Companies Incorporated Outside India
AI-assisted · review in progress · last updated 25 July 2026 · jump to quick revision
In 30 seconds
- Foreign company [Sec 2(42)] is a twin conjunctive test: a place of business in India (itself or through an agent, physical or electronic) AND conducting business activity in India — both are needed.
- Section 379(1) applies Sections 380–386 and 392–393 to ALL foreign companies; Section 379(2) upgrades that to full Chapter XXII 'as if an Indian company' when Indian holding is ≥50% of paid-up capital.
- Compliance lifecycle runs on four forms: FC-1 (initial documents, 30 days), FC-2 (alteration, 30 days), FC-3 (places of business, with annual accounts), FC-4 (annual return, 60 days).
- Capital market route: prospectus must be dated, expert-consented and registered (Secs 387–389); IDRs need Rule 13 + SEBI ICDR + RBI cumulatively (Sec 390); mergers need prior RBI approval (Sec 234).
- Section 392 is fine-only: company ₹1–3 lakh plus ₹50k/day continuing, officer ₹25k–5 lakh; Section 393 keeps contracts valid but bars the company from suing until compliant.
Companies Act, 2013 as amended, per the May 2026 syllabus — Chapter XXII (Sections 379–393A) read with the Companies (Registration of Foreign Companies) Rules, 2014.
How the chapter fits together
Chapter XXII asks three questions in sequence: is the entity a foreign company (Sec 2(42) + Sec 379), what must it do while operating in India (Secs 380–386), and what happens when it raises capital (Secs 387–391, 234) or defaults (Secs 392–393, Rule 12), with a narrow IFSC exemption at the end (Sec 393A).
- 2(42) + 379 — who is a foreign company, and how much of the Chapter applies →
- 380–386 — compliance lifecycle: documents, accounts, display, service of process, mutatis mutandis borrowings, fee, interpretation →
- 387–390 — capital market route: prospectus (dated → expert consent → registered) and IDRs →
- 234 + 391 — cross-border mergers; Secs 34–36 liability and Ch XX winding up →
- 392–393 + Rule 12 — punishment, effect of non-compliance, improper use of the title →
- 393A — Central Government exemption power for IFSC securities matters.
Sequence peg for 380→393A: Docs → Accounts → Display → Service → Debentures/Return → Fee → Interpret → Prospectus (dated–expert–registered) → IDR → Sued (34–36) → Punished → Saved → Exempted.
Who counts as a foreign company — Sections 2(42) and 379
Foreign company [Sec 2(42)]
A company or body corporate incorporated outside India which (a) has a place of business in India — itself or through an agent, physically or through electronic mode — and (b) conducts any business activity in India. The two conditions are conjunctive: both must be satisfied.
Electronic mode [Rule 2(1)(h), Definitions Rules 2014]
Electronically based business — B2B and B2C transactions, solicitation of deposits or securities, financial settlement, web-based marketing, telemedicine, telecommuting, data communication via email/mobile/cloud, etc. — “whether the main server is installed in India or not”. Server location is irrelevant, and the list is illustrative (“including but not limited to”).
Place of business [Sec 386(c)]
Includes a share transfer or share registration office. Inclusive and Chapter XXII–specific — but a share registration office alone, without business activity, does not make the entity a foreign company.
Foreign company for mergers [Explanation to Sec 234(2)]
A company or body corporate incorporated outside India whether or not it has a place of business in India. Broader than Sec 2(42) — no place-of-business requirement — and used only for the merger provision.
Three refinements complete the definition:
- IFSC carve-out (Explanation to 2(42)): electronic offering, subscription or listing of securities in an IFSC (Sec 18, SEZ Act 2005) is not “electronic mode” — a narrow carve-out for IFSC securities activity only, not a general exemption.
- Sec 379(1) — baseline: Sections 380–386 and 392–393 apply to all foreign companies.
- Sec 379(2) — ≥50% test: where citizens of India + Indian bodies corporate, singly or in aggregate, hold ≥50% of paid-up capital (equity, preference or both), the company must comply with the full Chapter XXII plus other prescribed provisions “as if it were an Indian company” — an enhanced obligation on top of 379(1), not an alternative to it.
The illustrations the source flags as exam favourites:
| Illustration | Facts | Holding |
|---|---|---|
| Search & Find Pte Ltd | E-commerce with India, no physical office | Is an FC — must file Sec 380 documents |
| Red Stone Ltd | Only board meetings held in India | Not an FC — meetings/executing decisions ≠ business activity |
| Xen LLC / 5K Cosmetic | Server in Dubai, cloud/electronic services to Indian clients | Is an FC — server location irrelevant |
| Zakpak Ltd | Branch office in India | Branch = place of business → Ch XXII compliance triggered |
| Emaar LLC | 51% Indian shareholding in aggregate | Sec 379(2) — comply “as if an Indian company” |
| Mir Company LLC | Prospectus issued more than 2 years after entitlement to commence business | Particulars (1)–(3) exempted [Sec 387(1) proviso] |
| Swift Pharmaceuticals | Shifted its office | File FC-2 within 30 days |
Note the drafting pattern: Indian citizens incorporating a company abroad (the Singapore example) does not make it a foreign company unless it also has a place of business and business activity in India.
