Definition of Foreign Company (Section 2(42))

In the context of the Companies Act, 2013, the term "Foreign Company" has a specific legal definition that determines which overseas entities are subject to certain registration and compliance requirements in India. It is important to distinguish a foreign company from a company incorporated in India, even if that Indian company is a subsidiary of a foreign parent.

According to **Section 2(42) of the Companies Act, 2013**, a "foreign company" means **any company or body corporate incorporated outside India which--**

1. **has a place of business in India** whether by itself or through an agent, physically or through electronic mode; and
2. **conducts any business** in India in any other manner specified.

Both conditions must be met for a company incorporated outside India to be classified as a "foreign company" under the Act, triggering the compliance requirements.

Company incorporated outside India

The first part of the definition is straightforward: the entity must be a company or a body corporate that has been legally established and registered under the laws of a country outside India. This excludes entities like sole proprietorships or partnerships formed outside India, unless they are specifically recognised as a "body corporate" under the laws of their home country and meet the other criteria.

Having business in India

This is the second and often more complex part of the definition. It requires the foreign incorporated entity to have a presence and conduct business in India. The Act clarifies the modes of having a place of business and conducting business:

• **Place of business in India:** This can be established physically (e.g., opening a branch office, liaison office, factory, or managing agent) or through **electronic mode**. Electronic mode includes:
  • transactions of buying or selling of goods or services done by way of electronic data interchange or through digital and electronic network; or
  • online services; or
  • data interchange activities; or
  • any other electronic based communication,

  which a company carries on in India.

• **Conducts any business in India in any other manner specified:** This suggests that even if there isn't a clear "place of business" in the traditional or electronic sense as defined, conducting business activities in India in other ways prescribed by rules would also bring a foreign entity within the definition.

Simply having a subsidiary in India (which is an Indian company incorporated under the Companies Act, 2013) does **not** automatically make the foreign holding company a "foreign company" under Section 2(42) unless the foreign holding company itself has a place of business and conducts business *directly* in India.

Companies that meet this definition are subject to specific registration, filing, and compliance requirements under **Chapter XXII** of the Companies Act, 2013 (Sections 379 to 393).

Registration Requirements for Foreign Companies (Section 380-386)

Chapter XXII of the Companies Act, 2013, lays down the requirements for companies incorporated outside India but having a place of business in India. The primary requirement is to register certain documents with the Registrar of Companies (RoC).

Requirement to Deliver Documents for Registration (Section 380)

Every foreign company establishing a place of business in India must, within **thirty days** of establishing such place of business, deliver to the Registrar of Companies (RoC) for registration certain documents. These documents are crucial for the RoC to have essential information about the foreign entity operating within India. The required documents and particulars include:

1. A certified copy of the charter, statutes, or Memorandum and Articles, of the company or body corporate or other Instrument constituting or defining the constitution of the company or body corporate; and, if the instrument is not in English, a certified translation thereof in English.
2. The full address of the registered or principal office of the company or body corporate.
3. A list of the directors and secretary or equivalent thereof, of the company or body corporate, with their particulars.
4. The name and address or the names and addresses of 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.
5. The full address of the office of the company in India which is to be deemed its principal place of business in India.
6. Particulars of opening and closing of a place of business in India on earlier occasions (if any).
7. Declaration that none of the directors of the company or the authorised representative in India has been convicted or debarred from formation of companies or management of companies in India or abroad.
8. Any other information as may be prescribed.

These documents are typically filed electronically with the RoC using the prescribed forms (e.g., Form FC-1).

Other Related Requirements (Sections 381-386)

Apart from the initial registration, foreign companies having a place of business in India are subject to continuous compliance obligations:

Filing of Accounts (Section 381):

Every foreign company must prepare and file with the RoC, within **six months** of the close of its financial year, a copy of its balance sheet and profit and loss account (or equivalent documents) in accordance with the provisions of the Act. If the foreign company is required to get its financial statements audited under the law of its country of incorporation, a copy of the audited financial statements is to be filed. If not, the financial statements should be in accordance with generally accepted accounting principles in its home country and also contain prescribed information. These accounts should also be delivered along with a list of all places of business established by the company in India.

Display of Name, etc., of Foreign Company (Section 382):

Every foreign company must conspicuously exhibit on the outside of every office or place where it carries on business in India, the name of the company, the country of its incorporation, and the fact that it is a limited liability company (if applicable), in legible English characters, and also in the characters of the language or one of the languages in general use in that locality. It must also state these particulars in all its business letters, billheads, letter papers, and in all notices and other official publications.

Service on Foreign Company (Section 383):

Any process, notice, or other document required to be served on a foreign company shall be deemed to be sufficiently served if addressed to any person whose name and address have been delivered to the RoC under Section 380, and left at, or sent by post to, the address so delivered.

