Short Summary:
Under the relevant provisions of the Companies Act, 2013, provisions of closure of place of business of foreign Company in India is prescribed. In this Flash editorial, the auditor begins by referring the provisions of section 391, definition of foreign Company and closure of place of business of foreign Company. The author also makes an attempt to light up on provisions of closure of business of foreign Company by discussion of MCA General Circular No. 01/2017 dated 22nd Feb, 2017.
INTRODUCTION:
India is a preferred destination for investment from NRIs, Foreign Nationals and Foreign Companies due to its booming economy and wealth of resources. India is among the fastest growing economies in the world, slated for tremendous growth over the coming decades with plenty of business opportunities.
This article is intended for those foreign companies who have registered place of business in India in any form as discussed below, if want to close such company in India then what are the compliances required to done for the same under the provisiosn of Companies Act, 2013.
What we understood by Foreign Company?
As stated in Section 2(42) of Companies Act, 2013 foreign company is a 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) conduct any business activity in India in any other manner
Simple definition give understanding that even a company incorporated outside India, has simple electronic present, which may be used for business in India is a foreign company
What we understood by form in which business can be conducted by Foreign Company India?
A foreign company planning to set up business operations in India may:
- Incorporate a company under the Companies Act, 2013, as a Joint Venture or a Wholly Owned Subsidiary.(Discussed Separately in another editorial)
- Set up of a Liaison Office / Representative Office or a Project Office or a Branch Office of the foreign company which can undertake activities permitted under the Foreign Exchange Management (Establishment in India of Branch Office or Other Place of Business) Regulations, 2000. (Discussed Separately in another editorial)
Section 391(2) of Companies Act, 2013:
Provisions for CLOSURE of Place of Business in India
The provisions of Chapter XX (i.e. Winding up) shall apply mutatis mutandis for closure of the place of business of a foreign company in India as if it were a company incorporated in India.
Many professionals have been raised question on interpretation/ provisions relating to Closure of place of business by foreign company in India:-
Situation:
Question for discussion in this article is “Whether it is mandatory for the foreign company to follow the provision of Chapter XX (Winding up) for closure of place of business as mentioned in section 391(2)?
Let’s first discuss the provision linking to Question:
Whether for closure of place of business in India (Like: Branch Office, Liaison Office etc) just manner is winding up of the Company. Some people hold the view that it is not mandatory to follow the provision of section 391(2) for closure of the same. One of the arguments put forth by the people supporting this school of thought is not possible for the foreign company to go through winding up always for closure of place of business.
CIRCULAR: To clear the above confusion Ministry of Corporate affairs has issued a circular No 01/2017 dated 22nd February, 2017. According to the circular “the provisions of section 391(2) of the Companies Act, 2013 would apply only in case of a foreign company which has issued prospectus of IDRs pursuant to the provisiosn of chapter XXII of Companies Act, 2013.”
Interpretation Note:
Therefore, as per the language of section 391(2) states that for closure of any place of business in India by foreign Company required to follow the provisiosn of Chapter XX (Windingup). But the same has been clarified by the Ministry in its 01/2017 circular.
CONCLUSION:
Hence, considering the provisions of Section 391(2) and MCA Circular one can opine that the provision of winding up for closure of place of business in India shall be applicable only in case when foreign Company has issued prospectus of IDR’s pursuant to the provision of chapter XXII of CA, 2013.
Thus, here opine that the it is not mandatory for every foreign company to submit an application according to the provision of chapter XX (winding up) for closure of place of business in India .
(Author can be reached at csdiveshgoyal@gmail.com )
Author Bio
If it is not mandatory to comply with chapter xx , in case foreign company does not have issued prospectus, IDRs, then what is the procedure for closing?
Thank you for response