Amended and updated notes on section 381 of Companies Act 2013. Detail discussion on provisions and rules related to accounts of foreign company. Section 381 of the CA 2013 corresponds to section 274 of the Companies Act, 1956 i.e. Disqualifications of Directors.
Chapter XXII (Section 379–393) of the Companies Act, 2013 (CA 2013) deals with the provisions related to companies incorporated outside India. Section 381 of CA 2013 provides for accounts of foreign company.
Recently, we have discussed in detail section 380 (Documents, etc., to be delivered to Registrar by foreign companies) of CA 2013. Today, we learn the provisions of section 381 of the Companies Act 2013.
The provisions of section 381 are effective from 1st April, 2014. You may refer Notification No. S.O. 902(E) issued dated 27-03-2014. In this article, you will learn detail of the provisions of section 381 the Companies Act 2013 read with the Companies (Registration of Foreign Companies) Rules, 2014.
The definition of Foreign Company is provided under section 2(42) of the Companies Act 2013 i.e. 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 conducts any business activity in India in any other manner.
| Name of Act | The Companies Act 2013 |
|---|---|
| Enacted by | Parliament of India |
| Administered by | Ministry of Corporate Affairs (MCA) |
| Number of Chapters | 29 |
| Number of Sections | 484 (470-43+57) |
| Number of Schedules | 7 |
| You are reading: | |
| Chapter No. | XXII |
| Chapter Name | Accounts of Companies |
| Section No. | 381 |
| Section Name | Accounts of foreign company |
| Monthly Updated Edition | Company Law PDF |
Compulsory Accounts for Foreign Company
According to Clause (a) of sub-section (1) of Section 381 of CA 2013, foreign companies are required to make out a Balance Sheet and Profit and Loss account. Such B/S and P/L account shall be in such form, containing such particulars and including or having annexed or attached thereto such documents as may be prescribed. CG has prescribed eForm FC-3 for that purpose read with Rules of the Companies (Corporate Social Responsibility Policy) Rules, 2014.
Must Read: Books of Account of a Company.
However, the Central Government may, by notification, direct that, in the case of any foreign company or class of foreign companies, the requirements of clause (a) of Section 381(1) shall not apply, or shall apply subject to such exceptions and modifications as may be specified in that notification.
Financial Statement of Foreign Airlines Company
The Central Government has now directed vide Notification No. S.O. 2463(E) dated 19-07-2016 that the requirement of section 381(1)(a) shall apply to a foreign airlines company having a share capital, subject to the following exceptions and modifications:
It shall be deemed sufficient compliance of the provisions of clause (a) of sub-section (1) of section 381 of the CA 2013, if in respect of the period ending on or after the 31st March, 2016, a company submits to the appropriate Registrar of Companies (ROC) in India, ─
CFS of Parent Foreign Company
Documents relating to copies of latest Consolidated Financial Statements (CFS) of the parent foreign company, as submitted by it to the prescribed authority in the country of its incorporation under the provisions of the law for the time being in force in that country.
However, if such documents are not in English language, there shall be annexed to it a certified translation thereof in the English language.
Statement of Receipts and Payments
In respect of its Indian Business operations, a statement of receipts and payments for the financial year, duly authenticated by a practicing Chartered Accountant (CA) in India or a firm or a Limited Liability Partnership (LLP) of practicing Chartered Accountants in India.
Other Documents
Documents required to be filed with ROC under sub-rule (2) of rule 4 of the Companies (Registration of Foreign Companies) Rules, 2014.
Accordingly, every foreign company shall, along with the financial statement required to be filed with the ROC, attach thereto the following documents:
(a) Statement of Related Party Transaction which shall include-
(i) Name of the person in India which shall be deemed to be the related party:
– of the foreign company; or
– of any subsidiary or holding company of such foreign company; or
– of any firm in which such foreign company or its subsidiary or holding company is a partner.
(ii) Nature of such relationship;
(iii) Description and nature of transaction;
(iv) Amount of such transaction during the year with opening, closing, highest and lowest balance during the year and provisions made (if any) in respect of such transactions;
(v) Reason of such transaction;
(vi) Material effect of such transaction on both the parties;
(vii) Amount written off or written back in respect of dues from or to the related parties;
(viii) A declaration that such transactions were carried out at arms-length basis; and
(ix) Any other details of the transaction necessary to understand the financial impact;
(b) Statement of Repatriation of Profits which shall include-
(i) Amount of profits repatriated during the year;
(ii) Recipients of the repatriation;
(iii) Form of repatriation;
(iv) Dates of repatriation;
(v) Details if repatriation made to a jurisdiction other than the residence of the beneficiary;
(vi) Mode of repatriation; and
(vii) Approval of the Reserve Bank of India or any other authority, if any.
