THE LEGAL BRIDGE

Judiciary & Law Notes Series

THE COMPANIES ACT, 2013

CHAPTER XXII

Companies Incorporated Outside India

Sections 379–393

For Judicial Service Aspirants & Law Students

RJS • DJS • PCS-J • HJS • UPJS • BJS • MPCJ

Foreign Companies • Place of Business • FC Forms • IDRs • Cross-Border Compliance

— Enriched with landmark judgments and illustrative case law —

Chapter XXII — Companies Incorporated Outside India

A company incorporated under the laws of one country may wish to conduct business in another country. When such a 'foreign company' establishes a place of business in India, or holds material interest in an Indian company, Indian law requires certain transparency, regulation, and accountability. Chapter XXII of the Companies Act, 2013 (Sections 379 to 393) is the statutory code governing foreign companies' operations in India — their registration, disclosure obligations, filing of financial statements, service of documents, and consequences of non-compliance.

The chapter is linguistically tight but conceptually important. It interacts with the Foreign Exchange Management Act, 1999 (FEMA), the Income-tax Act, 1961, and sectoral regulators such as RBI, SEBI, and the IRDAI. For judicial aspirants, the key points are: (a) the definition of 'foreign company', (b) the registration requirement under Section 380, (c) the concept of 'electronic mode' (which now triggers foreign-company status even without physical presence), and (d) the consequences of non-registration.

Relevant Definition — Section 2(42) of the Act

A 'foreign company' means any company or body corporate incorporated outside India which —

• Has a place of business in India whether by itself or through an agent, physically or through electronic mode; and
• Conducts any business activity in India in any other manner.

Both limbs must be satisfied — physical or electronic presence plus business activity in India. The definition is intentionally broad, extending to traditional branch and liaison offices as well as to purely digital presences (e-commerce, SaaS platforms, fintech apps), which were not captured under the 1956 Act definition. This change was effected by the Companies (Amendment) Act, 2017 and has been further operationalised through the Companies (Registration of Foreign Companies) Rules, 2014.

'Electronic mode' is defined in Rule 2(1)(c) of the Companies (Specification of Definitions Details) Rules, 2014, to include — carrying out electronically based business, whether main server is installed in India or not — such as B2B and B2C commercial exchanges, digital data exchange, online services, mobile applications, payment services, etc.

Section 379 — Application of Act to Foreign Companies

Where not less than 50% of the paid-up share capital, whether equity or preference or partly equity and partly preference, of a foreign company is held by — (a) one or more citizens of India; or (b) one or more companies or bodies corporate incorporated in India; or (c) one or more citizens of India and one or more companies or bodies corporate incorporated in India, whether singly or in the aggregate, such 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.

This 50%-Indian-held foreign company is deemed to be of Indian character for regulatory purposes — an anti-avoidance provision preventing Indians from using a foreign shell to escape Indian company law obligations. Rule 11 of the Companies (Registration of Foreign Companies) Rules, 2014 prescribes the additional provisions that apply to such 50%-Indian-owned foreign companies.

Section 380 — Documents to be Delivered to Registrar by Foreign Companies

Every foreign company shall, within thirty days of the establishment of its place of business in India, deliver to the Registrar for registration —

1. A certified copy of the charter, statutes, or memorandum and articles of the company or other instrument constituting or defining the constitution of the company and, if the instrument is not in the English language, a certified translation thereof in the English language;The full address of the registered or principal office of the company;A list of the directors and secretary of the company containing the particulars specified in sub-section (5);The name and address or the names and addresses of one or more persons resident in India authorised to accept on behalf of the company service of process and any notices or other documents required to be served on the company;The full address of the office of the company in India which is deemed to be its principal place of business in India;Particulars of opening and closing of a place of business in India on earlier occasion or occasions;Declaration that none of the directors of the company or the authorised representative in India has ever been convicted or debarred from formation of companies and management in India or abroad; andAny other information as may be prescribed.

The relevant forms are — FC-1 (initial filing at registration), FC-2 (alterations to filed particulars), FC-3 (annual return + financial statements), FC-4 (annual return of foreign company). The forms are filed with the ROC Delhi (jurisdiction: all foreign companies, regardless of state of operation).

If any alteration is made or occurs in any of these documents or information, the foreign company shall deliver to the Registrar, within 30 days of such alteration, a return containing the particulars of the alteration in the prescribed form.

Section 381 — Accounts of Foreign Companies

Preparation and Filing

Every foreign company shall, in every calendar year —

• Make out a balance sheet and profit and loss account in such form, containing such particulars and including or having annexed or attached thereto such documents as may be prescribed; and
• Deliver a copy of those documents to the Registrar.

