WHAT IS IN A NAME? – Eshwars
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Authored by Sri Vidhya Kumar

The Ministry of Corporate Affairs (MCA) has vide its notification dated 22nd July 2021, appointed 1st September 2021 as the date on which the provisions of Section 4 of the Companies (Amendment) Act, 2020 (“Amendment Act”) shall come into force.

Vide Section 4 of the Amendment Act, the provisions of clause (b) in sub-section (1) of Section 16 of the Companies Act, 2013 (“Principal Act”) has come into effect.  Section 16 of the Principal Act deals with the provisions relating to rectification of name of a company if it has been registered with a name which is identical or too nearly resembles the name of another company or a registered trademark.  The powers under this Section 16 have been delegated to the jurisdictional Regional Director (RD), under the MCA where the RD can take suo-moto action or an application for rectification can be filed by a registered trademark proprietor based on which directions for changing the similar name will be issued by the RD.

Following are the amendments made to the provisions of Section 16 of the Principal Act vide Section 4 of the Amendment Act:

(a) The time period within which a company, against which a corporate name rectification action has been successfully preferred by a registered trademark proprietor, has been reduced from six months to three months; and,

(b) Further sub-section (3) of Section 16 in the Principal Act has been replaced, whereunder it has now been stated that in case where the said company does not comply with the directions of the RD to change its corporate name pursuant to a rectification action under Section 16 then the RD shall allocate a new name as may be prescribed and the concerned Registrar of Companies (ROC) shall issue a fresh certificate of incorporation based on the new name in place of the old name as directed by the RD. Also, the proviso states that the said company may subsequently change its name from such name in accordance with the provisions of Section 13 of the Principal Act.

The provisions relating to ‘Rectification of name of Company’ under Section 16 (3), earlier, only stated that where such company fails to change its name as directed by the RD, then such a company and its officer-in-default would be punishable with fine as was prescribed thereunder. However, the said penal provision was not being strictly implemented and hence the same did not provide any effective resolution mechanism for registered trademark holders or other companies with similar names, where such companies failed to comply with the direction of the RD. It was this mischief that the MCA has now sought to remedy vide the aforesaid amendments.

In order to implement the procedural aspects related to the aforesaid amended provisions of 16 (3) of the Principal Act, the MCA has also, vide a notification dated 22nd July 2021, introduced Rule 33A under the Companies (Incorporation) Fifth Amendment Rules, 2021, by way of an amendment thereto.

Effect of introduction of Rule 33A under the Companies (Incorporation) Fifth Amendment Rules, 2021 (“Amended Rules”):

As per the new Rule 33A of the Amended Rules, with effect from 01st September 2021, if a Company does not comply with the directions of the RD within a period of three months [hereinafter “non-compliant company”] issued under Section 16 of the Principal Act, the name of the non-compliant company will automatically be transformed to an alpha-numeric name in the manner as follows:

ORDNC*-Year of passing the Direction-Serial number-CIN of the non-compliant Company.

*The term “ORDNC” denotes Order of Regional Director Not Complied with.

Accordingly, the ROC is mandated to make an entry of the new name in the Register of Companies and issue a fresh certificate of incorporation as aforementioned with the prefix of ORDNC.

Once the name has been changed by the ROC upon the directions issued by the RD, the non-compliant company has to change its name to the new alpha-numeric in the name board at the registered office, its common seal, business letters, billheads, notices, publications, hundies, promissory notes, bill of exchanges, website, etc. In addition to this, wherever the name of the Company appears, the statement “Order of Regional Director Not Complied (under Section 16 of the Companies Act, 2013)” shall be mentioned in brackets below the alpha-numeric name.

Factors to be considered before choosing/changing name of the Company:

Promoters of a Company should exercise caution before choosing a company name in relation to their business.

The following factors may, inter-alia be taken into consideration before choosing the name for the company.  As per the provisions of Companies Act, 2013, the name of the company should not:

(a) be identical with the name of an existing registered company; or

(b) resemble too nearly to the name of an existing registered company; or

(c) be such that its use by the company will constitute an offence under any law for the time being in force; or

(d) be such that its use by the company is undesirable in the opinion of the RoC.

Also, some words or expressions like Authority, National, Union, Central, Federal, Nation, Court etc., in the name of a company are allowed to be used only with the prior approval of the RoC.

Conclusion:

The aforementioned amendments have been brought into force with the intention that such companies will be discouraged to sideline the directions of the RD issued under Section 16 and consequentially take necessary procedural actions to change its name within the stipulated timeline of “three months”.  It is pertinent to note that the name of a company plays a very important role in the branding of its products and services in the market in which it operates and any change in its name may also potentially impact its business. Accordingly, if a company fails to comply with the directions of the RD under Section 16 consequent to which its name is amended in a manner that indicates its non-compliance with the orders of a regulatory body, then its image and credibility takes a serious setback, which can also affect its business prospects.

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