Debentures and Charges (Section 384(a)):

Foreign companies are also required to comply with the provisions relating to the registration of charges (Section 77 onwards) in respect of property acquired or subject to a charge, mortgage or debenture created in India.

Other Provisions to Apply (Section 384):

Certain other provisions of the Companies Act, 2013, are also made applicable to foreign companies, with necessary exceptions, modifications, and adaptations as specified by rules. This includes provisions relating to the register of directors and key managerial personnel, annual return, inspection, and investigation.

Date of Commencement of Business of Foreign Company (Section 386):

A foreign company cannot commence any business in India unless it has complied with the registration requirements under Section 380.

Consequences of Non-Compliance

Non-compliance with the provisions relating to foreign companies under Chapter XXII of the Companies Act, 2013, can lead to significant consequences, including penalties and the inability to enforce legal rights.

Penalties for Contravention (Section 392)

**Section 392** prescribes penalties for contraventions of the provisions of Chapter XXII:

• If a foreign company contravenes any of the provisions of Sections 380 to 386 (which cover registration, filing accounts, displaying name, etc.), the company shall be punishable with a fine which shall not be less than **one lakh rupees** but which may extend to **three lakh rupees**.
• In case of a continuing contravention, there is an additional fine which may extend to **fifty thousand rupees** for every day during which the failure continues, after the first during which it was observed.
• Every officer of the foreign company who is in default shall be punishable with a fine which shall not be less than **twenty-five thousand rupees** but which may extend to **five lakh rupees**.
• In case of a continuing contravention by an officer in default, there is an additional fine which may extend to **five thousand rupees** for every day during which the failure continues, after the first during which it was observed.

Disability to Sue (Section 393)

This is a significant consequence of failing to comply with the registration requirements under Section 380. **Section 393** states that if a foreign company fails to comply with the provisions of Section 380 (delivery of documents for registration), it shall not be entitled to bring any suit, claim any set-off, counter-claim, or institute any other legal proceeding in any court in India in respect of any contract entered into by it in the course of its business in India.

Exceptions:

This disability to sue **does not apply** if the foreign company has complied with the requirements of Section 380. Even if it has failed to comply initially, it can regain the right to sue by subsequently complying with Section 380 before instituting the legal proceedings.

Also, this section primarily affects the *foreign company's* ability to file suits related to contracts in India. It does **not** prevent the foreign company from being sued in Indian courts, nor does it typically affect criminal proceedings, winding-up petitions, or proceedings not based on contracts in India.

In summary, foreign companies operating in India are subject to specific regulatory requirements under the Companies Act, 2013. Compliance with these provisions, particularly initial registration and annual filing of accounts, is crucial to avoid penalties and maintain the ability to enforce contractual rights through the Indian legal system.

Meaning and Types

Cross-border mergers and amalgamations involve the combination of companies incorporated in different countries. This form of corporate restructuring has gained prominence in the era of globalisation, allowing companies to expand their geographical reach, tap into new markets, acquire global talent or technology, and achieve international synergies.

Prior to the Companies Act, 2013, cross-border mergers involving Indian companies were complex and often faced legal and regulatory hurdles. The 2013 Act, particularly Section 234, specifically provides a framework for cross-border mergers involving an Indian company and a foreign company. There are two main types of cross-border mergers from an Indian perspective:

Merger of Indian company with foreign company

In this type of cross-border merger, one or more **Indian companies are merged into a foreign company**. The Indian company(ies) cease to exist as a legal entity in India, and its assets and liabilities are transferred to the foreign company, which survives and continues its existence under the laws of its home country. This is also referred to as an "outbound merger" or "reverse merger".

Effect:

• The Indian company is dissolved without winding up under the Companies Act, 2013.
• The assets and liabilities of the Indian company are transferred to the foreign company.
• Shareholders of the Indian company receive consideration from the foreign company (usually in the form of shares of the foreign company, or other agreed consideration).

Merger of foreign company with Indian company

In this type of cross-border merger, one or more **foreign companies are merged into an Indian company**. The foreign company(ies) cease to exist in their home country, and their assets and liabilities are transferred to the Indian company, which survives and continues its existence under the Companies Act, 2013. This is also referred to as an "inbound merger".

Effect:

• The foreign company is dissolved in its home country (subject to compliance with its home country laws).
• The assets and liabilities of the foreign company are transferred to the Indian company.
• Shareholders of the foreign company receive consideration from the Indian company (usually in the form of shares of the Indian company, or other agreed consideration).

Both types of cross-border mergers involving an Indian company are subject to the provisions of the Companies Act, 2013, specifically Section 234, and the regulations framed under the Foreign Exchange Management Act, 1999 (FEMA), primarily by the Reserve Bank of India (RBI).

