Companies Act Section 392

Companies Act, Section 392: Punishment for Contravention of Provisions Relating to Foreign Companies

Section 392 of the Companies Act, 2013, lays down the penal consequences for non-compliance by foreign companies with the provisions contained in Chapter XXII of the Act (which deals with foreign companies operating in India). This section ensures that foreign companies and their officers remain accountable under Indian law for any breach of statutory obligations while conducting business or raising capital in India.

1. Applicability of the Section

This provision applies specifically to foreign companies that contravene any of the requirements under this Chapter of the Act.
It also applies to officers of such companies who are in default, thereby extending liability to individuals responsible for compliance.
It operates “without prejudice to Section 391”, which means that the penalties under Section 392 are in addition to, and not in substitution of, any liabilities or consequences imposed by Section 391 (relating to misstatements in prospectus or winding up obligations).
2. Punishment Prescribed for the Foreign Company

If a foreign company commits a contravention of any provision under this Chapter, it shall be liable to a monetary penalty as follows:

Minimum Fine: ?1,00,000 (one lakh rupees).
Maximum Fine: ?3,00,000 (three lakh rupees).
Further, if the contravention is a continuing offence (i.e., the non-compliance continues over a period of time):

An additional fine may be imposed of up to ?50,000 (fifty thousand rupees) for every day after the first day during which the contravention continues.
This ensures that foreign companies have a strong financial incentive to rectify non-compliance promptly and not allow violations to persist.

3. Punishment Prescribed for Officers in Default

Every officer of the foreign company who is responsible for, or has defaulted in, ensuring compliance with the provisions of this Chapter is also personally liable.

The punishment for such officers is a fine as follows:

Minimum Fine: ?25,000 (twenty-five thousand rupees).
Maximum Fine: ?5,00,000 (five lakh rupees).
By imposing penalties not only on the company but also on its officers, the law ensures personal accountability, deterring negligence or willful default by individuals managing the foreign company’s operations in India.

4. Rationale Behind the Provision

The purpose of Section 392 is to ensure strict compliance with the obligations imposed on foreign companies under Indian law. Its importance can be highlighted as follows:

Deterrence: The imposition of both minimum and continuing fines discourages prolonged or intentional violations.
Accountability: By holding officers in default personally liable, the provision prevents companies from shielding individuals behind the corporate entity.
Investor Protection: Ensures that foreign companies operating in India adhere to the same standards of compliance as Indian companies, thereby protecting Indian investors and stakeholders.
Level Playing Field: Promotes fairness by ensuring that foreign companies are not given undue leniency compared to domestic entities.