Analysis of Companies (Incorporation) Fifth Amendment Rules, 2019

CS Mohit Patel 

MEASURES TO CURB UNDESIRABLE & RESEMBLING NAMES OF COMPANIES

The Ministry of Corporate Affairs (MCA) has released the Companies (Incorporation) Fifth Amendment Rules, 2019, effective from May 10, 2019. The amendment has been brought making changes to provisions of Companies (Incorporation) Rules, 2014, with regard to undesirable and resembling names of companies.

As this is one of the common issue that Companies are facing these days due to rejection of proposed names due to some minor errors in the Names. In order to clarify the various doubts with relation to such Rules, the Ministry of Corporate Affairs (MCA) has taken the step by substituting the old Rule with the new one and by providing the stakeholders with various illustration to understand the Rule in a better sense.

♣ Overview Companies (Incorporation) Fifth Amendment Rules 2019:

The Ministry has elaborated a variety of illustrations under this rule while determining the name of the company and Companies (Incorporation) Fifth Amendment Rules 2019 has divided the rule into three parts;

1. Rule 8: Names which resemble too nearly with name of existing company;

2. Rule 8A: These rules specify the list of undesirable names;

3. Rule 8B: These rules are for the word or expression which can be used only after obtaining a previous approval of Central Government.

♣ Detailed summary Companies (Incorporation) Fifth Amendment Rules 2019:

RULE 8: NAMES WHICH RESEMBLE TOO NEARLY WITH NAME OF EXISTING COMPANY

As per Rule 8A, the name shall be considered undesirable, if any on the following situation happen;

1. It is prohibited under the provisions of section 3 of the Emblems and Names (Prevention and Improper Use) Act, 1950 (12 of 1950), unless a previous permission has been obtained under that Act;

2. Save as provided in section 35 of the Trade Marks Act, 1999 (47 of 1999), the name includes a trade mark registered under the Trade Marks Act, 1999 and the rules framed thereunder in the same class of goods or services in which the activity of the company is being carried out or is proposed to be carried out, unless the consent of the owner or applicant for registration, of the trade mark, as the case may be, has been obtained and produced by the promoters;

3. It includes any word or words which are offensive to any section of the people;

4. The proposed name is identical with or too nearly resembles the name of a limited liability partnership:

Provided that the provisions of rule 8 shall apply mutatis mutandis while determining whether a proposed name is too nearly resembling the name of a limited liability partnership;

5. The proposed name is identical with or too nearly resembles with a name which is for the time being reserved in accordance with rule 9:

Provided that the provisions of rule 8 shall apply mutatis mutandis while determining whether a proposed name is too nearly resembling with a reserved name;

6. The company’s main business is financing, leasing, chit fund, investments, securities or combination thereof, but the proposed name is not indicative of such related financial activities, viz., Chit Fund or Investment or Loan, etc.;

7. The company’s name is indicative of activities financing, leasing, chit fund, investments, securities or combination thereof, but the company’s main business is not related to such activities;

8. It resembles closely the popular or abbreviated description of an existing company or limited liability partnership;

9. The proposed name is identical with or too nearly resembles the name of a company or limited liability partnership incorporated outside India and reserved by such company or limited liability partnership with the Registrar:

Provided that if a foreign company is incorporating its subsidiary company in India, then the original name of the holding company as it is may be allowed with the addition of word India or name of any Indian State or city, if otherwise available:

Provided further that provisions of rule 8 shall apply mutatis mutandis while determining whether a proposed name is too nearly resembling the name of a company or limited liability partnership incorporated outside India;

10. Any part of the proposed name includes the words indicative of a separate type of business constitution or legal person or any connotation thereof e.g. co-operative, sehkari, trust, LLP, partnership, society, proprietor, HUF, firm, Inc., PLC, GmbH, SA, PTE, Sdn, AG, etc.;

11. The proposed name contains the words ‘British India’;

12. The proposed name implies association or connection with an embassy or consulate of a foreign government;

13. The proposed name includes or implies association or connection with or patronage of a national hero or any person held in high esteem or important personages who occupied or are occupying important positions in the Government;

14. The proposed name is identical to the name of a company dissolved as a result of liquidation proceeding and a period of two years has not elapsed from the date of such dissolution:

Provided that if the proposed name is identical with the name of a company which is struck off in pursuance of action under section 248 of the Act or under section 560 of the Companies Act, 1956 (1 of 1956) then the same shall not be allowed before the expiry of twenty years from the date of publication in the Official Gazette being so struck off;

15. It is identical with the name of a limited liability partnership in liquidation or the name of a limited liability partnership which is struck off up to a period of five years;

 16. The proposed name include words such as ‘Insurance’, ‘Bank’, ‘Stock Exchange’, ‘Venture Capital’, ‘Asset Management’, ‘Nidhi’, ‘Mutual Fund’, etc., unless a declaration is submitted by the applicant that the requirements mandated by the respective regulator, such as IRDA, RBI, SEBI, MCA, etc. have been complied with by the applicant;

 17. The proposed name includes the word “State”, in case the company is not a Government company;

18. The proposed name is containing only the name of a continent, country, State, city such as Asia limited, Germany Limited, Haryana Limited or Mysore Limited;

19. Use of descriptive names, where the name merely consists of commonly used words to describe an activity;

20. The proposed name includes name of any foreign country or any city in a foreign country, the same shall be allowed if the applicant produces any proof of significance of business relations with such foreign country like memorandum of understanding with a company of such country:

Provided that the name combining the name of a foreign country with the use of India like India Japan or Japan India shall be allowed if, there is a government to government participation or patronage and no company shall be incorporated using the name of an enemy country;

21. The proposed name of a section 8 company under the Act does not include the words Foundation, Forum, Association, Federation, Chambers, Confederation, Council, Electoral Trust and the like, etc.;

22. The proposed name of a Nidhi company under the Act does not have the last words “Nidhi Limited” as a part of its name;

23. The proposed name has been released from the register of companies upon change of name of a company and three years have not elapsed since the date of change unless a specific direction has been received from the competent authority in the course of compromise, arrangement or amalgamation.

Rule 8B: Word or expression which can be used only after obtaining previous approval of Central Government

The following words and combinations thereof shall not be used in the name of a company in English or any of the languages depicting the same meaning unless the previous approval of the Central Government has been obtained for the use of any such word or expression;

To conclude we can say that the Ministry of Corporate Affairs (MCA) is continuously addressing the stakeholder grievances and bringing more developed and automated processes for the companies to take a step ahead towards ease of doing business in India initiative. We are of a view that changes will significantly contribute towards improvement of ranking in ease of doing business in the country.