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December 2, 2013

In the earlier issue we have discussed on section 22 & 23 of the Companies Act, 1956 and in the present issue we shall proceed with section 25 which deals with Charitable Companies or power to dispense with “Limited” in name of charitable or other company.

Query # 1 : Only members of an association registered under section 25 can apply to company court for relief; Where beneficiaries of a trust want to complain of any breach of trust can they file a suit under section 92 of Code of Civil Procedure and whether the provisions of Companies Act, 1956 have an application to it ?

Decided Case Law : M. Gomathinayagam v. Sri Manthiramurthi High School Committee [1963] 33 Comp. Cas. 346 (Mad.)

Facts of the case : If an association is registered under section 25, the members of it and they alone will have power to apply to the company court for relief in case there is mismanagement. But in a case where the beneficiaries of a trust want to complain that there has been a breach of the trust or that a direction of the court is necessary, they can file a suit under section 92 of the Code of Civil Procedure for any of the reliefs mentioned therein. The provisions of the Companies Act have no application to such a case.

Clarification : Thus, where a company was formed to execute trust; and a beneficiary under the trust alleged breach of trust and instituted a suit for appropriate relief; it was held that the provisions of the Companies Act had no application and the beneficiary could file a suit under section 92 of the Code of Civil Procedure.



Query # 2 : The exemption provided under section 25(6) should normally be express but can the exemption would also be inferred by necessary implication ?

Decided Case Law : C.P. Singhania v. Garware Club House [2005] 124 Comp. Cas. 561/[2003] 46 SCL 659 (Bom.)

Facts of the case : It is permissible for the Central Government to grant exemption either generally or specifically to a particular company form one or more of the provisions of the Act under sub-section (6) of section 25*. Such exemption should normally be express. Court would not be inclined to cull out the implied exemption.

Clarification : In rare cases, however, exemption would be required to be inferred by necessary implication. Where any provision in the memorandum of association or articles of association of a company is so repugnant to the Act, that the two cannot co-exist and where the terms of the license granted under section 25 specifically require the company to follow the memorandum of association or articles of association as sanctioned by the Government and further prohibits any modification thereof without previous approval of the Government, exemption would be inferred by necessary implication.

*Section 25(6) : It shall not be necessary for a body to which a license is so granted to use the word "Limited" or the words "Private Limited" as any part of its name and, unless its articles otherwise provide, such body shall, if the Central Government by general or special order so directs and to the extent specified in the directions, be exempt from such of the provisions of this Act as may be specified therein.

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