COMPANIES WITH CHARITABLE OBJECTIVE IN INDIA: AN

ANALYSIS

5.3 CORPORATE LAWS-I

(Project Final Draft)

Submitted by
Nakul Chadha
UID No.: UG19-66
B.A.LL.B.(Hons.)
Year: III Semester: V

Submitted to
Prof. SUMIT BAMHORE
Assistant Professor of Law

MAHARASHTRA NATIONAL LAW UNIVERSITY, NAGPUR

1
LIST OF STATUTES
- Companies Act, 2013
- Companies Act, 1956
- Emblem and Names (Prevention of Improper Use) Act, 1950
- Trade Marks Act, 1999
- Companies (Incorporation) Law, 2014
- Electoral Trusts Scheme, 2013
- Charities Act, 2006 (Britain)
- Companies Act, 2006 (Britain)

LIST OF CASES
- N.C Bakshi v. Union of India (2013) 117 SCL 476 (Delhi)

LIST OF ABBREVIATIONS
& And

Co. Company

Ltd. Limited

p. Page

pp. Pages

Pvt. Private

Sec. Section

v. Versus

2
TABLE OF CONTENTS
OBJECTIVES..........................................................................................................................4
RESEARCH METHODOLOGY...........................................................................................4
INTRODUCTION....................................................................................................................4
ESSENTIAL REQUIREMENTS FOR COMPANIES WITH CHARITABLE
OBJECTIVES..........................................................................................................................5
CONSEQUENCES FOR CONTRAVENTION OF REQUIREMENTS OF SEC. 8/
LICENSE..................................................................................................................................8
CONSEQUENCES THAT FOLLOW A REVOCATION OF LICENSE UNDER SEC. 8
....................................................................................................................................................9
PUNISHMENT FOR DEFAULT...........................................................................................9
ALTERATION OF MEMORANDUM AND ARTICLES OF ASSOCIATION.............10
EXEMPTIONS.......................................................................................................................10
CONCLUSION.......................................................................................................................11

3
OBJECTIVES

The objective of this research is to understand the topic “companies with charitable
objectives” and analyse it. The various aspects revolving around this topic and the provisions
related to it are to be researched and analysed. The researcher tried to cover every detail
regarding the companies with charitable objectives.

RESEARCH METHODOLOGY

Research Design –
In order to approach the aim(s) and objective of the study, the methodology used in this
research is the doctrinal method. In doctrinal method intensive literature review on the topic
is done and the information is systematically explained. Research is done on the topic by
referring the secondary sources like, websites and by analyzing the information. The research
work is both analytical and descriptive.

RESEARCH QUESTIONS
In order to fulfil the objectives of this research, the following questions are to be deliberated
upon –

Q.1 – What are the companies with charitable objectives?

Q.2 – Which provisions are connected to the companies with charitable objectives?

Q.3 – How these companies are formed?

Q.4 – What are the necessary requirements for the formation of these companies?

Q.5 – What are the liabilities or benefits for companies with charitable objectives?

INTRODUCTION

Mostly it is very necessary for the businessperson to know the nature of the charity activity
that he/she will be engaged in. For example- whether such activity is society, trust or
companies with charitable objectives. This decision has been based on various factors. These
factors are type of the activity, number of people included in the process, and other aspects
too. But this research paper deals with only Companies with the charitable objectives.

Companies with charitable objective are also known as ‘Associations not for profit’, which is
covered under the Sec. 8 of the Companies Act, 2013. It is clear from their terminology that

4
these associations are not for making profits; instead it is formed for the education, research,
art, commerce, science, sports, religion, social welfare, charity, protection of environment or
objects like this. It is not necessary for these associations to be registered under the
Companies Act. But when it is registered, there is an issuance of license from Central
Government.

As per the provision of Sec. 8, there may be an issuance of the licence by the Central
government, if on the satisfaction of the Central government an association or a company
must fulfil these criteria given in the statute1:

 The Company has in its objects involve the activities like promotion of education,
research, art, commerce, science, sports, religion, social welfare, charity, protection of
environment or objects like this; or

 the company intends to apply its profits, if any, or other income in promoting its 
objects (mentioned above); and  

 the company intends to prohibit the payment of any dividend to its members. 

