Law PDF Fema

Chapter 1 FEMA, 1999
7-Remittance of interest income on funds held in Non-

Residential Special Rupee (Account) Scheme.
When India faced the balance of payment difficulty in 1991 / 92, RBI introduced this new NRI account with a view to
increase our foreign exchange reserves albeit with a higher rate of interest. The account is a term deposit (fixed
deposit) account maintained in rupee.
However, money should be remitted from abroad for opening the account. The funds held in the account were
originally exempted from CRR / SLR requirements and the banks were offering very high rate of interest (as much
as 18%) initially in 1993.
The balance in the account is not reparable. Reserve Bank has withdrawn this scheme since April 1, 2002. Hence,
new accounts cannot be opened after April 2002. Further as part of relaxation in convertibility of rupee, Reserve
Bank now permitted to allow repatriation of funds including interest amount, out of this account.
RBI
CA CS Darshan Khare For Concept Query only 8530902666 1.27

Sec 5: Current Accounts Transaction

Answer Writing Points
1.28 For Concept Query only 8530902666 CA CS Darshan Khare

Transaction Permissible with approval of CG:

[Rule 4 read with Schedule II]
Important Note: Current Account Transactions CG approval.
1) Why CG approval when the RBI is apex authority in FEMA?

Ans :
1) Approving Authority Transaction

Ministry of Human Resource Development Approval for Cultural Tours for any
(Department of Education and Culture) amount of expenditure.
2) Ministry of Advertisement in foreign print media by State Government or its PSU Exceeding
US$ 10,000. No restriction or approval required for:
Finance
i. promotion of tourism,
(Department of ii. foreign investment and
Economic Affairs) iii. international bidding
3) Ministry of Surface a. Remittance of freight of any vessel chartered by PSU.

Transport b. Payment for import through ocean transport by
(Chartering Wing) Government Dept/PSU on CIF basis.

4) Director General of Shipping.
a. Remittance for Multi model Transport operators making remittance to their agents abroad.
b. Remittance for container detention charges exceeding the rates prescribed by

Director General of Shipping
5) Ministry of Information & Broadcasting, Remittance of Hiring Charges of Transponders.

Ministry of Communication & Information a. TV Channels
Technology. b. Internet Service providers.

6) Ministry of Human Remittance of prize money or sponsorship of sports

Resource activity abroad exceeding US$ 100,000.
Development No restriction and approval if payment is made by:
(Department of Youth a. International sports bodies; or
Affairs and Sports) b. National level sports bodies; or
c. State level sports bodies.
7) Ministry of Finance Remittance for

membership of P & I
(Insurance Division)
club.
THE SAILOR CLUB
NOTE: the above transaction (Except last one) does not require the CG approval if the payment is made
out of the funds held in Resident Foreign Currency (RFC) Account of the remitter or funds are drawn out
of funds held in Exchange Earner’ Foreign Currency (EEFC) account of the remitter.

CUT with approval of CG
In
Chapter 1
Authority
Short
Human Resource Ministry of surface Director general of Ministry of Informa on
1.32 For Concept Query only

Ministry of Finance
Development transport shipping and Broadcas ng
FEMA, 1999
Adver sement Import Container Hiring charges Hiring charges

cultural Sports Freight on Mul Model for for
in foreign P&I through Deten on
Tour Ac vi es Vessel Transport transponders transponders
print Media ocean Charges TV Channels internet services
8530902666
Any >$ Any Any Any Any Any
Amount > $ 1 Lakh Any - CIF > Rate by
Amount 10,000 Amount Amount Amount Amount Amount
basis DGS
Any person
Except
International State State State
Any sports bodies
Any Any Any Any Any
Person Government Government Government
Person National level Person Person Person Person Person
sports bodies & PSU & PSU & PSU
CA CS Darshan Khare
State level
sports bodies
Audio/ Visual
Tourism
All Time
Foreign Approval
No No up to the No No
Exemp on < $ 1 Lakh Investment (Except - Air, Land Air, Land
Exemp on Transac on
Exemp on rate given Exemp on Exemp on
Interna onal transport transport
from RFC by DGS
Bidding
Others A/c.)
Person
Cut with Approval of CG


Transaction requiring the RBI’s approval: [Rule 5 Read with Schedule III]
In
Short
RBI Approval Transac on Liberalised Remi ance
Schedule III Rule 5 + Scheme (ICAI)
LRS Limit < $ 2.5 Lakhs Amount >$ 2.5 Lakhs
CUT + CAT < $ 2.5 Lakhs (PRI) RBI Approval
Prohibited CUT / CAT- Not Allowed &

Approval of CG- Not Allowed Per Transac on RBI Approval
Approval Of RBI & other CAT allowed 1) Commission On Real Estate
5% or $ 25,000
Higher
Individual PROI & 2) Pre Incorpora on Exp - Refund
Individual
Any ar ficial 5% or $ 1,00,000
PRI
person Higher
LRS LRS or
Actual Exp
1) Gi
whichever is lower
2) Dona on
3) Private visit 3) Consultancy Services
4) Business/ conferance
5) Medical treatment Private Infrastructure
6) maintain close rela ve $ 1mn $10mn
7) Employment 4) Donor Employment
8) Emigra on 1% of Last 3 years FE Earning
9) Educa on or US $ 5mn
whichever is lower
5) Proba ones - PROI (Deputa on)
Net salary A er Taxes/
Statutory Dues

Transac on Permissible under LRS Chapter 1
2) Dona on
FEMA, 1999
CA CS Darshan Khare
7) Emigra on
For Concept Query only

8) Close Rela on
9) Study
10) Employment
8530902666 1.35
Separate Limit Transactions
Commission on Real Estate
LE
SA
RE
AL
ES
Higher of. TA
TE
5% of inward remi ance; or US$ 25,000
Commission per transac on,
to agents abroad for sale of the residen al flats /
commercial plots in India.
Remi ance by personal deputa on in India

Separate
Limit
Transactions
Charts $
If the person is resident and not permanently resident in India.

a. The person is ci zen of foreign country other than Pakistan.
b. The person is ci zen of India on deputa on to office of branch or subsidiary or
JV in India of such foreign company.
Can remit net salary a er deduc on of Taxes and PF and other statutory dues
Remi ance by an en ty in India by way of reimbursement of

pre-incorpora on expenses.
Higher of –
a. 5% of investment brought in India or
b. US$ 100,000


Remi ance for consultancy services produced from outside India.
US$ 1,000,000 per project
Remi ance for consultancy service produced from outside India

in respect of Infrastructure projects.
Infrastructure projects means:
1. Power 2. Telecommunica on
3. Railways 4. Roads and bridges
5. Industrial park 6. Sea port and airport
7. Water supply, sanita on & sewage.
Separate
Limit
Transactions
Charts
US$ 10,000,000 per

project.
Dona ons by corporate

a. Crea on of Chairs in reputed educa onal
ins tu ons
b. To funds (not being investment fund)
promoted by educa onal ins tutes; and
c. Technical ins tu on or body or associa on in the field
of ac vity of the donor employment.
AS
ADGE
AN A
M AN
JA PH
OR Lower of –
a. 1% of the foreign Exchange earnings
during the previous 3 financial years of the
corporate.
b. US$ 5,000,000


Liberalised Remittance Scheme

Applicability:
Only Resident Individual can avail the facility. The facility is not available for Corporates, partnerships firms, HUF,
Trust, etc.
Facility: Facility is for making the remittance up-to US$ 250,000 per FY without any approval of RBI for:
1. Current Account transaction (CUT).
2. Capital Account Transaction (CAT).
3. Combination of both.
Remittance for any purpose specifically prohibited under Schedule-I (like purchase of lottery tickets/sweep
stakes, proscribed magazines, etc.) or any item restricted under Schedule II of Foreign Exchange Management
(Current Account Transactions) Rules, 2000.
Remittance from India for margins or margin calls to overseas exchanges / overseas counterparty.
Remittances for purchase of FCCBs issued by Indian companies in the overseas secondary market.
Remittance for trading in foreign exchange abroad.
Capital account remittances, directly or indirectly, to countries identified by the Financial Action Task Force
(FATF) as “non- cooperative countries and territories”, from time to time.
Remittances directly or indirectly to those individuals and entities identified as posing significant risk of
committing acts of terrorism as advised separately by the Reserve Bank to the banks.
Non Applicability: In short the facility is not available for prohibited transactions and transaction requiring the
approval of the CG.
Remittances made ‘Non-cooperative countries and territories’ by Financial Action Task Force (FATF) viz. Cook
Islands, Egypt, Guatemala, Indonesia, Myanmar, Neuru, Nigeria, Philippines and Ukraine.
Transactions for Individual Requiring RBI Approval

Individuals can avail of foreign exchange facility for the following purposes within the limit of USD 2,50,000
only.
1. Private visits to any country (Except Nepal & Bhutan)
2. Gift or donation.
3. Going abroad for employment
4. Emigration
5. Maintenance of close relatives abroad
6. Travel for business, or attending a conference or specialised training or for meeting expenses for meeting
medical expenses, or check-up abroad, or for accompanying as attendant to a patient going abroad for
medical treatment/ check-up.
7. Expenses in connection with medical treatment abroad
8. Studies abroad
9. Any other current account transaction

Any additional remittance in excess of the said limit for the said purposes shall require prior approval of the
Reserve Bank of India.
Approval of Medical Institute or University
However, for the purposes mentioned at item numbers (iv), (vii) and (viii) above, the individual may avail
of exchange facility for an amount in excess of the limit prescribed under the Liberalised Remittance
Scheme as provided in regulation 4 to FEMA Notification 1/2000-RB, dated the 3rd May, 2000 (here in after
referred to as the said Liberalised Remittance Scheme) if it is so required by a country of emigration,
medical institute offering treatment or the university, respectively:
Further, if an individual remits any amount under the said Liberalised Remittance Scheme in
a financial year, then the applicable limit for such individual would be reduced from USD
250,000 (US Dollars Two Hundred and Fifty Thousand Only) by the amount so remitted:
Further, that for a person who is resident but not permanently resident in India and-
a) is a citizen of a foreign State other than Pakistan; or

b) is a citizen of India, who is on deputation to the office or branch of a foreign company or subsidiary or
joint venture in India of such foreign company, may make remittance up to his net salary (after deduction
of taxes, contribution to provident fund and other deductions).
For the purpose of this item, a person resident in India on account of his employment or deputation of a
specified duration (irrespective of length thereof) or for a specific job or assignments, the duration of
which does not exceed three years, is a resident but not permanently resident:
Further, a person other than an individual may also avail of foreign exchange facility, mutatis mutandis, within
the limit prescribed under the said Liberalised Remittance Scheme for the purposes mentioned herein above.
Note: Liberalised Remittance Scheme (LRS):
Under the Liberalised Remittance Scheme (LRS), all resident individuals, including minors, are allowed to freely
remit up to USD 250,000 per financial year (April – March) for any permissible current or capital account
transaction or a combination of both. This is inclusive of foreign exchange facility for the purposes mentioned in
Para 1 of Schedule III of Foreign Exchange Management (CAT) Amendment Rules 2015, dated May 26, 2015.
In case of remitter being a minor, the LRS declaration form must be countersigned by the minor’s natural
guardian. The Scheme is not available to corporates, partnership firms, HUF, Trusts etc.
Consolidation of remittance of family members - Remittances under the Scheme can be consolidated in
respect of family members subject to individual family members complying with its terms and conditions.
Exception: Clubbing is not permitted by other family members for capital account transactions such as opening
a bank account/investment/purchase of property, if they are not the co-owners/co-partners of the overseas bank
account/investment/property.

Concept Analysis
Liberalised Remittance Scheme
1) State the example of LRS for individual limit and LRS limit to be used together?
Ans :
SR
1 2 3 4 Total Approval? For ? Reason ?
NO
Gi Educa on Property Dona on
1
$45,000 $1,30,000 $60,000 $10,000
Gi Educa on Property Dona on
2
$45,000 $1,30,000 $60,000 $40,000
Gi Educa on Property Employment
3
$45,000 $1,30,000 $60,000 $80,000
Gi Educa on Property Employment
4
$45,000 $1,30,000 $60,000 $1,20,000
Gi Educa on Property Investment
5
$45,000 $1,30,000 $60,000 $10,000
Gi Educa on Property Investment
6
$45,000 $1,30,000 $60,000 $30,000
7

Importance about EEFC & RFC
Execution of Scheme II (Central Government) & Scheme III (RBI)

Transaction through EEFC / RFC / AC
EEFC RFC
Totally All Transaction

For all other
1) Membership - P & L Club (MOF) Exempted Even if P & I,
Transation
2) Commission on Sale of Commission on Real Estate,
no Approval
Flat/Plots > Higher of Pre-Incorporation Expenses
is Required
5% of Inward $ 25000 Still Exempt
3) Refund of pre-Incorporation RBI

Expenses > Higher of / Actual lower
$ 1 Lakh 5% Investment
Respective Approval Required
The procedure for drawal or remit of any foreign exchange under this schedule shall be the same as applicable
for remitting any amount under the said Liberalised Remittance Scheme.
If the transaction is not listed in any three schedules, it can be freely undertaken.
Exemption for remittance from RFC Account – If any remittance has to be made for the transactions listed in
Schedule II and Schedule III above from RFC account, then no
approval is required.
Exemption for remittance from EEFC Account – If any remittance has to be made for the transactions listed in
Schedule II and Schedule III above from EEFC account, then also no approval is required. However if payment
has to be made for the following transactions, approval is required even if payment is from EEFC account:
Ÿ Remittance for membership of P & I Club.
Ÿ Commission, per transaction, to agents abroad for sale of residential flats or commercial plots in India
exceeding USD 25,000 or five per cent of the inward remittance whichever is more.
Ÿ Remittances exceeding five per cent of investment brought into India or USD 100,000 whichever is higher,
by an entity in India by way of reimbursement of pre-incorporation expenses.
Exemption for payment by International Credit Card while on a visit abroad – If a person is on a visit abroad,
he can incur expenditure stated in Schedule III if he incurs it through International credit card.
As per the Notification no. RBI/2014-15/620 A.P. (DIR Series) Circular No. 106, dated 1st June 2015,
Authorised Dealer banks may now allow remittances by a resident individual up to USD 250,000 per financial
year for any permitted current or capital account transaction or a combination of both. If an individual has
already remitted any amount under the Liberalised Remittance Scheme, then the applicable limit for such an
individual would be reduced from the present limit of USD 250,000 for the financial year by the amount already
remitted.

