ICAI Notes: Companies Incorporated Outside India | Corporate & Other Laws for CA Intermediate PDF Download

 Page 1


 
  
COMPANIES 
INCORPORATED OUTSIDE 
INDIA  
Learning Outcomes
After reading this chapter, you will be able to: 
? Know the meaning of the Foreign Company and application 
of Act to it. 
? Explain the provisions related to Accounts of Foreign 
company, service on foreign company. 
? Comprehend the provisions of debentures, annual return, 
registration of charges, books of account and their 
inspection in Foreign companies. 
? Analyse dating of prospectus and particulars to be 
contained therein, provisions as to expert’s consent and 
allotment and registration of prospectus. 
? Know about offer of Indian Depository Receipts. 
? Merger or amalgamation of Company with foreign 
company. 
CHAPTER 
11 
© The Institute of Chartered Accountants of India
Page 2


 
  
COMPANIES 
INCORPORATED OUTSIDE 
INDIA  
Learning Outcomes
After reading this chapter, you will be able to: 
? Know the meaning of the Foreign Company and application 
of Act to it. 
? Explain the provisions related to Accounts of Foreign 
company, service on foreign company. 
? Comprehend the provisions of debentures, annual return, 
registration of charges, books of account and their 
inspection in Foreign companies. 
? Analyse dating of prospectus and particulars to be 
contained therein, provisions as to expert’s consent and 
allotment and registration of prospectus. 
? Know about offer of Indian Depository Receipts. 
? Merger or amalgamation of Company with foreign 
company. 
CHAPTER 
11 
© The Institute of Chartered Accountants of India
CORPORATE AND OTHER LAWS 
 
11.2 
 
?  
 
 1. INTRODUCTION  
Chapter 
XXII 
Consists of sections 379 to 393A as well as the Companies 
(Registration of Foreign Companies) Rules, 2014. 
Foreign Company [Section 2(42)]: “Foreign company” means any company or 
body corporate incorporated outside India which-  
(a)  has a place of business in India whether by itself or through an agent, 
physically or through electronic mode; and 
(b)  conducts any business activity in India in any other manner. 
Example 1: ABC Entertainment Limited (Indian Company) having foreign subsidiary 
UVW Limited rendering satellite services to the group will be covered under the 
definition of Foreign Company under the Companies Act, 2013. 
Example 2: Airline companies who operate through their booking agents in India will 
be covered under the definition of Foreign Company under the Companies Act, 2013. 
According to the 
1
Companies (Registration of Foreign Companies) Rules, 2014, 
“electronic mode” means carrying out electronically based, whether main server 
is installed in India or not, including, but not limited to – 
1
 Rule 2(1)(h) of the Companies (Specification of Definitions Details) Rule, 2014 
CHAPTER OVERVIEW 
© The Institute of Chartered Accountants of India
Page 3


 
  
COMPANIES 
INCORPORATED OUTSIDE 
INDIA  
Learning Outcomes
After reading this chapter, you will be able to: 
? Know the meaning of the Foreign Company and application 
of Act to it. 
? Explain the provisions related to Accounts of Foreign 
company, service on foreign company. 
? Comprehend the provisions of debentures, annual return, 
registration of charges, books of account and their 
inspection in Foreign companies. 
? Analyse dating of prospectus and particulars to be 
contained therein, provisions as to expert’s consent and 
allotment and registration of prospectus. 
? Know about offer of Indian Depository Receipts. 
? Merger or amalgamation of Company with foreign 
company. 
CHAPTER 
11 
© The Institute of Chartered Accountants of India
CORPORATE AND OTHER LAWS 
 
11.2 
 
?  
 
 1. INTRODUCTION  
Chapter 
XXII 
Consists of sections 379 to 393A as well as the Companies 
(Registration of Foreign Companies) Rules, 2014. 
Foreign Company [Section 2(42)]: “Foreign company” means any company or 
body corporate incorporated outside India which-  
(a)  has a place of business in India whether by itself or through an agent, 
physically or through electronic mode; and 
(b)  conducts any business activity in India in any other manner. 
Example 1: ABC Entertainment Limited (Indian Company) having foreign subsidiary 
UVW Limited rendering satellite services to the group will be covered under the 
definition of Foreign Company under the Companies Act, 2013. 
Example 2: Airline companies who operate through their booking agents in India will 
be covered under the definition of Foreign Company under the Companies Act, 2013. 
According to the 
1
Companies (Registration of Foreign Companies) Rules, 2014, 
“electronic mode” means carrying out electronically based, whether main server 
is installed in India or not, including, but not limited to – 
1
 Rule 2(1)(h) of the Companies (Specification of Definitions Details) Rule, 2014 
CHAPTER OVERVIEW 
© The Institute of Chartered Accountants of India
   COMPANIES INCORPORATED OUTSIDE INDIA 
 
