Power to Wind Up a Foreign Company: Section 376

The power to wind up a foreign company in section 376 of the Companies Act, 2013 is one sentence long and does something unusual: it lets an Indian winding up proceed against a body corporate that no longer exists in the country where it was incorporated. The section sits in Chapter XXI, Part II, the part that deals with winding up unregistered companies, and it is the provision the foreign-company chapter points at when it deals with a company closing its Indian operations.

What are the elements of the power to wind up a foreign company?

Four things have to be true, and they are worth separating because the section compresses them into a single sentence.

1. A body corporate incorporated outside India. That is the operative phrase. It is not the phrase "foreign company", which the Act defines elsewhere and which carries its own tests about a place of business and business activity. The marginal heading of the section reads "Power to wind up foreign companies, although dissolved", but the words that do the work are the ones in the body.
2. Which has been carrying on business in India. Past tense. The section is about an entity with a completed Indian trading history, not a prospective one.
3. Which ceases to carry on business in India. The trigger is the cessation itself.
4. It may be wound up as an unregistered company under this Part. The route is not a bespoke one. The section routes the body corporate into the existing unregistered-company machinery.

The closing limb is the reason the section exists. The winding up may proceed notwithstanding that the body corporate has been dissolved or otherwise ceased to exist as such under or by virtue of the laws of the country under which it was incorporated. Without those words, a creditor in India would face the argument that there is nothing left to wind up.

What the unregistered-company route brings with it

Because section 376 works by treating the body corporate as an unregistered company, the rest of Part II applies to it. Three consequences follow directly from the neighbouring sections.

• No voluntary route. Section 375(2) says that no unregistered company shall be wound up under the Act voluntarily. A section 376 winding up is therefore a Tribunal matter.
• The Part II grounds apply. Section 375(3) sets three circumstances in which an unregistered company may be wound up, the first of which is that the company is dissolved, or has ceased to carry on business, or is carrying on business only for the purpose of winding up its affairs. Section 376's own trigger maps onto that ground rather than creating a fourth one. The full set is covered on the unregistered company under section 375 page.
• The powers are cumulative, not substitutive. Section 377(1) says the Part's provisions are in addition to and not in derogation of the Act's other winding-up provisions, and section 377(2) lets the Tribunal or Official Liquidator exercise the same powers as in a winding up of a registered company.

Section 377(2) also carries a proviso that limits how far the fiction runs: an unregistered company shall not, except in the event of its being wound up, be deemed to be a company under this Act, and then only to the extent provided by this Part. So a section 376 winding up does not retrospectively make the foreign body corporate a company under the Act for any other purpose.

The cross-reference from the foreign company chapter

Chapter XXII, which governs foreign companies operating in India, points at this section once. Section 391(2) reads: Subject to the provisions of section 376, the provisions of Chapter XX shall apply mutatis mutandis for closure of the place of business of a foreign company in India as if it were a company incorporated in India in case such foreign company has raised monies through offer or issue of securities under this Chapter which have not been repaid or redeemed. The prospectus and Indian Depository Receipt limbs are in sub-section (1) and are a separate matter.

That is the join between the two chapters, and it is why a reader working on a foreign company's exit from India needs both. The consequence side of Chapter XXII is set out on the penalty for a foreign company default page.

A question the text raises and does not answer

Section 375's Explanation defines "unregistered company" for the Part. Clause (b) says the expression shall include any partnership firm, limited liability partnership, society, co-operative society, association or company consisting of more than seven members at the time the winding-up petition is presented.

Whether that seven-member floor has to be satisfied by a body corporate brought in under section 376 is not settled by the words of either section. The better reading, and it is a reading rather than a conclusion, is that section 376 supplies its own entry route by saying such a body corporate may be wound up as an unregistered company under this Part, which does not depend on clause (b) of the Explanation being independently satisfied. The contrary argument is that the Explanation defines the term the whole Part uses, so nothing can be an unregistered company outside it. This page marks the point rather than deciding it.

Where this sits in the disclosure picture

For anyone tracking a foreign company's Indian filings, the relevant thread runs across three chapters.

• What is a foreign company under section 379 covers the definition and the registration trigger.
• What is a place of business under the Companies Act covers the concept Chapter XXII is built on, and the one section 391(2) speaks of closing. Section 376's own trigger is the cessation of business, which is not the same test.
• What is strike off of a company covers the very different route by which a domestic company leaves the register.

Flock reports the filings themselves, each stamped with its date and linked back to the exchange or regulator that published it. What any of it means for you is your call to make.