IMPORTANT POINT
The judgment emphasizes the need for reasonable regulatory mechanisms for Nidhi Companies and allows the petitioners to apply for compounding of offences and make fresh applications under the Nidhi Rules, 2014.

JUDGMENT :

DEVAN RAMACHANDRAN, J.

1. The petitioners in these cases are stated to be ‘Nidhi Companies’ operating under the Companies Act, 1956; or having been registered subsequently, under the Companies Act, 2013.

2. All the petitioners call 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; and they assert 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. They assert that, under the guise of regulation - which they concede can be, as long as it reasonable - what is being done, through the impugned amendments to the Nidhi Rules, 2014, particularly Rules 3A and 23A of it, is that very cumbersome, if not impossible, conditions are being imposed, which is not possible for any of them to comply with; and hence that as matters now stand, many of them - if not all - stand denuded of their status as a ‘Nidhi Company’ thus now being able to operate only under the interim orders of this Court in these matters. They thus challenge the amendments brought into Section 406 of the Companies Act, 2013, through Act 1/2018; as also the corresponding amendments end-rafted into the Nidhi Rules, 2014, namely Rules 3A and 23A thereof, as being illegal, unlawful and unconstitutional.

3. However, in response, the learned Deputy Solicitor General of India - Sri. S.Manu, submitted that the primary reason, which persuaded the Government of India to consider an effective regulatory mechanism for ‘Nidhi Companies’ was that complaints were being received on a regular basis from various sources, including stake holders, State Level Co-ordination Committees and such other, regarding deleterious malpractices indulged by various “Nidhi” companies like: in refusing repayment of matured amount with interest; in luring members with exorbitant promises and expensive gifts like phones etc. through advertisement and then blatantly violating them; in refusing permission to members to withdraw from their own amounts; and, in some cases, where Directors and Promoters absconded, so as to avoid repayment of deposit by small investors. He submitted that with such complaints becoming commonplace, inspections, enquiries and investigations were conducted under the Companies Act, 2018; and consequently, it was found that, unless their operations are well regulated and brought under an effective monitoring scanner, it would benefit no one, but would operate as a great detriment to bona-fide investors, who are generally from small towns and who make small investments from their hard earned money.

4. Sri. S. Manu, then argued that, therefore, the factum of Section 406 of 2013 Act having been originally drafted in such manner, without the rigor of having to obtain a declaration, could not have stood in the way of the Parliament in amending the said provisions, so as to bring the ‘Nidhi Companies’ within the ambit of essential regulation and that the subsequent amendment in the “Rules” were only in such direction and hence, laudable in its intent. He thus prayed that these writ petitions be dismissed; alleging that it is rendered perspicuous that the real purpose of the challenge in these cases, is for the ‘Nidhi Companies’ to avoid all kind of regulatory glance, thus to enable them to operate in any manner that they deem fit, which is deleterious to the economy and to the investors at large.

5. After I heard the parties in some detail on the afore lines on 22.11.2023 - when these Writ Petitions were earlier listed, I had issued the following order, which is self explanatory:

“Admit.

The learned Deputy Solicitor General of India takes notice on behalf of respondents.

Post on 24.11.2023; until which time, all coercive action against the petitioner shall stand deferred; however, clarifying that