FOREIGN COMPANIES: CAPITAL AND OTHER MATTERS


In our last blog post, we discussed general provisions related to foreign companies. We will discuss provisions which are related to prospectus and penalties.

PROSPECTUS OF FOREIGN COMPANY (SECTION 387):

This provision is applicable to foreign companies, and there is no difference whether the company has or has not established or when formed will or will not establish a place of business in India.  No person shall issue, circulate or distribute in India any prospectus offering to subscribe for securities of a company incorporated or to be incorporated outside India unless the prospectus is dated and signed.

The prospectus shall contains particulars with respect to the following matter, namely –

(a)  the instrument constituting or defining the constitution of the company;

(b) the enactments or provision by or under which the incorporation of the company was effected;

(c)  address in India where the said instrument, enactments or provisions or copies thereof, and if the same are not in the English language, a certified translation thereof in the English can be inspected;

(d)  the date on  which and the country in which the company would be or was incorporated;

(e)  whether the company has established a place of business in India and if so, the address of its principal office in India; and

(f)   states the matters specified under Section 26.

Sub – clauses (i), (ii) and (iii) of clause (a) of his sub – section shall not apply in case of a prospectus issued more than two years after the date at which the company is entitled to commence business.

Any condition requiring or binding an applicant for securities to waive compliance with any requirement imposed by virtue of sub – section (1) or purporting to impute him with notice of any contract, documents or matter not specifically referred to in the prospectus shall be void.

No person shall issue to any person in India a form of application for securities of such a company or intended company unless the form is issued with a prospectus and such provisions of section 388. This provision shall not apply if it is shown that the form of application was issued in connection with a bona fide invitation to a person to enter into an underwriting agreement with respect to securities.

This section shall not apply to the issue to existing members or debenture holders of the company. This section shall not apply, except to the date, to the issue which are uniform with securities previously issued and for the time being dealt in or quoted on a recognised stock exchange.

EXPERT’S CONSENT AND ALLOTMENT (SECTION 388):

No prospectus shall be issued which includes a statement purported to be made by an expert –

(a)  he has not given; or

(b) has before delivery of prospectus for registration withdrawn his written consent; or

(c)  does not appear in the prospectus that a statement he has given and has not withdrawn his consent.

No prospectus shall be issued, which do not bound all person concerned bound by all provision of Section 33 and 40, so far applicable.

A statement shall be deemed to be included in a prospectus, if it is contained in any report or memorandum appearing on the face thereof or by reference incorporated therein or issued therewith.

REGISTRATION OF PROSPECTUS (SECTION 389):

No person shall issue, circulate or distribute a prospectus unless a copy thereof certified the chairperson of the company and two other directors of the company delivered for registration to the Registrar. The copy should have been approved by resolution of the managing body of the company. The prospectus should state that a copy has been delivered to the registrar and endorse on or attached to the copy, any consent to the issued of the prospectus required by Section 388 along with prescribed documents.

INDIAN DEPOSITORY RECEIPT (SECTION 390):

The Central government make rules for –

(a)  the offer of Indian Depository Receipt;

(b) the requirement of disclosures in prospectus or letter of offer issued in connection with Indian Depository Receipt;

(c)  the manner in which Indian Depository Receipt shall be dealt with in a depository mode and by custodian and underwriters; and

(d)   the manner of sale, transfer or transmission of Indian Depository Receipt,

by a foreign company.

APPLICATION OF CERTAIN PROVISIONS (SECTION 391):

The provisions of sections 34 to 36 (both inclusive) shall apply to—

(a)  the issue of a prospectus by a company incorporated outside India under section 389 as they apply to prospectus issued by an Indian company;

(b) the issue of Indian Depository Receipts by a foreign company.

The provisions of Chapter XX 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.

PUNISHMENT FOR CONTRAVENTION (SECTION 392):

If a foreign company contravenes the provisions of this Chapter, the foreign company shall be punishable with fine which shall not be less than one lakh rupees but which may extend to three lakh rupees and in the case of a continuing offence, with an additional fine which may extend to fifty thousand rupees for every day after the first during which the contravention continues and every officer of the foreign company who is in default shall be punishable with imprisonment for a term which may extend to six months or with fine which shall not be less than twenty five thousand rupees but which may extend to five lakh rupees, or with both.

VALIDITY OF CERTAIN CONTRACT (SECTION 393):

Any failure by a company to comply with the provisions of this Chapter shall not affect the validity of any contract, dealing or transaction entered into by the company or its liability to be sued in respect thereof, but the company shall not be entitled to bring any suit, claim any set-off, make any counter-claim or institute any legal proceeding in respect of any such contract, dealing or transaction, until the company has complied with the provisions of this Act applicable to it.

Please note: I welcome your comments and feedback. This blog post is not a professional advice. Readers may share this post on social media by using buttons given here.

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2 responses to “FOREIGN COMPANIES: CAPITAL AND OTHER MATTERS

  1. Pingback: Index of Companies Law Posts | AishMGhrana

  2. Pingback: INDIAN DEPOSITORY RECEIPTS | AishMGhrana

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