If any such document as is mentioned above is not in the English language, a certified translation thereof in the English language shall be annexed to it. Every foreign company shall send to the Registrar along with the documents under sub-section (1) a copy of a list of places of business maintained by it in India as on the date of the balance sheet.

Scope of Accounts Filed

Foreign companies are required to file financial statements of (a) their global operations (the consolidated accounts of the foreign company as filed in the home jurisdiction), and (b) separately, the Indian business operations in the form of statement of accounts prescribed under Rule 4 of the Companies (Registration of Foreign Companies) Rules, 2014. The Indian-business accounts must disclose — the amount remitted to or received from the head office; related-party transactions with the Indian establishment; turnover and profit from Indian operations.

Section 382 — Display of Name, etc., of Foreign Company

Every foreign company shall —

1. 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 letters easily legible in English characters, and also in the characters of the language or one of the languages in general use in the locality in which the office or place is situated;Cause the name of the company and of the country in which the company is incorporated, to be stated in legible English characters in all business letters, bill-heads and letter paper, and in all notices, and other official publications of the company; andIf the liability of the members of the company is limited, cause notice of that fact — (i) to be stated in legible English characters in every such prospectus and in all business letters, bill-heads, letter paper, notices, advertisements and other official publications of the company; and (ii) to be conspicuously exhibited on the outside of every office or place where it carries on business in India.

The requirement that the country of incorporation be stated along with the company name is the 'truth-in-identification' principle — an Indian counter-party must know at first glance that the entity he is dealing with is a foreign corporate, and should this be a limited liability entity, that protection must be disclosed upfront.

Section 383 — Service on Foreign Company

Any process, notice or other document required to be served on a foreign company shall be deemed to be sufficiently served, if addressed to any person whose name and address have been delivered to the Registrar under section 380 and left at, or sent by post to, the address which has been so delivered to the Registrar or by electronic mode.

This section establishes legal certainty for Indian plaintiffs — service on the declared Indian agent is good service under Indian law, and the foreign company cannot claim ignorance or inadequate service of process.

Section 384 — Debentures, Annual Return, Registration of Charges, Books of Account and Their Inspection

The provisions of Section 71 (debentures), Section 92 (annual return), Section 128 (books of account), Sections 77 to 87 (registration of charges) shall apply mutatis mutandis to a foreign company in respect of any offer or invitation to the public of debentures or deposits; any charge created on any Indian property; and books and financial accounts in relation to Indian business.

This section is the linchpin of Chapter XXII's substantive regulation — it imports into the foreign-company regime the key compliance obligations applicable to Indian companies. A foreign company operating in India must therefore — file an annual return under Section 92; maintain books of account in India; register any charges created on its Indian property within 30 days (extendable to 120 days under Section 77); and honour debenture-holder and deposit-holder protections.

Section 385 — Fee for Registration of Documents

There shall be paid to the Registrar for registering any document required by the provisions of this Chapter to be registered by him, such fee, as may be prescribed. Present fee structure — FC-1: ₹6,000 + capital-based fee; FC-2/FC-3/FC-4: prescribed under Table of Fees (Rule 12) of the Companies (Registration of Foreign Companies) Rules, 2014.

Section 386 — Interpretation

For the purposes of the foregoing provisions of this Chapter —

• The expression 'director', in relation to a foreign company, includes any person in accordance with whose directions or instructions the Board of Directors of the company is accustomed to act; and
• The expression 'place of business' includes a share transfer or registration office.

The expansive definition of 'director' in (a) catches shadow directors — persons who exercise de facto control even without formal designation.

Section 387 — Dating of Prospectus and Particulars to be Contained Therein

No prospectus, inviting subscriptions in India for any securities of a foreign company, whether the company has or has not established, or when formed will or will not establish, a place of business in India, shall be issued or circulated unless it is dated and signed, and specifies —

• The instrument constituting or defining the constitution of the company;
• The enactments, or provisions having the force of an enactment, by or under which the incorporation of the company was effected;
• Particulars of the matters specified in sub-section (2).

Such prospectus shall, before its issue in India, be delivered to the Registrar for registration.

Section 388 — Provisions as to Expert's Consent and Allotment

No prospectus inviting subscriptions in India for the securities of a company incorporated or to be incorporated outside India, whether the company has or has not been established, or when formed will or will not establish, a place of business in India, shall include a statement purporting to be made by an expert unless the expert has given, and has not, before delivery of a copy of the prospectus to the Registrar for registration, withdrawn his written consent to the issue thereof with the statement included in the form and context in which it is included.