Master Chart Current account transaction

Master Chart Current account transaction

Sec 2(e) & Sec 6: Capital Account Transactions (CAT)
Meaning of CAT Sec 2(e)
"Capital account transaction" means a transaction which alters the assets or liabilities, including
contingent liabilities, outside India of person resident in India or assets or liabilities in India of person’s
resident outside India, and includes transactions referred to in sub-section (3) of section 6. (Omitted
w.e.f. 15.10.2019)
The section gives a liberty by providing that any person may sell or draw foreign exchange to or from an authorised
person for capital account transactions. However, the liberty to do so is subject to the provisions of sub-section
(2A), which states that the Reserve Bank may in consultation with the Central Government specify class or
classes of capital account transactions, which are permissible, and the limit upto, which the foreign exchange
shall be admissible for such transactions.
FEMA
Altera on of Assets Altera on of Assets Transac ons in 5 transac on

or Liabili es of PRI or Liabili es of PROI Sec on 6(3) prohibited for PROI

Section 6 : Capital Account Transaction
Sub-section Chart
Disclosure Custom Investment (3) (4) (5) (6) (7)

(1) (2) (2A) Deleted PRI - Foreign PROI - Indian RBI will Clarifica on
Allowed RBI + CG Put Asset Asset Regulate Debt
with CG condi on Acquired when Acquired when Opening Instrument
Approval on currency He was PROI/ He was PRI/ or closing of Instruments
of AP Restrict Admit (2A) Inherited from Inherited from any Branch/ no fied by
(1) (2) # Instrument PROI PRI office agency RBI
# Disclosure # Control CAT # Exempt # Exempt of any foreign & CG
en ty in India together
1) Subject to the provisions of sub-section (2), any person may sell or draw foreign exchange to or from an
authorised person for a capital account transaction.
2) The Reserve Bank may, in consultation with the Central Government, specify—
(a) any class or classes of capital account transactions, involving debt instruments, which are
permissible
(b) the limit up to which foreign exchange shall be admissible for such transactions
(c) any conditions which may be placed on such transactions:
Provided that the Reserve Bank or the Central Government shall not impose any restrictions on
the drawal of foreign exchange for payment due on account of amortisation of loans or for
depreciation of direct investments in the ordinary course of business.
2A) The Central Government may, in consultation with the Reserve Bank, prescribe—
(a) any class or classes of capital account transactions, not involving debt instruments, which are
permissible
(b) the limit up to which foreign exchange shall be admissible for such transactions; and
(c) any conditions which may be placed on such transactions.
3) Before 15th October 2019, Section 6(3) specified a list of capital account transactions which could be
regulated by RBI [apart from the general powers which it had under Section 6(2)]. This list has now been
deleted from 15th October 2019
4) A person resident in India may hold, own, transfer or invest in foreign currency, foreign security or any
immovable property situated outside India if such currency, security or property was acquired, held or
owned by such person when he was resident outside India or inherited from a person who was resident
outside India.
The RBI vide A.P. (DIR Series) Circular No. 90 dated 9thJanuary, 2014 has issued a clarification on section
6(4) of the Act. This circular clarifies that section 6(4) of the Act covers the following transactions:
i) Foreign currency accounts opened and maintained by such a person when he was resident outside
India;
ii) Income earned through employment or business or vocation outside India taken up or commenced
which such person was resident outside India, or from investments made while such person was

resident outside India, or from gift or inheritance received while such a person was resident outside
India;
iii) Foreign exchange including any income arising therefrom, and conversion or replacement or accrual
to the same, held outside India by a person resident in India acquired by way of inheritance from a
person resident outside India.
iv) A person resident in India may freely utilize all their eligible assets abroad as well as income on such
assets or sale proceeds thereof received after their return to India for making any payments or to
make any fresh investments abroad without approval of Reserve Bank, provided the cost of such
investments and/or any subsequent payments received therefor are met exclusively out of funds
forming part of eligible assets held by them and the transactions is not in contravention to extant
FEMA provisions.
5) A person resident outside India may hold, own, transfer or invest in Indian currency, security or any
immovable property situated in India if such currency, security or property was acquired, held or owned by
a such person when he was resident in India or inherited from a person who was resident in India.
6) Without prejudice to the provisions of this section, the Reserve Bank may, by regulation, prohibit, restrict,
or regulate establishment in India of a branch, office or other place of business by a person resident outside
India, for carrying on any activity relating to such branch, office or other place of business.
7) For the purposes of this section, the term "debt instruments" shall mean, such instruments as may be
determined by the Central Government in consultation with the Reserve Bank.
Regulation on CAT
CAT
PRI PROI Permissible CAT Prohibited CAT

foreign A/L Indian A/L
PRI PROI
Sec 6 Sch.-for Clarify
2(e)- Defini on Sch I Sch II Blended
Sec on
Whether there is list of allowed
Dept FEM (PCAT) R, 2000
& prohibited transac on?
The RBI has framed Foreign Exchange Management (Permissible Capital Account Transaction) Rules, 2000.
The regulation has following three parts.
a) Transaction, which are permissible in respect of persons resident in India and outside India.
b) Transaction on which restrictions cannot be imposed; and
c) Transactions, which are prohibited.

Schedule I: Permissible CAT to PRI

T
OF
OS
M I CR 1. Investment
2. Foreign currency loans raised

INDIA
3. Transfer of immovable property
outside India
4. Guarantees issued
PROI
5. Export, Import and holding
of currency/currency notes.
6. Loans and overdrafts
7. Maintenance of foreign currency accounts
8. Taking out of insurance policy
9. Loans and overdrafts
10. Remittance outside

K
OC GE
ST HAN
C
EX
11. Undertake derivative contracts
Permissible after the regulations specified by RBI are complied.

1. Investment by a person resident in India in foreign securities.
2. Foreign currency loans raised in India and abroad by a person resident in India foreign securities.
3. Transfer of immovable property outside India by a person resident in India.
4. Guarantees issued by a person resident in India in favour of a person resident outside India.
5. Export, import and holding of currency/currency notes.
6. Loans and overdrafts (borrowings) by a person resident in India from a person resident outside India.
7. Maintenance of foreign currency accounts in India and outside India by a person resident in India.
Currency / currency notes.
8. Taking out of insurance policy by a person resident in India from an insurance company outside India.
9. Loans and overdrafts by a person resident in India to a person resident outside India.
10. Remittance outside India of capital assets of a person resident in India.
11. Undertake derivative contracts.

Schedule II: Permissible CAT to PROI
1. Investment
FOREIGN
2. Acuisition and Transfer of
immovable property in India
3. Guarantees
4. Import & Export of currency/

currency notes into/from India.
INDIA 5. Deposits between a person resident in India
6. Foreign currency accounts in India
7. Remittance outside India

of capital assets
K
OC GE
ST HAN
EX
C 8. Undertake derivative contracts
Permissible after the regulations specified by RBI are complied.

1) Investment in India by a person resident outside India, that is to say,
i) issue of security by a body corporate or an entity in India and investment there in by a person
resident outside India; and
ii) Investment by way of contribution by a person resident outside India to the capital of a firm or a
proprietorship concern or an association of persons in India.
2) Acquisition and transfer of immovable property in India by a person resident outside India.
3) Guarantee by a person resident outside India in favour of, or on behalf of, a person resident in India.
4) Import and export of currency/currency notes into/from India by a person resident outside India.
5) Deposits between a person resident in India and a person resident outside India.
6) Foreign currency accounts in India of a person resident outside India.
7) Remittance outside India of capital assets in India of a person resident outside India.
8) Undertake derivative contracts

Prohibited CAT
Monetary Prohibi on Transac ons Prohibi on
CUT + CAT - PRI Individual

Prohibited only to PROI
Amount < $ 2,50,000 per year 1) Investment Chit funds
outgoing. (` $) 2) Investment Nidhi
3) Agriculture & Planta on
Above $ 2,50,000 4) Real Estate Development / Invest
RBI Approval construction of farm houses
Liberalized Remi ance Scheme 5) Invest in TDR
On certain transactions, the Reserve Bank of India imposes prohibition.

a) no person shall undertake or sell or draw foreign exchange to or from an authorised person for any capital
account transaction,
provided that-
i) subject to the provisions of the Act or the rules or regulations or directions or orders made or issued
thereunder, a resident individual may, draw from an authorized person foreign exchange not
exceeding USD 250,000 per financial year or such amount as decided by Reserve Bank from time to
time for a capital account transaction specified in Schedule I.
Explanation: Drawal of foreign exchange as per item number 1 of Schedule III to Foreign Exchange
Management (Current Account Transactions) Rules, 2000 dated 3rd May 2000 as amended from time
to time, shall be subsumed within the limit under proviso (a) above.
ii) Where the drawal of foreign exchange by a resident individual for any capital account transaction
specified in Schedule I exceeds USD 250,000 per financial year, or as decided by Reserve Bank from
time to time as the case may be, the limit specified in the regulations relevant to the transaction shall
apply with respect to such drawal.
Provided further that no part of the foreign exchange of USD 250,000, drawn under proviso (a) shall be
used for remittance directly or indirectly to countries notified as non-co-operative countries and
territories by Financial Action Task Force (FATF) from time to time and communicated by the Reserve
Bank of India to all concerned.
b) The person resident outside India is prohibited from making investments in India in any form, in any
company, or partnership firm or proprietary concern or any entity whether incorporated or not which is
engaged or proposes to engage:
i) In the business of chit fund;
Ü Registrar of Chits or an officer authorised by the state government in this behalf, may, in consultation
with the State Government concerned, permit any chit fund to accept subscription from Non-resident
Indians.
Ü Non- resident Indians shall be eligible to subscribe, through banking channel and on non-
repatriation basis, to such chit funds, without limit subject to the conditions stipulated by the Reserve

Bank of India from time to time

ii) As Nidhi company
iii) In agricultural or plantation activities
iv) In real estate business, or construction of farm houses
v) In trading in Transferable Development Rights (TDRs)
Explanation: In “real estate business” the term shall not include development of townships,
construction of residential /commercial premises, roads or bridges and Real Estate Investment
Trusts (REITs) registered and regulated under the SEBI (REITs) Regulations 2014.
c) No person resident in India shall undertake any capital account transaction which is not permissible in
terms of Order S.O. 1549(E) dated April 21, 2017, as amended from time to time, of the Government of
India, Ministry of External Affairs, with any person who is, a citizen of or a resident of Democratic
People’s Republic of Korea, or an entity incorporated or otherwise, in Democratic People’s Republic of
Korea, until further orders, unless there is specific approval from the Central Government to carry on
any transaction.
d) The existing investment transactions, with any person who is, a citizen of or resident of Democratic
People’s Republic of Korea, or an entity incorporated or otherwise in Democratic People’s Republic of
Korea, or any existing representative office or other assets possessed in Democratic People’s Republic
of Korea, by a person resident in India, which is not permissible in terms of Order S.O. 1549(E) dated
April 21, 2017, as amended from time to time, of the Government of India, Ministry of External Affairs
shall be closed / liquidated / disposed /settled within a period of 180 days from the date of issue of this
Notification, unless there is specific approval from the Central Government to continue beyond that
period.”]
Analysis
1) What is REITS & TDR?
Ans :
Real Estate Investment Trust
Public Dividend Company Return Real Estate

Return

1) The law providing for REITS was enacted by the U.S. Congress in 1960.
2) The law was intended to provide a real estate investment structure similar to the structure mutual funds
provide for investment in stocks.
3) REITs are strong income vehicles because, to avoid incurring liability for U.S. Federal income tax, REITs
generally must pay out an amount equal to at least 90 percent of their taxable income in the form of
dividends to shareholders.
4) As of August 2014, India approved creation of real estate investment trusts in the country.
5) Indian REITs (country specific/generic version I-REITs) will help individual investors enjoy the benefits of
owning an interest in the securitised real estate market. The greatest benefit will be that of fast and easy
liquidation of investments in the real estate market unlike the traditional way of disposing of real estate.

Master Chart Capital Account transaction

Master Chart Capital Account transaction

Additional Notes

Chapter 4 LLP Act, 2008
04 Limited Liability
Partnership Act,
2008
(Chapter 12 of ICAI Module)

Introduction
The Ministry of Law and Justice on 9th January 2007 notified the Limited Liability Partnership Act, 2008.
The Parliament passed the Limited Liability Partnership Bill on 12th December, 2008 and the President of
India has assented the Bill on 7th January, 2009 and called as the Limited Liability Partnership Act, 2008.
The LLP Act, 2008 is applicable to the whole of India.
This Act have been enacted to make provisions for the formation and regulation of Limited Liability
Partnerships and for matters connected there with or incidental thereto.
The LLP Act, 2008 has 81 sections and 4 schedules.
a) The First Schedule deals with mutual rights and duties of partners, as well limited liability partnership and
its partners where there is absence of a formal agreement with respect to them.
b) The Second Schedule deals with conversion of a firm into LLP.
c) The Third Schedule deals with conversion of a private company into LLP.
d) The Fourth Schedule deals with conversion of unlisted public company into LLP.
The Ministry of Corporate Affairs and the Registrar of Companies (ROC) are entrusted with the task of
administrating the LLP Act, 2008. The Central Government has the authority to frame the Rules with regard to
the LLP Act, 2008, and can amend them by notifications in the Official Gazette, from time to time.
It is also to be noted that the Indian Partnership Act, 1932 is not applicable to LLPs.
Need of new form of Limited Liability Partnership
The lawmakers envisaged the need for bringing out a new legislation for creation of the Limited Liability
Partnership to meet with the contemporary growth of the Indian economy.
A need has been felt for a new corporate form that would provide an alternative to the traditional partnership
with unlimited personal liability on the one hand and the statute-based governance structure of the limited
liability company on the other hand.
In order to enable professional expertise and entrepreneurial initiative and combine, organize and operate in
flexible, innovative and efficient manner, the LLP Act, 2008 was enacted.
Thus, LLP as a form of business organization is an alternative corporate business vehicle. It provides the
benefits of limited liability but allows its members the flexibility of organizing their internal structure as a
partnership based on a mutually arrived agreement.
The LLP form enables entrepreneurs, professionals and enterprises providing services of any kind or engaged
in scientific and technical disciplines, to form commercially efficient vehicles suited to their requirements.
Owing to flexibility in its structure and operation, the LLP is a suitable vehicle for small enterprises and for
investment by venture capital.


