Overview:

Compliances are the legal norms which are to be adhered to in every country for its protection of interest, reputation, better transparency, encouraging investments etc. Every country has its own rules and regulations, when a foreign company makes an investment in India or opens any working space in India, the provisions of Companies Act, 2013 and Foreign Exchange Management Act (FEMA), 1999 is to be compiled with. Likewise, if a foreign company is involved in any business transaction of goods or services in India then it is required to follow the Indian laws. Liaison / branch office /project offices of foreign entities can be incorporated in India.

Meaning: ‘Foreign Company’ is defined under Section 2(42) of the Companies Act, 2013, means, any Company or body Corporate incorporated outside India having a place of business in India either by itself or through an agent, physically or through electronic mode or conducts any business activity in India in any other manner.

In Companies Act, 2013, the inclusion of the word ‘electronic mode; and ‘business activity’ has made the impact wider in scope which were eluted before from the Act. The word ‘electronic mode’ holds extensive ambit which creates huge potential for different service lines, such as travel online companies, e-commerce, consultancy, financial services etc having base in India to register and operate in Indian country.

Business activity in any other manner includes media companies which have foreign subsidiaries and render services in India who will have implication of adhering to the business and statutory compliances pertaining to Companies Act, 2013.

The applicable section and definition of the same are stated below:

Electronic mode

The Companies (Specification of Definitions Details) Rules, 2014 states the term ‘electronic mode’ in the context of a foreign company as laid under Rule 2(h). The same is also defined under Rule 2 (1)(c) of Companies (Registration of Foreign Companies) Rules, 2014.

(h) “electronic mode”, for the purposes of clause (42) of section 2 of the Act, means carrying out electronically based, whether main server is installed in India or not, including, but not limited to-

(i) business to business and business to consumer transactions, data interchange and other digital supply transactions;

(ii) offering to accept deposits or inviting deposits or accepting deposits or subscriptions in securities, in India or from citizens of India;

(iii) financial settlements, web-based marketing, advisory and transactional services, database services and products, supply chain management;

(iv) online services such as telemarketing, telecommuting, telemedicine, education and information research; and

(v) all related data communication services, whether conducted by e-mail, mobile devices, social media, cloud computing, document management, voice or data transmission or otherwise;

Business activity

The Companies (Registration Offices and Fees) Rules, 2014, states ‘business activity’ as laid under Rule 3. The definition of ‘business activity’ is similar to ‘electronic mode’. As per Rule 3, it states that every company including a foreign company carrying out its business through electronic mode, whether its main server is installed in India or outside India, shall be deemed to have carried out business in India.

Compliances for the Foreign companies:

There are several compliances for Foreign Companies as laid under the Companies Act, 2013 and rules under Chapter XXII Companies (Registration of Foreign Companies) Rules, 2014.

Submission of documents in FC-1 to ROC for registration: (Section 380)

The foreign company shall submit all the necessary documents pertaining to the registration of the company within 30 days from the date of establishment of its business place in India.

The documents to be submitted are listed below:

CTC of the memorandum and articles of the company. If the same is not in the English language, a copy of certified translation in the English language thereof;
Full address of the Registered office of the Company
List of the directors and Company Secretary (CS) having particulars as prescribed under Rule 3.
Name and address of one or more persons who is resident in India and duly authorised to accept on behalf of the Company any communication such as notice or other documents.
Full office address of the company in India which is deemed to be its principal place of business in India
Particulars of the opening and closing of a place of business in India on earlier occasion or occasions
Declaration stating that none of the directors of the company or the authorized representative in India has ever been convicted or debarred from formation of companies and management in India or abroad.
Other Documents as may be prescribed or necessary.

Submission in Form FC-1 (registration) and FC-2 (alteration)

Application in Form FC-1 to be submitted along with the attested copy of approval from the Reserve Bank of India (RBI) under Foreign Exchange Management Act (FEMA) and the rules and regulations thereunder or a declaration from the authorised representative of such Foreign Company that no such approval is required, per the Rule 3(3) of the Companies (Registration of Foreign Companies) Rules, 2014.

If any alterations in the stated documents above, then the altered documents need to be submitted in return Form FC-2 per the format within 30 days of any such alteration per the Rule 3(4) instated.

Submission of accounts and financials with ROC: (Section 381)

The foreign company is required to prepare its financials balance sheet, profit & loss statement in each calendar year per Rule 4. Also, the balance sheet and the financials prepared shall be duly audited by a practicing Chartered Accountant (CA in practice) in India per Rule 4, and file the same with ROC including a copy of list of all the places where business has been established in India as on the date of the balance Sheet in Form FC-3.

The provisions of the Chapter X i.e. Audit and Auditors and rules made there under, as far as applicable, shall apply, mutatis mutandis, to the foreign company. If any of the submitted documents is not in English language, then a certified translation of the documents in English language shall be duly attached.

