Ease of doing business in India: Extension of period of reserved names for Companies

The Government of India (“GOI”) is committed to improving the process of doing business in India. This initiative of GOI is running under the name of ‘Ease of Doing Business in India (EODB). A business starts with the incorporation of an entity. Ministry of Corporate Affairs (“MCA”) is constantly making endeavors to improve the incorporation process, mainly incorporation of Companies, the most preferred method of setting up the businesses in India.

At the beginning of the year 2020, MCA replaced the old SPICE forms with SPICE+ forms. SPICE+ forms were divided into 2 parts, SPICE+ Part A- which is used for reservation of name for a Company, and SPICE+ Part B which is an integrated form for reservation of name, obtaining DIN, incorporation, and obtaining PAN and TAN for the companies and its directors.

As per the provisions of Section 4 of the Companies Ac, 2013 a reserved name is valid for 20 days in case of new incorporation. Many stakeholders, were facing issues as preparation, signing, and collection of all the incorporation and KYC documents take more time, especially in the case of companies having foreign shareholders/directors. In a few of the instances, the name which was approved earlier was rejected at the time of re-application. Sometimes, the stakeholders have to do the entire exercise of signing, notarization, and consularization of the documents; again.

To address the above issues and to add one more step towards EODB, MCA vide its notification dated December 24, 2020, amended The Companies (Incorporation) Rules, 2014 by inserting a new Rule 9A. These rules are called Companies (Incorporation) Third Amendment Rules, 2020.

The new rule 9A provides an opportunity for an extension of the validity period of a reserved name beyond 20 days, to the stakeholders.

The gist of the said rule is as follows:

1.

2. Maximum permissible period for a reserved name will be for 60 days from the date of first approval given under Rule 9 of The Companies (Incorporation) Rules, 2014.

3. The stakeholders can either apply for an extension of the name directly for 60 days or firstly for an additional period of 20 days and then additional 20 days i.e. either 20+40 days or 20+20+20 days.

4. Each application for extension shall be made before the expiry of the validity period of the name.

5. The Registrar shall still have the power to cancel the reserved name if, after the reservation of name, it is found that name was applied by furnishing wrong or incorrect information. The power is given to the Registrar under Section 4(5) of the Companies Act, 2013.

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