 
 
v 
 
11.3 
(a)  business to business and business to consumer transactions, data 
interchange and other digital supply transactions; 
(b)  offering to accept deposits or inviting deposits or accepting deposits or 
subscriptions in securities, in India or from citizens of India; 
(c) financial  settlements, web  based  marketing, advisory  and transactional  
services,  database  services  and  products,  supply chain management; 
(d) online services such as telemarketing, telecommuting, telemedicine, 
education and information research; and 
(e)  all related data communication services, 
whether conducted by e-mail, mobile devices, social media, cloud computing, 
document management, voice  or  data transmission or otherwise. 
Explanation- For the purposes of this clause, electronic based offering of 
securities, subscription thereof or listing of securities in the International Financial 
Services Centres set up under section 18 of the Special Economic Zones Act, 2005 
shall not be construed as ‘electronic mode’ for the purpose of clause (42) of 
section 2 of the Act. 
Example 3: Zakpak Ltd. is a shipping company incorporated in Japan. The 
Company has set up a branch office in India after obtaining necessary approvals 
from RBI. Branch Offices are generally considered as a reflection of the Parent 
Company’s office. Thus, branch offices of a company incorporated outside India 
are considered as a place of business for conducting business activity in India and 
will be required to follow provisions of this chapter and such other provisions as 
may be specified elsewhere under Companies Act, 2013. 
2
Facts: Union Minister of State for Corporate Affairs Shri Rao Inderjit Singh in a 
written reply to a question in Rajya Sabha stated that 320 foreign companies were 
registered in India between 2018 and 2021.  
 
 
2
 Press release dated July 27, 2021 published by Press Information Bureau Delhi 
© The Institute of Chartered Accountants of India
Page 4


 
  
COMPANIES 
INCORPORATED OUTSIDE 
INDIA  
Learning Outcomes
After reading this chapter, you will be able to: 
? Know the meaning of the Foreign Company and application 
of Act to it. 
? Explain the provisions related to Accounts of Foreign 
company, service on foreign company. 
? Comprehend the provisions of debentures, annual return, 
registration of charges, books of account and their 
inspection in Foreign companies. 
? Analyse dating of prospectus and particulars to be 
contained therein, provisions as to expert’s consent and 
allotment and registration of prospectus. 
? Know about offer of Indian Depository Receipts. 
? Merger or amalgamation of Company with foreign 
company. 
CHAPTER 
11 
© The Institute of Chartered Accountants of India
CORPORATE AND OTHER LAWS 
 
11.2 
 
?  
 
 1. INTRODUCTION  
Chapter 
XXII 
Consists of sections 379 to 393A as well as the Companies 
(Registration of Foreign Companies) Rules, 2014. 
Foreign Company [Section 2(42)]: “Foreign company” means any company or 
body corporate incorporated outside India which-  
(a)  has a place of business in India whether by itself or through an agent, 
physically or through electronic mode; and 
(b)  conducts any business activity in India in any other manner. 
Example 1: ABC Entertainment Limited (Indian Company) having foreign subsidiary 
UVW Limited rendering satellite services to the group will be covered under the 
definition of Foreign Company under the Companies Act, 2013. 
Example 2: Airline companies who operate through their booking agents in India will 
be covered under the definition of Foreign Company under the Companies Act, 2013. 
According to the 
1
Companies (Registration of Foreign Companies) Rules, 2014, 
“electronic mode” means carrying out electronically based, whether main server 
is installed in India or not, including, but not limited to – 
1
 Rule 2(1)(h) of the Companies (Specification of Definitions Details) Rule, 2014 
CHAPTER OVERVIEW 
© The Institute of Chartered Accountants of India
   COMPANIES INCORPORATED OUTSIDE INDIA 
 
 
 