This mirrors Section 26 of the 2013 Act (experts' consent for Indian prospectuses) and ensures parity — a foreign company issuing securities in India cannot use an expert's name without that expert's formal, continuing consent, with the same liability exposure that applies in an Indian issuance.

Section 389 — Registration of Prospectus

No prospectus to which section 387 applies shall be issued in India unless it has, before its issue in India, been delivered to the Registrar for registration. The prospectus must include (a) a statement of the number of copies offered, (b) particulars of any prospective director, (c) the consent of every expert named therein, and (d) particulars of the underwriting commission, brokerage, and preliminary expenses.

Section 390 — Offer of Indian Depository Receipts (IDRs)

The Central Government may make rules applicable for — (a) the offer of Indian Depository Receipts by a foreign company; (b) the requirement of disclosures in the prospectus or letter of offer issued in connection with IDRs; (c) the manner in which IDRs shall be dealt with in a depository mode and by custodian and underwriters; and (d) the manner of sale, transfer or transmission of IDRs by a holder thereof, including redemption into underlying equity shares, subject to the provisions of the Foreign Exchange Management Act, 1999.

IDRs are the Indian equivalent of American Depository Receipts (ADRs) — a mechanism by which a foreign company can raise capital from Indian investors by issuing dematerialised depository receipts in India, backed by the underlying shares held by a domestic custodian. Standard Chartered PLC was the first (and so far, most prominent) foreign company to list IDRs in India (in 2010).

Section 391 — Application of Sections 34 to 36 and Chapter XX

The provisions of Sections 34 to 36 (misstatement in prospectus), Sections 127 (failure to pay dividend) and Chapter XX (winding up) shall apply, mutatis mutandis, in respect of the issue of prospectus by a company incorporated outside India, which is a foreign company within the meaning of this Act. This is the key 'extension' section — misstatement liability and winding-up jurisdiction for foreign companies on their Indian operations.

A foreign company can be wound up (as an unregistered company under Chapter XXI Part II if the foreign entity is dissolved overseas, or under Chapter XX on its own if it retains a live Indian presence with sufficient nexus) by the NCLT.

Section 392 — Punishment for Contravention

Without prejudice to the provisions of Section 391, if a foreign company contravenes the provisions of this Chapter, the foreign company shall be punishable with fine which shall not be less than ₹1 lakh but which may extend to ₹3 lakh and in the case of a continuing offence, with an additional fine which may extend to ₹50,000 for every day after the first during which the contravention continues and every officer of the foreign company who is in default shall be punishable with imprisonment for a term which may extend to six months or with fine which shall not be less than ₹25,000 but which may extend to ₹5 lakh, or with both.

Section 393 — Company's Failure to Comply with Provisions of this Chapter Not to Affect Validity of Contracts, etc.

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.

This is a striking provision — a foreign company that has not registered under Section 380 can be sued in Indian courts (its contracts are valid and enforceable against it), but it cannot itself sue to enforce the same contracts. This asymmetric rule is a powerful enforcement tool — foreign companies have a strong incentive to comply, because non-compliance disables them from seeking judicial remedies in India.

Consequences of Non-Registration — A Summary

• Contracts remain valid and enforceable against the foreign company, but the foreign company cannot initiate suits or claim set-offs in Indian courts until it registers (Section 393);
• Monetary penalties on the company and its officers under Section 392;
• RBI/FEMA compliance issues — most foreign investments and branch-office operations require RBI approval or automatic-route compliance; non-registration frequently triggers FEMA contraventions;
• Tax consequences — the Indian Revenue may claim that the foreign company has a 'permanent establishment' in India under the applicable DTAA, triggering full Indian tax exposure on its India-sourced income;
• Reputational damage — Indian customers, suppliers, and regulators treat non-registered foreign entities with suspicion, restricting market access.

Types of Foreign Company Presence in India

Interplay with Other Laws

• FEMA, 1999 — foreign investment, branch/liaison/project office rules, repatriation of profits;
• Income-tax Act, 1961 — Permanent Establishment concepts, transfer pricing, tax residency tests;
• SEBI regulations — for foreign companies issuing IDRs or accessing Indian capital markets via other routes;
• Insurance laws / IRDAI — for foreign insurance entities seeking to operate through branch or joint venture arrangements;
• Banking Regulation Act, 1949 — for foreign banks operating through branches in India;
• Arbitration and Conciliation Act, 1996 — for recognition and enforcement of foreign arbitral awards; the foreign company's home jurisdiction selection is critical.