Companies Act Section 381

Companies Act, Section 381: Accounts of Foreign Companies 

Section 381 of the Companies Act, 2013 lays down the statutory requirements relating to the preparation and filing of financial statements by foreign companies operating in India. This section ensures financial transparency and regulatory oversight of such companies. The key provisions of this section are explained in detail below:

1. Obligation of Foreign Companies to Prepare and Submit Financial Statements Annually

Every foreign company that has a place of business in India is under a legal obligation to comply with specific financial reporting requirements during each calendar year. These requirements include the preparation of financial statements and submission of the same to the Registrar of Companies (RoC). The obligations are as follows:

(a) Preparation of Financial Statements

Every foreign company must prepare the following financial documents once in every calendar year:

A Balance Sheet, and a Profit and Loss Account. These documents must be prepared:

In the form prescribed by the relevant rules under the Act, containing such particulars as may be specified,
And including, annexing, or attaching such other documents as may be required by the prescribed rules.
This ensures consistency and completeness of financial information and enables proper scrutiny by the regulatory authorities.

(b) Submission to the Registrar

Once the financial documents mentioned above are prepared, the foreign company must deliver a copy of these documents to the Registrar of Companies within the time frame and in the manner prescribed under the rules.

Proviso: Exemptions and Modifications by the Central Government

There is an enabling provision that allows the Central Government to issue a notification in respect of the financial reporting obligations of foreign companies. As per this proviso:

The Central Government may exempt any particular foreign company or a class of foreign companies from the requirement of preparing the balance sheet and profit and loss account under clause (a).
Alternatively, the Government may modify the applicability of these requirements for such companies by specifying the exceptions or modifications in the notification.
This provides flexibility in regulatory compliance, particularly for companies that may be subject to parallel regulations in their country of incorporation.

2. Translation Requirement for Non-English Documents

If any of the documents mentioned in sub-section (1) that is, the balance sheet, profit and loss account, or annexures are not in the English language, then the company is required to:

Annex to the original documents a certified translation in the English language.
This provision ensures that the documents can be understood and examined by Indian regulatory authorities and stakeholders.

3. Disclosure of Business Establishments in India

In addition to submitting the financial statements, every foreign company must also deliver to the Registrar:

A list of all places of business established by the company in India, in the prescribed format, as on the date to which the balance sheet, prepared under sub-section (1), pertains.
This requirement helps in identifying the geographic spread and operational footprint of the foreign company within India, aiding in compliance monitoring and regulation.