Meaning and Concept

A LLP is a new form of legal business entity with limited liability. It is an alternative corporate business vehicle
that not only gives the benefits of limited liability at low compliance cost but allows its partners the flexibility of
organising their internal structure as a traditional partnership.
The LLP is a separate legal entity and, while the LLP itself will be liable for the full extent of its assets, the
liability of the partners will be limited.LLP as a separate legal entity and business organisation is an alternative
corporate business form that gives the benefits of limited liability of a company and the flexibility of a
partnership.
Since LLP contains elements of both 'a corporate structure' as well as 'a partnership firm structure' LLP is
called a hybrid between a company and a partnership
New form of legal

business entity with
limited liability Alternative
Liability of partners Corporate
will be limited to the business vehicle
extent of their capital
contribution
LLP
LLP itself will Allows the partners
be liable for the the flexibility of
full extent of organising their
its assets internal structure
Definition
Address [(Section 2(1)(a)]:

“Address” in relation to a partner of a limited liability partnership, means— (i) if an individual, his usual
residential address; and (ii) if a body corporate, the address of its registered office.
Body Corporate [(Section 2(1)(d)]:

It means a company as defined in clause (20) of section 2 of the Companies Act, 2013 and includes—
a) a LLP registered under this Act;
b) a LLP incorporated outside India; and
c) a company incorporated outside India, but does not include—
(i) a corporation sole;
(ii) a co-operative society registered under any law for the time being in force; and


(iii) any other body corporate (not being a company as defined in clause (20) of section 2 of the
Companies Act, 2013 or a limited liability partnership as defined in this Act), which the Central
Government may, by notification in the Official Gazette, specify in this behalf.
Business [Section 2(1)(e)]“:

“Business” includes every trade, profession, service and occupation except any activity which the Central
Government may, by notification, exclude.
Chartered Accountant [Section 2(1)(f)]:

means a Chartered Accountant as defined in clause (b) of sub-section (1) of section 2 of the Chartered
Accountants Act, 1949 and who has obtained a certificate of practice under sub-section (1) of section 6 of
that Act.
Designated Partner [Section 2(1)(j)]:

“Designated partner” means any partner designated as such pursuant to section 7.
Entity [Section 2(1)(k)]:

''Entity” means any body corporate and includes, for the purposes of sections 18, 46, 47, 48, 49, 50, 52 and
53, a firm setup under the Indian Partnership Act, 1932.
Financial Year [Section 2(1)(l)]:

“Financial year”, in relation to a LLP, means the period from the 1st day of April of a year to the 31st day of
March of the following year.
However, in the case of a LLP incorporated after the 30th day of September of a year, the financial year may
end on the 31st day of March of the year next following that year.
Example :
If a LLP has been incorporated on 15th October, 2017, then its financial year may be from 15th October, 2017
to 31st March, 2019.
The Income Tax department has prescribed uniform financial year from 1st April to 31st March of next year. In
keeping with the Income tax law, the financial year for LLP should always be from 1st April to 31st March each
year.
Foreign LLP [section 2(1)(m)]:

It means a LLP formed, incorporated or registered outside India which establishes a place of business within
India.
Limited liability partnership [Section 2(1)(n)]:

Limited Liability Partnership means a partnership formed and registered under this Act.


Limited Liability partnership agreement [Section 2(1)(o)]:

It means any written agreement between the partners of the LLP or between the LLP and its partners, which
determines the mutual rights and duties of the partners and their rights and duties in relation to that LLP.
The First Schedule shall be applicable for all matters not covered by the Agreement w.r.t the mutual rights and
duties of the partners and their rights and duties in relation to the LLP.
Name [Section 2(1)(p)]:

in relation to a partner of a limited liability partnership, means— (i) if an individual, his forename, middle
name and surname; and (ii) if a body corporate, its registered name;
Partner [Section 2(1)(q)]:

Partner, in relation to a LLP, means any person who becomes a partner in the LLP in accordance with the LLP
agreement.
Regional Director [Section 2(1)(ra)]:

means a person appointed as such by the Central Government for the purpose of this Act or the Companies Act
2013, as the case may be.
Registrar [Section 2(1)(s)]:

means a person appointed by Central Government as Registrar, an Additional Registrar, a Joint Registrar, a
Deputy Registrar or an Assistant Registrar, for the purpose of this Act or the Companies Act, 2013, as the case
may be.
Small limited liability partnership [Section 2(1)(ta)]:

It means a limited liability partnership—
(i) the contribution of which, does not exceed Rs. 25 Lakh or such higher amount, not exceeding Rs. 5 Cr, as
may be prescribed; and
(ii) the turnover of which, as per the Statement of Accounts and Solvency for the immediately preceding
financial year, does not exceed Rs. 40 lakhs or such higher amount, not exceeding Rs. 50 Cr, as may be
prescribed; or
(iii) which meets such other requirements as may be prescribed, and fulfills such terms and conditions as
may be prescribed;
Tribunal [Section 2(1)(u)]:

means the National Company Law Tribunal constituted u/s 408 of Companies Act 2013.


Applicability of the Companies Act, 2013 [Section 2(2)]
Words and expressions used and not defined in this Act but defined in the Companies Act, 2013 shall have the
meanings respectively assigned to them in that Act.
Non-applicability of the Indian Partnership Act, 1932 (Section 4)
Save as otherwise provided, the provisions of the Indian Partnership Act, 1932 shall not apply to a LLP.
Characteristic of LLP
Body Corporate
Perpetual Succession
Separate legal entity
Mutual Agency
LLP Agreement
Artificial Legal Person
Common Seal
Limited liability
Management of business
Minimum & maximum number of member
Business for profit only
Investigation
Compromise or Arrangement
Conversion into LLP
E-filing of documents
Foreign LLPs
1) LLP is a body corporate:

Section 2(1)(d) of the LLP Act, 2008 provides that a LLP is a body corporate formed and incorporated under
this Act.
Section 3 of the LLP Act provides that LLP is a legal entity separate from that of its partners and shall have
perpetual succession. Therefore, any change in the partners of a LLP shall not affect the existence, rights or
liabilities of the LLP.
2) Perpetual Succession:
The LLP can continue its existence irrespective of changes in partners. Death, insanity, retirement or
insolvency of partners has no impact on the existence of LLP. It is capable of entering into contracts and
holding property in its own name.


3) Separate Legal Entity:

Section 3 of LLP Act provides that a LLP is a body corporate formed and incorporated under this Act and is a
legal entity separate from that of its partners. The LLP is liable to the full extent of its assets but liability of
the partners is limited to their agreed contribution in the LLP. In other words, creditors of LLP shall be the
creditors of LLP alone.
4) Mutual Agency:
No partner is liable on account of the independent or un-authorized actions of other partners, thus
individual partners are shielded from joint liability created by another partner's wrongful business
decisions or misconduct. In other words, all partners will be the agents of the LLP alone. No one partner can
bind the other partner by his acts.
5) LLP Agreement:
Mutual rights and duties of the partners within a LLP are governed by an agreement between the partners.
The LLP Act, 2008 provides flexibility to partner to devise the agreement as per their choice. In the absence
of any such agreement, the mutual rights and duties shall be governed by the provisions of the LLP Act,
2008.
6) Artificial Legal Person:
A LLP is an artificial legal person because it is created by a legal process and is clothed with all rights of an
individual. It can do everything which any natural person can do, except of course that, it cannot be sent to
jail, cannot take an oath, cannot marry or get divorce nor can it practice a learned profession like CA or
Medicine. A LLP is invisible, intangible, immortal (it can be dissolved by law alone) but not fictitious
because it really exists.
7) Common Seal:
A LLP being an artificial person can act through its partners and designated partners. LLP may have a
common seal, if it decides to have one [Section 14(c)]. Thus, it is not mandatory for a LLP to have a common
seal. It shall remain under the custody of some responsible official and it shall be affixed in the presence of at
least 2 designated partners of the LLP.
8) Limited Liability:
Every partner of a LLP is, for the purpose of the business of LLP, the agent of the LLP, but not of other
partners (Section 26). The liability of the partners will be limited to their agreed contribution in the LLP.
Such contribution may be of tangible or intangible nature or both.
Example :
The professionals like Engineering consultants, Legal Advisors and Accounting Professional are afraid of
entering into business due to unlimited liability. Hence the LLP partnership Act provides an avenue for
these professionals to Limited Liability Partnership firms which restricts their liability to the agreed amount.
This has encouraged Professionals to form LLP.
9) Management of Business:
The partners in the LLP are entitled to manage the business of LLP. But only the designated partners are
responsible for legal compliances.


10) Minimum and Maximum number of Partners:

Every LLP shall have least two partners and shall also have at least 2 individuals as designated partners, of
whom at least one shall be resident in India. There is no maximum limit on the partners in LLP.
11) Business for Profit Only:
The essential requirement for forming LLP is carrying on a lawful business with a view to earn profit. Thus,
LLP cannot be formed for charitable or non-economic purpose.
12) Investigation:
The Central Government shall have powers to investigate the affairs of an LLP by appointment of
competence authority for the purpose.
13) Compromise or Arrangement:
Any compromise or agreements including merger and amalgamation of LLPs shall be in accordance with the
provisions of the LLP Act, 2008.
14) Conversion into LLP:
A firm, private company or an unlisted public company would be allowed to be converted into LLP in
accordance with the provisions of LLP Act, 2008.
15) E-Filling of Documents:
Every form or application of document required to be filed or delivered under the act and rules made
thereunder, shall be filed in computer readable electronic form on its website www.mca.gov.in and
authenticated by a partner or designated partner of LLP by the use of electronic or digital signature.
16) Foreign LLPs:
Section 2(1)(m) defines foreign limited liability partnership “as a limited liability partnership formed,
incorporated, or registered outside India which established as place of business within India”. Foreign LLP
can become a partner in an Indian LLP.
Advantages of LLP form-

LLP form is a form of business model which:
1) Is organised and operates on the basis of an agreement.
2) Provides flexibility without imposing detailed legal and procedural requirements.
3) Easy to form.
4) All partners enjoy limited liability.
5) Easy to dissolve.
Partners (Section 5)
Any individual or body corporate may be a partner in a LLP.
However, an individual shall not be capable of becoming a partner of a LLP, if—
a) he has been found to be of unsound mind by a Court of competent jurisdiction and the finding is in
force;


b) he is an undischarged insolvent; or
c) he has applied to be adjudicated as an insolvent and his application is pending.The following persons can
become partner in LLP:
(i) Individuals (Resident Indians including Non Resident Indians & Overseas Citizen of India as well as
foreign nationals)*
(ii) Limited Liability Partnerships
(iii) Companies (including foreign companies)*
(iv) Foreign Limited Liability Partnerships*
(v) Limited Liability Partnerships incorporated outside India
(vi) Foreign Companies. Co-operative society and corporation sole cannot become partner in a LLP.
*In case of introduction of capital / acquisition of existing stake in LLP by Persons resident outside India (other
than NRIs & OCIs investing on a nonrepatriation basis), the Foreign Direct Investment (FDI) compliances shall
have to be undertaken by the LLP in which such investment is made
Minimum number of partners (Section 6):

1) Every LLP shall have at least two partners.
2) If at any time the number of partners of a LLP is reduced below 2 and the LLP carries on business for
more than 6 months while the number is so reduced,
a) the person, who is the only partner of the LLP during the time that it so carries on business after
those 6 months and
b) has the knowledge of the fact that it is carrying on business with him alone,
c) shall be liable personally for the obligations of the LLP incurred during that period.
Designated partners (Section 7):

1) Every LLP shall have at least two designated partners who are individuals and at least one of them
shall be a resident in India.
Provided, if in LLP, all the partners are bodies corporate or in which one or more partners are
individuals and bodies corporate, at least two individuals who are partners of such LLP or nominees of
such bodies corporate shall act as designated partners.
2) (i) If the incorporation document
(a) specifies who are to be designated partners, such persons shall be designated partners on
incorporation; or
(b) states that each of the partners from time to time of LLP is to be designated partners, every
partner shall be a designated partners;
(ii) any partner may become a designated partner by and in accordance with the LLP Agreement and a
partner may cease to be a designated partners in accordance with LLP agreement.
3) An individual shall not become a designated partner in any LLP unless he has given his prior consent
to act as such to the LLP in such form and manner as may be prescribed.


