A company can be termed as a foreign company when it registered outside India but has a place of business in India or any other office operating in India. Under Companies Act 2013 the term is defined under section 2(42) as 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.
Under the new Act definition, a company has to satisfy both the above condition and now electronic mode business is also a criterion for a foreign company. Electronic mode means all the B2B, B2C transactions, data exchange, online services and all communication services also.
Business activity means that a company including the foreign company which carries on business in electronic mode whether the server is installed inside or outside India deems to be carrying on business in India. It includes any & every kind of business that is carried out in India be it in any industry as long as it is operating in India.
The meaning of the place of business is to be construed judicially. In AS Dampskib Hercules v. Grand Trunk Pacific Railway Co., the court considered the extent of business that has to be carried on to make “a place of business” to establish a sufficient presence. The place of business does not mean to have a physical business but to carry out the transaction of the company even in electronic mode is sufficient to consider a company as a foreign company. When the main object was to run a railway company and the subsidiary object was to raise a loan, which was done in England but the company was registered in Canada, the English court held that it is a foreign company because it is carrying out subsidiary function in England and can be held having a place of business in England. In Matchnet v. Carter, the court said it is to be shown in every case is that business that was carried on at the place of business was the company business itself. No other company is carrying on business at a location registered under the name of a different company.
A company carries out transaction pertaining to education services, financial services, e-commerce, etc. with customers in India has to establish a permanent place of business through registration to continue its operation. For a foreign company to work in India they have to adhere to various compliance and regulatory norms. Under section 380-383 and 387-391 of Part XI (Chapter XXII) of the Companies Act 2013 they have the obligation to fulfil the conditions laid down under those sections. Section 392 provides for the fine of up to 3 lakhs and punishment up to 6 months with a fine of up to 5 lakhs for every officer if in contravention of the above sections.
The 2013 Act and the recent amendments have clarified the scope of the definition of ‘foreign companies’ to a large extent. Nevertheless, still, some gaps exist under the given definition.