Compliance lifecycle — Sections 380 to 386
Sec 380 — documents to the Registrar. Within 30 days of establishing a place of business in India, deliver the eight prescribed documents, items (a)–(h), in Form FC-1. Any alteration is intimated by a return in Form FC-2, again within 30 days [Sec 380(3)]. Companies that had filed under Sec 592(1) of the 1956 Act continue that obligation for undelivered documents [Sec 380(2)]. On cessation of a place of business, give notice to the Registrar forthwith — the obligation to deliver documents ceases only if no other place of business remains in India. Frequently tested factual point: the office of delivery is the Registrar having jurisdiction over New Delhi (via CRC for FC-1 filings).
Sec 381 — accounts. Prepare a balance sheet and profit & loss account every calendar year on a Schedule III basis and deliver a copy to the Registrar, with a certified English translation where the documents are not in English, along with FC-3 (list of places of business) and audit by an Indian CA. Additional statements — related party transactions, repatriation of profits, transfer of funds — are filed with the financial statement within 6 months of the close of the financial year (Rule 4); the Registrar may extend by up to 3 months (not more), “for special reason,” on written application. The Central Government may, by notification, exempt or modify the accounts requirement for any foreign company or class.
Financial year: ends 31 March; if incorporated on or after 1 January, the FY ends 31 March of the following year. A different FY is allowed only on application to the Central Government (for consolidation with a foreign holding company); by the 2nd proviso, applications pending before the Tribunal as on the 2018 Amendment Ordinance continue under the old law.
Sec 382 — display of name. Conspicuously exhibit the company’s name and country of incorporation outside every office/place of business and on letterheads etc., with notice of limited liability where applicable.
Sec 383 — service of process. Documents served at the address delivered under Sec 380, by post or electronic mode, are deemed sufficiently served.
Sec 384 — mutatis mutandis borrowings: Sec 71 (debentures) · Sec 92 (annual return in Form FC-4 within 60 days of the last day of the FY, plus Sec 135 CSR if applicable) · Sec 128 (books of account — principal place of business in India only) · Chapter VI (charges) · Chapter XIV (inspection, inquiry, investigation).
Sec 385 — fee prescribed for registering Chapter XXII documents. Sec 386 — interpretation, Chapter XXII–specific only: Certified = certified in the prescribed manner as a true copy/correct translation; Director includes a person in accordance with whose directions the Board is “accustomed to act” (shadow-director style, inclusive); Place of business includes a share transfer/registration office.
| Form | Purpose | Timeline | Provision |
|---|---|---|---|
| FC-1 | Initial documents on establishing a place of business | 30 days | Sec 380(1) |
| FC-2 | Return of alteration in documents | 30 days | Sec 380(3) |
| FC-3 | List of places of business (with annual accounts) | With accounts | Sec 381 |
| FC-4 | Annual return | 60 days from last day of FY | Sec 384(ii), Rule 7 |
Capital market route — Sections 387 to 391 and 234
Sec 387 — prospectus. Must be dated and signed, containing particulars (1)–(5) plus Sec 26 matters. The riders:
- 2-year proviso [387(1)]: particulars (1), (2), (3) — instrument, enactments, inspection address — are not required if the prospectus is issued more than 2 years after the company became entitled to commence business.
- No-waiver clause [387(2)]: any condition requiring waiver of compliance is void.
- Application form [387(3)]: must be accompanied by a compliant prospectus — except a form issued as a bona fide invitation to enter an underwriting agreement.
- Exceptions [387(4)]: (a) issues to existing members/debenture holders (with or without renunciation right); (b) securities uniform with securities already listed/dealt on a recognised stock exchange — but dating is still mandatory in (b).
- Saving [387(5)]: does not limit liability under other laws.
- Rule 11(c): material contracts (not in the ordinary course) of the preceding 2 years to be annexed to the prospectus.
Sec 388 — expert consent: written consent, not withdrawn before delivery for registration [388(1)(a)]; making an application binds the applicant to Secs 33 and 40 [388(1)(b)]. Sec 389 — registration: a certified copy of the prospectus — certified by the chairperson and 2 directors — must be delivered to the Registrar before issue.
Indian Depository Receipt [Sec 390, Rule 13]
A depository receipt created by a Domestic Depository in India, authorised by the foreign company. Compliance is cumulative, not alternative: Rule 13 + SEBI (ICDR) Regulations, 2009 + RBI directions. The Central Government makes rules on offer, disclosure requirements, custodian and transfer. GK: Standard Chartered PLC was the first IDR issuer in India (2010).