Display of the name and country: (Section 382)

The foreign company shall properly exhibit the name of the company and the country where it is incorporated outside its office or place of business in India, every letterhead, and other official publications in English language and other vernacular language of its place.

Service at the end of foreign company: (Section 383)

If foreign company receives any notice, communication or other document in its name, the same shall be addressed to the person whose name and address have been delivered to the Registrar (ROC) and sent by post or by electronic mode. In addition, the documents on Foreign Company as per the New Act may now also be served by Electronic Mode.

Annual Return, Books of Accounts, Debentures, Registration of Charges, and their Inspection: (Section 384)

Annual return – The provisions of Section 92 of the Act shall apply. Per the Rule 7, every foreign company shall prepare and file its annual return in Form FC-4 within a period of 60 days from the last day of its financial year to the Registrar along with the fees per the Companies (Registration Offices and Fees) Rules, 2014.

Books of Accounts – The provisions of Section 128 of the Act shall apply to a foreign company to the extent of requiring it to keep at its principal place of business in India or in relation to its business in India.

Debentures – The provisions of Section 71 of the Act shall apply mutatis mutandis to a foreign company.

Registration of Charges – The provisions of Chapter VI shall apply mutatis mutandis to charges on the properties which are created or acquired by any of the foreign companies.

Inspection – The provisions of Chapter XIV shall apply mutatis mutandis to the Indian business of a foreign company as it applies to a company which is incorporated in India.

Punishment for Contravention – Section 392 outlines the punishment for contravention of the Act or rules and regulations made thereunder. The foreign company shall be punishable with a fine which shall not be less than INR 1,00,000 (Rupees one lakh) but which may extend to INR 3,00,000 (Rupees three lakh) and in the case of the continuing offense, the amount may extend to INR 50,000 (Rupees fifty thousand) every day after the first as an additional fine and every officer of the foreign company who is in default shall be punishable with an imprisonment for a term which may extend to 6 months (six months) or with fine which shall not be less than INR 25,000 (Rupees twenty five thousand) but may extend to INR 5,00,000 (Rupees five lakh), or with both.

The Foreign Exchange Management Act (FEMA) 1999 –

FEMA is an Act of the Indian Parliament that regulates foreign exchange transactions in India. Foreign companies operating in India are subject to certain compliance requirements under FEMA 1999 including reporting of the activities entering into. Some of the key compliance requirements for foreign companies under FEMA 1999 include:

Registering with the Reserve Bank of India (RBI) - A foreign company is required to register with the RBI within 30 days of establishing a place of business in India.

Approval for foreign investments - Foreign companies are required to obtain approval from the RBI for foreign investments in India, depending on the sector and the nature of investment.

Compliance with Foreign Direct Investment (FDI) policy - Foreign companies are required to comply with the FDI policy of the Government of India, which sets out the conditions and sectors in which foreign investment is permitted.

Reporting requirements - Foreign companies are required to file various reports with the RBI, such as foreign investment declarations, annual returns, and financial statements.

Compliance with other regulations - Foreign companies are also required to comply with other regulations related to foreign exchange transactions, such as regulations related to repatriation of profits, dividends, and capital.

Adherence to Foreign Trade Policy- Foreign companies are required to comply with the Foreign Trade Policy of India and take necessary licenses, permits and comply with the policies related to imports and exports.

Filing of annual return on Foreign Liabilities and Assets (FLA) has been notified under FEMA 1999 and it is required to be submitted by all the India resident companies which have received Foreign Direct Investments (FDI) and/ or made overseas investment in any of the previous years, including the current year by the date of July 15th every year.

Winding up

The foreign company may wind up the company if the operations come to an end, where the company is dissolved or ceases to exist per the norms of Section 376 of the Companies Act, 2013. The process of winding up, the company's assets are sold, its debts and liabilities are paid, and any remaining assets are distributed among the shareholders.

The process of winding up is either ‘Voluntary’ where the shareholders of a company decide to close down the company and dissolve it. This can happen when the company is no longer profitable or when the shareholders decide to close the business for other reasons or;

Compulsory winding up, when a court orders that a company be wound up. This can happen when a company is unable to pay its debts, when it has committed fraud, or when it has violated the laws governing companies.

Conclusion

Foreign companies are required to comply with the provisions of the Companies Act, 2013 and other applicable laws in India, and are also subject to the jurisdiction of Indian courts. It’s required to appoint a resident agent in India for the purpose of service of process and to file certain documents with the Registrar of Companies.

There are many foreign companies operating in India. Some examples include:

Technology companies such as Google, Microsoft, and IBM.
Automotive companies such as Ford, General Motors, and BMW.
Consumer goods companies such as Nestle, Coca-Cola, and Unilever.
Pharmaceutical companies such as Pfizer, Novartis, and AstraZeneca.
Retail companies such as Walmart and Amazon.

These companies have invested in India for various reasons, including the large and growing consumer market, a skilled workforce, and government policies that encourage foreign investment.