Foreign Companies in India – Corporate Law

Foreign Companies in India – Corporate Law

Corporate law in India has for several years relied English counterpart.

The same is true with the provisions governing foreign companies. The relevant sections of the Indian Companies Act, 1956 (“the Act”) closely follow sections 408 to 423 of the English Act save for some sections which have no application to India

Sections 591 to 608 of the Act are relevant and provide in detail the duties of a foreign company in terms of supplying information to the Registrar of Companies, submitting account conditions on issue of prospectus, registration c charges on properties held by it in India, and the like

This article, which does not claim to be exhaustive, attempts to deal with some of the provisions in the Act which affect foreign companies

What is a Foreign Company

Section 591 of the Act provides that sections 592 to 608 shall apply to all foreign companies. A foreign company falls under the following two heads –

a company incorporated outside India which, after the commencement of the Act (I April 1956), establishes a place of business within India

a company incorporated outside India which has, before the commencement of this Act, established a place of business within India and continues to have an established place of business within India at the commencement of this Act

The foreign company must be distinguished from a “foreign controlled company”

“Place of business” extends to having a specified or identifiable place at which it carries on business, like an office, store house or godowr or having a share transfer or registration office oi maintaining a liaison or branch office

“Establish” would imply having a more or less permanent location from which the company habitually or with some degree of regularity conducts its business

“Carrying on business” by a company would be satisfied if its business is carried on at a fixed and definite place in India for a sufficiently and reasonably long period of time (P J Johnson v Astrofiel Armandorn (1989) 3 Company Law Journal 1)

A foreign company of which more than 50 pe cent paid-up share capital (equity or preference) i held by Indian citizens or bodies corporate, woulc attract compliance with more provisions than are stipulated below

Initial Obligations of the Foreign Company

Foreign companies shall within 30 days of establishing a place of business in India deliver to the Registrar of Companies for Registration (section 592) the following documents –

a certified copy of the charter, statutes, or memorandum and articles of the company or other instrument constituting or defining the constitution ofthe company. If the instrument is not in the English language, a certified translation thereof should be provided

the full address of the registered or principal office of the company

a list of the directors and secretory of the company with prescribed particulars as specified

the name and address or the names and addresses of some 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 ofthe 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, the capital of India and with the Registrar of Companies of the state having jurisdiction where the principal place of business of the company is situated. Filing fees shall, however, be paid only with the former and not the latter

Certification of documents shall be in accordance with Rule 16 of the Companies (Central Government’s) Rules and Forms, 1956. Translation shall be in accordance with Rule 17

An Indian company is a “person” under Indian law and can be authorised by a foreign company to accept service on its behalf through the Indian directors of the former company

Continuing Obligations of the Foreign Company

These may be summarised as

Name of the foreign company

Section 595 obliges every 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. It must similarly give notice of the fac that the liability of its members is limited, if thal is so

Notifying alterations by delivering a return

Section 593 provides that if any alteration is made or occurs in the charter, statutes, memorandum and articles of association of a foreign company or other instrument constituting or defining its constitution, its registered or principal office, its directors or secretary, the name or address of any of its authorised representatives in India or its principal place of business, the foreign company shall within a period of 30 days of the alteration, deliver to the Registrar for registration, a return containing the details of alteration

It may be noted that changes in particulars of directors and secretary, as originally notified, need not be delivered


The provisions concerning the accounts of a foreign company are detailed in section 594. It lays down the general obligation – once in every calendar year to make out a balance sheet and profit and loss account in respect of its Indian business, under the presumption that it were an Indian company, giving details also of its subsidiaries and to deliver three copies of the documents to the Registrar. When not in English, a certified translation should also be annexed. A list of all places of business established by the foreign company in India with reference to which the balance sheet is made out should also be sent regularly

In other words, the foreign company shall maintain books of accounts of its Indian business and file, every year, three copies of its world accounts (within nine months from the close of the financial year), Indian business accounts (within nine months from the close of the financial year) and a list of places of business established in India

In respect of its Indian business, the foreign company is required to maintain at its principal place of business in India, proper books of accounts with respect to all sums of money received and expended by the company and the matters in respect of which the receipt and expenditure take place, all sales and purchases of goods by the company, and all assets and liabilities of the company

Where the foreign company sets up a liaison office in India, it shall prepare a “statement of receipts and payments” and a “statement of assets and liabilities” instead of a balance sheet and profit and loss account. These shall be in the prescribed form and shall be duly audited, the auditor giving his report as to the truth and fairness of the receipt and payments during the financial year

The Government has granted several exemptions and made modifications in regard to the above, in the light of its general policy as to foreign companies. Exemptions are also given to liaison offices. Special clarifications are issued in regard to foreign shipping, airline and insurance companies and also trade and industrial activities of foreign companies

Service on the Foreign Company

Service of any process, notice or any other document required to be served on a foreign company shall be deemed to be sufficiently served if addressed to the authorised person and left at, or sent by post to, the address registered with the Registrar

If the company defaults in delivering details of the authorised person to the Registrar, or if such person is dead, or ceases to reside in India or refuses to accept service on behalf of the company, a document may be served by leaving i1 at, or sending it by post to, any place of business established by the company in India

Mode of service shall be as above, and not according to the Code of Civil Procedure 1908, being the civil procedural legislation in India

A subsidiary could be considered as a proper agent and authorised person of the principal foreign company for the purposes of service