When these above conditions are fulfilled, the Central Government may, by license, direct
that the person or association may be registered as a company with limited liability without
the addition to its name of the word “Limited” or the word “Private Limited”. Examples of
companies registered under Sec. 252 (now Sec. 8) include Mohan Bagan Club, Gymkhana
Club, Delhi District Cricket Association (D.D.C.A) etc.

ESSENTIAL REQUIREMENTS FOR COMPANIES WITH

CHARITABLE OBJECTIVES

The entrepreneurs and professionals shall ensure compliance of following provisions:  

1
Section 8(1) of the Companies Act, 2013 states that “(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, Formation of companies with charitable
objects, etc. 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.”
2
Section 25 of the Companies Act 1956 (repealed by the Companies Act of 2013).

5
1. Number of director- If an association which is formed under Sec. 8 is incorporated as a
private entity, the minimum required numbers of directors are two and if it is a public
company, then the minimum required number of directors are three.
2. Number of members- If this association is incorporated as a private entity, then required
members must be two and if it is public company, then it must be 7. Under Sec. 8, a
partnership firm may also be formed.
3. Application for name- The name of an association does not contravene following
conditions:
1. Sec. 3 of the Emblem and Names (Prevention of Improper Use) Act, 1950 must not be
attracted; or
2. If the name is similar to the name of a trade mark which is registered under the Trade
Marks Act, 1999; or
3. The terminology should not be offensive to any section or any group of the people
living in the Indian society; or
4. Name of an association should not be identical to the name of any LLP or company.
An application for registration of the title of an association shall be made via the RUN
(Reserve Unique Name) web service (available at www.mca.gov.in) under Rule 9 of the
Companies (Incorporation) Law, 2014. Registrar of the Central Registration Centre will
either accept the name or denied the name. Moreover, resubmission of approval request
should be made within 15 days, if there is a need for the correction of flaws in the
application.
If an association is formed under Sec. 8 of the statute then it must include the terminologies
like foundation, forum, association, federation, chambers, confederation, council,  electoral
trust and the like, etc.3  
Terminologies like “electoral trust” may be accepted for registration of companies formed
under Sec. 8 of the statute in accordance with the Electoral Trusts Scheme, 2013.4
4. Validity of name approved- The name of the associations is valid for 20 days from the
date of getting approval.5
5. Application for licence under Sec. 8 of the Companies Act- After the approval of name,
company is required to apply for the issuance of license. This license contains certain
conditions which need to be followed by the company. An application for the issuance of
3
Rule 8(7) of the Companies (Incorporation) Rules, 2014.
4
Explanation to Rule 8(2)(b)(vi) of the Companies (Incorporation) Rules, 2014.
5
Section 4(5)(i) of the Companies Act, 2013.

6
notice shall be made to the Registrar of the companies. Such application shall be made in e-
Form INC-12.6 Following documents that are to be submitted with the said e-form:  
Draft memorandum and articles of association (format provided in Form INC 13): 
 “declaration by practising profession that draft memorandum and articles of 
association have been drawn up in conformity with the provisions of Section 8  of the
Act and Rules made thereunder (in Form INC-14).”
 “estimate of the future annual income and expenditure of the company for  next 3
years, specifying the sources of the income and the objects of the  expenditure.”
 “grounds on which the application is made.”
 ‘brief description of proposed activity.’ 
 “statement of assets and liabilities.”
 “declaration by each of the persons making the application in Form INC-15  i.e. a
declaration that draft memorandum and articles of association have been  drawn upin
conformity with the provisions of Section 8 of the Act and Rules  made thereunder.”
 “list of promoters (name, address, DIN or Income Tax PAN).”
 “list of proposed directors (name, address, DIN or Income Tax PAN).”
 “list of key managerial personnel (name, address, DIN or Income Tax PAN).”

6. Obtaining licence- Central Government may grant the license to the company registered
under Sec. 8 of the statute.

7. Application for incorporation of company- After the completion of this process, as

application should be made by the promoter of the company for its incorporation in Form
INC-32 (SPICe) along with these following documents:  
1. “memorandum and articles of association of the proposed company.”
2. “consent to act as a director (in Form DIR-2).”  
3. “declaration by first director and subscribers of the proposed company (in  Form INC-
9).”
4. “declaration by practising professional (in Form INC-8).”
5. “proof of registered office address.”7
6. “identify proof and residential proof of every subscribers of the proposed  company.”
7. “the application for company  incorporation shall be accompanied by e-Form AGILE
(INC-35) containing an  application for registration of Goods and Services Tax
6
Rule 19 of the Companies (Incorporation) Rules, 2014.
7
Rule 25 of the Companies (Incorporation) Rules, 2014.

