2.3       Query

Applicability of MAOCARO to a Section 25 company carrying on research activities

1.X is a research institute, which has been incorporated under the Companies Act, 1956 and is licenced under Section 25 of the Act.

2. The activities of the institute during the year 1.1.1986 to 31.12.1986 were as under:

(a) carrying out research activities on various projects to improve the technology of pesticide spraying on crops and develop new methods and equipment for the same. The institute has supplied certain equipments developed by it to some outside research bodies, recovering a nominal price for the same.

(b) granting fellowship to engineering students, for conducting research on the objects stated in (a) above.

(c) imparting practical training to engineering students.

(d) declaration of performance awards for outstanding performances at university/other levels.

3. Opinion of the Expert Advisory Committee has been sought on the question of applicability or otherwise of the provisions of Manufacturing and Other Companies (Auditor’s Report) Order 1975, to the company, for the year ended December 31, 1986. If the order is applicable, whether the aforesaid activities would fall within para 2 (b) of the order, i.e., can the activity be called ‘supplying and rendering of services’.

                                                                                Opinion                                    May 26, 1987

1.The Committee notes that the Department of Company Affairs has issued a circular [No.1/77,1/1/77-CL-V and 52(4)68-CL-II dated 19.1.1977], which is reproduced below:

            “A question has been raised whether the Manufacturing and Other Companies (Auditor’s Report) Order is applicable to a company having a licence under section 25. The matter has been carefully examined and it is viewed that the said Order does not make any distinction between the companies licensed under section 25 and other companies. As the nature of business of such companies broadly falls under the category of “service companies” to which the order cited above is also applicable, it is obligatory on the auditors of all those companies to give report in terms of the relevant provisions of the said Order”.

2.On the basis of the above, the Committee is of the opinion that MAOCARO 1975 will be applicable to the research institution which is registered under the Companies Act, 1956 and licenced under Section 25 of that Act. The Committee is further of the opinion that the said company will be considered as a ‘service company’ for the purpose of the Order since it is providing services for the benefit of others.

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