Section 8 Company - Revocation of Licence and Consequences
# Section 8 Company – Revocation of Licence
## Overview
A Section 8 company is a non-profit company licensed by the Central Government. The licence allows it to operate without the words 'Limited' or 'Private Limited' in its name. However, the Central Government has the power to revoke the licence in certain circumstances.
## Effect of Revocation
On revocation:
The Registrar shall enter the word 'Limited' or 'Private Limited' against the company's name in the register.
Before revocation, the Central Government must give a written notice of its intention to revoke the licence and an opportunity to be heard.
## Delegation of Power
The Central Government has delegated this power to the Regional Directors.
The CG may revoke such delegation or itself exercise the powers if it considers necessary in the public interest.
Such an order can only be made after the company is given a reasonable opportunity of being heard.
## Consequences after Revocation
Where the licence is revoked, the Central Government may, by order (if satisfied it is essential in the public interest), direct any of the following:
Option
Description
1. Conversion
The company converts its status and changes its name (adds 'Limited' / 'Private Limited')
2. Winding up
The company be wound up under the Act
3. Amalgamation
The company be amalgamated with another Section 8 company having similar objects
## Treatment of Surplus Assets
On winding up/dissolution of a Section 8 company, after satisfying debts and liabilities:
Surplus assets may be transferred to another Section 8 company with similar objects (subject to conditions imposed by Tribunal), OR
May be sold and proceeds credited to the Insolvency and Bankruptcy Fund under Section 224 of the Insolvency and Bankruptcy Code, 2016.
## Amalgamation Route
Where the CG is satisfied that it is essential in the public interest, it may order amalgamation of one Section 8 company with another Section 8 company having similar objects to form a single company, with constitution, properties, powers, rights, liabilities etc. as specified in the order.
## Penalty for Contravention
Defaulter
Punishment
Company
Fine: ₹10 lakh minimum up to ₹1 crore
Directors & every officer in default
Fine: ₹25,000 minimum up to ₹25 lakh
If affairs conducted fraudulently
Every officer in default liable under Section 447
## Exceptions / Privileges of a Section 8 Company
General meeting can be called by giving a clear 14 days' notice instead of 21 days.
Requirements of minimum number of directors, independent directors, etc. do not apply.
Need not constitute Nomination & Remuneration Committee and Shareholders Relationship Committee.
Worked example
### Example 1
Example 1: XYZ Foundation, a Section 8 company, was found to be misusing its donations for personal benefit of directors. The Central Government issued a show-cause notice and after giving an opportunity of being heard, revoked the licence. Consequence: The Registrar will add 'Limited' to its name. Further, CG may order winding up, conversion or amalgamation with another similar Section 8 company.
### Example 2
Example 2: ABC Charity Ltd. (Section 8 company) is being wound up. After paying off all debts, ₹50 lakh remains as surplus. The Tribunal may order this surplus to be transferred to another Section 8 company with similar charitable objects, OR sold and credited to the Insolvency and Bankruptcy Fund under Section 224 of IBC, 2016 — never distributed among members.
### Example 3
Example 3: A Section 8 company defaulted by paying dividend to members (which is prohibited). The company can be fined ₹10 lakh to ₹1 crore. Each director in default can be fined ₹25,000 to ₹25 lakh. If fraud is proved, Section 447 applies to every officer in default.
⚠️ Common exam mistakes
Forgetting that the CG must give an opportunity of being heard BEFORE revoking the licence — it is mandatory, not optional.
Confusing the penalty amounts: Company fine starts at ₹10 lakh (not ₹25,000) while officers' fine starts at ₹25,000.
Assuming surplus assets on winding up can be distributed to members — they cannot; they must go to another Section 8 company or to the IBC Fund.
Forgetting that Section 8 companies enjoy several exemptions including 14-day notice for general meetings and no requirement to constitute NRC/SRC.
Confusing 'Section 447' (fraud) with 'Section 447 of IBC' — Section 447 referenced here is of the Companies Act, 2013.
Bare-Act text Section 8 · The Companies Act, 2013 · click to expand
Section 8 – Formation of companies with charitable objects. Sub-sections relating to revocation: The Central Government may by order revoke the licence granted to a Section 8 company if it is satisfied that the company has contravened any of the requirements. On revocation, the Registrar shall put 'Limited' or 'Private Limited' against the company's name in the register. Before revocation, the Central Government shall give a written notice of its intention to revoke the licence and afford an opportunity to be heard. The Central Government may further direct the company to convert its status, be wound up, or be amalgamated with another Section 8 company having similar objects. Penalty: Company punishable with fine ₹10 lakh to ₹1 crore; directors and every officer in default with fine ₹25,000 to ₹25 lakh; if affairs conducted fraudulently, liable under Section 447.