4) Every LLP shall file with the Registrar the particulars of every individual who has given his consent to act
as designated partners in such form and manner as may be prescribed within 30 days of his appointment.
5) An individual eligible to be a designated partner shall satisfy such conditions and requirements as may be
prescribed.
6) Every designated partner of the LLP shall obtain a Designated Partner Identification Number (DPIN)
from the Central Government and the provisions of sections 153 to 159 of the Companies Act, 2013 shall
apply mutatis mutandis for the said purpose.
Liabilities of Designated Partners (Section 8)

Unless expressly provided otherwise in this Act, a designated partner shall be—
1) responsible for the doing of all acts, matters and things as are required to be done by the limited liability
partnership in respect of compliance of the provisions of this Act including filing of any document, return,
statement and the like report pursuant to the provisions of this Act and as may be specified in the limited
liability partnership agreement; and
2) liable to all penalties imposed on the limited liability partnership for any contravention of those
provisions.
Changes in Designated Partners (Section 9)

A limited liability partnership may appoint a designated partner within 30 days of a vacancy arising for any
reason and provisions of sub-section (4) and sub-section (5) of section 7 shall apply in respect of such new
designated partner, provided that if no designated partner is appointed, or if at any time there is only one
designated partner, each partner shall be deemed to be a designated partner.
Punishment for contravention of sections 7 and 9 (Section 10)

1) If the LLP contravenes the provisions of sub-section (1) of section 7 (meaning that the number of
designated partners are less than 2 or none of the designated partner is a resident in India),
a) the LLP and its every partner shall be liable to a penalty of Rs. 10,000 and
b) in case of continuing contravention, with further penalty of Rs. 100 per day subject to maximum Rs.
1,00,000 for LLP and Rs. 50,000 for every partner of such LLP.
2) If the LLP contravenes the provisions of sub-section (4) of section 7 (failure to file the consent of
appointment of designated partner within 30 days of his appointment),
a) the LLP and its every designated partner shall be liable to a penalty of Rs. 5,000 and
b) in case of continuing contravention, with further penalty of Rs. 100 per day subject to maximum Rs.
50,000 for LLP and Rs. 25,000 for every designated partner.
3) If the LLP contravenes the provisions of sub-section (5) of section 7 or section 9,


a) the LLP and its every partner shall be liable to a penalty of Rs. 10,000 and
b) in case of continuing contravention, with further penalty of Rs. 100 per day subject to maximum
Rs. 1,00,000 for LLP and Rs. 50,000 for every partner of such LLP.
Incorporation of LLP
Incorporation document (Section 11)
The most important document needed for registration is the incorporation document.
1) For a LLP to be incorporated:
a) 2 or more persons associated for carrying on a lawful business with a view to profit shall
subscribe their names to an incorporation document;
b) the incorporation document shall be filed in such manner and with such fees, as may be
prescribed with the Registrar of the State in which the registered office of the LLP is to be
situated (Incorporation documents are now processed electronically by Registrar, Central
Registration Centre since 2nd October 2018); and
c) Statement to be filed:
there shall be filed along with the incorporation document, a statement in the prescribed
form,
Ÿ made by either an advocate, or a Company Secretary or a Chartered Accountant or a
Cost Accountant, who is engaged in the formation of the LLP and
Ÿ by any one who subscribed his name to the incorporation document,
Ÿ that all the requirements of this Act and the rules made thereunder have been complied
with,
Ÿ in respect of incorporation and matters precedent and incidental thereto.
2) The incorporation document shall—

a) be in a form as may be prescribed;
b) state the name of the LLP;
c) state the proposed business of the LLP;
d) state the address of the registered office of the LLP;
e) state the name and address of each of the persons who are to be partners of the LLP on
incorporation;
f) state the name and address of the persons who are to be designated partners of the
LLP on incorporation;
g) contain such other information concerning the proposed LLP as may be prescribed


3) If a person makes a statement as discussed above which he—

a) knows to be false; or
b) does not believe to be true,
shall be punishable (Penalty for false declaration)
Ÿ with imprisonment for a term which may extend to 2 years and
Ÿ with fine which shall not be less than Rs. 10,000 but which may extend to Rs. 5 Lakhs.
Incorporation by registration (Section 12):
1) When the requirements imposed by clauses (b) and (c) of sub-section (1) of section 11 have been
complied with, the Registrar shall retain the incorporation document and, unless the requirement
imposed by clause (a) of that sub-section has not been complied with, he shall, within a period of 14
days:
a) register the incorporation document; and
b) give a certificate that the LLP is incorporated by the name specified therein.
2) The Registrar may accept the statement delivered under clause (c) of sub-section (1) of section 11
as sufficient evidence that the requirement imposed by clause (a) of that sub-section has been
complied with.
3) The certificate issued under clause (b) of sub-section (1) shall be signed by the Registrar and
authenticated by his official seal.
4) The certificate shall be conclusive evidence that the LLP is incorporated by the name specified
therein.
Registered office of LLP and change therein (Section 13):
1) Every LLP shall have a registered office to which all communications and notices may be addressed
and where they shall be received.
2) A document may be served on a LLP or a partner or designated partner thereof by sending it by post
under a certificate of posting or by registered post or by any other manner, as may be prescribed, at
the registered office and any other address specifically declared by the LLP for the purpose in such
form and manner as may be prescribed.
3) A LLP may change the place of its registered office and file the notice of such change with the
Registrar in such form and manner and subject to such conditions as may be prescribed and any such
change shall take effect only upon such filing.
4) If the LLP contravenes any provisions of this section, the LLP and its every partner shall be
punishable with penalty of Rs. 500 per day subject to maximum Rs. 50,000.


Effect of registration (Section 14):
On Registration, LLP shall by its name, be capable of –

a) Suing and being sued;
b) Acquiring, owning, holding and developing or disposing of property, whether movable or immovable,
tangible or intangible;
c) Having a common seal, if it decides to have one; and
d) Doing and suffering other acts and things as bodies corporate may lawfully do and suffer.
Name (Section 15):
1) Every limited liability partnership shall have either the words limited liability partnership or the
acronym LLP as the last words of its name.
2) No limited liability partnership shall be registered by a name which, in the opinion of the Central
Government is
(a) undesirable; or
(b) identical or too nearly resembles to that of any other limited liability partnership or a company or
a registered trade mark of any other person under the Trade Marks Act, 1999.
Reservation of name (Section 16):
1) A person may apply in such form and manner and accompanied by such fee as may be prescribed to
the Registrar for the reservation of a name set out in the application as—
a) the name of a proposed LLP; or
b) the name to which a LLP proposes to change its name.
2) Upon receipt of an application under sub-section (1) and on payment of the prescribed fee, the
Registrar may, if he is satisfied, subject to the rules prescribed by the Central Government in the
matter, that the name to be reserved is not one which may be rejected on any ground referred to in
sub-section (2) of section 15, reserve the name for a period of 3 months from the date of intimation
by the Registrar.
Rectification of name of LLP (Section 17):
1) Notwithstanding anything contained in sections 15 and 16, if through inadvertence or otherwise, a

limited liability partnership, on its first registration or on its registration by a new body corporate, its
registered name;">name, is registered by a name which is identical with or too nearly resembles
to—
(a) that of any other limited liability partnership or a company; or
(b) a registered trade mark of a proprietor under the Trade Marks Act, 1999,


as is likely to be mistaken for it, then on an application of such limited liability partnership or proprietor
referred to in clauses (a) and (b) respectively or a company, the CG may direct that such limited liability
partnership to change its name or new name within a period of 3 months from the date of issue of such
direction:
Provided that an application of the proprietor of the registered trade marks shall be maintainable within
a period of three years from the date of incorporation or registration or change of name of the limited
liability partnership under this Act.
2) Where a LLP changes its name or obtains a new name under sub-section (1), it shall within a period of
15 days from the date of such change, give notice of the change to Registrar along with the order of the
CG, who shall carry out necessary changes in the certificate of incorporation and within 30 days of such
change in the certificate of incorporation, such LLP shall change its name in the LLP agreement.
3) If the LLP is in default in complying with any direction given under sub-section (1), the CG shall allot a
new name to the LLP in such manner as may be prescribed and the Registrar shall enter the new name in
the register of LLP in place of the old name and issue a fresh certificate of incorporation with new name,
which the LLP shall use thereafter
Provided that nothing contained in this sub-section shall prevent a LLP from subsequently changing its
name in accordance with the provisions of section 16.
Steps to incorporate LLP
Partners and their Relations

Eligibility to be partners (Section 22)
On the incorporation of a LLP, the persons who subscribed their names to the incorporation document shall be
its partners and any other person may become a partner of the LLP by and in accordance with the LLP
agreement.

Relationship of partners (Section 23)
1) Save as otherwise provided by this Act, the mutual rights and duties of the partners of a LLP, and the
mutual rights and duties of a LLP and its partners, shall be governed by the LLP agreement between the
partners, or between the LLP and its partners.
2) The LLP agreement and any changes, if any, made therein shall be filed with the Registrar in such form,
manner and accompanied by such fees as may be prescribed.
3) An agreement in writing made before the incorporation of a LLP between the persons who subscribe
their names to the incorporation document may impose obligations on the LLP, provided such
agreement is ratified by all the partners after the incorporation of the LLP.
4) In the absence of agreement as to any matter, the mutual rights and duties of the partners and the
mutual rights and duties of the LLP and the partners shall be determined by the provisions relating to
that matter as are set-out in the First Schedule.
Cessation of partnership interest (Section 24)
1) A person may cease to be a partner of a LLP in accordance with an agreement with the other partners or,
in the absence of agreement with the other partners as to cessation of being a partner, by giving a notice
in writing of not less than 30 days to the other partners of his intention to resign as partner.
2) A person shall cease to be a partner of a LLP—
a) on his death or dissolution of the LLP; or
b) if he is declared to be of unsound mind by a competent court; or
c) if he has applied to be adjudged as an insolvent or declared as an insolvent.
3) Where a person has ceased to be a partner of a LLP (hereinafter referred to as “former partner”), the
former partner is to be regarded (in relation to any person dealing with the LLP) as still being a partner of
the LLP unless—
a) the person has notice that the former partner has ceased to be a partner of the LLP; or
b) notice that the former partner has ceased to be a partner of the LLP has been delivered to the
Registrar.
4) The cessation of a partner from the LLP does not by itself discharge the partner from any obligation to
the LLP or to the other partners or to any other person which he incurred while being a partner.
5) Where a partner of a LLP ceases to be a partner, unless otherwise provided in the LLP agreement, the
former partner or a person entitled to his share in consequence of the death or insolvency of the former
partner, shall be entitled to receive from the LLP—
a) an amount equal to the capital contribution of the former partner actually made to the LLP; and
b) his right to share in the accumulated profits of the LLP, after the deduction of accumulated losses of
the LLP, determined as at the date the former partner ceased to be a partner.
6) A former partner or a person entitled to his share in consequence of the death or insolvency of the former
partner shall not have any right to interfere in the management of the LLP.


Registration of changes in partners (Section 25)
1) Every partner shall inform the LLP of any change in his name or address within a period of 15 days of such
change.
2) A LLP shall
(a) where a person becomes or ceases to be a partner, file a notice with the Registrar within 30 days from
the date he becomes or ceases to be a partner; and
(b) where there is any change in the name or address of a partner, file a notice with the Registrar within 30
days of such change.
3) A notice filed with the Registrar under sub-section
(a) shall be in such form and accompanied by such fees as may be prescribed;
(b) shall be signed by the designated partner of the LLP and authenticated in a manner as may be
prescribed; and
(c) if it relates to an incoming partner, shall contain a statement by such partner that he consents to
becoming a partner, signed by him and authenticated in the manner as may be prescribed.
4) If the LLP contravenes the provisions of sub-section (2), the LLP and its every designated partner shall
be liable to a penalty of Rs. 10000.
5) If the contravention referred to in sub-section (1) is made by any partner of the LLP, such partner shall be
liable to a penalty of Rs. 10000.
6) Any person who ceases to be a partner of a LLP may himself file with the Registrar the notice referred to in
sub-section (3) if he has reasonable cause to believe that the limited liability partnership may not file the
notice with the Registrar and in case of any such notice filed by a partner, the Registrar shall obtain a
confirmation to this effect from the LLP unless the LLP has also filed such notice:
Provided that where no confirmation is given by the LLP within 15 days, the Registrar shall register
the notice made by a person ceasing to be a partner under this section.
Extent and Limitation of Liability of LLP and Partner

Partner as agent (Section 26)
Every partner of a LLP is, for the purpose of the business of the LLP, the agent of the LLP, but not of other
partners.
Extent of liability of LLP (Section 27)
1) A LLP is not bound by anything done by a partner in dealing with a person if—
a) the partner in fact has no authority to act for the LLP in doing a particular act; and
b) the person knows that he has no authority or does not know or believe him to be a partner of the LLP.


2) The LLP is liable if a partner of a LLP is liable to any person as a result of a wrongful act or omission on his
part in the course of the business of the LLP or with its authority.
3) An obligation of the LLP whether arising in contract or otherwise, shall be solely the obligation of the LLP.
4) The liabilities of the LLP shall be met out of the property of the LLP.
Extent of liability of partner (Section 28)
1) A partner is not personally liable, directly or indirectly for an obligation referred to in sub-
section (3) of section 27 solely by reason of being a partner of the LLP.
2) The provisions of sub-section (3) of section 27 and sub-section (1) of this section shall not
affect the personal liability of a partner for his own wrongful act or omission, but a partner
shall not be personally liable for the wrongful act or omission of any other partner of the LLP.
Holding out (Section 29)
1) Any person,
Ÿ who by words spoken or written or by conduct,
Ÿ represents himself, or knowingly permits himself to be represented to be a partner in a LLP
Ÿ is liable to any person
Ÿ who has on the faith of any such representation
Ÿ given credit to the LLP, whether the person representing himself or represented to be a
partner does or does not know that the representation has reached the person so giving
credit.
However,
Ÿ where any credit is received by the LLP as a result of such representation,
Ÿ the LLP shall,
Ÿ without prejudice to the liability of the person so representing himself or represented to be
a partner,
Ÿ be liable to the extent of credit received by it or any financial benefit derived thereon.
2) Where after a partner's death the business is continued in the same LLP name, the continued
use of that name or of the deceased partner's name as a part thereof shall not of itself make
his legal representative or his estate liable for any act of the LLP done after his death.


Unlimited liability in case of fraud (Section 30)
1) In the event of an act carried out by a LLP, or any of its partners, with intent to defraud creditors of the
LLP or any other person, or for any fraudulent purpose, the liability of the LLP and partners who acted
with intent to defraud creditors or for any fraudulent purpose shall be unlimited for all or any of the debts
or other liabilities of the LLP:
Provided that in case any such act is carried out by a partner, the LLP is liable to the same extent as the
partner unless it is established by the LLP that such act was without the knowledge or the authority of the
LLP.
2) Where any business is carried on with such intent or for such purpose as mentioned in sub-section (1),
every person who was knowingly a party to the carrying on of the business in the manner aforesaid shall
be punishable with imprisonment for a term which may extend to 5 years and with fine which shall not be
less than Rs. 50000 but which may extend to Rs. 5 lakhs.
3) Where a LLP or any partner or designated partner or employee of such limited liability partnership has
conducted the affairs of the LLP in a fraudulent manner, then without prejudice to any criminal
proceedings which may arise under any law for the time being in force, the LLP and any such partner or
designated partner or employee shall be liable to pay compensation to any person who has suffered any
loss or damage by reason of such conduct
Provided that such LLP shall not be liable if any such partner or designated partner or employee has
acted fraudulently without knowledge of the LLP.
Whistle blowing (Section 31)
1) The Court or Tribunal may reduce or waive any penalty leviable against any partner or employee of a LLP,
if it is satisfied that—
a) such partner or employee of a LLP has provided useful information during investigation of such LLP;
or
b) when any information given by any partner or employee (whether or not during investigation) leads
to LLP or any partner or employee of such LLP being convicted under this Act or any other Act.
2) No partner or employee of any LLP may be discharged, demoted, suspended, threatened, harassed
or in any other manner discriminated against the terms and conditions of his LLP or employment merely
because of his providing information or causing information to be provided pursuant to sub-section (1).