Sec 234 — cross-border mergers: Chapter XV applies mutatis mutandis to mergers with foreign companies of notified jurisdictions; Central Government rules are made in consultation with RBI [234(1)]. A merger of a foreign company into an Indian company (or vice versa) needs prior RBI approval, and consideration may be cash, Depository Receipts, or both [234(2)].
Sec 391 — liability bridge: Secs 34–36 (criminal/civil/fraud liability) apply to a prospectus registered under Sec 389 and to IDR issues [391(1)]; Chapter XX (winding up) applies mutatis mutandis, subject to Sec 376 (power to wind up a foreign company although dissolved), where moneys remain unrepaid [391(2)].
Enforcement — Sections 392, 393, Rule 12 and 393A
| Default | Liable | Penalty | Provision |
|---|---|---|---|
| Contravention of Ch XXII | Foreign company | Fine ₹1,00,000 to ₹3,00,000 | Sec 392 |
| Continuing contravention | Foreign company | Additional fine up to ₹50,000/day after the first day | Sec 392 |
| Contravention of Ch XXII | Officer in default | Fine ₹25,000 to ₹5,00,000 | Sec 392 |
| Improper use of “foreign company” description (not duly registered) | Person(s) trading under such description | Liable for investigation under Sec 210 + consequent action | Rule 12 |
| Non-compliance generally | Company | Cannot sue/set off/counter-claim/institute proceedings until compliant (contracts remain valid) | Sec 393 |
Three points the examiners lean on:
- No imprisonment under Sec 392 — fine only, for both company and officer; and it is “without prejudice to Sec 391”, so Secs 34–36 liabilities for prospectus/IDR defaults are additional.
- Sec 393 cuts both ways: contracts stay valid and the company remains suable by others — but the company’s own right to sue, set off, counter-claim or institute proceedings is barred until it complies.
- Rule 12 bites only the unregistered: a person duly registered as a foreign company faces no investigation liability for using the description.
- Sec 393A: the Central Government may exempt IFSC-related IDR/prospectus offering matters (Sec 18, SEZ Act 2005) — it pairs conceptually with the 2(42) IFSC carve-out.
Key timelines
| Period | Event / action | Provision |
|---|---|---|
| 30 days | Deliver initial documents on establishing a place of business (Form FC-1) | Sec 380(1) |
| 30 days | Deliver return of alteration in documents (Form FC-2) | Sec 380(3) |
| Every calendar year | Prepare B/S and P&L (Schedule III basis) | Sec 381(1) |
| 6 months of close of FY | File additional statements — related party transactions, repatriation of profits, transfer of funds — with the financial statement | Rule 4, Sec 381 |
| +3 months (max) | Registrar’s extension of the 6-month period, for special reason, on written application | Rule 4 proviso |
| 60 days from last day of FY | File annual return in Form FC-4 | Rule 7, Sec 384(ii) |
| Forthwith | Notice to Registrar on cessation of a place of business | Sec 380/381 cessation clause |
| More than 2 years after entitlement to commence business | Prospectus exempt from particulars (1)–(3) | Sec 387(1) proviso |
| Preceding 2 years | Material contracts (not ordinary course) annexed to prospectus | Rule 11(c) |
- Treating the Sec 2(42) twin test as either/or — place of business AND business activity are conjunctive; a share registration office alone, or board meetings alone (Red Stone Ltd), is not enough.
- Making foreign-company status turn on server location — the definition says “whether the main server is installed in India or not”; it never matters.
- Confusing Sec 2(42) with the Explanation to Sec 234(2) — the merger definition needs no place of business in India and applies only in the merger context.
- Swapping the Sec 392 fines — company ₹1–3 lakh (+₹50k/day continuing); officer ₹25k–5 lakh — a favourite MCQ trap, and no imprisonment either way.
- Interchanging Rule 4’s 6 months (extra statements with the financial statement) and Rule 7’s 60 days (FC-4 annual return) — different filings, different clocks.
- Quoting the Registrar’s extension as 6 months or open-ended — it is up to 3 months only, “for special reason,” on written application.
- Reading Sec 387(4) as a full escape — the exceptions waive the other requirements, but the prospectus must still be dated.
- Calling IDR compliance alternative — Rule 13, SEBI ICDR Regulations 2009 and RBI directions apply cumulatively.
Quick revision cards
Twin test of Sec 2(42)?
Which sections apply to ALL foreign companies?
Sec 379(2) trigger and effect?
The four FC forms?
Accounts basis and audit?
FC financial year?
Sec 387(1) proviso?
IDR compliance stack?
Sec 234 merger essentials?
Sec 392 penalties?
Sec 393 twofold effect?
Rule 12 and Sec 393A?