Section 406 Companies Act: Voting by show of hands

Section 406 of Companies Act: Corporate Governance & Statutory Compliance

Official Bare Act Text

Override / Mandate Mens Rea (Intent) Actus Reus (Conduct) Punishment Limitation Monetary

Nidhis

406. Power to modify Act in its application to Nidhis .

1. In this section, "Nidhi" means a company which has been incorporated as a Nidhi with the object of cultivating the habit of thrift and savings amongst its members, receiving deposits from, and lending to, its members only, for their mutual benefit, and which complies with such rules as are prescribed by the Central Government for regulation of such class of companies.

2. Save as otherwise expressly provided, the Central Government may, by notification, direct that any of the provisions of this Act shall not apply, or shall apply with such exceptions, modifications and adaptations as may be specified in that notification, to any Nidhi or Nidhis of any class or description as may be specified in that notification.

3. A copy of every notification proposed to be issued under sub-section (2 ), shall be laid in draft before each House of Parliament, while it is in session, for a total period of thirty days which may be comprised in one session or in two or more successive sessions, and if, before the expiry of the session immediately following the session or the successive sessions aforesaid, both Houses agree in disapproving the issue of the notification or both Houses agree in making any modification in the notification, the notification shall not be issued or, as the case may be, shall be issued only in such modified form as may be agreed upon by both the Houses.

Statutory Defined Terms in this Section: (Click any term for official legal definition)

Company Sec 2(20) Director Sec 2(34) Tribunal Sec 2(90)

Legal Commentary & Landmark Judgments: Section 406

Section 406 establishes the statutory framework for Nidhi companies (mutual benefit societies), empowering the Central Government to direct by notification that provisions of the Act shall not apply or shall apply with modifications to Nidhis.

Definition and Core Mutual Benefit Purpose: Defines a Nidhi as a company incorporated with the exclusive object of cultivating the habit of thrift and savings among its members, receiving deposits from and lending to members only.
Executive Power of Statutory Modification: Empowers the Central Government to issue notifications exempting or modifying the application of specified provisions of the Companies Act to Nidhi companies.
Compliance with Nidhi Rules and NDH Forms: Mandates strict adherence to the Nidhi Rules, 2014, including filing Form NDH-1 (statutory return), NDH-2 (extension), NDH-3 (half-yearly return), and NDH-4 (formal declaration of Nidhi status).

Key Landmark Precedents:

Alchemist Infra Realty Ltd. v. Union of India, 2013 SCC OnLine Del 3773: The Delhi High Court held that corporate entities cannot disguise collective investment schemes or unauthorized public deposit mobilization under the protective cloak of mutual benefit or Nidhi status.
Devi Multipurpose Cooperative Society v. State of Andhra Pradesh, (2006) 133 Comp Cas 496 (AP): Affirmed that deposit-taking entities are restricted to transacting strictly with verified members, and expanding activities to the general public forfeits statutory exemptions.

Courtroom Practice & Strategic Litigation Guidance:

When representing a Nidhi company facing Central Government rejection under Form NDH-4, audit compliance with Rule 5 (minimum 200 members and net owned funds of twenty lakh rupees). File a statutory writ or appeal before the High Court or NCLT demonstrating strict mutual lending exclusively to enrolled shareholders.

Section 406: Voting by show of hands

Section 406 of Companies Act: Corporate Governance & Statutory Compliance

Legal Commentary & Landmark Judgments: Section 406