Regulatory Framework

Cross-border mergers involving Indian companies are subject to a complex regulatory framework in India, involving approvals from multiple authorities due to their implications on company law, foreign exchange management, taxation, and competition. The primary regulatory bodies involved are the National Company Law Tribunal (NCLT) and the Reserve Bank of India (RBI).

Approval by Reserve Bank of India (RBI)

**Section 234(2)** of the Companies Act, 2013, explicitly states that a company incorporated in India may merge with a foreign company registered under the laws of such country as may be notified by the Central Government, and vice versa, provided that the terms and conditions of the scheme of merger or amalgamation are in accordance with the provisions of **any other law for the time being in force**. The most significant "other law" in this context is the Foreign Exchange Management Act, 1999 (FEMA).

Role of FEMA and RBI:

The RBI, under the powers granted by FEMA, has issued regulations governing cross-border mergers. The **Foreign Exchange Management (Cross Border Merger) Regulations, 2018**, specifically address the regulatory requirements and procedures for such mergers.

• The scheme of cross-border merger must comply with these FEMA regulations.
• The regulations specify how the valuation of shares is to be done, how consideration is to be paid (e.g., in cash, shares of the merged entity, or combination), and how assets/liabilities denominated in foreign currency are to be treated.
• Specific rules apply depending on whether it is an inbound or outbound merger regarding issue/transfer of shares, valuation, and reporting requirements to the RBI.
• Approval from the RBI (or a general permission under the regulations) is necessary for the foreign exchange aspects of the transaction, such as the transfer of shares from Indian shareholders to a foreign company or vice versa, and the inflow/outflow of funds.

While the NCLT sanctions the scheme, the RBI's approval ensures compliance with foreign exchange laws. The NCLT must ensure that the scheme is in compliance with FEMA requirements.

Approval by NCLT

Cross-border mergers are treated as a form of 'Compromise or Arrangement' under **Sections 230 to 232** of the Companies Act, 2013. Therefore, the scheme of merger or amalgamation, including a cross-border merger, requires the **sanction of the National Company Law Tribunal (NCLT)**.

NCLT Process:

The process followed before the NCLT is similar to that for domestic mergers and amalgamations, involving:

1. Filing a petition to the NCLT for permission to convene meetings of shareholders and creditors of the Indian company (and potentially the foreign company if they have a place of business in India).
2. Convening and conducting meetings of shareholders and creditors as directed by the NCLT, and obtaining their approval (by persons representing three-fourths in value).
3. Filing a second petition with the NCLT for sanction of the scheme.
4. Serving notice of the petition to the Central Government (Regional Director), RoC, Official Liquidator, RBI, and other sectoral regulators.
5. Hearing by the NCLT, considering representations from stakeholders and regulators.
6. NCLT order sanctioning the scheme.

The NCLT, while sanctioning the scheme, ensures that it complies with all applicable laws, including the Companies Act, 2013, and the FEMA regulations. It will particularly scrutinise the valuation and the fairness of the terms to the stakeholders, including the cross-border implications.

Impact of Companies Act, 2013 and FEMA

The Companies Act, 2013, provides the overarching framework for corporate mergers and amalgamations in India, making the NCLT sanction mandatory. Section 234 specifically addresses cross-border mergers, allowing both inbound and outbound mergers involving Indian companies.

The **Foreign Exchange Management Act, 1999 (FEMA)**, and the regulations framed thereunder (especially FEMA (Cross Border Merger) Regulations, 2018), govern the foreign exchange control aspects of cross-border mergers. FEMA compliance is critical because such mergers involve the transfer of shares between residents and non-residents, dealing with foreign currency assets and liabilities, and potential capital account transactions.

Interplay:

• The scheme of merger must first be compliant with the FEMA regulations regarding aspects like valuation, mode of consideration, and reporting.
• The NCLT, before sanctioning the scheme under the Companies Act, will verify that the scheme is in compliance with the FEMA regulations. The RBI, as a regulator, also makes representations to the NCLT regarding the FEMA compliance aspects.
• Approvals under FEMA (either automatic route or specific approval from RBI) are often required simultaneously or sequentially with the NCLT process, depending on the specifics of the transaction.
• Upon the NCLT sanction and effectiveness of the scheme, the involved companies must adhere to the reporting requirements specified under FEMA to the RBI.

In essence, a cross-border merger involving an Indian company must navigate and comply with both the Companies Act, 2013 (primarily judicial approval via NCLT) and FEMA (primarily regulatory approval/compliance via RBI), along with other applicable laws like the Income Tax Act, Competition Act, etc. The interplay of these laws necessitates careful structuring and execution of the merger scheme.