Background
The provisions relating to the prospectus of foreign companies were introduced under the Companies Act, 2013 to regulate the manner in which foreign companies raise funds from investors in India. Since foreign entities may invite subscriptions or offer securities within India without being incorporated domestically, there was a need to ensure transparency, investor protection, and accountability similar to that required of Indian companies. Sections 387, 388, and 389 establish disclosure and registration requirements for prospectuses issued by foreign companies, mandating that key information about the company, its financial position, and the terms of the offer be properly documented and filed. These provisions aim to safeguard Indian investors from misleading offers and ensure that foreign companies accessing Indian capital markets operate within a structured regulatory framework.
Applicability
Foreign companies (incorporated or to be incorporated outside India) offering securities in India
Compliance Requirements under Section 387, 388 & 389 of the Companies Act in Accordance with the Rules
Prospectus must be dated and signed before issue, circulation, or distribution in India.
Particulars Required [Section 387(1)(a)]
(i) Constitutional Instrument – Details of instrument constituting/defining company constitution
(ii) Incorporation Enactments – Laws under which company was/will be incorporated
(iii) Inspection Address in India – Indian address where the following can be inspected:
(iv) Incorporation Details – Date and country of incorporation (actual or proposed)
(v) Indian Presence – Whether place of business established in India; if yes, principal office address
Exemption: Sub-clauses (i), (ii), (iii) not applicable if prospectus issued >2 years after company entitled to commence business
Cross-Reference to Section 26
Prospectus must state matters specified in Section 26 [Section 387(1)(b)]
Following conditions are void:
Prohibition: Cannot issue application forms in India unless:
Exception: Bona fide invitation for underwriting agreements
Not Applicable to:
(a) Prospectus to existing members/debenture holders (with/without renunciation rights)
(b) Securities uniform with those already dealt/quoted on recognised stock exchange (except dating requirement)
Consent Requirements [Section 388(1)(a)]
Cannot issue prospectus if:
Binding Effect [Section 388(1)(b)]
Prospectus must bind all persons to provisions of:
Statement deemed included if contained in:
Pre-Issue Registration
Mandatory before issue/circulation/distribution in India
Certification Requirements
Copy certified by:
Certification confirms approval by resolution of managing body
Delivery to Registrar
Endorsements/Attachments
Must include:
Documents to be Annexed (Rule 11 OF Companies (Registration of Foreign Companies) Rules, 2014)
Mandatory Annexures:
(a) Expert Consent – Written consent to issue prospectus
(b) Appointment Contracts:
(c) Material Contracts – Contracts not in ordinary course of business entered within preceding 2 years
(d) Underwriting Agreement – Copy of underwriting arrangement
(e) Power of Attorney – If prospectus signed by authorized agent (not directors directly)
Penalties and 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/-
Disclaimer: The information contained in this Article is intended solely for personal non-commercial use of the user who accepts full responsibility of its use. The information in the article is general in nature and should not be considered to be legal, tax, accounting, consulting or any other professional advice. We make no representation or warranty of any kind, express or implied regarding the accuracy, adequacy, reliability or completeness of any information on our page/article.