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ANOTHER INSTANCE OF OUTSOURCING – HIGHLY UNHEALTHY PHENOMENA


[* Slightly long post]



Outsourcing commonly refers to contracting out of a business function – one previously performed in-house to an external provider. The Indian statutory authorities appear to have embraced this phenomena which amount to candid admission of their lackluster infrastructure / supporting services. Very recently, we covered the outsourcing of patent searches to CSIR, India’s largest public funded patentee by the Patent Office [available here]. In this post, I shall test the vires of this phenomena specific to the context of “Companies (Name Availability) Rules, 2011”.


“Companies (Name Availability) Rules, 2011” has been framed in exercise of the power conferred by clause (a) of sub-section (1) of section 642 read with sections 20 and 21 of the Companies Act, 1956 (1 of 1956). Section 20 of the Companies Act, 1956 precludes the registration of undesirable names. A proposed name is considered to be undesirable if it is identical with or too nearly resembling with: a) name of a company in existence; or b) a registered trade-mark or a trade mark which is subject of an application for registration, of any other person under the Trade Marks Act, 1999.


After notification of these Rules, the applicant shall be required to furnish a declaration in the prescribed e-form-1A to the effect that he has used the search facilities available on the portal of the Ministry of Corporate Affairs (MCA) i.e.,www.mca.gov.in/MCA21 for checking the resemblance of the proposed name(s) with the names of registered companies and Limited Liability Partnerships (LLPs). Where the proposed name contains more than one word, there will be an option for certification of above mentioned declaration by practising Chartered Accountants, Company Secretaries and Cost Accountants. If this option is availed, the professional shall also certify that the proposed name is not an undesirable name under the provisions of section 20 of the Companies Act, 1956 and is in conformity with Companies (Name Availability) Rules, 2011 and Guidelines made therein. In such cases, the name will be made available by the system online to the applicant without backend processing by the Registrar of Companies (ROC).  If the form has not been certified, the proposed name will be processed at the back end office of Registrar of Companies (ROC) and availability or non-availability of name will be communicated to the applicant.


As evident from above, a Chartered Accountant / Company Secretary / Cost Accountant can now certify the desirability / undesirability of a name. Further, the Rules doesn’t define “back end office”. It can mean outsourcing to an external body. The Rules reflect yet another attempt by a statutory authority to outsource statutory duties. This is not a salubrious phenomena. Statutory duties demand impartiality especially in cases involving application of mind which cannot be ensured by outsourcing – in whatever form it may be. In the instant case, determining the resemblance of the proposed name with the extant names involves application of mind. It is not a mechanical determination. Further, in the light of J. Gopalan vs Municipal Corporation Of  Hyderabad And Others [AIR 1996 AP 371, 1996 (1) ALT 600], the rule is ultra vires and liable to be struck down. In the above mentioned case, the High Court distinguished between “delegation” and “assistance”. The respondent Municipal Corporation, as part of a revised strategy to contain the rise in stray dog population by sterilisation, engaged Blue Cross, an animal welfare organization. The petitioner argued that this amounted to (i) violation of Section 249 (5) of the Hyderabad Municipal Corporation Act, 1955 which mandated the Corporation of Hyderabad to annihilate unlicensed and unclaimed stray dogs and (ii) delegation of statutory duties. Rejecting the claim, the Court held that the aforesaid relationship amounted to “assistance” since the corporation still managed, controlled and supervised the new scheme of sterilization-cum-immunisation of stray dogs. A statutory duty cannot be delegated to an external body. However, a statutory body can always seek the assistance of an external body.


In the instant case, the statutory duty to preclude registration of undesirable names is to be carried out by a Chartered Accountant / Company Secretary / Cost Accountant / back end office. Though Rule 5 provides for penal action against the practising professional in case of an errant determination, the extent of management / control / supervision by ROC remains limited and hence cannot be termed as “assistance” from a legal perspective. On the other hand, it is “delegation”. “Delegation, as the word is generally used, does not imply a parting with powers by the person who grants the delegation, but points rather to a conferring of an authority to do things which otherwise the person would have to do himself”. [Huth v. Clarke, (1890) 25 QBD 391, 395, per Wills, J.] The Rules confer authority upon Chartered Accountant / Company Secretary / Cost Accountant / back end office to determine the feasibility of a name which otherwise falls under the domain of ROC. This amounts to “delegation” and therefore, ultra vires the parent statute.
H/T: On behalf of SPICY IP, I would like to thank Dr. Sudhir Ravindran of Altacit Global for drawing our attention to the Rules.
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Mathews P. George

Mathews is a graduate of National University of Juridical Sciences, Kolkata. His interest in intellectual property was kindled when he bagged the second position in his second year of Law School (in the prestigious Nani Palkhiwala Essay Competition on Intellectual Property). His stint as a student of Prof. Shamnad Basheer further accentuated his interest in intellectual property. Winner of almost a dozen essay competitions in his Law School days, he was involved in various research and policy initiatives relating to intellectual property. Mathews is, currently, based out of Munich, Germany. He had earlier done his LLM in 'IP and Competition Law' from Munich Intellectual Property Law Centre (jointly run by Max Plank Institute for Innovation and Competition, University of Augsburg, Technical University of Munich and George Washington University, Washington).

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