v 
 
11.3 
(a)  business to business and business to consumer transactions, data 
interchange and other digital supply transactions; 
(b)  offering to accept deposits or inviting deposits or accepting deposits or 
subscriptions in securities, in India or from citizens of India; 
(c) financial  settlements, web  based  marketing, advisory  and transactional  
services,  database  services  and  products,  supply chain management; 
(d) online services such as telemarketing, telecommuting, telemedicine, 
education and information research; and 
(e)  all related data communication services, 
whether conducted by e-mail, mobile devices, social media, cloud computing, 
document management, voice  or  data transmission or otherwise. 
Explanation- For the purposes of this clause, electronic based offering of 
securities, subscription thereof or listing of securities in the International Financial 
Services Centres set up under section 18 of the Special Economic Zones Act, 2005 
shall not be construed as ‘electronic mode’ for the purpose of clause (42) of 
section 2 of the Act. 
Example 3: Zakpak Ltd. is a shipping company incorporated in Japan. The 
Company has set up a branch office in India after obtaining necessary approvals 
from RBI. Branch Offices are generally considered as a reflection of the Parent 
Company’s office. Thus, branch offices of a company incorporated outside India 
are considered as a place of business for conducting business activity in India and 
will be required to follow provisions of this chapter and such other provisions as 
may be specified elsewhere under Companies Act, 2013. 
2
Facts: Union Minister of State for Corporate Affairs Shri Rao Inderjit Singh in a 
written reply to a question in Rajya Sabha stated that 320 foreign companies were 
registered in India between 2018 and 2021.  
 
 
2
 Press release dated July 27, 2021 published by Press Information Bureau Delhi 
© The Institute of Chartered Accountants of India
CORPORATE AND OTHER LAWS 
 
11.4 
 
 2. APPLICATION OF ACT TO FOREIGN 
COMPANIES [SECTION 379] 
According to this section: 
(i) Applicability of Act to foreign companies: Sections 380 to 386 (both 
inclusive) and sections 392 and 393 shall apply to all foreign companies. It implies 
that all companies which falls within the definition of foreign company as per 
section 2(42), shall comply with the provisions of this Chapter. 
(ii) Requirement of holding of paid up share capital: 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 incorporated outside India is held by:  
(i)  one or more citizens of India; or 
(ii)  by one or more companies or bodies corporate incorporated in India; or 
(iii)  by one or more citizens of India and one or more companies or bodies 
corporate incorporated in India,  
whether singly or in the aggregate, such foreign company shall also comply with 
the provisions of Chapter XXII 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. [Section 379(2)] 
Note: Chapter XXII referred to above deals with the legal provisions for 
companies incorporated outside India. 
Example 4: The shareholding of Emaar Company LLC, incorporated in Dubai and 
having a place of business in India, is as follows: 
1. Hinduja Company Limited (Indian Company): 26% 
2. Vaishali Company Limited (Indian Company): 25% 
3. Citizens of Dubai: Remaining holding 
As per section 379(2), Emaar Company LLC will also be required to comply with 
the provisions of Chapter XXII as not less than 50% of the shareholders of Emaar 
Company LLC consists of body corporates incorporated in India. Emaar Company 
LLC will also be required to comply with other provisions of this Act as may be 
© The Institute of Chartered Accountants of India
Page 5


 
  
COMPANIES 
INCORPORATED OUTSIDE 
INDIA  
Learning Outcomes
After reading this chapter, you will be able to: 
? Know the meaning of the Foreign Company and application 
of Act to it. 
? Explain the provisions related to Accounts of Foreign 
company, service on foreign company. 
? Comprehend the provisions of debentures, annual return, 
registration of charges, books of account and their 
inspection in Foreign companies. 
? Analyse dating of prospectus and particulars to be 
contained therein, provisions as to expert’s consent and 
allotment and registration of prospectus. 
? Know about offer of Indian Depository Receipts. 
? Merger or amalgamation of Company with foreign 
company. 
CHAPTER 
11 
© The Institute of Chartered Accountants of India
CORPORATE AND OTHER LAWS 
 
11.2 
 
?  
 
 1. INTRODUCTION  
Chapter 
XXII 
Consists of sections 379 to 393A as well as the Companies 
(Registration of Foreign Companies) Rules, 2014. 
Foreign Company [Section 2(42)]: “Foreign company” means any company or 
body corporate incorporated outside India which-  
(a)  has a place of business in India whether by itself or through an agent, 
physically or through electronic mode; and 
(b)  conducts any business activity in India in any other manner. 
Example 1: ABC Entertainment Limited (Indian Company) having foreign subsidiary 
UVW Limited rendering satellite services to the group will be covered under the 
definition of Foreign Company under the Companies Act, 2013. 
Example 2: Airline companies who operate through their booking agents in India will 
be covered under the definition of Foreign Company under the Companies Act, 2013. 
According to the 
1
Companies (Registration of Foreign Companies) Rules, 2014, 
“electronic mode” means carrying out electronically based, whether main server 
is installed in India or not, including, but not limited to – 
1
 Rule 2(1)(h) of the Companies (Specification of Definitions Details) Rule, 2014 
CHAPTER OVERVIEW 
© The Institute of Chartered Accountants of India
   COMPANIES INCORPORATED OUTSIDE INDIA 
 
