Companies Incorporated Outside India

Which companies the Chapter binds: section 379

Section 379(1). Sections 380 to 386 and sections 392 and 393 shall apply to all foreign companies.

Section 379(2): the fifty per cent rule. Where not less than fifty per cent of the paid-up share capital, whether equity or preference or partly each, of a foreign company is held by one or more citizens of India, or by one or more companies or bodies corporate incorporated in India, or by both, whether singly or in the aggregate, that company shall comply with the provisions of this Chapter and such other provisions of this Act as may be prescribed, with regard to the business carried on by it in India, as if it were a company incorporated in India.

Two limits on that rule are worth stating. It applies only to the business carried on in India, not to the company's affairs generally; and the additional provisions are those prescribed, not the whole Act.

What must be filed: section 380

Section 380(1). Every foreign company shall, within thirty days of the establishment of its place of business in India, deliver to the Registrar for registration:

• (a) a certified copy of the charter, statutes or memorandum and articles or other instrument constituting or defining its constitution, with a certified English translation if it is not in English;
• (b) the full address of the registered or principal office of the company;
• (c) a list of the directors and secretary with the prescribed particulars;
• (d) the name and address of one or more persons resident in India authorised to accept service of process, notices and other documents on the company's behalf;
• (e) the full address of the office in India which is deemed to be its principal place of business here;
• (f) particulars of the opening and closing of a place of business in India on earlier occasions;
• (g) a declaration that none of the directors or the authorised representative in India has ever been convicted or debarred from the formation of companies and management in India or abroad; and
• (h) any other prescribed information.

Section 380(2) preserves the obligation of a foreign company existing at the commencement of the Act which had not filed under section 592 of the Companies Act, 1956.

Section 380(3): changes. Where an alteration is made or occurs in the documents delivered, the company shall, within thirty days of the alteration, deliver a return of the particulars in the prescribed form.

Thirty days at the start, thirty days on every change.

Accounts: section 381

Section 381(1). Every foreign company shall, in every calendar year, (a) make out a balance sheet and profit and loss account in the prescribed form with the prescribed particulars and documents, and (b) deliver a copy to the Registrar. Proviso: the Central Government may, by notification, exempt a foreign company or class of them from clause (a) or apply it with exceptions and modifications.

Section 381(2). A document not in English must have a certified English translation annexed.

Section 381(3). Along with those documents it shall send a list, in the prescribed form, of all places of business established by it in India as at the date of the balance sheet.

Note the words "in every calendar year", which differ from the financial year used elsewhere in the Act.

Display and service: sections 382 and 383

Section 382. Every foreign company shall:

• (a) conspicuously exhibit on the outside of every office or place where it carries on business in India, the name of the company and the country in which it is incorporated, in legible English characters and also in the characters of a language in general use in the locality;
• (b) state the name and country of incorporation in legible English characters in all business letters, billheads and letter paper, and in all notices and other official publications; and
• (c) if the liability of the members is limited, cause notice of that fact to be stated in every prospectus and in all such letters, billheads, letter paper, notices, advertisements and official publications, and conspicuously exhibited on the outside of every office, in English and in the local language.

Section 383: service. Any process, notice or other document required to be served on a foreign company is deemed sufficiently served if addressed to a person whose name and address have been delivered to the Registrar under section 380, and left at, or sent by post to, that address, or sent by electronic mode.

Which Indian provisions apply: section 384

• (1) Section 71, on debentures, applies mutatis mutandis.
• (2) Section 92, the annual return, and section 135, corporate social responsibility, apply subject to such exceptions, modifications and adaptations as may be made by rules, as they apply to an Indian company.
• (3) Section 128, on books of account, applies to the extent of requiring the company to keep at its principal place of business in India the books relating to monies received and spent, sales and purchases, and assets and liabilities, in the course of or in relation to its business in India.
• (4) Chapter VI, the registration of charges, applies mutatis mutandis to charges on properties created or acquired by a foreign company.
• (5) Chapter XIV, inspection, inquiry and investigation, applies mutatis mutandis to the Indian business of a foreign company.

Sub-section (2) is the one most often missed. A foreign company above the section 135 thresholds has a corporate social responsibility obligation in respect of its Indian business.

Section 385. The prescribed fee is payable to the Registrar for registering any document under the Chapter.

Section 386: interpretation. "Certified" means certified in the prescribed manner as a true copy or correct translation; "director", in relation to a foreign company, includes any person in accordance with whose directions or instructions the Board is accustomed to act; and "place of business" includes a share transfer or registration office.