Contributions
Form of contribution (Section 32)
1) A contribution of a partner may consist of tangible, movable or immovable or intangible

property or other benefit to the limited liability partnership, including money, promissory notes,
other agreements to contribute cash or property, and contracts for services performed or to be
performed.
2) The monetary value of contribution of each partner shall be accounted for and disclosed in
the accounts of the limited liability partnership in the manner as may be prescribed.
Obligation to contribute (Section 33)
1) The obligation of a partner to contribute money or other property or other benefit or to perform
services for a limited liability partnership shall be as per the limited liability partnership
agreement.
2) A creditor of a limited liability partnership, which extends credit or otherwise acts in reliance on
an obligation described in that agreement, without notice of any compromise between partners,
may enforce the original obligation against such partner.
Financial Disclosures
Maintenance of books of account, other records and audit, etc. (Section 34):
1) Proper Books of account:

Ÿ The LLP shall maintain such proper books of account as may be prescribed
Ÿ relating to its affairs for each year of its existence
Ÿ on cash basis or accrual basis and
Ÿ according to double entry system of accounting and
Ÿ shall maintain the same at its registered office
Ÿ for such period as may be prescribed.
2) Statement of Account and Solvency:
Ÿ Every LLP shall,
Ÿ within a period of 6 months from the end of each financial year,
Ÿ prepare a Statement of Account and Solvency
Ÿ for the said financial year as at the last day of the said financial year


Ÿ in such form as may be prescribed, and

Ÿ such statement shall be signed by the designated partners of the LLP.
3) Every LLP shall file within the prescribed time, the Statement of Account and Solvency prepared
pursuant to sub-section (2) with the Registrar every year in such form and manner and
accompanied by such fees as may be prescribed.
4) The accounts of LLP shall be audited in accordance with such rules as may be prescribed.
However, the Central Government may, by notification in the Official Gazette, exempt any class
or classes of LLP from the requirements of this sub-section.
5) Penalty for non-compliance of provisions of sub-section 3- LLP – `100 per day subject to
maximum `1,00,000 Every Designated Partners - `100 per day subject to maximum `50,000.
6) Penalty for non-compliance of provisions of sub-section 1, 2 & 4 - LLP – not less than `25,000
which may extend to ` 5 Lakhs. Every designated partner –not less than `10,000 which may
extend to `1 Lakh.
Accounting and auditing standards. (Section 34A):
The Central Government may, in consultation with the National Financial Reporting Authority
constituted under section 132 of the Companies Act, 2013,—
(a) prescribe the standards of accounting; and
(b) prescribe the standards of auditing, as recommended by the ICAI
Annual return (Section 35):
1) Every LLP shall file an annual return duly authenticated with the Registrar within 60 days of
closure of its financial year in such form and manner and accompanied by such fee as may be
prescribed.
Note
The LLP contra-distinct from Partnership Act, 1932 has prescribed the filing of Annual Return
in accordance with Companies Act, 2013. This is a new feature of the LLPs.
2) Penalty for non-filing of annual return:
a) LLP :Rs.100 per day subject to maximum Rs.1,00,000
b) Every Designated Partners – Rs.100 per day subject to maximum Rs.50,000


Inspection of documents kept by registrar [section 36]
The incorporation document, name of partners and changes, if any, made therein, Statement of Account and
Solvency and annual return filed by each LLP with the Registrar shall be available for inspection by any person
in such manner and on payment of such fee as may be prescribed.
Penalty for false statement [section 37]
If in any return, statement or other document required by or for the purposes of any of the provisions of this Act,
any person makes a statement—
(a) which is false in any material particular, knowing it to be false; or
(b) which omits any material fact knowing it to be material,
he shall, save as otherwise expressly provided in this Act, be punishable with imprisonment for a term
which may extend to 2 years, and shall also be liable to fine which may extend to 5 lakh rupees but which
shall not be less than 1 lakh rupees.
Power of registrar to obtain information [section 38]
1) In order to obtain such information as the Registrar may consider necessary for the purposes of carrying
out the provisions of this Act, the Registrar may require any person including any present or former
partner or designated partner or employee of a limited liability partnership to answer any question or
make any declaration or supply any details or particulars in writing to him within a reasonable period.
2) In case any person referred to in sub-section (1) does not answer such question or make such
declaration or supply such details or particulars asked for by the Registrar within a reasonable time or
time given by the Registrar or when the Registrar is not satisfied with the reply or declaration or details or
particulars provided by such person, the Registrar shall have power to summon that person to appear
before him or an inspector or any other public officer whom the Registrar may designate, to answer any
such question or make such declaration or supply such details, as the case may be.
3) Any person who, without lawful excuse, fails to comply with any summons or requisition of the Registrar
under this section shall be punishable with fine which shall not be less than two thousand rupees but
which may extend to twenty-five thousand rupees.
Compounding of offences [section 39]
1) Notwithstanding anything contained in the Code of Criminal Procedure, 1973, the Regional Director or
any other officer not below the rank of Regional Director authorised by the Central Government may
compound any offence under this Act which is punishable with fine only, by collecting from a person
reasonably suspected of having committed the offence, a sum which may extend to the amount of the
maximum fine provided for the offence but shall not be lower than the minimum amount provided for the
offence.


2) Nothing contained in sub-section (1) shall apply to an offence committed by a limited liability
partnership or its partner or its designated partner within a period of three years from the date on which
similar offence committed by it or him was compounded under this section. Explanation.—For the
removal of doubts, it is hereby clarified that any second or subsequent offence committed after the
expiry of the period of three years from the date on which the offence was previously compounded, shall
be deemed to be the first offence.
3) Every application for the compounding of an offence shall be made to the Registrar who shall forward the
same, together with his comments thereon, to the Regional Director or any other officer not below the
rank of Regional Director authorised by the Central Government, as the case may be.
4) Where any offence is compounded under this section, whether before or after the institution of any
prosecution, intimation thereof shall be given to the Registrar within a period of seven days from the
date on which the offence is so compounded.
5) Where any offence is compounded before the institution of any prosecution, no prosecution shall be
instituted in relation to such offence.
6) Where the compounding of any offence is made after the institution of any prosecution, such
compounding shall be brought by the Registrar in writing, to the notice of the court in which prosecution
is pending and on such notice of the compounding of the offence being given, the offender in relation to
which the offence is so compounded shall be discharged.
7) The Regional Director or any other officer not below the rank of Regional Director authorised by the
Central Government, while dealing with the proposal for compounding of an offence may, by an order,
direct any partner, designated partner or other employee of the LLP to file or register, or on payment of
fee or additional fee as required to be paid under this Act, such return, account or other document within
such time as may be specified in the order.
8) Notwithstanding anything contained in this section, if any partner or designated partner or other
employee of the LLP who fails to comply with any order made by the Regional Director or any other
officer not below the rank of Regional Director authorised by the Central Government, under
subsection (7), the maximum amount of fine for the offence, which was under consideration Regional
Director or such authorised officer for compounding under this section shall be twice the amount
provided in the corresponding section in which punishment for such offence is provided.
Assignment and Transfer of Partnership Rights

Partner's transferable interest [section 42]
1) The rights of a partner to a share of the profits and losses of the limited liability partnership and to receive
distributions in accordance with the limited liability partnership agreement are transferable either
wholly or in part.
2) The transfer of any right by any partner pursuant to sub-section (1) does not by itself cause the
disassociation of the partner or a dissolution and winding up of the limited liability partnership.


3) The transfer of right pursuant to this section does not, by itself, entitle the transferee or assignee to
participate in the management or conduct of the activities of the limited liability partnership, or access
information concerning the transactions of the limited liability partnership.
Conversion into LLP

Conversion from firm into LLP (Section 55)
firm may convert into a LLP in accordance with the provisions of this Chapter and the Second
Schedule.sactions of the limited liability partnership.
Conversion from private company into LLP (Section 56)
A private company may convert into a LLP in accordance with the provisions of this Chapter and the Third
Schedule.
Conversion from unlisted public company into LLP (Section 57)
An unlisted public company may convert into an LLP in accordance with the provisions of this Chapter and the
Fourth Schedule.
Registration and effect of conversion [Section 58]
1) The Registrar, on satisfying that a firm, private company or an unlisted public company, as the case may
be, has complied with the respective Schedules, provisions of this Act and the rules made thereunder,
register the documents submitted under such schedules and issue a certificate of registration in such
form as the Registrar may determine stating that the LLP is, on and from the date specified in the
certificate, registered under this Act.
2) (ii) The LLP shall, within 15 days of the date of registration, inform the concerned Registrar of Firms or
Registrar of Companies, as the case may be, with which it was registered under the provisions of the
Indian Partnership Act, 1932 or the Companies Act, 1956 (Now Companies Act, 2013) as the case may
be, about the conversion and of the particulars of the LLP in such form and manner as may be prescribed.
3) Upon such conversion, the partners of the firm, the shareholders of private company or unlisted public
company, as the case may be, the LLP to which such firm or such company has converted, and the
partners of the LLP shall be bound by the respective Schedules, as the case may be, applicable to them.
4) Upon such conversion, on and from the date of certificate of registration, the effects of the conversion
shall be such as specified in the respective schedules, as the case may be.
Effect of Registration:
Notwithstanding anything contained in any other law for the time being in force, on and from the date of


registration specified in the certificate of registration issued under the respective Schedule, as the case may
be,—
a) there shall be a LLP by the name specified in the certificate of registration registered under this Act;
b) all tangible (movable or immovable) and intangible property vested in the firm or the company, as the
case may be, all assets, interests, rights, privileges, liabilities, obligations relating to the firm or the
company, as the case may be, and the whole of the undertaking of the firm or the company, as the case
may be, shall be transferred to and shall vest in the limited liability partnership without further
assurance, act or deed; and
c) the firm or the company, as the case may be, shall be deemed to be dissolved and removed from the
records of the Registrar of Firms or Registrar of Companies, as the case may be.
Foreign LLP
Foreign limited liability partnerships (Section 59
The Central Government may make rules for provisions in relation to establishment of place of business by
foreign LLP within India and carrying on their business therein by applying or incorporating, with such
modifications, as appear appropriate, the provisions of the Companies Act, 1956 or such regulatory
mechanism with such composition as may be prescribed.
Compromise, arrangement or reconstruction of limited liability partnerships

Compromise or arrangement of limited liability partnerships [Section 60]
1) Where a compromise or arrangement is proposed— (a) between a limited liability partnership and its
creditors; or (b) between a limited liability partnership and its partners, the Tribunal may, on the
application of the limited liability partnership or of any creditor or partner of the limited liability
partnership, or, in the case of a limited liability partnership which is being wound up, of the liquidator,
order a meeting of the creditors or of the partners, as the case may be, to be called, held and conducted in
such manner as may be prescribed or as the Tribunal directs.
2) If a majority representing three-fourths in value of the creditors, or partners, as the case may be, at the
meeting, agree to any compromise or arrangement, the compromise or arrangement shall, if sanctioned
by the Tribunal, by order be binding on all the creditors or all the partners, as the case may be, and also on
the limited liability partnership, or in the case of a limited liability partnership which is being wound up,
on the liquidator and contributories of the limited liability partnership: Provided that no order
sanctioning any compromise or arrangement shall be made by the Tribunal unless the Tribunal is satisfied
that the limited liability partnership or any other person by whom an application has been made under
sub-section (1) has disclosed to the Tribunal, by affidavit or otherwise, all material facts relating to the
limited liability partnership, including the latest financial position of the limited liability partnership and
the pendency of any investigation proceedings in relation to the limited liability partnership.