A Foreign Company ceasing to have a Place of Business in India

Section 597, inter alia, provides that if any foreign company ceases to have a place of business in India, it shall forthwith give notice thereof to the Registrar, and from such date, all the obligations to deliver documents cited above shall cease, provided it has no other place of business in India

The Effect of the Foreign Company not complying with its Obligations

Two sections merit particular attention

Section 599 states that any failure by a foreign company to comply with the above specified obligations shall not affect the validity of any contract, dealing or transaction entered into by it or its liability to be sued in respect thereof. The company shall, however, not be entitled to bring any suit, claim any set-off, make any counterclaim or institute any legal proceeding in respect of any such contract, dealing or transaction, until it has complied with the obligations

Penalties for non-compliance are laid down in section 598. It provides that if any foreign company fails to comply with its specified obligations, the company and every officer or agent of the company who is in default shall be punishable with a fine of up to 1,000 Indian Rupees, and in case of a continuing offence, with an additional fine of up to 100 Indian Rupees for every day during which the default continues. The offence is compoundable

Registration of Charges

Under the provisions of section 600, a foreign company has to file the document relating to the particulars of a charge within 30 days of the dati of the creation of charge with the principal Registrar as well as the Registrar of the state in which the company’s principal place of business is situated

This is in respect of charges on properties in India which are created by a foreign company after 15 January 1937 and charges on property in India which is acquired by any foreign company after 15 January 1937

Where a charge is created or the completion of the acquisition of the property takes place outside India, 30 days after the day on which the instrument creating or evidencing the charge or a copy thereof could, in due course of post and if despatched with due diligence, have been received in India, shall be the time available to file the charge with the Registrar

The charges which have to be registered are –

a charge for the purpose of securing any issue of debentures

a charge on uncalled share capital of the company

a charge on any immovable property, wherever situate, or any interest therein

a charge on any book debts of the company

a charge, not being a pledge, on any movable property of the company

a floating charge on the undertaking or any property of the company including stock-in-trade

a charge on calls made but not paid

a charge on a ship or any share in a ship

a charge on goodwill, on a patent or a licence under a patent, on a trade mark, or on a copyright, or a licence under a copyright

Non-registration would not affect the transaction altogether

A foreign company is also under an obligation to provide inspection and copies of the trust deed recording the creation of a charge for securing any issue of debentures to the debentureholder

Prospectuses of Foreign Companies

Sections 603 to 608 relate to the issue of a prospectus and allotment by foreign companies

No person shall issue, circulate or distribute in India any prospectus offering for subscription, shares in or debentures of a foreign company (whether incorporated or to be incorporated, and whether it has or has not established, or when formed will or will not establish, a place of business in India), unless the prospectus is dated and provides particulars e-f the following matters –

the instrument constituting or defining the constitution of the company

the enactments or provisions having the force of enactments, by or under which the incorporation of the company was effected

any address in India where the said instrument. enactments or provision, or copies thereof, and if the same are not in English, a translotion thereof, certified in the prescribed manner, may be inspected

the date on which and the country in which the company was incorporated

whether the company has on established place of business in India, and if so, the address of its principal office in India

If the liability of the members of the company is limited, it must cause notice of that fact also to be stated in the prospectus

The first three requirements do not apply in case of issue of prospectus more than two years after the date on which the company is entitled to commence business

Similarly, no person shall issue a form of application for shares in or debentures of such a company or intended company unless the form is issued with a prospectus which complies with the above (save when issued in connection with a bona fide invitation to enter into an underwriting agreement with respect to the shares or debentures)

Where such prospectus includes a statement purporting to be made by an “expert”, it must be ensured that such person has given, or has before delivery of the prospectus for registration not withdrawn, his written consent to the issue of the prospectus with the statement included in the form and context in which it is included, or there does not appear in the prospectus a statement that he has given and has not withdrawn his consent as aforesaid

“Expert” includes an engineer, a valuer, an accountant, and any other person whose profession gives authority to a statement made by him

Before issue of the prospectus, it has to be delivered (with specified attachments) for registration to the Principal Registrar in the form of a copy duly certified by the Chairman and two other directors of the company as having been approved by the managing body of the company

Material mis-statements in the prospectus attract civil, but not criminal penalties, in the case of foreign companies

Winding Up of Foreign Companies

On reading section 582(b) of the Act, it is clear that the provisions of Part X of the Act dealing with winding-up of unregistered companies shall apply to foreign companies, whatever the number of their members (1985 (58)Company Cases 285)

A foreign company incorporated in a foreign country may be wound up in India if it has an office and assets there, and if a pending foreign liquidation does not affect the jurisdiction to make a winding-up order

Where a foreign company is already being wound up in the country of its domicile, the winding-up in India will be ancillary to the foreign liquidation, and the liquidator’s powers in this country are restricted to dealing with assets in this country (Re Russian and English Bank Ltd, 1932 (2) Company Cases 424)

A subsequent winding-up in the foreign country does not affect prior proceedings taken in India, and the liquidator’s discretion is not fettered (1958 (28) Company Cases 204)

Section 584 of the Act provides that where a body corporate incorporated outside India which has been carrying on business in India ceases to carry 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 vires business, it may be wound up under the ‘just and equitable’ ground (1972 (42) Company Cases 197 Bombay)


In addition to the above, readers should have special regard to the provisions of Foreign Exchange Regulation Act, 1973 affecting the conduct by foreigners, including foreign corporates, of business in India, which provisions apply notwithstanding anything to the contrary in any other law