The Hindu Business Line : More disclosure norms for foreign cos on cards?

As per the proposals, such companies will have to follow similar disclosure norms that are applicable for domestic companies. This, according to corporates, would not only increase the compliance requirements for such companies but would also create legal hurdles.

The Concept Paper now has a special chapter dedicated to foreign companies which suggests various regulations to be followed by such entities, including maintenance of accounts, filing of accounts with the Registrar of Companies (RoCs), cost audit, inspection, investigation, special audit, registration of charges, and creating debenture trusts. These provisions are applicable to both foreign companies as well as those incorporated in India.

Further, the chapter also includes definitions of certain terms such as certified, director, place of business, prospectus, and principal place of business. These definitions are not present in the existing Act. It also provides for winding up provisions for such companies.

The expression `place of business' in the Concept Paper may become a deterrent for attracting foreign investment, sources pointed out. The provisions not only apply to those companies doing business in India, but also those that have a share transfer or share registration office in the country. In fact, a foreign company that plans to raise money through Indian Depository Receipts (IDR) in India is required to have a share registration office in India.

According to India Inc, "These provisions will not only increase the compliance cost but encourage Inspector Raj. Further, those companies using the IDR route would have to follow all the legal norms creating unnecessary hurdles."

Speaking to Business Line, Mr Pavan Kumar Vijay, Managing Director, Corporate Professionals, specialising in implementing corporate governance compliances, said, "Legal hassles will arise as the norms applicable for Indian companies may not necessarily be applicable for the foreign companies, as the laws in their country may vary. Besides, the provisions relating to registration of charges may create problems, as it will rise to conflict of interest."

Another area, which may create some problem, is the proposal of filing of document with the RoC of the State where the place of business is established. Currently, the requirement is to file the documents with both the RoC Delhi as well as the State where the business is established.