3) An order made by the Tribunal under sub-section (2) shall be filed by the limited liability partnership with
the Registrar within thirty days after making such an order and shall have effect only after it is so filed.
4) If default is made in complying with the provisions of sub-section (3), the LLP and its every designated
partner shall be 'liable to a penalty of `10,000 and in case of continuing default, with further penalty of
`100 for each day after the first during which such default continues, subject to maximum `1,00,000 for
LLP and `50,000 for every designated partner'.
5) The Tribunal may, at any time after an application has been made to it under this section, stay the
commencement or continuation of any suit or proceeding against the limited liability partnership on such
terms as the Tribunal thinks fit, until the application is finally disposed of.
Power of Tribunal to enforce compromise or arrangement (Section 61)
1) Where the Tribunal makes an order under section 60 sanctioning a compromise or an arrangement in
respect of a limited liability partnership, it— (a) shall have power to supervise the carrying out of the
compromise or an arrangement; and (b) may, at the time of making such order or at any time thereafter,
give such directions in regard to any matter or make such modifications in the compromise or
arrangement as it may consider necessary for the proper working of the compromise or arrangement.
2) If the Tribunal aforesaid is satisfied that a compromise or an arrangement sanctioned under section 60
cannot be worked satisfactorily with or without modifications, it may, either on its own motion or on the
application of any person interested in the affairs of the limited liability partnership, make an order for
winding up the limited liability partnership, and such an order shall be deemed to be an order made under
section 64 of this Act.
Provisions for facilitating reconstruction or amalgamation of

limited liability partnerships [Section 62]
1) Where an application is made to the Tribunal under section 60 for sanctioning of a compromise or
arrangement proposed between a limited liability partnership and any such persons as are mentioned in
that section, and it is shown to the Tribunal that—
a) compromise or arrangement has been proposed for the purposes of, or in connection with, a scheme
for the reconstruction of any limited liability partnership or limited liability partnerships, or the
amalgamation of any two or more limited liability partnerships; and
b) under the scheme the whole or any part of the undertaking, property or liabilities of any limited
liability partnership concerned in the scheme (in this section referred to as a "transferor limited
liability partnership") is to be transferred to another limited liability partnership (in this section
referred to as the "transferee limited liability partnership"), the Tribunal may, either by the order
sanctioning the compromise or arrangement or by a subsequent order, make provisions for all or any
of the following matters, namely:—
(i) the transfer to the transferee limited liability partnership of the whole or any part of the


undertaking, property or liabilities of any transferor limited liability partnership;

(ii) the continuation by or against the transferee limited liability partnership of any legal
proceedings pending by or against any transferor limited liability partnership;
(iii) the dissolution, without winding up, of any transferor limited liability partnership;
(iv) the provision to be made for any person who, within such time and in such manner as the
Tribunal directs, dissent from the compromise or arrangement; and
(v) such incidental, consequential and supplemental matters as are necessary to secure that the
reconstruction or amalgamation shall be fully and effectively carried out:
Provided that no compromise or arrangement proposed for the purposes of, or in connection with, a
scheme for the amalgamation of a limited liability partnership, which is being wound up, with any
other limited liability partnership or limited liability partnerships, shall be sanctioned by the Tribunal
unless the Tribunal has received a report from the Registrar that the affairs of the limited liability
partnership have not been conducted in a manner prejudicial to the interests of its partners or to
public interest:
Provided further that no order for the dissolution of any transferor limited liability partnership under
clause (iii) shall be made by the Tribunal unless the Official Liquidator has, on scrutiny of the books
and papers of the limited liability partnership, made a report to the Tribunal that the affairs of the
limited liability partnership have not been conducted in a manner prejudicial to the interests of its
partners or to public interest.
2) Where an order under this section provides for the transfer of any property or liabilities, then, by virtue of
the order, that property shall be transferred to and vest in, and those liabilities shall be transferred to and
become the liabilities of, the transferee limited liability partnership; and in the case of any property, if
the order so directs, freed from any charge which is, by virtue of the compromise or arrangement, to
cease to have effect.
3) Within thirty days after the making of an order under this section, every limited liability partnership in
relation to which the order is made shall cause a certified copy thereof to be filed with the Registrar for
registration.
4) If default is made in complying with the provisions of sub-section (3), the LLP and its every designated
partner shall be 'liable to a penalty of `10,000 and in case of continuing contravention, with further
penalty of `100 for each day after the first during which such default continues, subject to maximum
`1,00,000 for LLP and `50,000 for every designated partner'.
Explanation:
(i) In this section "property" includes property, rights and powers of every description; and "liabilities"
includes duties of every description.
(ii) a LLP shall not be amalgamated with a company.


Winding up and Dissolution

Winding up and dissolution (Section 63)
The winding up of a LLP may be either voluntary or by the Tribunal a and LLP, so wound up may be dissolved.
Circumstances in which LLP may be wound up by Tribunal (Section 64)
A LLP may be wound up by the Tribunal:

a) if the LLP decides that LLP be wound up by the Tribunal;
b) if, for a period of more than six months, the number of partners of the LLP is reduced below two;
c) if the LLP is unable to pay its debts;
d) if the LLP has acted against the interests of the sovereignty and integrity of India, the security of the
State or public order;
e) if the LLP has made a default in filing with the Registrar the Statement of Account and Solvency or annual
return for any five consecutive financial years; or
f) if Tribunal is of the opinion that it is just and equitable that the LLP be wound up.
Rules for winding up and dissolution (Section 65)
The Central Government may make rules for the provisions in relation to winding up and dissolution of LLP.
Miscellaneous
Business transactions of partner with LLP (Section 66)
A partner may lend money to and transact other business with the LLP and has the same rights and obligations
with respect to the loan or other transactions as a person who is not a partner.
Application of the provisions of the Companies Act (Section 67)
1) The Central Government may, by notification in the Official Gazette, direct that any of the provisions of the
Companies Act, 1956 specified in the notification—
a) shall apply to any LLP; or
b) shall apply to any LLP with such exception, modification and adaptation, as may be specified, in the
notification.
2) A copy of every notification proposed to be issued under sub-section (1)
a) shall be laid in draft before each House of Parliament, while it is in session,
b) for a total period of 30 days which may be comprised in one session or in two or more successive
sessions, and


c) if, before the expiry of the session immediately following the session or the successive sessions
aforesaid, both Houses agree in disapproving the issue of the notification or both Houses agree in
making any modification in the notification,
d) the notification shall not be issued or, as the case may be,
e) shall be issued only in such modified form as may be agreed upon by both the Houses.
Payment of additional fee (Section 69)
Any document or return required to be registered or filed under this Act with Registrar, if, is not registered or
filed in time provided therein, may be registered or filed after that time, on payment of such additional fee as
may be prescribed in addition to any fee as is payable for filing of such document or return
Provided that such document or return shall be filed after the due date of filing, without prejudice to any other
action or liability under this Act
Provided further that a different fee or additional fee may be prescribed for different classes of limited liability
partnerships or for different documents or returns required to be filed under this Act or rules made thereunder.
Enhanced Punishment (Section 70)
In case a limited liability partnership or any partner or designated partner of suchlimited liability partnership
commits any offence, the limited liability partnershipor any partner or designated partner shall, for the second
or subsequent offence,be punishable with imprisonment as provided, but in case of offences for whichfine is
prescribed either along with or exclusive of imprisonment, with fine whichshall be twice the amount of fine for
such offence.
Differences with other Forms of Organisation

Difference between LLP and Partnership Firm
Basis LLP Partnership Firm

Regulating Act The Limited Liability Partnership Act, The Indian Partnership Act, 1932.
2008.
Body Corporate It is a body corporate. It is not a body corporate,
Separate legal entity It is a legal entity separate from its It is a group of persons with no separate
members. legal entity.
Creation It is created by a legal process called It is created by an agreement between
registration under the LLP Act, 2008. the partners.
Registration Registration is mandatory. LLP can sue Registration is voluntary. Only the
and be sued in its own name. registered partnership firm can sue the
third parties.


Perpetual succession The death, insanity, retirement or The death, insanity, retirement or
insolvency of the partner(s) does not insolvency of the partner(s) may affect
affect its existence of LLP. Members its existence. It has no perpetual
may join or leave but its existence succession.
continues forever.
Name Name of the LLP to contain the word No guidelines. The partners can have
Limited liability partners (LLP) as suffix. any name as per their choice.Liability of
Liability Liability of each partner limited to the each partner is unlimited. It can be
extent to agreed contribution except in extended up to the personal assets of
case of willful fraud. the partners.
Mutual agency Each partner can bind the LLP by his Each partner can bind the firm as well as
own acts but not the other partners. other partners by his own acts.
Designated partners At least two designated partners and at There is no provision for such partners
least one of them shall be resident in under the Partnership Act, 1932.
India.
Common seal It may have its common seal as its official There is no such concept in partnership
signatures.
Legal compliances Only designated partners are All partners are responsible for all the
responsible for all the compliances and compliances and penalties under the
penalties under this Act. Act.
Annual filing of LLP is required to file: Partnership firm is not required to file
documents (i) Annual statement of accounts any annual document with the registrar
(ii) Statement of solvency of firms.
Annual return with the registration of
LLP every year.
Foreign partnership Foreign nationals can become a partner Foreign nationals cannot become a
in a LLP. partner in a partnership firm.
Minor as partner Minor cannot be admitted to the benefits Minor can be admitted to the benefits of
of LLP. the partnership with the prior consent of
the existing partners.

Difference between LLP and Limited Liability Company
Basis LLP Partnership Firm

Regulating Act The Limited Liability Partnership Act, The Companies Act, 2013.
2008.
Members/Partners The persons who contribute to LLP are The persons who invest the money in the
known as partners of the LLP. shares are known as members of the
company.
Internal governance The internal governance structure of The internal governance structure of
structure a LLP is governed by contract agreement a company is regulated by statute (i.e.,
between the partners.. Companies Act, 2013).
Name Name of the LLP to contain the word Name of the public company to contain
“Limited Liability partnership” or “LLP” the word “limited” and Pvt.
as suffix. Co. to contain the word “Private limited”
as suffix.
No. of Minimum – 2 members Private company: Minimum – 2 members
members/partners Maximum – No such limit on the Maximum 200 members Public company:
members in the Act. The members of the Minimum – 7 members
LLP can be individuals/or body corporate Maximum – No such limit on the
through the nominees members.
Members can be organizations, trusts,
another business form or
Individuals.
Liability of Liability of a partners is limited to the Liability of a member is limited to the
members/partners extent of agreed contribution in case of amount unpaid on the shares held by
intention is fraud.. them.
Management The business of the company managed The affairs of the company are managed
by the partners including the designated by board of directors elected by the
partners authorized in shareholders
the agreement.
Minimum number of Minimum 2 designated partners. Pvt. Co. – 2 directors Public co. – 3
directors/designated directors.
partners



Chapter 11 Foreign Company
11 Foreign
Company
CH
11

Section Structure
CH
11

Coverage of Chapter
Section Details
379. Application of Act to Foreign Companies
380. Documents, etc., to be Delivered to Registrar by Foreign Companies
381. Accounts of Foreign Company
382. Display of Name, etc., of Foreign Company
383. Service on Foreign Company
384. Debentures, Annual Return, Registration of Charges, Books of Account and Their Inspection
385. Fee for Registration of Documents
386. Interpretation
387. Dating of Prospectus and Particulars to be Contained Therein
388. Provisions as to Expert’s Consent and Allotment
389. Registration of Prospectus
390. Offer of Indian Depository Receipts
391. Application of Sections 34 to 36 and Chapter XX
392. Punishment for Contravention
CH
11
393. Company's Failure to Comply With Provisions of This Chapter Not to Affect Validity of Contracts,
etc.
393A. Exemptions under this Chapter
E-Forms Companies (Registration of Foreign Companies) Rules, 2014
E-Form Details Relevant section Rule No
FC-1 Information to be filed by company with ROC 380 3
FC-2 Return for alteration of information or documents filed with ROC 380 3
FC-3 Filing of annual accounts with list of all Place of Business in India 381 6
FC-4 Annual Return of Foreign Company 384 7
FC-5 Nomination by IDR holder 390 13

Concept of Foreign Company
Foreign Company
Normal As Per Company Law

Understanding
2(42) - Foreign Company Definition

People Think That Every
Company Formed Outside
India is Foreign Company,
Even Though it Does not Have
Any Connec on With India.
CH
11

Sec. 2(42) & 379: Foreign Company & Its Meaning

Chart for Understanding
Incorporation of Company
Incorporated in Foreign Incorporated in India

Indian Companies Act, 2013 is applicable
Place of Business Foreign Foreign India India
50% of PC is held
No Yes No Yes
by India ?
Status of the
Company
Laws Applicable?
CH
11

Section
“Foreign Company" Means any company or body b) The company shall be incorporated outside India.
corporate incorporated outside India which- c) The company shall have the place of business in
a) has a place of business in India whether by itself or India by agent or physically or electronically.
through an agent, physically or through electronic d) Conducts business activity in India in any manner.
mode; and Status of foreign company:
b) conducts any business activity in India in any other Ÿ A Foregin company is not 'Company' as defined
manner. under section 2(20) of the Companies Act, 2013.
The essential conditions of the foreign company Ÿ A Foregin company is a "body Corporate" as
are as follows: defined under section 2(11) of the Companies Act,
a) It must be a company or body corporate. 2013.
Meaning of Electronic Mode

According to the Companies (Registration of Foreign in India or from citizens of India;
Companies) Rules, 2014, c) financial settlements, web based marketing,
Rule 2(1)(h) of the Companies (Specification of advisory and transactional services, database
Definitions Details) Rules, 2014 services and products, supply chain management;
CH
11
"Electronic Mode" means carrying out electronically d ) o n l i n e s e r v i c e s s u c h a s t e l e m a r ke t i n g ,

based, whether main server is installed in India or not, telecommuting, telemedicine, education and
including, but not limited to - information research; and
a) business to business and business to consumer e) all related data communication services,
transactions, data interchange and other digital whether conducted by e-mail, mobile devices, social
supply transactions; media, cloud computing, document management,
b) offering to accept deposits or inviting deposits or voice or data transmission or otherwise.
accepting deposits or subscriptions in securities,
Sec.379: Application of Act to foreign companies.
Provision
379 (1) : Co Act, 2017 (1) Sections 380 to 386 (both inclusive) and sections 392 and 393 shall apply to all
foreign companies It implies that all companies which falls within the defini on of foreign company as per
sec on 2(42), shall comply with the provisions of this Chapter.
379 (2) Requirement of holding of paid up share capital: Where not less than 50% of the paid-up share capital,
whether equity or preference or partly equity and partly preference, of a foreign company incorporated outside
India is held by:
Ÿ one or more ci zens of India; or
Ÿ by one or more companies or bodies corporate incorporated in India; or
Ÿ by one or more ci zens of India and one or more companies or bodies corporate incorporated in India,
whether singly or in the aggregate, such foreign company shall also comply with the provisions of Chapter XXII
and such other provisions of this Act as may be prescribed with regard to the business carried on by it in India as if
it were a company incorporated in India.

