Background

Section 381 read with Rules 4, 5 and 6 of the Companies (Registration of Foreign Companies) Rules, 2014 lays down the accounting and audit requirements applicable to foreign companies operating in India. These provisions are designed to ensure transparency in financial reporting and adherence to regulatory standards for their Indian operations.

Compliance Requirements

Section 381: Accounts of Foreign Company

This section mandates annual financial reporting obligations for foreign companies conducting business in India.

1. Annual Financial Statements (Section 381(1)(a))

Every foreign company shall, in every calendar year, make out a balance sheet and profit and loss account, containing particulars and including or having annexed or attached thereto such documents as prescribed under Rule 4, which shall be audited by a practicing Chartered Accountant in India or a firm or limited liability partnership of practicing Chartered accountants.

Eligible Auditors: (Rule 5)

1. 1. Practicing Chartered Accountant – Individual CA holding certificate of practice
   2. Firm of Chartered Accountants – Partnership firm registered with ICAI
   3. Limited Liability Partnership (LLP) – LLP of practicing CAs registered under LLP Act, 2008

However, the Central Government may, by notification, direct that, in the case of any foreign company or class of foreign companies, the requirements of auditing of annual financial statement will not apply, or will apply subject to such exceptions and modifications as may be specified in that notification.

2. Filing with Registrar (Section 381(1)(b))

A copy of the prescribed financial documents must be filed with the Registrar.

3. Language Compliance (Section 381(2))

If any required document is not in the English language, there shall be annexed to it a certified translation thereof in the English language.

4. List of Business Places (Section 381(3) read with Rule 6)

Every foreign company shall send to the Registrar along with the documents required to be delivered to him, a copy of list of all places of business established by the company in India as at the date with reference to which the balance sheet which must be filed in Form FC 3.

     5. Application of Chapter X – Audit and Auditors (Rule 5(2))

The provisions of Chapter X i.e. Audit and Auditors and rules made thereunder, as far as applicable, shall apply, mutatis mutandis, to the foreign company.

Penalty & Punishment

Fine of not less than Rs. 1,00,000/- on Foreign Company which may extend to Rs. 3,00,000/- and for continuing offence, an additional fine of Rs. 50,000/- for each day of default after first and every officer of the company in default will be punishable with fine not less than Rs. 25,000/- and may extend to Rs. 5,00,000/-