Name Rejection, a Foreign Subscriber and a Residential Registered Office
Two founders incorporate 'NovaGrid Technologies Private Limited' through SPICe+. The name is rejected on the ground that it is identical or too nearly resembles an existing 'Novagrid Tech Private Limited'. One subscriber is a US citizen who is not resident in India and has no DIN; the other is an Indian resident. The registered office is a two-bedroom residential flat owned by one founder's father, who is willing to give consent, but there is no registered lease deed and the electricity bill is in the father's name. The authorised capital is ₹10 lakh and paid-up capital ₹5 lakh. The founders want to sign a ₹40 lakh software development contract with a client on the day they receive the certificate of incorporation. They have already paid ₹2 lakh as advance for office furniture in the company's proposed name before incorporation. They have not yet filed the INC-20A declaration.
1. Can the US citizen subscribe to the memorandum without a DIN, and how should the founders deal with the rejected name? Explain the filing route and documents.
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A subscriber to the memorandum need not be a director. DIN is mandatory for directors, not for subscribers as such. Therefore, if the US citizen is only a subscriber, the founders can proceed without a DIN, but his passport and address proof must be provided and, where required, apostilled or notarised. If he is also to be a director, DIN must be obtained through SPICe+ (up to three directors can apply in the form) and his passport is mandatory; PAN may not be available to a foreign national, so the passport-based route applies.
The rejected name should not be resubmitted unchanged. 'NovaGrid Technologies' is too close to 'Novagrid Tech'. The founders should choose a distinctive name that is not identical or nearly resembling an existing company, LLP or registered trademark. They should search the MCA name database and the trademark register, then resubmit through SPICe+ with a changed name. Under the naming rules, a name may be rejected for similarity, prohibited words, or trademark conflict. A resubmission is permitted, but repeated frivolous applications can attract consequences. The objects clause and the proposed business should also be checked against the new name.
2. Advise on the registered-office documentation. Can a residential flat be used, and what must be filed?
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Yes, a residential flat can be used as a company's registered office under the Companies Act, subject to any local municipal or housing-society restrictions. The company needs: (i) a no-objection certificate from the owner - here the founder's father; (ii) a utility bill for the premises, such as electricity or gas, not older than two months; (iii) if the premises are rented or leased, a rent agreement or lease deed; and (iv) a board resolution approving the registered office.
The absence of a registered lease deed is not fatal if the father gives a written consent and the company files the utility bill and NOC. But the documents must match the address and the owner's name. The company should file INC-22 within 30 days of incorporation, or the prescribed verification in SPICe+ if the registered office is at incorporation. The father's consent should be unambiguous and should cover use by the company, receipt of notices and inspection. If the society's rules prohibit commercial use, the company should obtain the society's NOC or choose another address. A false or incomplete verification can lead to rejection and penalties.
3. Can the company sign the ₹40 lakh contract on the day of incorporation, and how should the ₹2 lakh pre-incorporation advance be treated?
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The company should not commence business on the day of incorporation without filing INC-20A. Section 10A prohibits a newly incorporated company from commencing business or exercising borrowing powers until the declaration is filed, within 180 days, confirming that subscribers have paid. Signing and performing a commercial software contract is likely to be treated as commencing business. The practical sequence is: incorporation, payment of subscription money, board meeting, INC-20A filing, then board authorisation of the contract and signature by the authorised director.
The ₹2 lakh advance for office furniture was paid before incorporation in the proposed name. A company is not bound by a pre-incorporation contract merely because it was formed; the promoters are personally liable unless the company adopts the contract by novation or ratification. The board should record the advance, decide whether to adopt the transaction, and either reimburse the promoter or enter a tripartite novation with the supplier. The company should not simply use the furniture without documenting adoption, because the supplier could sue the promoter personally and the accounting entry would be unsupported.