Analysis
1) Whether Foreign LLP (Limited Liability Partnership) are also foreign Company?
Ans: Under Companies Act, 2013 the foreign LLP are also considered under foreign company.
2) What if the foreign company have place of business in India but does not conduct the business from
such place?
Ans: The conduct of business is necessary for complying the definition of the foreign company. Mere having the
POB in India does not qualify for the definition of the foreign company.
Additional Notes
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Additional Notes
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380: Documents, etc., to be delivered to Registrar by foreign companies.
Provision
380(1): Documents, etc. to be delivered to Registrar by foreign companies
Every foreign company shall, within 30 days of the establishment of its place of business in India, deliver to the
Registrar for registration—
i) a certified copy of the charter, statutes or memorandum and articles, of the company or other instrument
constituting or defining the constitution of the company and, if the instrument is not in the English
language, a certified translation thereof in the English language;
ii) the full address of the registered or principal office of the company;
iii) a list of the directors and secretary of the company containing such particulars as may be prescribed; (
Rule 3 of Companies (Registration of Foreign Companies) Rules, 2014
The list of directors and secretary or equivalent (by whatever name called) of the foreign company shall
contain the following particulars, for each of the persons included in such list, namely:
a) personal name and surname in full;
b) any former name or names and surname or surnames in full;
c) father's name or mother's name and spouse's name;
d) date of birth;
e) residential address;
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f) nationality;
g) if the present nationality is not the nationality of origin, his nationality of origin;
h) passport Number, date of issue and country of issue; (if a person holds more than one passport then
details of all passports to be given)
i) income-tax permanent account number (PAN), if applicable;
j) occupation, if any;
k) whether directorship in any other Indian company, (Director Identification Number (DIN), Name and
Corporate Identity Number (CIN) of the company in case of holding directorship);
l) other directorship or directorships held by him;
m) Membership Number (for Secretary only); and
n) e-mail ID.
iv) the name and address or the names and addresses of one or more persons resident in India authorised to
accept on behalf of the company service of process and any notices or other documents required to be
served on the company;
v) the full address of the office of the company in India which is deemed to be its principal place of business
in India;
vi) particulars of opening and closing of a place of business in India on earlier occasion or occasions;
vii) declaration that none of the directors of the company or the authorised representative in India has ever
been convicted or debarred from formation of companies and management in India or abroad; and
viii) any other information as may be prescribed.

Rule 3 of Companies (Registration of Foreign Companies) Rules, 2014

1) Every foreign company shall, within thirty days of establishment of its place of business in India, in
addition to the particulars specified in sub-section (1) of section 380 of the Act, also deliver to the
Registrar for registration, a list of directors and Secretary of such company.
2) Refer point 2 in above (iii)
3) A foreign company shall, within a period of 30 days of the establishment of its place of business in India, file
with the registrar Form FC-1 with such fee as provided in Companies (Registration Offices and Fees)
Rules, 2014 and with the documents required to be delivered for registration by a foreign company in
accordance with the provisions of sub-section (1) of section 380 and the application shall also be
supported with an attested copy of approval from the Reserve Bank of India under Foreign Exchange
Management Act or Regulations, and also from other regulators, if any, approval is required by such
foreign company to establish a place of business in India or a declaration from the authorised
representative of such foreign company that no such approval is required.
Rule 8 of the Companies (Registration of Foreign Companies) Rules, 2014:
Office where documents to be delivered and fee for registration of documents:
Ü According to the Companies (Registration of Foreign Companies) Rules, 2014, any document which
any foreign company is required to deliver to the Registrar shall be delivered to the Registrar having
jurisdiction over New Delhi.
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Ü It shall be accompanied with the prescribed fees.

Ü If any foreign company ceases to have a place of business in India, it shall forthwith give notice of the
fact to the Registrar, and from the date on which such notice is so given, the obligation of the company
to deliver any document to the Registrar shall cease, provided it has no other place of business in India.
380(2): Filing of documents by existing foreign company before commencement of act.
Every foreign company existing at the commencement of this Act shall, if it has not delivered to the Registrar
before such commencement, the documents and particulars specified in sub-section (1) of section 592 of the
Companies Act, 1956, continue to be subject to the obligation to deliver those documents and particulars in
accordance with that Act.
The existing foreign company before the commencement of this act who have not made the filing u/s 592 of the
old Companies Act, 1956 shall make such filing u/s 380 of the Companies Act, 2013.
380(3): Form, procedure and time within which alteration in documents shall be intimated to Registrar:
Where any alteration is made or occurs in the documents delivered to the Registrar under this section, the
foreign company shall, within thirty days of such alteration, deliver to the Registrar for registration, a return
containing the particulars of the alteration in the prescribed form.
The Companies (Registration of Foreign Companies) Rules, 2014, has prescribed that the return containing
the particulars of the alteration shall be filed in form FC-2 along with prescribed fees.
If the information or the documents delivered to the ROC are altered the same shall be filed with the ROC within
30 days of such alteration in the return prescribed.
E-Filings
Form FC-1: Filing of the details of the foreign company under section 380.
Form FC-2: Filing of changed details of the foreign company under section 380.

380 - Filing By FC
Wonder Woman Ltd - Incorporated - UK
POB - Open -India
1st POB - Open eg. Pune

FC 1 30 Days
Document Regarding
Cons tu on & Others
Regarding Personal Office / POB
List of BOD & CS Full Address of Cons tu onal Document
Name & Address RO / HO (Foreign)
MOA / AOA
Of Person Principal POB
Responsible in India in India COI
Declara on BOD / Old POB - Open / Bye - Laws

ROC
Officer Qualifica on Closed
Other Info
to Form Company in India RBI
Principal
File with ROC? ICAI - Delhi ROC + POB - Pune
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Pune
Change in Above detail. eg: 1/6/25 ROC - Op onal
30 Days FC-2
ROC (30/6/25)

Sec. 380: Documents, etc., to be delivered to Registrar by foreign companies.

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Sec. 381: Accounts of foreign company.
Provision
Every foreign company shall, in every calendar If any such document as is mentioned in sub-section
year: (1) is not in the English language, there shall be
a) make out a balance sheet and profit and loss annexed to it a certified translation thereof in the
account English language.
i) in such form, The documents if not in English language the
ii) containing such particulars and translated certified copy of same shall be filed with
iii) including or having annexed or attached ROC in English language.
thereto such documents as may be
381(3): Filing of list of places of business in India
prescribed;
Every foreign company shall send to the Registrar
b) deliver copy of those documents to ROC
along with the documents required to be delivered to
The Central Government may, by notification,
him under sub-section (1), a copy of a list in the
i) exempt any foreign company class or class of
prescribed form of all places of business established
foreign companies from the requirements of
by the company in India as at the date with reference
(a) above or
to which the balance sheet referred to in sub-section
ii) apply the requirements of (a) above to any
(1) is made out.
foreign company or class or classes of
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Every foreign company shall file E- Form FC 3 with
companies with exceptions / modifications.
the ROC the list of POB in India as on the date of
381(2): The documents shall be filed in the English making the balance sheet.
language.
Companies (Registration of Foreign Companies) Rules, 2014
Rule 4: Financial statement of Foreign Company country:

1) Every foreign company shall prepare financial Provided that where such documents are not
statement of its Indian business operations in in English language, there shall be annexed to
accordance with Schedule III or as near thereto as it a certified translation thereof in the English
may be possible for each financial year including- language:
i) documents required to be annexed thereto in Provided further that where the Central
accordance with the provisions of Chapter IX Government has exempted or specified
of the Act i.e. Accounts of Companies ; different documents for any foreign company
ii) documents relating to copies of latest or a class of foreign companies, then
consolidated financial statements of the documents as specified shall be submitted;
parent foreign company , as submitted by it to Note: "financial year" in relation to any
the prescribed authority in the country of its company or body corporate, means the period
incorporation under the provisions of the ending on the 31st day of March every year,
lawfor the time being in force in that and where it has been incorporated on or after

the 1st day of January of a year, the period subsidiary or holding company of such
ending on the 31st day of March of the foreign company or of any firm in which
following year, in respect whereof financial such foreign company or its subsidiary or
statement of the company or body corporate is holding company is a partner;
made up: ii) nature of such relationship;
Provided that where a company or body iii) description and nature of transaction;
corporate, which is a holding company or a iv) amount of such transaction during the year
subsidiary or associate company of company with opening .closing, highest and lowest
incorporated outside India and is required to balance during the year and provisions
follow a different financial year for made (if any) in respect of such
consolidation of its accounts outside India, the transactions;
Central Government may, on an application v) reason of such transaction;
made by that company or body corporate in vi) material effect of such transaction on both
such form and manner as may be prescribed, the parties;
allow any period as its financial year, whether vii) amount written off or written back in
or not that period is a year. respect of dues from or to the related
Provided further that any application pending parties;
before the Tribunal as on the date of viii) a declaration that such transactions were
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commencement of the Companies carried out at arms length basis; and

(Amendment) Ordinance, 2018, shall be ix) any other details of the transaction
disposed of by the Tribunal in accordance with necessary to understand the financial
the provisions applicable to it before such impact;
commencement. b) Statement of repatriation of profits which
It is important to note that a foreign company shall include-
having its place of business in India may not i) amount of profits repatriated during the year;
necessarily follow a financial year ending on ii) recipients of the repatriation;
the 31 st day of March every year provided it iii) form of repatriation;
has obtained the requisite approvals from the iv) dates of repatriation;
Central Government for the same. v) details if repatriation made to a jurisdiction
iii) Such other documents as may be required to other than the residence of the beneficiary;
be annexed or attached in accordance with vi) mode of repatriation; and
sub-rule (2). vii) approval of the Reserve Bank of India or any
2) Every foreign company shall, along with the other authority, if any.
financial statement required to be filed with the c) Statement of transfer of funds (including
Registrar, attach thereto the following documents; dividends if any) which shall, in relation of any
namely:- fund transfer between place of business of
a) Statement of related party transaction, which foreign company in India and any other related
shall include- party of the foreign company outside India
I) name of the person in India which shall be including its holding, subsidiary and associate
deemed to be the related party within the company, include-
meaning of clause (76) of section 2 of the I) date of such transfer;
Act of the foreign company or of any ii) amount of fund transferred or received;

iii) mode of receipt or transfer of fund; partnership of practicing chartered accountants.

iv) purpose of such receipt or transfer; and Explanation: For the purposes of this sub-rule, the
v) approval of Reserve Bank of India or any expressions "Chartered Accountant", "Firm" and
other authority, if any. "Limited Liability Partnership" shall have the
3) The documents referred to in this rule shall be meanings respectively assigned to them under the
delivered to the Registrar within a period of 6 Act and Limited Liability Partnership Act, 2008
months of the close of the financial year of the respectively.
foreign company to which the documents relate: 2) The provisions of Chapter X i.e. Audit and Auditors
Provided that the Registrar may, for any special and rules made thereunder, as far as applicable,
reason, and on application made in writing by the shall apply, mutatis mutandis, to the foreign
foreign company concerned, extend the said company.
period by a period not exceeding 3 months. Rule 6 : List of places of business of foreign
Rule 5: Audit of accounts of foreign company. company.
1) Every foreign company shall get its accounts, Every foreign company shall file with the Registrar,
pertaining to the Indian business operations along with the financial statement, in Form FC.3 with
prepared in accordance with the requirements of such fee as provided under Companies (Registration
clause (a) of subsection (1) of section 381 and Offices and Fees) Rules, 2014 a list of all the places of
rule 4, audited by a practicing Chartered business established by the foreign company in India
Accountant in India or a firm or limited liability as on the date of balance sheet.
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E-Filings
Form FC-3: Filing of list of place of businesses in India with ROC as on the date of making the Balance Sheet.
1) Maintain P & L and balance sheet for every place of business.

2) Maintain the consolidated P & L and the balance sheet for the all Places of Business in India.
3) Maintain the consolidated statement of the accounts prepared at the head Office of the
foreign Company.
4) Maintain the addi onal accounts as directed by CG.
Related party transac ons Repatria on Register Register of Fund Transfer
Audit = CA/ CS/CMA

All these documents shall be delivered to the Registrar within a period of 6 months of
the close of the financial year of the foreign company to which the documents relate.

Sec. 381: Accounts of foreign company.

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Sec. 382: Display of name, etc., of foreign company.
Provision
Every foreign company shall—

a) conspicuously exhibit on the outside of every office or place where it carries on business in India, the name of
the company and the country in which it is incorporated, in letters easily legible in English characters, and
also in the characters of the language or one of the languages in general use in the locality in which the office
or place is situate;
b) cause the name of the company and of the country in which the company is incorporated, to be stated in
legible English characters in all business letters, billheads and letter paper, and in all notices, and other
official publications of the company; and
c) if the liability of the members of the company is limited, cause notice of that fact —
i) to be stated in every such prospectus issued and in all business letters, billheads, letter paper, notices,
advertisements and other official publications of the company, in legible English characters; and
ii) to be conspicuously exhibited on the outside of every office or place where it carries on business in India,
in legible English characters and also in legible characters of the language or one of the languages in
general use in the locality in which the office or place is situate.
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382 : Disclosures by Foreign Company
Name of the Country in which it Liability of its

company is incorporate members
Where to disclose
At every offer At every official Outside every

Document Document place of business

Sec. 382: Display of name, etc., of foreign company.

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Sec. 383 : Service on foreign company
Provisions
Any process, notice, or other document required to be served on a foreign company shall be deemed to be
sufficiently served, if addressed to any person whose name and address have been delivered to the Registrar
under section 380 and left at, or sent by post to, the address which has been so delivered to the Registrar or by
electronic mode.
Sec. 384 : Debentures, annual return, registration of charges,

books of account and their inspection
Provisions
Sec. 384(1): Applicability of the provisions of debenture.
The provisions of this Act relating to debentures section 71 shall apply mutatis mutandis to a foreign company.
Sec. 384(2): Applicability of provisions of annual return.

The provisions relating to annual return [section 92] shall, subject to such exceptions, modifications and
adaptations as may be made therein by rules made under this Act, apply to a foreign company as they apply to a
company incorporated in India.
Further, as per Rule 3 of the Companies (Corporate Social Responsibility Policy) Rules 2014, a foreign company
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which fulfills the criteria specified under Section 135(1) of the Companies Act 2013 is required to comply with
Section 135 of the Companies Act, 2013, subject to such exceptions, modifications and adaptations as may be
made therein by rules made under this Act, apply to a foreign company as they apply to a company incorporated
in India.
384(3): Applicability of provisions of maintenance of books of accounts.
The provisions relating to books of account section 128 shall apply to a foreign company to the extent of
requiring it to keep at its principal place of business in India the books of account with respect to monies
received and spent, sales and purchases made, and assets and liabilities, in the course of or in relation to its
business in India.
384(4): Applicability of provisions of Charges on asset.
The provisions relating to registration of charges Sections 77 to 87 shall apply mutatis mutandis to charges on
properties which are created or acquired by any foreign company.
384(5): Applicability of provisions of chapter inspection and investigation.
The provisions relating to inspection, inquiry and investigation Sections 206 to 240 shall apply mutatis
mutandis to the Indian business of a foreign company as they apply to a company incorporated in India.
Companies (Registration of Foreign Companies) Rules, 2014
Rule 7: Every foreign company shall prepare and file, within a period of 60 days from the last day of its financial
year, to the Registrar annual return in Form FC.4 along with such fee as provided in the Companies
(Registration Offices and Fees) Rules, 2014 containing the particulars as they stood on the close of the financial
year.
E-Filings
Form FC-4: filing of annual returns with ROC by Foreign Company.

