according to the Business Standard.
“We have received requests demanding this route. The government is exploring the possibility, as it could be allowed under Section 25 of the Companies Act,” confirmed Sunil Kumar, joint secretary, Ministry of Human Resource Development (MHRD),
At present, educational institutions in India can be set up only by trusts, societies or companies, and it is not possible for non-profit companies, like industry associations, under Section 25 of the Companies Act, to set up institutions and get recognition from the University Grants Commission. In the primary and secondary education space, however, the Central Board of Secondary Education (CBSE) allowed companies registered under the Act to start private unaided schools last year.
Some higher education institutions have taken this route in the technical education space to escape policing by the All India Council for Technical Education (AICTE) — the body that regulates technical education in the country. For instance, many management schools have gone the Indian School of Business (ISB) way, opting for a one-year management programme (against the conventional two-year courses), and have registered themselves under Section 25 of the Act.
Educational institutions in India, which are set up by trusts or societies come under the purview of the Charity Commissioner, who is appointed by a state government. Section 25 of the Act, on the other hand, comes under the Central Board of Direct Taxes (CBDT), thus reinforcing the control of the Centre and not the state over the manner in which the institutions are run and financed.
However, in both the structures — non-profit or society and trust — profits cannot be taken out of the institution and have to be reinvested. Institutions registered under the Act have to use their profits, if any, in promoting the institutions. The Act also prohibits the payment of any dividend to its members. The association may enjoy all the privileges of charitable trusts, but are scrutinised by the Income-Tax Department and not Charity Commissioner, unlike limited companies.
MHRD says it is still studying the way out for students if an institution set up under the Act winds up and its assets are to be transferred to another similar institution. “As of today, if an institution set up by a society winds up, its operation and properties are transferred to another institution. But in this case, we are still studying what route a non-profit entity could acquire if it faces a similar issue,” added an HRD official.
Experts add, this arrangement will allow standards for centrally-administered institutes to be cleared by one central authority rather than different standards for different states
This was actually mooted a little over an year ago. But why all this hoopla? What is the difference between being a trust, a society or a section 25 company? What is the difficulty with a section 25 company setting up a university? A study on charities in India throws some light with a comparison of a section-25 company, a society and a trust across various parameters.
There is one uniform law across the country for companies, the Companies Act, 1956. It is this robust law protected by powerful commercial interests that makes it very difficult for the state government to take over a section 25 Company. The company form is recognised all over the world, it is more closely regulated and monitored than trusts and societies.
But the confusion still remains. Why should the state want to take over or dissolve a section-25 company running a university? In the event of the incumbent management of a section-25 company running a university mismanaging the university, shouldn't the state be facilitating a takeover of the mismanaged section-25 company by any other interested party capable of running the university well? When the fraud at Satyam Computers came to light, the state didn't take over the company. It only appointed an independent board of directors comprising of experienced and respected professionals who set the house in order and found another entity willing to acquire the assets and liabilities of Satyam and run it going forward.
More questions than answers at this point of time.