Rule 5 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.
Rule 5 is the first-year test for a Nidhi: within one year of incorporation it must show two hundred members, Net Owned Funds, unencumbered term deposits and a Net Owned Funds to deposits ratio not above 1:20. It then requires a return in Form NDH-1 and allows an extension in Form NDH-2. This article reads rule 5 as amended up to G.S.R. 413(E) dated 16 July 2024; later amendments should be checked. Nidhis that want the return papers prepared can use our compliance documentation support.
Within one year from the date of its incorporation a Nidhi must have not less than two hundred members, Net Owned Funds as stated in the rule, unencumbered term deposits of not less than ten per cent of outstanding deposits and a Net Owned Funds to deposits ratio of not more than 1:20. It files Form NDH-1 within ninety days of the close of the financial year concerned. If it misses clause (a) or (d), it may apply in Form NDH-2 within thirty days. Rule 5 does not apply to companies incorporated as Nidhi on or after 19 April 2022.
Who rule 5 covers
Rule 5(5), inserted by G.S.R. 301(E) of 19 April 2022, says the rule "shall not be applicable for the companies incorporated as Nidhi on or after the commencement" of those Rules, that is, 19 April 2022. Those companies are under rule 3B; see our article on rule 3B. For companies incorporated earlier, rule 5 still operates and works together with rule 3A, covered in our article on rule 3A.
| Company | Rule that applies |
|---|---|
| Declared under the 1956 Act | Rule 23B |
| Functioning as Nidhi, or incorporated before 15 August 2019 | Rule 23A with rule 3A |
| Incorporated 15 August 2019 to 18 April 2022 | Rule 3A and rule 5 |
| Incorporated on or after 19 April 2022 | Rule 3B; rule 5 does not apply |
Rule 5(1): four tests within one year
As amended by G.S.R. 467(E) of 2019, rule 5(1) says every Nidhi shall, within a period of one year "from the date of its incorporation", ensure that it has:
- (a) not less than two hundred members;
- (b) Net Owned Funds of ten lakh rupees or more;
- (c) unencumbered term deposits of not less than ten per cent of the outstanding deposits as specified in rule 14; and
- (d) a ratio of Net Owned Funds to deposits of not more than 1:20.
Before 2019 the period ran "from the commencement of these rules"; the amendment substituted "from the date of its incorporation".
Clause (b) still prints ten lakh rupees. Rule 9, as amended in 2022, now speaks of twenty lakh rupees as the minimum Net Owned Funds, and rule 3B(1) uses twenty lakh rupees for new Nidhis. The text of rule 5(1)(b) is stated here as printed, and the two figures are not reconciled. See our article on rules 9 and 11.
Clause (c) points to rule 14 on unencumbered term deposits; see our article on rules 13 and 14.
Rule 5(2): the NDH-1 return
"Within ninety days from the close of the first financial year after its incorporation and where applicable, the second financial year, Nidhi shall file a return of statutory compliances in Form NDH-1 along with such fee as provided in Companies (Registration Offices and Fees) Rules, 2014 with the Registrar duly certified by a company secretary in practice or a chartered accountant in practice or a cost accountant in practice."
Points to note:
- The return is filed for the first financial year after incorporation and, where applicable, for the second.
- The period is ninety days from the close of that financial year.
- The fee is "as provided in" the Companies (Registration Offices and Fees) Rules, 2014; no amount is stated in the Nidhi Rules.
- The certifying professional is a company secretary, chartered accountant or cost accountant, in each case in practice.
The step-by-step filing is covered in our post on how to file Form NDH-1, and the form is described in our article on Forms NDH-1 to NDH-5.
Rule 5(3): NDH-2 for extension
"If a Nidhi is not complying with clauses (a) or (d) of sub-rule (1) above, it shall within thirty days from the close of the first financial year, apply to the Regional Director in Form NDH-2 along with fee specified in Companies (Registration Offices and Fees) Rules, 2014 for extension of time and the Regional Director may consider the application and pass orders within thirty days of receipt of the application."
Only clauses (a) (members) and (d) (ratio) can be the subject of an extension application. The 2019 amendment added a proviso: "Provided that the Regional Director may extend the period upto one year from the date of receipt of application."
The Explanation says "Regional Director" means the person appointed by the Central Government in the Ministry of Corporate Affairs as a Regional Director. How the Regional Director exercises the power in practice is not described in the Rules, and no guidelines are covered here.
The extension also feeds rule 3A: its first proviso gives sixty days from the end of the extended period, so the NDH-2 order affects the Form NDH-4 deadline.
Rule 5(4): the penalty for a prolonged failure
"If the failure to comply with sub-rule (1) of this rule extends beyond the second financial year, Nidhi shall not accept any further deposits from the commencement of the second financial year till it complies with the provisions contained in sub-rule (1) and gets itself declared under sub-section (1) of section 406, besides being liable for penal consequences as provided in the Act."
The words "and gets itself declared under sub-section (1) of section 406" were inserted in 2019. The restriction therefore lifts only when sub-rule (1) is complied with and the company is declared. The penal consequences "as provided in the Act" should be checked in the Act as in force; they are not stated in the Nidhi Rules.
An example
Shyam Thrift Nidhi Limited was incorporated before 19 April 2022 and after 15 August 2019. Twelve months in, it has one hundred eighty members. Clause (a) is not met. Within thirty days of the close of its first financial year it should apply to the Regional Director in Form NDH-2 for extension; the Regional Director may pass orders within thirty days of receipt and may extend up to one year from the date of receipt. Separately, the NDH-1 return is due within ninety days of the close of that first financial year. If the failure runs beyond the second financial year, rule 5(4) stops further deposits until it complies and is declared.
Need help with Form NDH-1 and Form NDH-2?
The return needs a professional's certificate and consistent member and deposit figures, and an extension application needs reasons that fit the facts. Our compliance documentation team can prepare the working papers for your NDH-1 and NDH-2.
Key takeaways
- Rule 5 applies to Nidhis incorporated before 19 April 2022; newer ones are under rule 3B.
- Within one year of incorporation: two hundred members, Net Owned Funds as printed, ten per cent unencumbered term deposits and a ratio of not more than 1:20.
- NDH-1 is due within ninety days of the close of the first (and, where applicable, second) financial year, certified by a professional in practice.
- NDH-2 for extension goes to the Regional Director within thirty days of the close of the first financial year, for clauses (a) or (d).
- Failure beyond the second financial year stops further deposits until compliance and declaration under section 406(1).
Read next
- Rule 3A: declaration and the Form NDH-4 deadline
- Forms NDH-1 to NDH-5: what each form asks for
- How to file Form NDH-1: Nidhi company return
- Nidhi company compliance requirements checklist
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.