Companies (Incorporation) Rules Amendment

MCA has amended the Companies (Incorporation) Rules, by its amendment dated 27th July, 2016. Salient features of these amendments are as follows:

I) Rule 3(2) has been substituted as follows:

(2) A natural person shall not be member of more than a One Person Company at any point of time and the said person shall not be a nominee of more than a one Person Company”.

Rule 3 pertains to incorporation of a One Person Company. Earlier the rule read

(2) No person shall be eligible to incorporate more than a One Person Company or become nominee in more than one such company.

So natural person replaces person and it goes beyond incorporation of the OPC. An example of bad drafting being undone, or so I hope.

II) Rule 8(2)(ii) has been substituted as under:

..(ii) it includes the name of a trade mark registered or a trade mark which is subject of an application for registration under the Trade Marks Act, 1999 and the rules framed thereunder 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;”

Rule 8 pertains to undesirable names for a company.

This is again a case of bad drafting being corrected. There is nothing new here, only “trade mark registered” has replaced “registered trade mark” and the name of the Act i.e. Trade Marks Act and its Rules mentioned.

III) Rule 8(6) disallows names or a combination of names from becoming part of the company’s name for eg. Board, Commission, Authority cannot be part of a company’s name. Clause (n) had mentioned Financial, Corporation and the like. The comma between the words Financial and Corporation has been removed vide this amendment. Now a name is undesirable only if it contains Financial Corporation not if it contains Financial and Corporation separately. Again another example of bad drafting.

IV) After Rule 13(2), the following Explanation has been added, viz.

“Explanation.- For the purposes of sub-rule (1) and sub-rule (2), the type written or printed particulars of the subscribers and witnesses shall be allowed as if it is written by the subscriber and witness respectively so long as the subscriber and the witness as the case may be appends his or her signature or thumb impression, as the case may be.”

Rule 13 pertains to signing of the memorandum and articles of association of the company. Earlier the stipulation was that the name, address, occupation, description was to be written in the respective handwriting of the promoters of the company. Now it has been allowed that such particulars can be type written, only the signature or thumb impression needs to be done physically.

Probably another example of “ease of doing business”.

V) After Rule 16(1)(m) the following explanation is added, viz.

“Explanation.- In case the subscriber is already holding a valid DIN, and the particulars provided therein have been updated as on the date of application, and the declaration to this effect is given in the application, the proof of identity and residence need not be attached.”‘

Rule 16 pertains to particulars of every subscriber to be filed with the Registrar at the time of incorporation. There are humongous details to be filled in such as name, father’s name, nationality, date of birth, place of birth, educational qualifications, occupation, PAN, permanent and present address. Clause (m) pertains to proof of identity for which the subscriber is required to give some additional documents like PAN, voter’s card, driving licence etc. Now this explanation provides that if the subscriber is holding a valid DIN, then he need not attach proof of identity and residence.

Strange that MCA overlooked clauses (a) to (l) of Rule 16(1), the details of all of which are available in the MCA database at the time when the subscriber has obtained his DIN. Why these details as enumerated in clauses (a) to (l) of Rule 16(1) are required at all, when the DIN has been obtained by the subscriber and at the time of applying for DIN all these details are already provided by the subscriber. Strange that MCA starts the explanation with “in case the subscriber is already holding a valid DIN” because it the present MCA 21 system, a person cannot apply for name availability for a new company, if the does not have a DIN in his name. Another example of bad drafting and bad thinking I would say.

A half baked measure at “ease of doing business”

VI) Clause (q) in Rule 16(1) has been omitted.

Clause (q) envisaged that the specimen signature and latest photograph duly verified by the banker or notary public in form INC-10 was required to be attached as a document while incorporating a company. Thankfully it has been done away with. An “ease of doing business” measure.

VII) In Rule 16(2)(g), the words “or partnership firm” has been omitted.

The clause (g) before omission read as under:

(g)  if the body corporate is a limited liability partnership or partnership firm, certified true copy of the resolution agreed to by all the partners specifying inter alia the authorization to subscribe to the memorandum of association of the proposed company and to make investment in the proposed company, the number of shares proposed to be subscribed in the body corporate, and the name of the partner authorized to subscribe to the Memorandum;

Rule 16(2) pertains to incorporation of a company by a subscriber who is a body corporate then the prescribed details to be filed with the Registrar. “Partnership Firm” should never have been included in the said clause in the first instance as it is not an example of a body corporate within the meaning of the Companies Act, 2013. Another example of bad drafting.