Offering securities in India: sections 387 to 391

Section 387: the prospectus. No person shall issue, circulate or distribute in India any prospectus offering to subscribe for securities of a company incorporated or to be incorporated outside India, whether or not it has or will establish a place of business in India, unless the prospectus is dated and signed and contains particulars of:

• (i) the instrument constituting or defining the constitution of the company;
• (ii) the enactments or provisions under which its incorporation was effected;
• (iii) the address in India where those instruments, enactments or copies, and a certified English translation if needed, may be inspected;
• (iv) the date on which and the country in which the company was or would be incorporated; and
• (v) whether it has established a place of business in India and, if so, the address of its principal office here;

and states the matters specified under section 26, the Indian prospectus provision.

Proviso: sub-clauses (i), (ii) and (iii) do not apply to a prospectus issued more than two years after the date on which the company is entitled to commence business.

Section 387(2). Any condition requiring an applicant to waive compliance with those requirements, or purporting to impute to him notice of any contract, document or matter not specifically referred to in the prospectus, is void.

Section 387(3). No form of application for such securities shall be issued in India unless it is issued with a complying prospectus and the issue does not contravene section 388; proviso, that does not apply to a form issued in connection with a bona fide invitation to enter into an underwriting agreement.

Section 387(4) excepts issues to existing members or debenture holders, and, except as to dating, a prospectus for securities uniform with securities previously issued and dealt in or quoted on a recognised stock exchange. Section 387(5) preserves liability under any other law.

Section 388: expert's consent. No such prospectus shall be issued if it includes a statement purporting to be made by an expert who has not given, or has withdrawn before delivery for registration, his written consent to its issue in the form and context in which it appears, or where the prospectus does not state that he has given and not withdrawn his consent; and the prospectus must have the prescribed effect as to allotment.

Section 389: registration of the prospectus. No such prospectus shall be issued in India unless, before its issue, a copy certified by the chairperson and two other directors as having been approved by resolution of the managing body has been delivered to the Registrar for registration, the prospectus states on its face that a copy has been so delivered, and there is endorsed on or attached to the copy any consent required by section 388 and the prescribed documents.

Section 390: Indian Depository Receipts. The Central Government may make rules for the offer of Indian Depository Receipts, the disclosures in the prospectus or letter of offer, the manner of dealing with them in a depository mode and by custodians and underwriters, and the manner of their sale, transfer or transmission, by a company incorporated or to be incorporated outside India.

Section 391: mis-statements and closure. Sections 34 to 36, on criminal and civil liability for mis-statements in a prospectus and fraudulently inducing persons to invest, apply to a prospectus issued under section 389 and to the issue of Indian Depository Receipts. And, subject to section 376, Chapter XX applies mutatis mutandis for the closure of the place of business of a foreign company in India as if it were an Indian company, where the foreign company has raised monies through an offer or issue of securities which have not been repaid or redeemed.

Punishment and the real sanction: sections 392 and 393

Section 392. Without prejudice to section 391, a foreign company contravening the Chapter is punishable with fine of not less than one lakh rupees extending to three lakh rupees, and for a continuing offence an additional fine up to fifty thousand rupees for every day after the first; and every officer of the foreign company who is in default with fine of not less than twenty-five thousand rupees extending to five lakh rupees.

Section 393: the disability.

Any failure by a company to comply with the provisions of this Chapter shall not affect the validity of any contract, dealing or transaction entered into by the company or its liability to be sued in respect thereof, but the company shall not be entitled to bring any suit, claim any set-off, make any counter-claim or institute any legal proceeding in respect of any such contract, dealing or transaction, until the company has complied with the provisions of this Act applicable to it.

Read that sentence in three parts. The contract stands; the company can be sued; but it cannot sue, set off, counter-claim or institute any proceeding until it complies.

And note the last words. The disability ends when it complies, so it is a suspension, not a forfeiture.

Section 393A: exemptions. The Central Government may, by notification, exempt any class of foreign companies, or of companies incorporated or to be incorporated outside India, from any provisions of this Chapter; and a copy of every such notification shall be laid before both Houses of Parliament.

A worked example

Pacific Instruments Pte, incorporated in a foreign country, opens a sales and service office at Andheri on 1 March.

Is it a foreign company? Yes. It is incorporated outside India and has a place of business in India, so it is within section 2(42), and sections 380 to 386 and 392 and 393 apply to it: section 379(1).

