Section 25 companies to be allowed to invest in higher education in India

According to a Business Standard report,

Private and foreign corporate investment may soon get to flow into Indian higher education with the government considering a move to reform policy that hinders such financing.

Currently, it is not possible for non-profit companies under Article 25 of the Companies Registration Act — like industry associations — to set up an institution and get university status and recognition from the University Grants Commission.

Educational institutions in India can be set up only by trusts, societies and charitable companies, but the profits cannot be taken out of the institution and have to be reinvested. Not only does this restriction hamper expansion, it also encourages promoters to resort to creative accounting to take out profits from the institutions.

Now, under encouragement from an influential political ally from Maharashtra, the United Progressive Alliance government is expected to clarify this clause, sources told Business Standard.

But this report doesn't indicate that for-profit higher education will be allowed - it only seems to indicate that in addition to non-profit trusts or societies, non-profit Section 25 companies will also be allowed to set up higher education institutions, which is not as big a step as what is being considered in the primary education space. A recent report had suggested that for-profit investment in primary education is under consideration.

So, what is a Section 25 company? The Indian Companies Act (1956), provides a definition of a section 25 company.

Section 25 POWER TO DISPENSE WITH "LIMITED" IN NAME OF CHARITABLE OR OTHER COMPANY.

(1) Where it is proved to the satisfaction of the Central Government that an association
(a) is about to be formed as a limited company for promoting commerce, art, science, religion, charity or any other useful object, and
(b) intends to apply its profits, if any, or other income in promoting its objects, and to prohibit the payment of any dividend to its members, the Central Government may, by licence direct, that the association may be registered as a company with limited liability, without the addition to its name of the word "Limited" or the words "Private Limited".

(2) The association may thereupon be registered accordingly; and on registration shall enjoy all the privileges, and (subject to the provisions of this section) be subject to all the obligations, of limited companies.

(3) Where it is proved to the satisfaction of the Central Government - (a) that the objects of a company registered under this Act as a limited company are restricted to those specified in clause (a) of sub-section (1), and (b) that by its constitution the company is required to apply its profits, if any, or other income in promoting its objects and is prohibited from paying any dividend to its members, the Central Government may, by licence, authorise the company by a special resolution to change its name, including or consisting of the omission of the word "Limited" or the words "Private Limited"; and section 23 shall apply to a change of name under this sub-section as it applies to a change of name under section 21.

(4) A firm may be a member of any association or company licensed under this section, but on the dissolution of the firm, its membership of the association or company shall cease.

(5) A licence may be granted by the Central Government under this section on such conditions and subject to such regulations as it thinks fit, and those conditions and regulations shall be binding on the body to which the licence is granted, and where the grant is under sub-section (1), shall, if the Central Government so directs, be inserted in the memorandum, or in the articles, or partly in the one and partly in the other.

(6) It shall not be necessary for a body to which a licence 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.

(7) The licence may at any time be revoked by the Central Government, and upon revocation,

Not that big a difference from the way non-profit trusts or societies operate in India.

The Business Standard report also goes on to suggest that with the shackles of the Left Parties removed after the recent confidence vote, there will now be movement on the pending Foreign Education Providers (Regulation) Bill to allow foreign universities to operate in India.

There is also renewed hope for a Bill allowing foreign universities and institutions into India to be tabled in Parliament, judging by Human Resources Development Minister Arjun Singh’s remarks at a conference of state education ministers two days ago.

The Left parties were the principal opponents of the Foreign Education Providers (Regulation) Bill, which was cleared by the Cabinet in 2007 but never introduced in the Lok Sabha although it was listed in the agenda papers.

“We have tried to accommodate some of the concerns. We will try to introduce the Bill in the Lok Sabha session beginning August,” Singh said. The Bill seeks to regulate foreign institutions setting up campuses in India. A contentious issue is whether caste-based reservations would apply to these institutions.

Both Oxford and Stanford Universities have evinced interest in setting up campuses in India but have been hesitant about moving forward until they are clear about the degree of regulation, funding and other issues.

Experts say the moves would provide clarity on funding of higher education institutions by overseas entities. "This will probably provide funding clarity for foreign institutions like charitable organisations or NRIs wanting to set up facilities in India.

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Is there any notification for Section 25 companies to be allowed to invest in higher education in India. If so then on which website.

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