VIII) Rule 26 has been substituted as follows:

“26. Publication of name by company.- (1) Every company which has a website for conducting online business or otherwise, shall disclose/publish its name, address of its registered office, the Corporate Identity Number, Telephone number, fax number if any, email and the name of the person who may be contacted in case of any queries or grievances on the landing home page of the said website.

(2) The Central Government may as and when required, notify the other documents on which the name of the company shall be printed.”.

The earlier Rule 26 contained only one clause which was the present clause (2). Clause (1) has been added to require every company which has a website, whether it conducts online business or otherwise to carry some mandatory details regarding the company such as name, address, e-mail, telephone number etc. This is a mandatory compliance for all companies who have a website regardless of whether they are doing business online or otherwise. I guess this was introduced after the rape incident last year in New Delhi where an Uber car driver raped a woman and when the police tried to contact the Uber people they were clueless and even their website contained absolutely no details whatsoever.

IX) After Rule 28(2), the following proviso shall be added as the third proviso.

“Provided also that on completion of such inquiry, inspection or investigation as a consequence of which no prosecution is envisaged or no prosecution is pending, shifting of registered office shall be allowed.”.

Rule 28 pertains to shifting of registered office of the company within the same State and for that certain requirements to be met and certain documentations to be completed.

The second proviso after Rule 28(2) as it stands before the amendment is as follows, viz.

“Provided further that the shifting of registered office shall not be allowed if any inquiry, inspection or investigation has been initiated against the company or any prosecution is pending against the company under the Act.”

So the third proviso seeks to limit the damage caused by poor drafting of the second proviso.

X) Rule 29(1) has been substituted as under:

“( I ) The change of name shall not be allowed to a company which has not filed annual returns or financial statements due for filing with the Registrar or which has failed to pay or repay matured deposits or debentures or interest thereon:

Provided that the change of name shall be allowed upon filing necessary documents or payment or repayment of matured deposits or debentures or interest thereon as the case may be.”

Rule 29 pertains to alteration of memorandum by change of name. The hitherto rule did not carry the proviso as above, so it has been added to take care of those companies which complies with all those defaults.

Another example of poor drafting of the Rules.

XI )   In Rule 30(1), following clause is added as clause (j) after existing clause (i), viz.

“(j) a copy of the No Objection Certificate from the Reserve Bank of India where the applicant is a registered Non-Banking Financial Company”

Rule 30 pertains to shifting of registered office of the company from one state to another and the procedures to be followed thereby and documentations to be submitted.

So where the applicant is a NBFC, it has to obtain a clearance from the Reserve Bank of India before approaching ROC for its approval.

XII)   In Rule 30(6)(c ) the words “and to the Securities and Exchanse Board in the case of listed companies” shall be omitted;

Rule 30(6) pertains to what the company has to do at least fourteen days before the date of the hearing, Clause (c ) in its entirety reads as follows:

(c) serve, by registered post with acknowledgement due, a notice together with the copy of the application to the Registrar and to the Securities and Exchange Board of India, in the case of listed companies and to the regulatory body, if the company is regulated under any special Act or law for the time being in force.

Pursuant to this amendment, companies seeking shifting of registered office from one state to another need not send copy of the application to the SEBI.

XIII)  In Rule 30(10), following explanation is inserted after the proviso, viz.

“Explanation.- On completion of such inquiry, inspection or investigation as a consequence of which no prosecution is envisaged or no prosecution is pending, shifting of registered office shall be allowed.”.

Rule 30(10) before the amendment reads as follows:

(10.)   The Central Government may make an order confirming the alteration on such terms and conditions, if any, as it thinks fit, and may make such order as to costs as it thinks proper:

Provided that the  shifting of registered office shall not be allowed if any inquiry, inspection or investigation has been initiated against the company or any prosecution is pending against the company under the Act.

XIV) New Rule 37 has been inserted to provide for procedures for conversion of an unlimited liability company into a limited liability company by shares or guarantee.

 

 

 

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