What it must file, and when. Within thirty days of establishing the place of business, that is by 31 March, it must deliver to the Registrar a certified copy of its constitution with a certified English translation, the address of its registered office abroad, a list of its directors and secretary, the name and address of a person resident in India authorised to accept service, the address of its Andheri office as its principal place of business in India, particulars of any earlier opening or closing of a place of business here, and the declaration that no director or the authorised representative has been convicted or debarred: section 380(1).

A change. In August it appoints a new director abroad. Within thirty days of that alteration it must file a return of the particulars: section 380(3).

Its shopfront. It must exhibit its name and country of incorporation on the outside of the Andheri office in English and in Marathi, and state them in English on all its business letters, billheads, letter paper, notices and official publications. Its members' liability being limited, it must also give notice of that fact in all of those and on the outside of the office: section 382.

Suing it. An Indian customer serves the plaint on the person whose name and address were delivered under section 380, at that address. That is sufficient service: section 383.

Its accounts. In every calendar year it must make out a balance sheet and profit and loss account in the prescribed form and deliver a copy to the Registrar, with a certified English translation of anything not in English, and a list of all its places of business in India as at the balance sheet date: section 381. It must also keep at its Andheri office the books of account relating to monies received and spent, sales and purchases, and assets and liabilities of its Indian business: section 384(3).

And other Indian provisions. Section 71 on debentures, section 92's annual return and section 135's corporate social responsibility apply as the rules provide; Chapter VI applies to charges on property it creates or acquires; and Chapter XIV applies to an inspection, inquiry or investigation of its Indian business: section 384.

Half Indian owned. Suppose fifty-five per cent of its paid-up capital is held by Indian citizens and an Indian company together. Then, under section 379(2), it must comply with this Chapter and such other provisions of the Act as may be prescribed, with regard to the business it carries on in India, as if it were a company incorporated in India.

Raising money here. It proposes to issue a prospectus in India. The prospectus must be dated and signed, must give the instrument constituting the company, the enactments under which it was incorporated, an address in India where they may be inspected, the date and country of incorporation, and whether it has a place of business in India and its principal office here; and it must state the matters specified under section 26: section 387. Any expert's statement in it needs his written consent, unwithdrawn, and a statement in the prospectus that he has given and not withdrawn it: section 388. And a copy certified by the chairperson and two other directors as approved by resolution of the managing body must be delivered to the Registrar before issue, the prospectus saying on its face that it has been: section 389.

A misleading statement in it attracts sections 34 to 36, exactly as for an Indian prospectus: section 391(1).

It does none of this. It never files under section 380 and never delivers accounts. A supplier sues it for the price of goods; the company wishes to counter-claim for defective delivery.

Section 393 decides the case. Its contracts are valid, and it is liable to be sued on them. But it may not bring any suit, claim any set-off, make any counter-claim or institute any legal proceeding in respect of them until it has complied with the Act's provisions applicable to it. So the supplier's suit proceeds and the counter-claim cannot be made until the filings are done.

And it is punishable. Fine of one lakh to three lakh rupees, with up to fifty thousand rupees a day for a continuing offence, and every officer in default fined twenty-five thousand to five lakh rupees: section 392.

Closing down. If it had raised monies in India through an offer of securities which have not been repaid or redeemed, Chapter XX applies mutatis mutandis to the closure of its place of business in India as if it were an Indian company: section 391(2).

Distinctions that carry marks

What this does NOT mean

It does not mean a foreign company's contracts are void if it has not filed. Section 393 preserves their validity and its liability to be sued.

It does not mean the disability is permanent. The company may sue once it has complied with the provisions applicable to it.

It does not mean the whole Act applies to a majority Indian-owned foreign company. Section 379(2) applies this Chapter and such other provisions as may be prescribed, and only as regards the business carried on in India.

It does not mean a foreign company keeps all its books here. Section 384(3) requires only the books relating to its Indian business at its principal place of business in India.

It does not mean only a physical office counts. Section 2(42) covers a place of business by itself or through an agent, physically or through electronic mode, and section 386(c) includes a share transfer or registration office.

It does not mean corporate social responsibility is an Indian companies' subject only. Section 384(2) applies section 135 to a foreign company, subject to the rules.

