What is a foreign company? Summarize the provisions of the Companies Act, 2013 relating to foreign
companies. sbec related question
Answers
Explanation:
Introduction
There are various kinds of companies like public, private or government-owned companies that operate in a country. Depending on their specific nature, suitable rules and regulations have to be formulated for each kind of company. Every country has particular rules and regulations applicable for homegrown companies. Similarly, a company operating in a country other than its home country is required to follow the rules and regulation of the given local area of operation and the home country where it was originally incorporated.
In India, a foreign company is mandated to follow certain special or modified provisions as compared to a domestic company. For instance, a foreign company at the time of making investment in India or setting up an office is required to comply with the Foreign Exchange Management Act (FEMA). Similarly, if the foreign company is involved in selling of goods or providing services then it is required to comply with the Indian tax laws.
A ‘foreign company’ is an entity which is incorporated outside India, but has a place of business in India or conducts any business activity in India in any other manner. The accurate definition of foreign company is given under the Companies Act, 2013 though the concept of ‘foreign company’ was existent in the older act as well.
Definition under the old Act: Companies Act, 1956
The erstwhile Companies’ Act of 1956 (Old Act), did not provide any definition for ‘foreign company’. Section 591, subsection 1 was the sole repository for classification of a company as foreign company under the old Act.
Section 592 (1) states that foreign companies shall mean the following two classes of companies:
Companies incorporated outside India which, after the commencement of the Old Act, establish a place of business within India; and
Companies incorporated outside India which have, before the commencement of the Old Act, established a place of business within India and continue to have an established place of business within India at the commencement of the Old Act.[1]
A place of business means premises where there is a physical or visible indication that the company may be contacted there. The Indian courts emphasized on the requirements of establishing a physical presence in India for a foreign body corporate to be considered as having a place of business in India, and consequently being categorised as a ‘foreign company’ under the Companies Act, 1956. In the matter of Willis Europe BV v. Willis India Insurance Brokers (P) Ltd.,[2] the High Court of Bombay observed that”. Section 591(1) (a) applies not to companies that carry on business in India, but to companies that establish a place of business in India.”
In determining whether a foreign company has established a place of business in India under Section 591 of the Companies Act, 1956, the High Court of Delhi in Dabur (Nepal) P. Ltd. v. Woodworth Trade Links P. Ltd.[3] held that “a company would be held to have established a place of business in India if it has a specified or identifiable place at which it carries on business, such as an office, storehouse, godown or other premises, having some concrete connection between the place and its business.”
The above text makes it evident that under the 1956 Act, the definition of ‘foreign company’ was exclusively based on condition of having established ‘place of business’ in India. The requisite of having a physical place of business restricted a lot of companies operating in India to be termed as foreign companies. Due to technological boom, various companies were operating in the country without having any physical presence, solely coordinating their functions through internet and providing services to Indian citizens.
During the overhaul of the company laws in India during 2013, definition of foreign companies was also expanded to include all kinds of companies operating in India and to regulate their functioning.
students.
Explanation:
The term 'foreign company' is clearly laid down under Section 2 sub-section 42 of the Companies Act, 2013 (New Act). A foreign company is any company or body corporate incorporated outside India which, has a place of business in India whether by itself or through an agent, physically or through electronic mode; and.