 
 
v 
 
11.3 
(a)  business to business and business to consumer transactions, data 
interchange and other digital supply transactions; 
(b)  offering to accept deposits or inviting deposits or accepting deposits or 
subscriptions in securities, in India or from citizens of India; 
(c) financial  settlements, web  based  marketing, advisory  and transactional  
services,  database  services  and  products,  supply chain management; 
(d) online services such as telemarketing, telecommuting, telemedicine, 
education and information research; and 
(e)  all related data communication services, 
whether conducted by e-mail, mobile devices, social media, cloud computing, 
document management, voice  or  data transmission or otherwise. 
Explanation- For the purposes of this clause, electronic based offering of 
securities, subscription thereof or listing of securities in the International Financial 
Services Centres set up under section 18 of the Special Economic Zones Act, 2005 
shall not be construed as ‘electronic mode’ for the purpose of clause (42) of 
section 2 of the Act. 
Example 3: Zakpak Ltd. is a shipping company incorporated in Japan. The 
Company has set up a branch office in India after obtaining necessary approvals 
from RBI. Branch Offices are generally considered as a reflection of the Parent 
Company’s office. Thus, branch offices of a company incorporated outside India 
are considered as a place of business for conducting business activity in India and 
will be required to follow provisions of this chapter and such other provisions as 
may be specified elsewhere under Companies Act, 2013. 
2
Facts: Union Minister of State for Corporate Affairs Shri Rao Inderjit Singh in a 
written reply to a question in Rajya Sabha stated that 320 foreign companies were 
registered in India between 2018 and 2021.  
 
 
2
 Press release dated July 27, 2021 published by Press Information Bureau Delhi 
© The Institute of Chartered Accountants of India
CORPORATE AND OTHER LAWS 
 
11.4 
 
 2. APPLICATION OF ACT TO FOREIGN 
COMPANIES [SECTION 379] 
According to this section: 
(i) Applicability of Act to foreign companies: Sections 380 to 386 (both 
inclusive) and sections 392 and 393 shall apply to all foreign companies. It implies 
that all companies which falls within the definition of foreign company as per 
section 2(42), shall comply with the provisions of this Chapter. 
(ii) Requirement of holding of paid up share capital: 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 incorporated outside India is held by:  
(i)  one or more citizens of India; or 
(ii)  by one or more companies or bodies corporate incorporated in India; or 
(iii)  by one or more citizens of India and one or more companies or bodies 
corporate incorporated in India,  
whether singly or in the aggregate, such foreign company shall also comply with 
the provisions of Chapter XXII 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. [Section 379(2)] 
Note: Chapter XXII referred to above deals with the legal provisions for 
companies incorporated outside India. 
Example 4: The shareholding of Emaar Company LLC, incorporated in Dubai and 
having a place of business in India, is as follows: 
1. Hinduja Company Limited (Indian Company): 26% 
2. Vaishali Company Limited (Indian Company): 25% 
3. Citizens of Dubai: Remaining holding 
As per section 379(2), Emaar Company LLC will also be required to comply with 
the provisions of Chapter XXII as not less than 50% of the shareholders of Emaar 
Company LLC consists of body corporates incorporated in India. Emaar Company 
LLC will also be required to comply with other provisions of this Act as may be 
© The Institute of Chartered Accountants of India
  COMPANIES INCORPORATED OUTSIDE INDIA 
 
v
11.5 
prescribed with regard to the business carried on by its place of business in India 
as if it were a company incorporated in India.  
 3. DOCUMENTS, ETC., TO BE DELIVERED TO 
REGISTRAR BY FOREIGN COMPANIES 
[SECTION 380] 
According to section 380 (1) of the Companies Act, 2013, 
(i) Every foreign company shall, within 30 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, 
of the company or other instrument constituting or defining the 
constitution of the company. If the instrument is not in the English 
language, a certified translation thereof in the English language; 
(b)  the full address of the registered or principal office of the company; 
(c)  a list of the directors and secretary of the company containing such 
particulars as  may be prescribed; 
 In relation to the nature of particulars to be provided as above, 
3
the 
Companies (Registration of Foreign Companies) Rules, 2014, provide 
that the list of directors and secretary or equivalent (by whatever 
name called) of the foreign company shall contain the following 
particulars, for each of the persons included in such list, namely:  
(1)  personal name and surname in full; 
(2)  any former name or names and surname or surnames in full; 
(3)  
4
father’s name or mother’s name or spouse’s name; 
(4)  date of birth; 
3
 Rule 3 of the Companies (Registration of Foreign Companies) Rules, 2014 
4
 Substituted by Companies (Registration of Foreign Companies) Rules, 2014 dated 20th 
January, 2023 
© The Institute of Chartered Accountants of India