(c) Statement of Transfer of Funds (including dividends if any) which shall, in relation of any fund transfer between place of business of foreign company in India and any other related party of the foreign company outside India including its holding, subsidiary and associate company, include-
(i) Date of such transfer;
(ii) Amount of fund transferred or received;
(iii) Mode of receipt or transfer of fund;
(iv) Purpose of such receipt or transfer; and
(v) Approval of Reserve Bank of India (RBI) or any other authority, if any.
Note that all the above mentioned documents shall be delivered to ROC within a period of 6 Months of the close of the financial year of the foreign company to which the documents relate. Such period of six months may further be extended by 3 Months by the ROC for any special reason and on application made in writing by the foreign company concerned.
In addition to the above required documents, the company shall also furnish to the CG such information with regard to its accounts as may be required by notice in writing from the Central Government.
Net Profit of Foreign Company for CSR Policy
As per second proviso of Rule 2(1)(f) of the Companies (Corporate Social Responsibility Policy) Rules, 2014, in case of a foreign company covered under these rules, net profit means the net profit of such company as per profit and loss account prepared in terms of clause (a) of subsection (1) of section 381 read with section 198 of the Companies Act, 2013.
In accordance with Rule 3 (1) of the Companies (CSR Policy) Rules, 2014, net worth, turnover or net profit of a foreign company of the CA 2013 shall be computed in accordance with balance sheet and profit and loss account of such company prepared in accordance with the provisions of section 381(1)(a) and section 198 of the Companies Act, 2013.
Documents to be Filed with Registrar by Foreign Company
As per clause (b) of sub-section (1) of Section 381 of CA 2013, those documents which are required to be maintained by a foreign company under section 381(1)(a) shall be filed with the Registrar. Rule 8(2) of the Companies (CSR Policy) Rules, 2014 states that the balance sheet filed under section 381(1)(b) shall contain an Annexure regarding report on CSR.
Financial Statement of Foreign Company in English Language
In compliance with the provisions of section 381(2) of CA 2013, if any such document as is mentioned in section 381(1) is not in the English language, there shall be annexed to it a certified translation thereof in the English language.
List of Places of Foreign Company in India
Every foreign company shall send to the Registrar along with the documents required to be delivered to him under sub-section (1), a copy of a list in the prescribed form (Form No. FC-3) of all places of business established by the company in India as at the date with reference to which the balance sheet referred to in sub-section (1) is made out.
According to Rule 6 of the Companies (Registration of Foreign Companies) Rules, 2014, Every foreign company shall file with the Registrar, along with the financial statement, in Form FC-3 with such fee as provided under Companies (Registration Offices and Fees) Rules, 2014 a list of all the places of business established by the foreign company in India as on the date of balance sheet.
Thus, all Foreign Companies are also required to send to ROC in eForm FC-3, a list of all places of business established by the company in India.
Audit of Accounts of Foreign Company
As per Rule 5 of the Companies (Registration of Foreign Companies) Rules, 2014, every foreign company shall get its accounts audited by a practicing Chartered Accountant in India or a firm or limited liability partnership of practicing chartered accountants.
Further, the provisions of Chapter X (139–148) Audit and Auditors and rules made there under, as far as applicable, shall apply, mutatis mutandis, to the foreign company. Note that the Companies (Auditor’s Report) Order, 2016 [CARO 2016] is also applicable to a foreign company.
As per Section 2(17) of CA 2013, Chartered Accountant means a chartered accountant as defined in clause (b) of sub-section (1) of section 2 of the Chartered Accountants Act, 1949 and who has obtained a certificate of practice under sub-section (1) of section 6 of that CA Act 1949.
Firm means a firm as defined in section 4 of the Indian Partnership Act, 1932. Whereas, Limited Liability Partnership means a partnership formed and registered under Limited Liability Partnership Act, 2008.
Section 381 of Companies Act 2013: Accounts of foreign company
Section 381 shall come into force on 1st April, 2014 vide Notification No. S.O. 902(E) issued dated 27.03.2014.
(1) Every foreign company shall, in every calendar year, —
- (a) make out a balance sheet and profit and loss account in such form, containing such particulars and including or having annexed or attached thereto such documents as may be prescribed; and
- (b) deliver a copy of those documents to the Registrar:
Provided that the Central Government may, by notification, direct that, in the case of any foreign company or class of foreign companies, the requirements of clause (a) shall not apply, or shall apply subject to such exceptions and modifications as may be specified in that notification.
The CG has now directed vide Notification No. S.O. 2463(E) dated 19-07-2016 that the requirement of section 381(1)(a) shall apply to a foreign airlines company with some exceptions and modifications.
(2) If any such document as is mentioned in sub-section (1) is not in the English language, there shall be annexed to it a certified translation thereof in the English language.
(3) Every foreign company shall send to the Registrar along with the documents required to be delivered to him under sub-section (1), a copy of a list in the prescribed form of all places of business established by the company in India as at the date with reference to which the balance sheet referred to in sub-section (1) is made out.