1. Prohibition under Nidhi Rules, 2014

• Nidhi Companies are strictly prohibited from issuing debentures.
  
• Rule 6 of the Nidhi Rules, 2014, outlines specific financial restrictions.
  
• The company cannot raise funds from the public through debentures or preference shares.
  
• This rule ensures that financial operations are limited to members only.
  
• Issuing debentures would violate the mutual benefit principle of Nidhi Companies.
  

2. Limited Capital Sources

• Nidhi Companies can raise capital only through equity shares issued to members.
  
• Preference shares and hybrid instruments are not allowed.
  
• The only permissible sources of working capital are member deposits and equity contributions.
  
• Borrowing from the public or financial institutions through securities is not permitted.
  
• This protects the company from exposure to external financial risks.
  

3. Focus on Member-Only Operations

• The core function of a Nidhi Company is to accept deposits and provide loans only to its members.
  
• Issuing debentures involves attracting funds from external investors.
  
• External fundraising disrupts the member-based operational model.
  
• The company must limit all its financial dealings to its registered membership.
  
• Compliance with member-only transactions is mandatory under law.
  

4. Legal Consequences of Non-Compliance

• Issuing debentures can lead to a violation of the Companies Act and Nidhi Rules.
  
• The Ministry of Corporate Affairs may initiate regulatory action against such violations.
  
• The company may face penalties, license suspension, or cancellation of Nidhi status.
  
• Directors and officers involved may also face personal liability.
  
• Non-compliance must be immediately corrected and reported.
  

5. Permitted Financial Instruments

• Only equity shares are permitted to be issued by a Nidhi Company.
  
• Deposits can be accepted in the form of savings, fixed, or recurring deposits from members.
  
• Loans may be granted to members against approved security such as gold or property.
  
• No other debt instruments, including debentures, bonds, or commercial papers, are allowed.
  
• All activities must align strictly with the Nidhi Rules and the company’s MOA.