This article is written by Shaantanu Krishnan, Student, School of Law, Christ University, Bangalore. In this article, the author has discussed legal issues involving the name clause of Memorandum of Association of a company. Further, the author has also compared the position of law regarding the name clause in the Memorandum of Association in the Companies Act of 1956 and of 2013.
The name clause of the Memorandum of Associations of a company as mentioned under Section 4(i)(a) of the Companies Act, 2013 specifies the name of the concern, which can be changed under certain circumstances and procedures as specified by the law unless the company is incorporated under Section 8 of the Companies Act, 2013. The name clause plays a crucial role and involves lengthy procedures to be followed in order to merely change the name of the company. To draw a parallel between the Companies Act 1956 and Companies Act 2013 and to provide a comparative analysis between the two with respect to development or alteration in the procedure of changing the name clause under the respective Companies’ Acts. It is also has been analyzed the Companies (Incorporation) Rules 2014 for a detailed analysis of procedures and guidelines relating to the change of the name of a company.
Company Law in India
At the point when the British colonized India, they brought numerous British frameworks into India counting the control of business entities by statutory direction as a Companies Act.
The primary Indian Companies Act was proclaimed in 1850 by the English and depended on British enactment. The Indian Companies Act was at that point altered occasionally and the changes were additionally in view of improvements in British Company law. At the season of freedom, the Indian Companies Act 1913, as corrected by the Indian Companies Bill 1936, in view of the British Companies Acts 1908 and 1929, was in power. When India gained independence in 1947, the Indian Government held the utilization of a Companies Act to control business entities, however, chose to change the Indian Companies Act in force when India got independence.
This prompted the proclamation of the Companies Act 1956, which secured the advancement and development of organizations, the control of organizations by investors, the situation of minority investors, the arrangement, states of administration, powers, duties and elements of executives and overseeing operators, organization records and review, examination and assessment of organizations by Government, liquidation of organizations and the organization and implementation of the Companies Act.
Comparative Analysis between Companies Act 1956 and Companies Act 2013
With respect to change of name of a company, the provisions of the Companies Act 1956 are different from the Companies Act 2013 in a few ways. Alteration of Memorandum as a result of Change in Name of a company under the Companies Act, 1956 is governed under Section 20 and Section 21 of the aforementioned Act, which is as follows;
“20. Companies not to be registered with undesirable names
(1) No company shall be registered by a name which, in the opinion of the Central Government, is undesirable.
(2) Without prejudice to the generality of the foregoing power, a name which is identical with, or too nearly resembles,-
(i) The name by which a company in existence has been previously registered, or
(ii) A registered trademark, or a trademark which is subject of an application for registration, of any other person under the Trade Marks Act, 1999, may be deemed to be undesirable by the Central Government within the meaning of sub-section (1).
(3) The Central Government may, before deeming a name as undesirable under clause (ii) of sub-section (2), consult the Registrar of Trade Marks.”
And Section 21 as follows;
“21. Change of name by company
A company may, by special resolution and with the approval of the Central Government signified in writing, change its name.
Provided that no such approval shall be required where the only change in the name of a company is the addition thereto or, as the case may be, the deletion therefrom, of the word “private”, consequent on the conversion in accordance with the provisions of this Act of a public company into a private company or of a private company into a public company.”
Although Section 20 doesn’t particularly govern the procedure and aspects of law relating to change of name of a company, it is nonetheless crucial because it lays down conditions which have to be abided by, which governs the types of names that can be given to a company.
Thus, as evident from the Section, a change in the name of a company under Section 21 and of the Companies Act, 1956 is possible by two means;
- By special Resolutions and Permission of the government: The name of a company may be changed at any time by passing a special resolution at a general meeting of the company and with the written approval of the central government. However, no such approval is required if the change of name involves addition or deletion of the word “private”.
- By rectification of omission in name: If by a mistake a company has registered its name which is same or similar to the name of an existing company, the company may change its name by passing an ordinary resolution and getting written permission from the Central government. In such a case, the central government in one year of the first registration or registration under a changed name can direct the company to change its name. In such a situation, the company must alter its name by passing an ordinary resolution in three months from the date of such direction.
The change of the name of the company doesn’t result in a change in the power and of the same. As a result of this change, the name legal affairs of the company are not affected. However, after the new name is registered, the legal affairs cannot be continued with the old name. This contention was observed in the case of Malhati Tea Syndicate v. Revenue Officer
The Companies Act, 1956 was under review for a while because of the spontaneous changes to the economic and financial atmosphere nationally as well as globally.
