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Foreign Companies under Indian Companies Act, 1956

Foreign Companies under Indian Companies Act, 1956

A foreign company planning to set up business operations in India has the two options whether as an Indian company or a foreign company. If the foreign company establishes its business by establishing the company under Indian companies ACT, 1956, all the provisions related to the Indian companies will apply on that company. But if foreign company starts its business as a foreign company through branch, liaison office or project office it has to comply with some other provisions also. Section 591 to 608 of the companies act, 1956 contains the provisions related to the entities incorporated outside India or foreign companies. Sections 591 say that sections 592 to 608 shall apply to all foreign companies. These sections put an obligation upon the foreign companies to submit their information’s to the registrar of companies regarding like accounting information, registration of charges on properties held by it in India, etc.

Foreign Companies [Meaning and Definition]

According to section 591 foreign companies are the:

(a) Companies incorporated outside India which, after the commencement of this Act, establish a place of business within India; and

(b) Companies incorporated outside India which have, before the commencement of this Act, established a place of business within India and continue to have an established place of business within India at the commencement of this Act.

A place of business means premises where there is a physical or visible indication that the company may be contacted there.

It is necessary to mention here that a foreign company is different from a foreign controlled company. According to RBI a company could be treated as a foreign controlled company if , (a) 40 per cent or more of its shares were owned in any one country outside India, (b) it was a subsidiary to a parent company in any country registered abroad, (c) 25 per cent or more of its shares were owned by a foreign-controlled Indian Joint Stock Company, which was not a managing agent, and (d) it was a company managed by a foreign-controlled managing agency company.

A foreign company of which more than 50% paid up capital is held by Indian citizen or bodies corporate would attract more provisions.

Initial Obligations of the Foreign Company:

A foreign company shall within 30 days of establishing a place of business in India deliver to the ROC the following documents:

(a) 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;

(b) The full address of the registered or principal office of the company;

(c) A list of the directors and secretary of the company,

(d) The name and address or the names and addresses of some one or more persons resident in India, authorized to accept on behalf of the company service of process and any notices or other documents required to be served on the company; and

(e) The full address of the office of the company in India which is to be deemed its principal place of business in India.

The filing shall be done at two places with the principal Registrar of companies at New Delhi, and with the ROC of the state having jurisdiction where the principal place of the business of the company is situated. Certification of documents shall be in accordance with Rule 16 of the Companies (Central Government’s) Rules and Forms, 1956.

Continual Obligation of Foreign Companies: The following are the regular obligations of the foreign companies:

1] Return of Alterations:

A foreign company shall within 30 days of change /alteration of any of the following file a return of alteration containing the particulars of the changes:

·   The charter, statutes, or memorandum and articles of a foreign company or other instrument constituting or defining the constitution of the company; or

·    The registered or principal office of a foreign company; or

·    The directors or secretary of the company

·   The name or address of any of the persons authorized to accept service on behalf of the company; or

·   The principal place of business of the company in India,

The governing section is section 593 of the companies act.

2] Accountings:

Section 594 requires a foreign company to maintain books of accounts of its India and world business and three copies it has to be mandatory filed with the ROC every year within 9 months from the closure of the financial year. These accounts should be accompanied by a list of place of businesses in India. In respect of the Indian business of the foreign company the Profit and loss account, balance sheet and other accounting record should be prepared.

3] Stating of the Name:

Section 595 of the companies act, 1956 obligates a foreign company to conspicuously exhibit on the outside of every office or place of business where it carries on business in India, its name and country of incorporation, in letters easily legible in English characters and also in the local language (where it is situated). It must cause both these details also to be stated in all letter heads, business letters, bill heads, and letter papers, and in all notices and other official publications of the company.

4] Service of Notice:

Any process, notice, or other document shall be deemed to be sufficiently served on the foreign company if the notice or document is addressed to any person whose name has been delivered to the Registrar under the foregoing provisions of this Part and left at, or sent by post to, the address which has been so delivered.

5] Notice of Ceasing the Place of Business in India:

If any foreign company ceases to have a place of business in India, it shall forthwith give notice of the fact to the Registrar, and as from the date on which notice is so given, the obligation of the company to deliver any document to the Registrar shall cease, provided it has no other place of business in India.

Effect of Non-Compliance of Obligations:

If a foreign company fails to comply with any of the obligation posed upon by the companies 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 contract, dealing or transaction, until it has complied with the provisions of part IX of the companies act But non-compliance would not affect the validity of such contracts. Further If any foreign company fails to comply with any of the foregoing provisions of the Part IX of this act, the company, and every officer or agent of the company who is in default, shall be punishable with fine which may extend to ten thousand rupees, and in the case of a continuing offence, with an additional fine which may extend to one thousand rupees for every day during which the default continues.

Registration of Charges:

Under section 600, a foreign company has to file the documents containing the particulars of a charge within 30 days from the date of the creation of charge with the principal registrar as well as the registrar of the state in which the principal place of the business of the company is situated. This is in respect of charge on properties in India which are created by a foreign company after 15th January, 1937 and charges on the properties in India which is acquired by any foreign company after 15th June, 1937. Where the charge is created or the completion of the acquisition of the property which takes place outside India, 30 days after the day on which, the instrument creating or evidencing the charge or copy thereof could, in due course of post and if dispatched with due diligence, have been received in India shall be the time available to file the charge with the Registrar. A foreign company is also under an obligation to provide inspection and copies of trust deed recording the creation of a charge for securing any issue of debentures to the debenture holders.

Winding Up of Foreign Companies:

Section 582 (b) of the companies act makes it clear that the provisions of part X of the act, dealing with the winding up of unregistered companies, shall apply to the foreign companies. [1985 (58) Comp Case 285]. Section 584 of the companies act, 1956 provides that where a body corporate incorporated outside India which has been carrying on business in India, ceases to carrying on business in India, it may be wound up as an unregistered company notwithstanding that the body corporate has been dissolved or otherwise ceased to exist as such under or by virtue of the laws of the country under which it was incorporated. Such winding up can only be made through the court. Where a foreign company ceases to carry on business in India or its substratum is gone or it carries on ultra virus business, it may be wound up under the just and equitable ground.

Comments
 Vikash April 13, 2010
Good one keep on writing
 Meghana August 18, 2010
Can an employee working for an MNC who is under the contract of 1 year can leave the company in case of his or her marriage without paying any compensation????
 Anjali Bhardwaj October 8, 2010
"what are the salary rules for such type of company????"
 ajay December 14, 2010
good one
 Adnan khan April 13, 2011
is there separate statute in Indian company law for the regulation of foreign companies??
 Nice coverage on foreign companies May 7, 2011
Good one...
ASHOK KUMAR SHARMA May 17, 2012
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 muthuselvi January 10, 2012
need more details
 muthuselvi January 10, 2012
need more details
 Shashank February 15, 2012
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 urveen February 20, 2012
give some examples with to make it understand better
 Kuldeep Rana September 15, 2012
It is very helpfull article for us.
Rushil Parikh October 9, 2012
The content is realy good . Can any one help me on the company registered in India having 99% Foreign Holding. Whether the comapny is Foreign Co. or not
umang April 18, 2013
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umang April 18, 2013
superb it is a tool that provide sufficient knowledge. good one
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