Formation of companies with charitable objects

Con­tributed by: Anki­ta Ghosh (CA & CS Final Student)

  1. Where it is proved to the sat­is­fac­tion of the Cen­tral Gov­ern­ment that a per­son or an asso­ci­a­tion of per­sons pro­posed to be reg­is­tered under this Act as a lim­it­ed company—

a. has in its objects the pro­mo­tion of com­merce, art, sci­ence, sports, edu­ca­tion, research, social wel­fare, reli­gion, char­i­ty, pro­tec­tion of envi­ron­ment or any such oth­er object;

b. intends to apply its prof­its, if any, or oth­er income in pro­mot­ing its objects; and

c. intends to pro­hib­it the pay­ment of any div­i­dend to its mem­bers, the Cen­tral Gov­ern­ment may, by licence issued in such man­ner as may be pre­scribed, and on such con­di­tions as it deems fit, allow that per­son or asso­ci­a­tion of per­sons to be reg­is­tered as a lim­it­ed com­pa­ny under this sec­tion with­out the addi­tion to its name of the word “Lim­it­ed”, or as the case may be, the words “Pri­vate Lim­it­ed” , and there­upon the Reg­is­trar shall, on appli­ca­tion, in the pre­scribed form, reg­is­ter such per­son or asso­ci­a­tion of per­sons as a com­pa­ny under this section.

  1. The com­pa­ny reg­is­tered under this sec­tion shall enjoy all the priv­i­leges and be sub­ject to all the oblig­a­tions of lim­it­ed companies.

  1. A firm may be a mem­ber of the com­pa­ny reg­is­tered under this section.

  4. i.      A com­pa­ny reg­is­tered under this sec­tion shall not alter the pro­vi­sions of its mem­o­ran­dum or arti­cles except with the pre­vi­ous approval of the Cen­tral Government.

ii. A com­pa­ny reg­is­tered under this sec­tion may con­vert itself into com­pa­ny of any oth­er kind only after com­ply­ing with such con­di­tions as may be prescribed.

  1. Where it is proved to the sat­is­fac­tion of the Cen­tral Gov­ern­ment that a lim­it­ed com­pa­ny reg­is­tered under this Act or under any pre­vi­ous com­pa­ny law has been formed with any of the objects spec­i­fied in clause (a) of sub-sec­tion (1) and with the restric­tions and pro­hi­bi­tions as men­tioned respec­tive­ly in claus­es (b) and © of that sub-sec­tion, it may, by licence, allow the com­pa­ny to be reg­is­tered under this sec­tion sub­ject to such con­di­tions as the Cen­tral Gov­ern­ment deems fit and to change its name by omit­ting the word “Lim­it­ed”, or as the case may be, the words “Pri­vate Lim­it­ed” from its name and there­upon the Reg­is­trar shall, on appli­ca­tion, in the pre­scribed form, reg­is­ter such com­pa­ny under this sec­tion and all the pro­vi­sions of this sec­tion shall apply to that company.
  1. The Cen­tral Gov­ern­ment may, by order, revoke the licence grant­ed to a com­pa­ny reg­is­tered under this sec­tion if the com­pa­ny con­tra­venes any of the require­ments of this sec­tion or any of the con­di­tions sub­ject to which a licence is issued or the affairs of the com­pa­ny are con­duct­ed fraud­u­lent­ly or in a man­ner viola­tive of the objects of the com­pa­ny or prej­u­di­cial to pub­lic inter­est, and with­out prej­u­dice to any oth­er action against the com­pa­ny under this Act, direct the com­pa­ny to con­vert its sta­tus and change its name to add the word “Lim­it­ed” or the words “Pri­vate Lim­it­ed”, as the case may be, to its name and there­upon the Reg­is­trar shall, with­out prej­u­dice to any action that may be tak­en under sub-sec­tion (7), on appli­ca­tion, in the pre­scribed form, reg­is­ter the com­pa­ny accordingly:

Pro­vid­ed that no such order shall be made unless the com­pa­ny is giv­en a rea­son­able oppor­tu­ni­ty of being heard:

Pro­vid­ed fur­ther that a copy of every such order shall be giv­en to the Registrar.

  1. Where a licence is revoked under sub-sec­tion (6), the Cen­tral Gov­ern­ment may, by order, if it is sat­is­fied that it is essen­tial in the pub­lic inter­est, direct that the com­pa­ny be wound up under this Act or amal­ga­mat­ed with anoth­er com­pa­ny reg­is­tered under this section:

Pro­vid­ed that no such order shall be made unless the com­pa­ny is giv­en a rea­son­able oppor­tu­ni­ty of being heard.

  1. Where a licence is revoked under sub-sec­tion (6) and where the Cen­tral Gov­ern­ment is sat­is­fied that it is essen­tial in the pub­lic inter­est that the com­pa­ny reg­is­tered under this sec­tion should be amal­ga­mat­ed with anoth­er com­pa­ny reg­is­tered under this sec­tion and hav­ing sim­i­lar objects, then, notwith­stand­ing any­thing to the con­trary con­tained in this Act, the Cen­tral Gov­ern­ment may, by order, pro­vide for such amal­ga­ma­tion to form a sin­gle com­pa­ny with such con­sti­tu­tion, prop­er­ties, pow­ers, rights, inter­est, author­i­ties and priv­i­leges and with such lia­bil­i­ties, duties and oblig­a­tions as may be spec­i­fied in the order.
  1. If on the wind­ing up or dis­so­lu­tion of a com­pa­ny reg­is­tered under this sec­tion, there remains, after the sat­is­fac­tion of its debts and lia­bil­i­ties, any asset, they may be trans­ferred to anoth­er com­pa­ny reg­is­tered under this sec­tion and hav­ing sim­i­lar objects, sub­ject to such con­di­tions as the Tri­bunal may impose, or may be sold and pro­ceeds there­of cred­it­ed to the Reha­bil­i­ta­tion and Insol­ven­cy Fund formed under sec­tion 269.
  1. A com­pa­ny reg­is­tered under this sec­tion shall amal­ga­mate only with anoth­er com­pa­ny reg­is­tered under this sec­tion and hav­ing sim­i­lar objects.
  1. If a com­pa­ny makes any default in com­ply­ing with any of the require­ments laid down in this sec­tion, the com­pa­ny shall, with­out prej­u­dice to any oth­er action under the pro­vi­sions of this sec­tion, be pun­ish­able with fine which shall not be less than ten lakh rupees but which may extend to one crore rupees and the direc­tors and every offi­cer of the com­pa­ny who is in default shall be pun­ish­able with impris­on­ment for a term which may extend to three years or with fine which shall not be less than twen­ty-five thou­sand rupees but which may extend to twen­ty-five lakh rupees, or with both:

Pro­vid­ed that when it is proved that the affairs of the com­pa­ny were con­duct­ed fraud­u­lent­ly, every offi­cer in default shall be liable for action under sec­tion 447.

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