive years | Two years |
| Audit firm | Two terms of five consecutive years (ten years in all) | Two years |
The Act has its own provisions on auditor appointment and rotation, covered in our posts on section 139 and auditor rotation under section 139(2). Rule 19 stands in its own words, and the two should be read separately; this article does not mix their rules.
Example
Suresh has been a director of Pragati Nidhi Limited for ten consecutive years, and his extended tenure, if any, has ended. He cannot be reappointed until two years have passed from ceasing to be a director. Pragati declared a dividend equal to thirty per cent in the latest year: that exceeds the cap of twenty five per cent and is not permitted by rule 18 as substituted. Its auditor is an audit firm completing its second five-year term: it can be appointed again only after two years from the completion of that term.
Need help with Nidhi director appointments?
Tracking each director's years on the Board, the gap before re-appointment and the section 152 and 164 conditions is a regular compliance job for a Nidhi. Our appointment of director team can maintain the tenure record and handle the appointment filings.
Key takeaways
- A Nidhi director must be a member and may hold office for up to ten consecutive years; re-appointment only after two years.
- Extended tenures end on expiry of the extension.
- Section 152(4) and section 164 of the Act are named in rule 17(5).
- Dividend cannot exceed twenty five per cent in a financial year; the 2014 conditions were removed in 2022.
- Auditors: an individual one term of five consecutive years, a firm two terms; two-year gap; earlier years counted; appointment includes re-appointment.
Read next
- Rule 15 and 16: loans to members
- Rules 21 to 24: returns, enforcement and penalty
- Section 152 of the Companies Act, 2013: director process
- Section 139 of the Companies Act, 2013: auditor appointment
Disclaimer: Based on the Nidhi Rules, 2014 as notified (G.S.R. 258(E), 31 March 2014) and as amended by G.S.R. 467(E) of 2019, G.S.R. 81(E) and 114(E) of 2020, G.S.R. 301(E) of 2022, G.S.R. 35(E) of 2023 and G.S.R. 413(E) of 2024, as consulted on 3 October 2026. Later amendments, fees, forms and the Companies Act, 2013 provisions referred to should be checked. This article is general information, not legal advice; check the official text before acting.