Rule 6 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 6 opens with "No Nidhi shall" and then lists twelve prohibitions, clauses (a) to (l). They keep a Nidhi within its single purpose of taking deposits from members and lending to members. This article reads rule 6 as amended up to G.S.R. 413(E) dated 16 July 2024; later amendments should be checked. Clause (d) was substituted and clause (l) was added by G.S.R. 301(E) dated 19 April 2022.
A Nidhi may not run a chit fund, hire purchase, leasing or insurance business, issue preference shares or debt instruments, open current accounts, deal with non-members or bodies corporate, advertise for deposits, pay brokerage or borrow from outside to lend to members. Clause (d) now bans acquiring securities of another company or controlling its Board outright. The only stated business exception is locker rental up to twenty per cent of gross income under the proviso to clause (e).
The twelve prohibitions
Questions about whether a particular activity is allowed can be taken to a legal consultation before the activity starts. The table below lists each clause, and the sections that follow give the detail.
| Clause | A Nidhi shall not | Note |
|---|---|---|
| (a) | Carry on chit fund, hire purchase finance, leasing finance, insurance, or acquisition of securities issued by any body corporate | |
| (b) | Issue preference shares, debentures or any other debt instrument | |
| (c) | Open any current account with its members | |
| (d) | Acquire or purchase securities of any other company, control its Board or enter into an arrangement for change of its management | Substituted 2022 |
| (e) | Carry on any business other than borrowing or lending in its own name | Locker proviso |
| (f) | Accept deposits from or lend to any person other than its members | |
| (g) | Pledge any assets lodged by members as security | |
| (h) | Take deposits from or lend money to any body corporate | |
| (i) | Enter into any partnership arrangement in its borrowing or lending | |
| (j) | Issue any advertisement in any form for soliciting deposit | Proviso on private circulation |
| (k) | Pay brokerage or incentive for mobilising deposits, deployment of funds or granting loans | |
| (l) | Raise loans from banks, financial institutions or any other source to advance loans to members | Inserted 2022 |
Clause (a): other businesses
A Nidhi cannot carry on the business of "chit fund, hire purchase finance, leasing finance, insurance or acquisition of securities issued by any body corporate". Together with clause (e), this confines the Nidhi to borrowing and lending.
Clauses (b) and (c): instruments and accounts
Clause (b) bars "preference shares, debentures or any other debt instrument by any name or in any form whatsoever". This matches rule 4(2) on preference shares; see our article on rule 4. Clause (c) bars opening "any current account with its members". Savings and term deposit accounts are dealt with in rules 12 and 13.
Clause (d): securities and control of other companies
As substituted in 2022, clause (d) reads: "acquire or purchase securities of any other company or control the composition of the Board of Directors of any other company in any manner whatsoever or enter into any arrangement for the change of its management".
The 2014 clause had a route through a special resolution and previous approval of the Regional Director. That route was removed by the 2022 substitution, so the prohibition is now stated without it. The substituted clause prints no Explanation. The 2023 version of Form NDH-2 still names "rule 6(d)" in its heading; we flag this as printed and say nothing about what an application under it would be.
Clause (e): business only of borrowing or lending, and the locker proviso
A Nidhi shall not "carry on any business other than the business of borrowing or lending in its own name".
The proviso: "Nidhis which have adhered to all the provisions of these rules may provide locker facilities on rent to its members subject to the rental income from such facilities not exceeding twenty per cent of the gross income of the Nidhi at any point of time during a financial year."
Three conditions sit inside the proviso: the Nidhi has adhered to all the provisions of the Rules, the facility is for its members, and rental income stays within twenty per cent of gross income at any point during a financial year. Rule 4(4) also refers to this proviso in the object clause of the memorandum.
Clauses (f), (g), (h) and (i): who and how
- (f) no deposits from, and no loans to, any person other than members.
- (g) no pledging of "any of the assets lodged by its members as security". Gold or documents given as security for a member's loan remain the member's security and cannot be pledged onward.
- (h) no deposits from, or loans to, any body corporate. This sits alongside rule 8(1), which bars admitting a body corporate or trust as a member; see our article on rules 7 and 8.
- (i) no partnership arrangement in borrowing or lending activities.
Clause (j): advertising
A Nidhi shall not "issue or cause to be issued any advertisement in any form for soliciting deposit". The proviso allows private circulation of the details of fixed deposit schemes among members if the circular carries the words "for private circulation to members only"; that is not considered an advertisement. Note the contrast with rule 10(6)(b), where a Nidhi must publish an advertisement in a newspaper when closing a branch; that is a notice to the public about closure, not a solicitation.
Clause (k): brokerage and incentives
No brokerage or incentive may be paid "for mobilising deposits from members or for deployment of funds or for granting loans". This covers payments for finding depositors and payments for finding borrowers.
Clause (l): no outside borrowing
Inserted in 2022: a Nidhi shall not "raise loans from banks or financial institutions or any other source for the purpose of advancing loans to members of Nidhi". The text names no exception. See our article on rules 15 and 16.
Consequences of breach
Rule 6 itself prints no penalty. Rule 24 prints a fine for contravention of any provision of the Rules, which is covered in our article on rules 21 to 24, and rule 23 allows a Special Officer to be appointed if a Nidhi violates the Rules. The penalty provisions of the Act as in force should also be checked.
An example
Ramesh Nidhi Limited has strong deposits and a growing locker room. It may rent lockers to its members as long as it has adhered to all provisions of the Rules and the rental income does not exceed twenty per cent of its gross income at any time in the year. It may not run a chit scheme alongside, may not borrow from a bank to fund a rush of member loans, and may not publish a newspaper advertisement inviting the public to place deposits.
Need help with a Nidhi restriction question?
Rule 6 is where many Nidhis drift: a side business, an advertisement, a bank line to meet loan demand. Our legal consultation service can review an activity against rule 6 and the rest of the Rules before the company acts.
Key takeaways
- Rule 6 has twelve prohibitions, clauses (a) to (l), each starting from "No Nidhi shall".
- Chit fund, hire purchase, leasing, insurance and securities of bodies corporate are out; so are preference shares and debt instruments.
- Clause (d) as substituted in 2022 bans acquiring securities of another company or controlling its Board; the old approval route is gone.
- Lockers may be rented to members within twenty per cent of gross income, only by Nidhis that have adhered to all the Rules.
- Advertising for deposits is barred; private circulation to members with the prescribed words is not advertising.
- Clause (l) bars borrowing from banks, financial institutions or any other source to lend to members.
Read next
- Rule 4: capital, objects and the name Nidhi Limited
- Rules 15 and 16: loans to members
- Section 406 of the Companies Act, 2013: Nidhi companies
- Nidhi company vs NBFC: key differences
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.