7
 Identification Number  (GSTIN), Employees’ State Insurance Corporation (ESIC) and
Employees'  Provident Fund Organisation (EPFO).”8  
8. Certificate of Incorporation- Registrar (Central Registration Centre) may issue certificate
of Incorporation after reviewing all necessary documents like e-form, information/proofs
and documents. Along with it, Government can also issue permanent account number (PAN)
and tax deduction and collection account number (TAN) under the Income Tax Act.  
9. Opening of bank account and deposit of share subscription money- In the first meeting
of the of Board of Directors, it shall decide to open the bank account in the name of company.
The subscribers shall deposit the share subscription money in the company’s bank account.  
10. Application for certificate of commencement of business- A declaration should be
made by the directors of the company within 180 days from the date of its incorporation e-
Form INC 20-A with the Registrar of Companies. If this declaration is not made, then till that
time company cannot start its business. It must be mentioned that each subscriber to the
memorandum of association has paid the share price decided from the date of such
declaration.9 The company's bank statement is connected to the appropriate e-form. The
Registrar of Companies then issues a certificate of commencement of business for the
company.

CONSEQUENCES FOR CONTRAVENTION OF REQUIREMENTS OF

SEC. 8/ LICENSE

A company which is registered under the statute of Companies act, there may be cancellation
of license by the Central Government10, if:

1. there is an contravention from the side of the company of the given conditions under
Sec. 8 of the statute or any contravention related to which there is an issuance of
license; and

8
See also, in relation to the recent amendment i.e. Companies (Incorporation) Third Amendment Rules, 2019
dated 29-3-2019.
9
Section 10-A of the Companies Act (as adopted by the Ordinance on Companies (Amendment), 2019).
10
Section 8(6) of the Companies Act, 2013 states that “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.”

8
 2. if company involved in any fraudulent activity or there is a violation of the objectives
of the company;

Further, the Central Govt. may 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.

A copy of the order of the Central Government, as above, must be given to the Registrar.

CONSEQUENCES THAT FOLLOW A REVOCATION OF LICENSE

UNDER SEC. 8

If company’s license is revoked under Sec. 8, then Central Government provides an

opportunity to the company to present their side. And when satisfied that there is no prejudice
happen with the party then it is necessary for the government in public interest to direct the
company either to wind up it or amalgamated in another big company that should be
registered under Sec. 8 and have similar objects11.

In both the situation whether there is a binding up of company or there is a dissolution of

company, debts, liabilities assets of the company are either transferred to the company with
the similar objects to which this company amalgamated or they may be sold and credited to
the Rehabilitation and Insolvency Fund formed under Sec. 269 of the statute.

PUNISHMENT FOR DEFAULT

If any situation it is found that company involved in any default while complying with the
conditions given under Sec. 8, then there is a punishment for the company that is fine which
shall not be less than ten lakh rupees but which may extend to one crore rupees12.

Further the directors or any other officer of the company who is found to be involved in the
default must be punished with a fine which shall not be less than twenty- five thousand
rupees but which may be extend to twenty-five lakh rupees; or imprisonment of the term
which may extend to three years; or with both13.

11
Section 8(7) of the Companies Act, 2013 states that “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”
12
Section 8(11) of the Companies Act, 2013 states that “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.”
13
Section 8(11) of the Companies Act, 2013.

9
In addition if it is proved that the affairs of the company were conducted fraudulently, every
officer of the company involved in default shall be liable for action under Sec. 447 of the
statute14.

ALTERATION OF MEMORANDUM AND ARTICLES OF

ASSOCIATION

Without getting prior approval from the Central Government, such an association or a
company shall not alter the provisions of its memorandum or articles. But such an association
may convert itself to a company of another kind after complying with all the necessary
conditions given in Rules 21 and 22 of Companies (Incorporation) Rules, 2014.

