Companies Act Section 16

Companies Act Section 16: Rectification of Name of Company

Introduction

Section 16 of the Companies Act addresses the rectification of a company’s name in instances where it is found to be identical or closely resembles the name of an existing company or a registered trademark. 

The provisions under this section outline the process through which the Central Government can direct a company to change its name and the procedures the company must follow to comply with such a directive. 

This section serves as a mechanism to avoid confusion, misrepresentation, or trademark infringement by ensuring that companies do not operate under misleading or conflicting names.

1. Rectification of Name by Direction

The section provides two primary instances in which the Central Government may intervene and require a company to change its name. 

These instances ensure that companies do not inadvertently or deliberately use names that could create confusion or legal conflicts with existing entities.

(a) When the Name Resembles an Existing Company

If a company has been registered with a name that is identical to or too closely resembles the name of an existing company whether that company was registered under the current Companies Act or any previous company law the Central Government has the authority to direct the company to change its name.

Government's Role: The Central Government, upon reviewing the company's name and determining that it is too similar to another company’s name, will issue a directive for the name to be changed. 

This step is taken to prevent confusion in the marketplace, protect the identity of pre-existing companies, and ensure clarity in business operations.

Company’s Obligation: 

Once the company receives this directive, it must take action to change its name within three months from the date of the order. 

The company is required to pass an ordinary resolution to effect this change. 

This procedure involves seeking approval from the shareholders to formally adopt a new name.

(b) When the Name Resembles a Registered Trademark

The second scenario applies when a company’s name is found to closely resemble a registered trademark under the Trade Marks Act, 1999. 

If the registered proprietor of a trademark submits an application to the Central Government within three years of the company’s incorporation or name change, and the government finds that the company’s name is identical to or resembles the trademark, the company will again be directed to change its name.

Trademark Protection: This provision is crucial for protecting the rights of trademark owners. 

It ensures that companies do not unintentionally infringe on registered trademarks, which could lead to brand confusion, legal disputes, and potential financial losses for trademark proprietors.

Three-Year Window: 

Trademark proprietors have a three-year period from the date of the company’s incorporation or name change to file such an application. 

After reviewing the application and confirming the resemblance between the company’s name and the trademark, the Central Government can issue a directive requiring the company to change its name.

Compliance: As in the previous instance, the company must comply with this directive within three months, adopting an ordinary resolution to formalize the name change. 

2. Notification and Documentation Post-Change

Once a company has successfully changed its name as directed by the Central Government, it must undertake certain notification and documentation requirements to ensure that the new name is properly registered and recognized.

Notifying the Registrar: The company is required to notify the Registrar of Companies of the name change within fifteen days of making the change. 

This notification should include the order issued by the Central Government, which directed the name change.

Registrar’s Role: Upon receiving the notification, the Registrar will update the certificate of incorporation and the company's memorandum of association to reflect the new name. 

This process ensures that the company’s legal identity is updated in all official records, and the new name is recognized across various legal and business frameworks.

Legal Effectiveness: 

The company’s name change is only considered legally effective once the Registrar has updated these records. 

The issuance of an updated certificate of incorporation confirms that the company has successfully changed its name in compliance with the Central Government’s directive.

3. Default and Central Government’s Action

Section 16 provides for consequences if a company fails to comply with the directive to change its name. If a company does not act within the prescribed three-month period, the Central Government retains the authority to take further action to rectify the situation.

Allocation of a New Name: 

In cases of non-compliance, the Central Government can allocate a new name to the company. The process for allocating a new name will follow regulations prescribed by the relevant authorities.

Registrar’s Update: 

Once the Central Government has chosen a new name for the company, the Registrar of Companies will update the company’s records, including the register of companies, and issue a fresh certificate of incorporation reflecting the newly assigned name. 

This process is mandatory and ensures that the company no longer operates under its previous name, which may have caused confusion or legal issues.

Company’s Obligation to Use New Name: 

After the Registrar issues the updated certificate, the company is required to start using the new name in all of its operations, communications, and legal documentation. Failure to do so could result in additional legal consequences or penalties.

Opportunity for Future Change: 

It is important to note that even after the Central Government has assigned a new name to the company, the company is not permanently bound to this name. 

Under the provisions of Section 13 of the Companies Act, the company can later propose and adopt a new name if it so chooses, provided it follows the appropriate legal processes.