1956 (2) TMI 31 - HC - Companies Law

Court Deems Non-Profit Association a Company under Companies Act

Sha Hindumull Dalichand Versus Madras Kirana Merchants Association

The court held that Section 38 of the Indian Companies Act applies to associations not for profit, like the Madras Kirana Merchants' Association, even ... Name of Charitable or other company – Power to dispense with 'Limited' in and Power of court to rectify register of members Issues Involved:1. Applicability of Section 38 of the Indian Companies Act to associations not for profit.2. Interpretation of the term 'company' under the Indian Companies Act.3. Validity of resignation and withdrawal of resignation by Hazarimal and Company.4. Rectification of the register of members of the association.Detailed Analysis:1. Applicability of Section 38 of the Indian Companies Act to associations not for profit:The respondents contended that Section 38 of the Companies Act does not apply to associations not for profit, such as the Madras Kirana Merchants' Association, as it has no share capital. The court rejected this argument, stating that the headings and sub-headings in the Act cannot control the plain words of the statute but may explain ambiguous words. The court examined sections under the sub-heading 'distribution of share capital' and found that some sections, like Section 28(1) and Section 30, apply to companies without share capital. Therefore, the court concluded that Section 38 can be invoked for associations not for profit.2. Interpretation of the term 'company' under the Indian Companies Act:The respondents argued that the Madras Kirana Merchants' Association is an association and not a company within the meaning of the Act. They pointed to Section 4 of the Act, suggesting a distinction between a company and an association. The court disagreed, noting that the definition of 'company' in Section 2(2) does not exclude associations licensed under Section 26. The court emphasized that an association not for profit, upon registration under Section 26(1), enjoys all the privileges and liabilities of a company, except for three specific exceptions. Thus, the court held that the association is a company within the meaning of the Act.3. Validity of resignation and withdrawal of resignation by Hazarimal and Company:The court examined the resignation submitted by Hazarimal and Company through a telegram and a confirming letter, which expressed their intention to resign due to dissatisfaction with the association's conduct. Article 9 of the association's articles of association stipulates that a member's withdrawal takes effect automatically after one month from the notice date. The court found that Hazarimal and Company's resignation took effect automatically after one month, and there was no need for acceptance by the association. The subsequent withdrawal of resignation by Hazarimal and Company was deemed ineffective as they had already ceased to be members.4. Rectification of the register of members of the association:The petitioners sought rectification of the register of members to remove Hazarimal and Company's name. The court held that since Hazarimal and Company ceased to be a member after one month from the resignation notice, and they were not re-elected in compliance with the association's rules, their name should be removed from the register. The court emphasized that the discretion under Section 38(2) is not arbitrary and should be exercised to grant relief when the applicant is entitled to it.Conclusion:The court allowed the petition for rectification of the register of members, ordering the removal of Hazarimal and Company's name, and awarded costs to the petitioners.