KNOW YOUR LAW #6 - UNDESIRABLE NAME – DESIRABLE TO CLASSIFY?

 

PROVISION COVERED	Section 4
RULE COVERED	Rule 8A of the Companies (Incorporation) Rules, 2014
CONCEPT COVERED	Circumstances in which name of a company is considered undesirable.

INTRODUCTION:

The economic corporate vessel recognised as a company under the law deploys its operations and functions in its name. A company to contract by itself needs an identity and the name of a company is such identity through which such entity gets recognised to the eyes of the stakeholders. Though the law does not ascribe to placing complete restriction on application and usage of a name of a company, Rule 8A of the Companies (Incorporation) Rules, 2014 as amended from time to time prescribes certain circumstances wherein the name of a company is considered undesirable. The Collins Dictionary defines the term undesirable as something that is not pleasant and objectionable. In this context, name of a company may be objectionable or considered not appropriate by the central government or the registrar of companies, as the case may be in case where name of a company is barred under any other law for time being in force or where such name of a company is likely to project a different view about the entity to the stakeholders.

EMPHASISING THE RATIONALE:

Various stakeholders to a company invest their interest in a company whether monetary or otherwise on consideration of various factors. The name of a company is also a key factor for a stakeholder for identifying the company and its nature on the face of it for making further decision on bestowing his interest in such entity. The rationale behind even prompting to classify a name of a company as undesirable is on the character of such name to project an untrue meaning and deceive the stakeholders from making a proper investment decision. The Delhi High in “K.G. Khosla Compressors Ltd. v. Khosla Extrakting Ltd. And Ors. (1985)” while interpreting the autonomy of the judiciary held that "The jurisdiction of the judiciary rests either upon fraud or upon property; not that there is property in the name. but that the use of a name closely resembling that in which another carries on business is calculated to deceive or cause confusion between the two businesses and to affect property by diverting customers to the person taking, the name, or by affecting the credit or goodwill of the person whose name is taken”

It is imperative to understand that the erstwhile Companies Act, 1956 vide Section 20 merely outlined the fact that a company shall not be registered with a name that is considered undesirable in the opinion of the central government. There felt the lack of clarity as to what ought to the circumstances which the central government would deem to term the name of a company as undesirable and raise objection on the same. Such lacuna devoid of any merit was also not subject up to a wider import. The Delhi High Court in “M/s. Abhipra Capital Ltd. v. Abhipray Securities Private Limited (2011)” postulated that “Section 20 of the Companies Act, 1956 treats a name of the company to be undesirable if it is identical with or too nearly resembles the name by which a company in existence has been previously registered. Since the legislature itself considers name of a company which is identical with the name of the other pre-existing company to be undesirable, the legislative intent must be given effect to by giving injunctive relief to a plaintiff against a defendant, who has copied the corporate name of a the plaintiff.”

UNDESIRABLE NAME:

Rule 8A outlines certain circumstances which are considered by the regulator to term the name of the company as undesirable which are reproduced as below:

The name shall be considered undesirable, if-

(a) 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;

(b) 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;

(c) it includes any word or words which are offensive to any section of the people;

(d) the proposed name is identical with or too nearly resembles the name of a limited liability partnership:

(e) 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:

(f) 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.;

(g) 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;

(h) it resembles closely the popular or abbreviated description of an existing company or limited liability partnership;

(i) 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:

(j) 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.;

Explanation.- For the purposes of this clause, it is hereby clarified that the name including phrase ‘Electoral Trust’ may be allowed for registration of companies to be formed under section 8 of the Act, in accordance with the Electoral Trusts Scheme, 2013 notified by the Central Board of Direct Taxes (CBDT):

Provided that name application is accompanied with an affidavit to the effect that the name to be obtained shall be only for the purpose of registration of companies under the said Electoral Trust Scheme as notified by the Central Board of Direct Taxes;

(k) the proposed name contains the words ‘British India’;

(l) the proposed name implies association or connection with an embassy or consulate of a foreign government;

(m) 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;                                        

(n) 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;

(o) 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;

(p) 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;

(q) the proposed name includes the word "State", in case the company is not a Government company;    ]

(r) 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;

(s) Use of descriptive names, where the name merely consists of commonly used words to describe an activity.

Explanation.—For the purposes of this clause,-

(A) the term “commonly used words” refers to use of generic expressions which may be used by any other company to describe its trade;

(B) while determining whether a name is descriptive or not, the objects of the proposed company or the order of words appearing in a name shall not be relevant;

(C) the name shall not be deemed to be descriptive where “commonly used words” are used in addition to other words in the name;

(t) 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.

Explanation.- For the purposes of this clause, ‘enemy country’ means so declared by the Government of India from time to time.

(u) 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.

(v) the proposed name of a Nidhi company under the Act does not have the last words “Nidhi Limited” as a part of its name.

(w) 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.

WORDS THAT REQUIRE THE PRIOR APPROVAL OF CENTRAL GOVERNMENT:

Rule 8B of the Companies (Incorporation) Rules, 2014 mandates that usage of following words in the name of a company and combination of such words in any language shall require the prior approval of the central government:

(a) Board;

(b) Commission;

(c) Authority;

(d) Undertaking;

(e) National;

(f) Union;

(g) Central;

(h) Federal;

(i) Republic;

(j) President;

(k) Rashtrapati;

(l) Small Scale Industries;

(m) Khadi and Village Industries Corporation;

(n) Financial Corporation and the like;

(o) Municipal;

(p) Panchayat;

(q) Development Authority;

(r) Prime Minister or Chief Minister;

(s) Minister;

(t) Nation;

(u) Forest corporation;

(v) Development Scheme;

(w) Statute or Statutory;

(x) Court or Judiciary;

(y) Governor;

(z) the use of word Scheme with the name of Government (s), State, India, Bharat or any Government authority or in any manner resembling with the schemes launched by Central, State or local Governments and authorities; and

(za) Bureau.

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