Quick revision

• 2(42) and 379: a foreign company is one incorporated outside India having a place of business in India, by itself or through an agent, physically or electronically, and conducting business here; sections 380 to 386 and 392 and 393 apply to all of them; and where fifty per cent or more of the paid-up capital is held by Indian citizens or Indian companies, singly or in the aggregate, it complies with this Chapter and other prescribed provisions as regards its Indian business as if it were an Indian company.
• 380: within thirty days of establishing a place of business, file the certified constitution with an English translation, the address abroad, the list of directors and secretary, the person resident in India authorised to accept service, the principal place of business in India, particulars of earlier openings and closings, and a declaration about convictions and debarment; and within thirty days of any alteration, a return of it.
• 381 to 383: in every calendar year, a balance sheet and profit and loss account delivered to the Registrar with a certified English translation and a list of Indian places of business, subject to Central Government exemption; the name and country of incorporation exhibited outside every office in English and the local language and stated on all letters, billheads and publications, with notice of limited liability where applicable; and service effected on the person notified under section 380, by post or electronic mode.
• 384 to 386: section 71 (debentures) applies mutatis mutandis; sections 92 and 135 apply subject to rules; section 128 applies to the extent of keeping the Indian business books at the principal place of business in India; Chapter VI applies to charges; Chapter XIV applies to the Indian business; the prescribed fee is payable; and "director" includes a person on whose directions the Board is accustomed to act, while "place of business" includes a share transfer or registration office.
• 387 to 391: a prospectus offering securities of a company incorporated outside India must be dated and signed and give the constitution, the incorporating enactments, an Indian inspection address, the date and country of incorporation and any Indian place of business, plus the section 26 matters; waivers and deemed notice are void; a form of application must go with a complying prospectus, except for a bona fide underwriting invitation; issues to existing members or debenture holders, and prospectuses for securities uniform with those already quoted, are excepted; an expert's consent must be given and stated; a certified copy must be registered before issue; the Central Government may make rules for Indian Depository Receipts; sections 34 to 36 apply to mis-statements; and Chapter XX applies to closure where money raised on securities is unrepaid.
• 392 and 393: contravention costs the foreign company one lakh to three lakh rupees, with fifty thousand rupees a day for a continuing offence, and every officer in default twenty-five thousand to five lakh rupees; and failure to comply does not affect the validity of contracts or the liability to be sued, but the company cannot sue, set off, counter-claim or institute proceedings until it complies.
• 393A: the Central Government may, by notification laid before both Houses of Parliament, exempt classes of foreign companies from any provisions of the Chapter.

Test yourself

1. What must a foreign company deliver to the Registrar, and when? Within thirty days of the establishment of its place of business in India: a certified copy of its constitution with a certified English translation if needed; the full address of its registered or principal office; a list of its directors and secretary; the name and address of one or more persons resident in India authorised to accept service; the address of its principal place of business in India; particulars of earlier openings and closings of a place of business here; a declaration about convictions and debarment; and any other prescribed information: section 380(1). Any alteration must be notified within thirty days.

2. When does a foreign company have to comply as if it were an Indian company? Where not less than fifty per cent of its paid-up share capital, equity or preference or partly each, is held by one or more citizens of India, or one or more companies or bodies corporate incorporated in India, or both, singly or in the aggregate; it must then comply with this Chapter and such other provisions as may be prescribed with regard to the business carried on by it in India: section 379(2).

3. How is a foreign company served? By addressing the process, notice or document to a person whose name and address have been delivered to the Registrar under section 380, and leaving it at, or sending it by post to, that address, or sending it by electronic mode: section 383.

4. What is the effect of failing to comply with this Chapter? It does not affect the validity of any contract, dealing or transaction entered into by the company or its liability to be sued on them; but the company shall not be entitled to bring any suit, claim any set-off, make any counter-claim or institute any legal proceeding in respect of them until it has complied with the provisions of the Act applicable to it: section 393. It is also punishable with fine of one lakh to three lakh rupees, with up to fifty thousand rupees a day for a continuing offence, and every officer in default with twenty-five thousand to five lakh rupees: section 392.

5. What must a prospectus offering securities of a foreign company contain? It must be dated and signed and contain particulars of the instrument constituting the company, the enactments under which its incorporation was effected, an address in India where those may be inspected, the date and country of incorporation, and whether it has established a place of business in India and, if so, the address of its principal office here; and it must state the matters specified under section 26: section 387(1).

6. Which provisions of the Act apply to a foreign company's Indian business? Section 71 on debentures, mutatis mutandis; section 92 on the annual return and section 135 on corporate social responsibility, subject to prescribed exceptions and modifications; section 128, to the extent of keeping the books of the Indian business at the principal place of business in India; Chapter VI on the registration of charges; and Chapter XIV on inspection, inquiry and investigation: section 384.