R is carrying on the business of trading of readymade garments as a sole proprietor in Delhi. He wants to diversify his business by opening the branches in other cities across the country. Due to shortage of funds and ot

CS Executive · Setting Up of Business, Industrial and Labour Laws · PYQS · December 2023
R is carrying on the business of trading of readymade garments as a sole proprietor in Delhi. He wants to diversify his business by opening the branches in other cities across the country. Due to shortage of funds and other resources, he approaches his friend K, who is a Practicing Company Secretary (PCS) for seeking his advice on the form of business organisation which may be more beneficial for him. K advises him to convert his sole proprietorship form of business into a private company by involving his friends and relatives as the directors and members of the private company. He describes the characteristics of a private company under the Companies Act, 2013. K further advises R that the conversion of his existing form of business into a private company would provide him easy access to capital needed for diversifying his business.In accordance with the advice of K, R decided to convert his sole proprietorship business into a private company with the proposed name, R Holding Pvt. Ltd. He makes an application to the Registrar of Companies (RoC), Delhi for reservation of the proposed name of the company, R Holding Pvt. Ltd. However, the proposed name is rejected by RoC, Delhi citing the common reasons for rejection of the proposed name. R makes a fresh application for reservation of the proposed new name of the company, R Cloth Trading Pvt. Ltd. and the name is reserved by RoC, Delhi. After filing the necessary e-forms and documents with RoC, Delhi, the company, R Cloth Trading Pvt. Ltd. is incorporated under the Companies Act, 2013.K informs R about the utility of the Permanent Account Number (PAN) and accordingly, R obtains PAN in the name of the company. K also helps him in getting the GST registration in the name of the company and advises him to go for "Composition Scheme" under the GST Act, 2017. R approaches the banks for sanctioning loan for his business to enable him to open branches in the State of Uttar Pradesh. However, due to stringent loan sanctioning process of the banks, R fails to get loan from the banks for his business. R approaches K for seeking his help to arrange the required funds for the business and K helps R in getting loan for his business from, ST Finvest Ltd., a Non-Banking Financial Company (NBFC). The loan is processed quickly by ST Finvest Ltd. to R Cloth Trading Pvt. Ltd. at a very competitive rate of interest.In view of the above, answer the following:Describe the common reasons on the basis of which RoC, Delhi has rejected the name reservation application of R with the proposed name, R Holding Pvt. Ltd.

Answer & Explanation:

Section 4(2) of the Companies Act, 2013 read with Rule 8 and 8A of the Companies (Incorporation) Rules, 2014, provides that the name: shall not be identical with or resemble too nearly to the name of an existing company; shall not constitute an offence under any law for the time being in force; or is not undesirable in the opinion of the Central Government. Further, a company shall not be registered with a name which contains: 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 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. Section 4(5)(ii) of the Companies Act, 2013 states that where after reservation of name, it is found that the name was applied by furnishing wrong or incorrect information, then the reserved name shall be cancelled and the person making the application shall be liable to a penalty which may extend to one lakh rupees.

Topics: Company Law

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