Liquidation of a foreign company

A foreign company may be wound up as an unregistered company, only by NCLT/court, not Voluntarily or under the supervision of the court.When a foreign company ceases to carry on business in India, it may be wound up in India as an unregistered company even though the foreign company has been dissolved or otherwise ceased to exist under the laws under which it was incorporated. A foreign company may be wound up if:

  • The foreign company is dissolved, or has ceased to carry on business, or is carrying on business only for the purpose of winding up its affairs;
  • The foreign company is unable to pay its debts; and
  • NCLT is of the opinion that it is just and equitable that the foreign company should be wound up.

 

A company is deemed to be unable to pay its debts when:

a creditor, to whom the foreign company is indebted in a sum exceeding INR 100,000 then due, has served on the foreign company a demand in writing, and the foreign company has, for three weeks after such demand, failed to pay the sum or to secure or compound for it to the satisfaction of the creditor;
execution or other process issued on a decree or order of any court or NCLT in favour of a creditor against the foreign company (or any member thereof as such) is returned unsatisfied in whole or in part; or
it is otherwise proved to the satisfaction of NCLT that the foreign company is unable to pay its debts.

Requirements for establishment of subsidiaries

 

Joint venture company or a wholly-owned subsidiary in India of a person resident outside India
A person resident outside India may establish its presence in India by either setting up wholly-owned subsidiary (WOS) or joint venture company (JVC) with any other Indian entity.

 

The foreign direct investment (FDI) in a WOS in India or a JVC in India will be subject to the exchange control regulations and the FDI policy of the Government of India. There are certain sectors/activities listed out in the exchange control regulations where automatic approval of RBI for investment is not available. In such cases, an application is required to be made to the Foreign Investment Promotion Board (FIPB)/Secretariat for Industrial Assistance (SIA) for its approval for such investment. The exchange control regulations also list out other activities where automatic approval of RBI is available for investment, subject to certain limits specified therein. Any proposed investment in excess of the limits specified therein will again require approval of FIPB/SIA. The list of industries in respect of which the automatic route of RBI is available and in respect of which approval of FIPB/SIA is required is set out in greater detail subsequently.

A subsidiary once incorporated under the provisions of the Companies Act is treated exactly like a domestic company.

 

Fees and duties
A WOS or JVC in India will be required to pay the same registration fees as any other company in India. The fees vary according to the amount of the nominal share capital of the company. The fees vary according to the amount of the nominal share capital of the company. The table of fees is set out in Sch X of the Companies Act.

Companies which increase share capital after registration must pay a fee when submitting notice of the increase to the Registrar. The fee in this case is the difference between that payable on the value of the existing share capital and that payable on the value of the increased share capital (Companies Act. Sch X Note 2).

 

Composition of board

The requirements of the composition of the board of directors of a WOS in India of a foreign company ora JVC is the same as that applicable to Indian companies.

Nationality of management and staff
Except in certain sectors such as the print media, television channels telecasting news and current affairs, etc, where the government is keen to ensure that ownership and editorial control remains in Indian hands, there are generally no legislative requirements regarding the number of nationals to be employed in the subsidiary of a foreign company. Training of local employees and transfer of skills are, however, encouraged.

Percentage of share capital held by non-residents
The Indian Government has, on February 2006, further liberalized India’s foreign investment guidelines. The Indian Government has decided to place all items/activities under the automatic route for FDI except for a few items, which require the prior approval of the Indian Government.

 

These include:

  • all proposals where provisions of Press Note 1 (2005 Series) are attracted;
  • all proposals where more than 24% foreign equity is proposed to be inducted for manufacture of items reserved for the small scale sector; and
  • all proposals falling outside notified sectoral policy/caps or under sectors in which FDI is not permitted and/or whenever any investor chooses to make an application to FIPB and not to avail of the automatic route.