Thus as a result of these changes in the international environment, the Companies Act 2013 was enacted.
The goal behind the 2013 Act is fewer government endorsements and improved self-directions combined with an accentuation on corporate majority rules system. The 2013 Act delinks the procedural angles from the substantive law and gives more adaptability to empower adjustment to the changing monetary and specialized condition. Under this Act, it enables the Central Government to control the development, financing, working and winding up of organizations. It contains the component in regards to hierarchical, budgetary and administrative and all the significant parts of an organization.
The Companies Act, 2013 was consented by the President of India on 29 August 2013 and distributed in the Official Gazette on 30 August 2013.
Under the Companies Act 2013, Alteration of Memorandum as a result of Change in Name of a company is governed under Section 13 (2) and (3) read with Section 4 (2) and (3) of the aforementioned Act, which reads as follows;
“(2) Any change in the name of a company shall be subject to the provisions of subsections (2) and (3) of section 4 and shall not have effect except with the approval of the Central Government in writing:
Provided that no such approval shall be necessary where the only change in the name of the company is the deletion therefrom, or addition thereto, of the word ―Private‖, consequent on the conversion of any one class of companies to another class in accordance with the provisions of this Act.
(3) When any change in the name of a company is made under sub-section (2), the Registrar shall enter the new name in the register of companies in place of the old name and issue a fresh certificate of incorporation with the new name and the change in the name shall be complete and effective only on the issue of such a certificate.
And Section 4 (2) and (3) are as follows;
(2) The name stated in the memorandum shall not—
(a) be identical with or resemble too nearly to the name of an existing company registered under this Act or any previous company law; or
(b) be such that its use by the company—
(i) will constitute an offence under any law for the time being in force; or
(ii) is undesirable in the opinion of the Central Government.
(3) Without prejudice to the provisions of sub-section (2), a company shall not be registered with a name which contains—
(a) any word or expression which is likely to give the impression that the company is in any way connected with, or having the patronage of, the Central Government, any State Government, or any local authority, corporation or body constituted by the Central Government or any State Government under any law for the time being in force; or
(b) such word or expression, as may be prescribed, unless the previous approval of the Central Government has been obtained for the use of any such word or expression.
In a basic reading of Sections 13 (2) and (3) read with Section 4 (2) and (3), it is obvious to notice that, with respect to change of name of a company, Section 13 (2) and (3) establishes the consequence of name change of a company while Section 4 (2) and (3) lays down the criteria to keep in mind while naming or re-naming a company.
Comparing the provisions relating to change of name of a company in the 1956 and 2013 Act, the 1956 Act, in Section 20 (2) (ii) restricts a person from naming a company which would violate a registered trademark or a trademark which is subject of an application for registration, of any other person under the Trade Marks Act, 1999.
This particular provision in the Companies Act 1956 isn’t included in the Companies Act 2013 and the Companies Act 2013, governs the criteria for a name of a company in a different manner by the way of delegating power to the central government to notify the general public by rules comprehensively laying down criteria or the same.
One such example of this is the Companies (Incorporation) Rules of 2014, under which Rule 8 and Rule 9 which talks about undesirable names and reservation of name respectively.
Rule 8 goes on to comprehensively cover what all can be covered under the garb of undesirable (which also includes identical) names such as, the plural version of words, type and case of letters (including punctuation), misspelt words, either intentionally or not will not conflict the properly spelt name of another company.
The element of trademark violation of under Section 20 (2) (ii) of the Companies Act 1956, has been included in the Companies (Incorporation) Rules 2014 in Rule 8 (2) (ii).
With respect to reservation of a name, the Companies Act 2013 under Section 16 incorporates Section 22 of the Companies Act 1956, with certain notable changes such as the change in time period within which the company has to comply with the direction of the Central government to change its name from 3 months to 6 months.
Drawing a parallel between the Companies Act 1956 and Companies Act 2013, it can be concluded that the Companies Act 2013, unlike Companies Act 1956 divides the procedure into two parts by prescribing guidelines to be followed while renaming a company separately in Section 4 (2) (3) of the Act and the Companies (Incorporation) Rules 2014, while the Companies Act 1956 laid down how the change has to be done with respect to procedures to be complied with.