Companies Act Section 384

Companies Act, Section 384: Debentures, Annual Returns, Registration of Charges, Books of Account, and Their Inspection in Relation to Foreign Companies

Section 384 of the Companies Act, 2013, lays down the framework under which certain provisions applicable to Indian companies are extended to foreign companies operating in India. The section ensures that foreign companies comply with the same standards of accountability and transparency as domestic companies, particularly in areas such as issuance of debentures, filing of annual returns, maintaining books of account, registration of charges, and adherence to inspection and governance requirements.

The section contains five subsections, each dealing with a specific aspect of compliance. These are explained below in detail:

1. Application of Provisions Relating to Debentures

The provisions of Section 71 of the Companies Act, 2013, which governs the issuance of debentures by companies incorporated in India, shall apply mutatis mutandis (with necessary modifications) to foreign companies.

This means that if a foreign company issues debentures in India or creates debenture-related obligations in respect of its Indian operations, it must comply with the same rules, restrictions, and investor-protection safeguards applicable to Indian companies.
For instance, provisions regarding creation of a debenture redemption reserve, appointment of debenture trustees, and debenture holders’ rights will be binding on foreign companies in the same manner.
2. Filing of Annual Return and CSR Requirements

The provisions of Section 92 (Annual Return) and Section 135 (Corporate Social Responsibility) are also applicable to foreign companies, subject to such exceptions, modifications, or adaptations as may be prescribed by rules under the Act.

Annual Return (Section 92): A foreign company must prepare and file an annual return with the Registrar of Companies in the same way as Indian companies, reflecting information such as shareholding structure, details of directors, indebtedness, and other prescribed matters relating to its Indian business.
Corporate Social Responsibility (Section 135): Where applicable, foreign companies are required to comply with CSR obligations in respect of their Indian operations, just like Indian companies. This means that if a foreign company meets the specified financial thresholds in India, it must contribute towards CSR activities.
This provision ensures parity between domestic and foreign companies, particularly with respect to disclosure requirements and corporate accountability.

3. Maintenance of Books of Account in India

The provisions of Section 128 (Books of Account, etc.) apply to foreign companies, but only to the extent necessary for their Indian business operations.

A foreign company must maintain proper books of account at its principal place of business in India. These accounts must cover:
Monies received and spent in India, sales and purchases made in India, assets and liabilities relating to the Indian business.
This requirement ensures that the Indian authorities and stakeholders can inspect and verify the financial affairs of the foreign company in relation to its Indian operations, without having to rely on records maintained abroad.

4. Registration of Charges

The provisions of Chapter VI of the Companies Act, 2013, which deals with the registration of charges, apply mutatis mutandis to foreign companies.

This means that if a foreign company creates or acquires a charge (for example, a mortgage or lien) over any property in India, such charge must be duly registered with the Registrar of Companies, in accordance with the procedures prescribed for Indian companies.
This protects creditors and ensures transparency by making information about charges publicly accessible.
5. Inspection, Inquiry, and Investigation

The provisions of Chapter XIV of the Companies Act, 2013, dealing with inspection, inquiry, and investigation, also apply mutatis mutandis to the Indian business of a foreign company.

This empowers the authorities, including the Registrar of Companies and the Central Government, to conduct inspections, inquiries, and investigations into the affairs of a foreign company in India, just as they would for an Indian-incorporated company.
This ensures regulatory oversight, accountability, and enforcement of compliance in respect of foreign entities operating within India.