In N.C Bakshi v. Union of India15 case, it was observed that

“an association had been given license under Se. 25 (now Sec. 8) by the Central Government
and as per license condition; no alteration could be made in Articles of Association unless
alteration had been approved by the Central Government. Alteration made to the Articles of
Association of respondent had been approved but according to petitioner-members their
representation was not considered. Petitioner sought for quashing of approval and mandamus
to grant fair hearing to the petitioner. Delhi High Court held that since petitioner’s
representation was not considered while granting impugned approval, competent authority
was to be directed to provide a post decisional hearing to petitioners on representation and to
pass a speaking order while returning a positive finding as to whether alterations in Articles
of Association impugned were in contravention of provisions of Act.”

EXEMPTIONS

Ministry of Corporate Affairs, vide its Notification dated 5-6-2015 has notified, inter alia, the
following exemptions for Sec. 8 companies:

1. Appointment of a qualified company secretary shall not be mandatory.

2. Such a company may hold its AGM before or after business hours, or on a National
holiday or at a place other than its registered office provided that the time, date and

14
Section 447 of the Companies Act, 2013 states that “Without prejudice to any liability including repayment of
any debt under this Act or any other law for the time being in force, any person who is found to be guilty of
fraud 1[involving an amount of at least ten lakh rupees or one per cent. of the turnover of the company,
whichever is lower] shall be punishable with imprisonment for a term which shall not be less than six months
but which may extend to ten years and shall also be liable to fine which shall not be less than the amount
involved in the fraud, but which may extend to three times the amount involved in the fraud.”
15
(2013) 117 SCL 476 (Delhi).

10
 place of each AGM are decided before hand by the Board of directors having regard
to the directors, if any, given in this regard by the company in its general meeting.

3. A general meeting of a Sec. 8 company may be held by giving notice of 14 days

instead of 21 days.

4. Provisions of Sec. 118 with respect to recording of minutes shall not apply to Sec. 8,
company except that minutes may recorded within 30 days of the conclusion of every
meeting in case of companies where the Articles of association provide for
confirmation of minutes.

5. Provisions of Sec. 149 relating to the appointment of minimum and maximum number
of directors shall not apply to such companies.

6. Provisions of Sec. 149 and 150 relating to appointment of independent directors on

the Board shall not apply.

7. Provisions relating to the consent of the directors to act in that capacity required to be
filed with RoC within 30 days of the appointment, as required under Sec. 152(5), shall
not be applicable.

8. A company needs to hold at least two meetings of the Board, one in every six months
instead of four meetings.

9. Quorum for Board meetings shall be either 8 members or 25% of its total strength,
whichever is less provided it is not less than 2 as against 1/3 rd of the total strength or
two directors, whichever is higher.

10. The power of the Board of directors to borrow monies or to invest the funds of the
company or to grant loan or give guarantee or provide security in respect of loans may
be exercised by the Board by the circulation instead of at a meeting.

CONCLUSION

It is concluded or analysed in the end that provisions regarding the Companies with charitable
objectives are very certain in India as compared to Britain. It is found that in Britain
companies with charitable objectives are covered under the Charities Act 2006 and
Companies Act, 2006. There are thirteen ‘charitable heads’ mentioned under Charities Act
2006, under which only charities can operate. And it is mentioned under the Companies Act
2006, that companies with charitable objectives can only be formed under these ‘charitable
heads’. Further in India, laws regarding the Companies with Charitable objectives are very

11
specific. Sec. 8 of the Companies Act, 2013 which dealt with the Companies with charitable
objectives in India laid down the whole procedure regarding the scope, formation, liabilities
etc., of associations for non-profit. Coming to the laws in Britain, there is no such laid down
procedure regarding these companies.

12
BIBLIOGRAPHY
 https://www.scconline.com/
 https://www.livelaw.in/2
 https://www.jstor.org/
 https://home.heinonline.org/
 https://www.taxmann.com/index.aspx#

WEBLIOGRAPHY
 https://www.icsi.edu/media/webmodules/publications/FinalCLStudy.pdf
 https://www.newbusinessregistration.in/blog/formation-companies-charitable-objects/
 https://advocatetanmoy.com/2018/05/24/the-companies-act-2013/?cv=1
 https://www.communitycompanies.co.uk/charitable-company-legislation
 http://www.egyankosh.ac.in/bitstream/123456789/56850/1/B-2U-9.pdf
 https://www.icsi.edu/media/webmodules/FINAL_FULL_BOOK_of_EP_SBEC_2018
.pdf?cv=1

13
14