Companies Act Section 389

Companies Act, Section 389: Registration of Prospectus of Foreign Companies

Section 389 of the Companies Act, 2013, deals with the registration requirements of a prospectus issued in India by or on behalf of a company incorporated, or to be incorporated, outside India. The provision ensures that no prospectus is distributed to potential investors in India unless it has first been properly registered with the Registrar of Companies (RoC), accompanied by necessary certifications and supporting documents.

The primary objective of this section is to protect investors by ensuring transparency, authenticity, and accountability before any foreign company can seek public investment in India.

1. Prohibition on Issue Without Prior Registration

The law explicitly prohibits any person from issuing, circulating, or distributing in India a prospectus inviting subscription for securities of a foreign company (whether or not it has established, or will establish, a place of business in India) unless the following conditions are met:

a. Delivery of Certified Copy to the Registrar:
Before circulation in India, a copy of the prospectus must be delivered for registration with the Registrar of Companies.
This copy must be certified by the Chairperson of the company and two other directors as having been approved by a formal resolution of the company’s managing body (for example, its Board of Directors or governing council).
b. Statement on the Face of the Prospectus:
The prospectus itself must clearly state, on its face, that a certified copy has been delivered to the Registrar.
This requirement assures investors that the prospectus has gone through a formal process of approval and registration before being offered to the public.
2. Endorsements and Attachments Required with the Prospectus

The copy of the prospectus delivered to the Registrar must include, either endorsed on it or attached to it, the following:

a. Expert’s Consent (Section 388):
Any consent required under Section 388 (relating to expert opinions or statements included in the prospectus) must be attached or endorsed.
This ensures that expert statements appearing in the prospectus are properly authorized and verifiable.
b. Prescribed Documents:
Any other documents prescribed under the rules framed pursuant to this Act must also be attached.
These documents may include statutory declarations, approvals, translations (if applicable), and other supporting materials deemed necessary by regulatory authorities.
3. Purpose and Importance of Section 389

Due Process of Approval: The contents of a prospectus are reviewed and certified by the leadership of the foreign company before being placed before Indian investors.
Registrar Oversight: The Registrar of Companies acts as a regulatory checkpoint, ensuring compliance with statutory requirements before the prospectus reaches the public.
Transparency to Investors: By requiring the prospectus itself to state that a copy has been registered, the law reassures investors that the document has undergone a regulatory review process.
Accountability for Experts: Linking this section with Section 388 ensures that expert statements included in a prospectus cannot be used without proper consent.