Validity of a Foreign Company Contract: Section 393

The validity of a foreign company contract is protected by section 393 of the Companies Act, 2013, even where the company has not complied with Chapter XXII. The contract stands, and the company can still be sued on it. What the company loses is the ability to go to court itself: it cannot sue, set off, counter-claim or start any proceeding on that contract until it has complied with the Act.

What is the validity of a foreign company contract after a default?

Unaffected. Section 393 says so in terms: any failure by a company to comply with the provisions of the Chapter shall not affect the validity of any contract, dealing or transaction entered into by the company or its liability to be sued in respect thereof.

Two protections, and they both run in the counterparty's favour. The transaction is not void, so an Indian party who has dealt with a non-compliant foreign company keeps the benefit of the bargain. And the company's liability to be sued survives, so the default is not a shield.

The section then turns and imposes the disability on the company alone. The company shall not be entitled to:

1. bring any suit,
2. claim any set-off,
3. make any counter-claim, or
4. institute any legal proceeding

in respect of any such contract, dealing or transaction, until the company has complied with the provisions of this Act applicable to it.

Why does the bar include set-off and counter-claim?

Because without those two limbs the bar would be easy to sidestep. A company barred only from bringing a suit could wait to be sued and then raise the same claim defensively. Naming set-off and counter-claim alongside the suit closes that route, and the drafting is what shows the intention: suit, set-off, counter-claim and "any legal proceeding" are four separate items in one list.

The disability is expressed as running until compliance. On its own words that is a suspension rather than a forfeiture: the section states no time limit and attaches no further condition. This page notes what the section says and does not go further, because whether a court would treat a cured default as reviving a proceeding already brought is a question the section does not answer.

How section 393 sits against section 392

They are different kinds of consequence for the same default, and both reach every foreign company under section 379(1).

Section 392 is penal. It makes the company punishable with a fine of one to three lakh rupees, adds a daily fine for a continuing offence, and makes every officer in default punishable with a separate fine. It is covered on the foreign company penalty page.

Section 393 is civil and procedural. It costs the company nothing in money and takes away its access to the courts on the affected transactions until it puts the file right. For a company with receivables in India, that is often the sharper of the two.

What section 393A adds at the end of the Chapter

Section 393A, inserted by Act 29 of 2020, section 55, with effect from 22 January 2021 on the consolidation's footnote, is an exemption power rather than a duty. The Central Government may, by notification, exempt any class of foreign companies, or any class of companies incorporated or to be incorporated outside India whether or not they have or will establish a place of business here, from any of the provisions of this Chapter. A copy of every such notification must be laid before both Houses of Parliament as soon as may be after it is made.

Because the power reaches "any of the provisions of this Chapter", it can in principle reach section 393 itself. Whether any notification has done so is not something this page asserts: no notification under section 393A was obtained during this run, and the corpus does not state the existence of an instrument it has not read.

Where this sits in the disclosure picture

• Foreign company under the Companies Act covers the section 379(1) list that applies section 393 to every foreign company.
• Penalty for a foreign company default covers the penal consequence that runs alongside this one.
• Documents a foreign company files with the Registrar covers the section 380 duties whose breach triggers the bar.
• Service on a foreign company covers how the company is reached when a counterparty sues it.
• Accounts of a foreign company covers the annual duty that is another candidate for a continuing default.

The validity of a foreign company contract survives a Chapter XXII default, and the company's own right to litigate on it does not. 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.