LAWS AND GUIDELINES OF FOREIGN COMPANIES IN INDIAN JURISDICTION

India is one of the top global destinations for foreign investment. The International Monetary Fund (IMF) has acknowledged that the Indian economy is one of the fastest-growing economies globally, despite the global economic slowdown. Various factors have made India a beautiful destination for foreign investment, like the market size, rapid market growth, investment incentives, low labour cost, low staple cost, physical infrastructure, privatisation policy, national trading policy, technology and transport cost etc. 

Foreign companies in India are one of the biggest contributors to the Indian Economy. Statistics published by the Department for Promotion of Industry and Internal Trade, Ministry of Commerce and Industry (DPI), foreign direct investment (FDI) worth USD284 billion were received between 2014/15 to 2018/19. Furthermore, India's entire FDI inflow for the 2018/19 fiscal year was about USD62 billion (against USD60.97 billion for the 2017/18 financial year), which is that the highest ever FDI inflow into India. Statistics published by the DPIIT also show a complete FDI inflow of USD21.31 billion within the half-moon of the 2019/20 fiscal year (against USD16.86 billion for the primary quarter of the 2018/19 financial year).

The services sector (which includes financial, banking, insurance, non-financial or business, outsourcing, research and development) is presently the most attractive space for foreign investment, comprising about 18% of the entire foreign investment inflow the amount from April 2000 to December 2019. The e-commerce sector has come up as an exciting sector for foreign investors and is estimated to be worth about USD200 billion by 2026. Foreign investment of up to 100% is permitted in business-to-business (B2B) e-commerce activities and, therefore, the marketplace model of e-commerce. 

The infrastructure sector is additionally one of the foremost attractive sectors for foreign investment. This includes dams, bridges, power, roads and concrete infrastructure development. The car sector is yet one more sector that offers investment opportunities to foreign investors. India became the fourth-largest automobile market in 2018. India received FDI worth USD2.5 billion within the automobile sector from April 2019 to December 2019 and a total amount FDI worth USD23.89 billion from April 2000 to December 2019. 

Renewable energy is additionally one of the foremost attractive sectors for foreign investment. The foreign investment worth USD9.10 billion has been received within the non-conventional energy sector between April 2000 and December 2019. Other sectors, like computer software and hardware, telecommunications, construction development, trading, drugs and pharmaceuticals and chemicals (other than fertilisers) also saw huge foreign investment from April 2000 to December 2019. In its Doing Business Report 2020, India ranked 63 out of 190 economies, which improved 14 ranks over its performance last year (where India ranked 77).

Foreign companies in India generally enters through the liaison office, branch office or wholly-owned subsidiary or venture.  An international body corporate may open a liaison office in India

• to represent the parent company/group companies in India

• to market export/import from/to India

• to market technical/financial collaborations between parent/group companies and corporations in India or

• to act as a channel between the parent company and Indian companies.

However, liaison offices aren't allowed to hold on to any business or earn any income in India, and every one expense are to be borne by remittances from abroad. The Reserve Bank of Indian grants permission for 3 years, which is eligible for renewal for a block of three years. From a tax perspective, a liaison office may be a good option. There are no tax implications on a liaison office, and a liaison office in India undertakes no commercial activity. Foreign company compliances have been set out to regulate the internal operation of these foreign companies in India. A Foreign body corporate may open a branch office to interact with its parent company's activities. Such activities may include

• export or import of products or rendering of professional or consultancy services

• To conduct research during which the parent company is engaged

• Promoting financial and technical collaborations between Indian and parent overseas group companies or

• To represent the parent company in India and acting as buying/ seller in India

Under this structure, the liabilities are high compared to the wholly-owned subsidiary of foreign companies in India. Reporting requirements: Branch offices are required to file the Annual Activity Certificate from the auditors with the Reserve Bank of India and, therefore, the Registrar of Companies' financial statements on an annual basis.

Issues: It currently takes 6–8 months to line up a branch office in India and approximately an equivalent time to shut its operations.

An International Company may enter India by fixing a wholly-owned subsidiary or venture company together with an Indian business house/company. Under this structure, overseas entities may infuse foreign funds into these companies subject to the restrictions imposed by the Reserve Bank of India. Following are the governing laws for the companies:

• the businesses Act, 2013 and Rules made thereunder for unlisted companies like a private company, a foreign company, a public company, a not-for-profit company

• The Securities and Exchange Board of India 1992 and therefore the Securities Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2009 for companies listed on a stock market in India

• The exchange of Management Act, 1999 and Regulations made thereunder just in case of a foreign subsidiary

• The Reserve Bank of India Act, 1934 and Regulations made thereunder just in case the corporate may be a non-banking financial company

Indian subsidiaries (Foreign Company) are governed by the regulations or provisions of the subsequent laws

• Companies Act, 2013 of Companies Act, 1956 (if applicable)

• The Exchange Management Act, 1999 and

• Reserve Bank of India, 1934. 

Indian Subsidiaries are often incorporated as a corporation under the Company Act, 2013, as a venture or an entirely Owned Subsidiary or are often found out as a Liaison Office/ Representative Office/Project Office/Branch Office in India, which may undertake activities permitted under the Exchange Management (Establishment in India of Branch Office or Other Place of Business) Regulations, 2000, and therefore the same is going to be governed by the provisions of the Exchange Management Act, 1999

One must consider these while entering India to set up their business or if any multinational wants to set up their franchise.

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Author: Ankita Agarwal