Sec. 384 : Debentures, annual return, registration of charges,

books of account and their inspection
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Sec. 385: Fee for registration of documents.

There shall be paid to the Registrar for registering any document required by the provisions of this Chapter to be
registered by him, such fee, as may be prescribed.
As per Rule 8(2) of the Companies (Registration of Foreign Companies) Rules, 2014, fee as provided in the
Companies (Registration Offices and Fees) Rules, 2014 shall be paid to the Registrar for registration of any
documents.
Sec. 386: Interpretation.

For the purposes of the foregoing provisions of this Chapter:
a) the expression “certified” means certified in the prescribed manner to be a true copy or a correct
translation;
b) the expression “director”, in relation to a foreign company, includes any person in accordance with whose
directions or instructions the Board of Directors of the company is accustomed to act; and
c) the expression “place of business” includes a share transfer or registration office.
Example: Examine with reference to the provisions of the Companies Act, 2013 whether the following
companies can be treated as foreign companies:
i) A company incorporated outside India having a share registration office at Mumbai.
ii) Indian citizens incorporated a company in Singapore for the purpose of carrying on business there.
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Answer
Section 2(42) of the Companies Act, 2013 defines a “foreign company” as any company or body corporate
incorporated outside India which:
a) Has a place of business in India whether by itself or through an agent, physically or through electronic
mode; and
b) Conducts any business activity in India in any other manner.
According to section 386 of the Companies Act, 2013, for the purposes of Chapter XXII of the Companies Act,
2013 (Companies incorporated outside India), expression “Place of business” includes a share transfer or
registration office.
Accordingly, to qualify as ‘foreign company’ a company must have the following features:
a) it must be incorporated outside India; and
b) it should have a place of business in India.
c) That place of business may be either in its own name or through an agent
or may even be through the electronic mode; and
d) It must conduct a business activity of any nature in India.
i) Therefore, a company incorporated outside India having a share registration office at Mumbai will be
treated as a foreign company provided it conducts any business activity in India.
ii) In the case of a company incorporated in Singapore for the purpose of carrying on business in
Singapore will not fall within the definition of a foreign company. Its incorporation by Indian citizen is
immaterial. In order to be a foreign company it has to have a place of business in India and must
conduct a business activity in India.

Additional Notes
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Sec. 387 : Dating of prospectus and particulars to be contained therein.
Provisions
Sec. 387(1): Prospectus to be dated and signed notice of any contract, documents or matter not
No person shall issue, circulate or distribute in India specifically referred to in the prospectus.
any prospectus offering to subscribe for securities of It is to be understood that Sec. 387(2) does not
a company incorporated or to be incorporated outside provides any exception with respect to non-
India, whether the company has or has not compliance of requirement stated under Sec.
established, or when formed will or will not establish, 387(1) by any person responsible for issuing or
a place of business in India, unless the prospectus is circulating prospectus.
dated and signed, and: 387(3): Further requirements for issue of
1) contains particulars with respect to the following prospectus in India.
matters, namely:— The company can issue form of application for
a) the instrument constituting or defining the securities in India only if:
constitution of the company; a. The company complies with the provision of this
b) the enactments or provisions by or under chapter.
which the incorporation of the company was b. Such issue does not contravene the provision of sec
effected; 388.
c) address in India where the said instrument, However a company can issue form of application to
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enactments or provisions, or copies thereof, underwriter for entering into underwriting agreement
and if the same are not in the English in bona fide manner without compliance of above
language, a certified translation thereof in requirements.
the English language can be inspected; 387(4): Non applicability of provisions in certain
d) the date on which and the country in which cases.
the company would be or was incorporated; 1. The above provisions are not applicable for issue of
and prospectus for shares or debentures to existing
e) whether the company has established a place shareholders or debenture holders irrespective of
of business in India and, if so, the address of whether they renounce the shares or not.
its principal office in India; and 2. The above provisions shall not be applicable to
2) states the matters specified under section 26 issue of prospectus for securities of the same
(Matters to be stated in prospectus). nature which are already issued by company and
Provided that points (1), (2) and (3) of point (a) are listed on recognized stock exchange.
above shall not apply in the case of a prospectus 3. But the section is applicable to issue of prospectus
issued more than 2 years after the date at which the or form of application of securities issued for
company is entitled to commence business formation of company or future formation of
387(2): - No waiver of compliance in prospectus company.
The following conditions shall be void: 387(5): Liability to remain the same.
i) Any condition requiring or binding an applicant for Nothing in this section shall limit or diminish any
securities to waive compliance with any liability which any person may incur under any law for
requirement as above. the time being in force in India or under this Act apart
ii) Any condition purporting to impute him with from this section.

INDIA
to Incorporated Foreign Securities

Incorporated Company
Funds
Refunds
Prospectus Content
Indian Company Required Addi onal For

Content of Prospectues - (Sec 26) Foreign Company (387)
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Sec.387 : Dating of prospectus and particulars to be contained therein.

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Sec.388: Provisions as to expert’s consent and allotment.

According to this section: the prospectus a statement that he has given
1) No person shall issue, circulate or distribute in and has not withdrawn his consent as aforesaid;
India any prospectus offering for subscription in or
securities of a company incorporated or to be b) if the prospectus does not have the effect,
incorporated outside India, whether the company where an application is made in pursuance
has or has not been established, or when formed thereof, of rendering all persons concerned
will or will not establish, a place of business in bound by all the provisions of section 33 (Issue
India,— of application forms for securities) and section
a) if, where the prospectus includes a statement 40 (Securities to be dealt with in stock
purporting to be made by an expert, he has not exchanges), so far as applicable.
given, or has before delivery of the prospectus 2) For the purposes of this section, a statement shall
for registration withdrawn, his written consent be deemed to be included in a prospectus, if it is
to the issue of the prospectus with the contained in any report or memorandum appearing
statement included in the form and context in on the face thereof or by reference incorporated
which it is included, or there does not appear in therein or issued therewith.
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Sec. 389: Registration of prospectus.

According to this section: Companies (Registration of Foreign Companies)
Rules, 2014
No person shall issue, circulate or distribute in India
any prospectus offering for subscription in securities Rule 11: The following documents shall be
of a company incorporated or to be incorporated annexed to the prospectus, namely:
outside India, whether the company has or has not
Documents to be annexed to prospectus.
established, or when formed will or will not establish,
a place of business in India, unless before the issue, (a) any consent to the issue of the prospectus
circulation or distribution of the prospectus in India; required from any person as an expert;
a) a copy thereof certified by the chairperson of the (b) a copy of contracts for appointment of managing
company and two other directors of the company director or manager and in case of a contract not
as having been approved by resolution of the reduced into writing, a memorandum giving full
managing body has been delivered for registration particulars thereof;
to the Registrar; and (c) a copy of any other material contracts, not
b) the prospectus states on the face of it that a copy entered in the ordinary course of business, but
has been so delivered, and entered within preceding two years;
c) there is endorsed on or attached to the copy, any (d) a copy of underwriting agreement; and
consent to the issue of the prospectus required by (e) a copy of power of attorney, if prospectus is
section 388 and such documents as may be signed through duly authorized agent of
prescribed. directors.

Class Work
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Sec. 390: Offer of Indian Depository Receipts.
Provisions
For the purposes of this section, and according to the Companies (Registration of Foreign Companies) Rules,
2014, Indian Depository Receipts (IDR) means any instrument in the form of a depository receipt created by
a Domestic Depository in India and authorized by a company incorporated outside India making an issue of
such depository receipts.
Notwithstanding anything contained in any other law for the time being in force, the Central Government may
make rules applicable for—
(a) the offer of Indian Depository Receipts;
(b) the requirement of disclosures in prospectus or letter of offer issued in connection with Indian Depository
Receipts;
(c) the manner in which the Indian Depository Receipts shall be dealt with in a depository mode and by
custodian and underwriters; and
(d) the manner of sale, transfer or transmission of Indian Depository Receipts, by a company incorporated or
to be incorporated outside India, whether the company has or has not established, or will or will not
establish, any place of business in India.
Rule 13 : Issue of Indian Depository Reciepts (IDR’s)
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According to the Companies (Registration of Foreign Companies) Rules, 2014, no company incorporated or to
be incorporated outside India, whether the company has or has not established, or may or may not establish,
any place of business in India shall make an issue of Indian Depository Receipts (IDRs) unless it complies with
the conditions mentioned under this rule, in addition to the Securities and Exchange Board of India (Issue of
Capital and Disclosure Requirements) Regulations, 2009 and any directions issued by the Reserve Bank of
India.
The Rules relating to offer, disclosure requirements and manner of transfer, sale etc., related to IDR are
contained in Rule 13 of the Companies (Registration of Foreign Companies) Rules, 2014.
Application of Chapter XV (Compromises, Arrangements and Amalgamations):
Section 234 of the Companies Act, 2013 deals with merger or amalgamation of company with foreign company.
1) Section 234(1) states that the provisions of Chapter XV unless otherwise provided under any other law for
the time being in force, shall apply mutatis mutandis to schemes or mergers and amalgamations between
companies registered under this Act and companies incorporated in the jurisdictions of such countries as
may be notified from time to time by the Central Government. Provided that the Central Government may
make rules, in consultation with the Reserve Bank of India, in connection with mergers and amalgamations
provided under this section.
2) Section 234(2) states that subject to the provisions of any other law for the time being in force, a foreign
company, may with the prior approval of the Reserve Bank of India, merge into a company registered under
this Act or vice versa and the terms and conditions of the scheme of merger may provide, among other
things, for the payment of consideration to the shareholders of the merging company in cash, or in
Depository Receipts, or partly in cash and partly in Depository Receipts, as the case may be, as per the
scheme to be drawn up for the purpose.
Explanation: For the purposes of sub-section (2) above, the expression “foreign company” means any
company or body corporate incorporated outside India whether having a place of business in India or not

Concept of GDR
1) Company
shares issue Shares
GDR
3) Orders to issue instrument based on

4) Foreign 2) Domes c
Custodian Custodian
Concept of ADR
1) Company
shares issue Shares
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11
ADR

Custodian Custodian
Concept of ADR
1) Company
shares issue IDR
Shares

Custodian Custodian

Sec.391: Application of sections 34 to 36 and Chapter XX.
Provisions
391(1): applicability of the provisions of the liability :
The provisions relating to Civil liability/Criminal Liability for misstatement in prospectus/Fraudulently inducing
to invest (Sections 34 to 36) shall apply:
a. To the issue of a prospectus by a company incorporated outside India [See section 389] as they apply to
prospectus issued by an Indian company.
b. The issue of Indian Depository Receipts by a foreign company.
Ÿ Section 34 deals with criminal liability for mis-statements in prospectus
Ÿ Section 35 deals with Civil Liability for mis-statement in prospectus
Ÿ Section 36 deals with punishment for fraudulently inducing persons to invest money
391(2): Applicability of the provisions for winding up.

Co Act 2017 (2) 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
CH
11
which have not been repaid or redeemed.
Sec.392: Punishment for contravention.
Provisions
Where a foreign company fails to comply with any of the provisions of this Chapter (Chapter XII):
Ÿ the foreign company shall be punishable:
a. with fine which shall not be less than ` 1,00,000 but which may extend to ` 3,00,000; and
b. in the case of a continuing offence, with an additional fine which may extend to ` 50,000 for every day
during which the default continues;
and
Ÿ every officer who is in default shall be punishable: with fine which shall not be less than 25,000 but which
may extend to 5,00,000.
Thus, the punishment for contravention may be summed up as under:
1. Fine on defaulting foreign company in the range of `1 lac to `3 lac.
2. In case of continuing default an additional fine on the foreign company to the tune of ` 50,000 per day
after the first during which the contravention continues.
3. Punishment for every officer of the foreign company who is in default shall be imposition of a fine of a
minimum amount of ` 25,000 , but which may extend to ` 5,00,000.

Class Work
CH
11

Sec. 393: Company’s failure to comply with provisions of this Chapter

not to affect validity of contracts, etc.
Section
393: Validity of contracts and power of prosecution.
1. Any failure by a company to comply with the provisions of this 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.
2. But the company shall not be entitled to file a case or suit regarding such contracts until the company has
complied with the provisions of this Act applicable to it.
RULE 12 of Companies (Registration of foreign companies) Rules, 2014

Action for Improper Use or Description as Foreign Company:
It states that if any person or persons trade or carry on business in any manner under any name or title or
description as a foreign company registered under the Act or the rules made thereunder, that person or each of
those persons shall, unless duly registered as foreign company under the Act and rules made thereunder, shall
be liable for investigation under section 210 of the Act and action consequent upon that investigation shall be
taken against that person.
CH
11
Exemptions under this Chapter
Provisions
The Central Government may, by notification, exempt any class of-
a) foreign companies;
b) companies incorporated or to be incorporated outside India, whether the company has or has not
established, or when formed may or may not establish, a place of business in India,
in so far as they relate to the offering for subscription in the securities, requirements related to the prospectus,
and all matters incidental thereto in the International Financial Services Centers set up under section 18 of the
Special Economic Zones Act, 2005.

Class Work
CH
11

Additional Notes
CH
11

Additional Notes
CH
11

Additional Notes
CH
11

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Chapter 1 FEMA, 1999

7-Remittance of interest income on funds held in Non-

CA CS Darshan Khare For Concept Query only 8530902666 1.27

Sec 5: Current Accounts Transaction

1.28 For Concept Query only 8530902666 CA CS Darshan Khare

Transaction Permissible with approval of CG:

1) Why CG approval when the RBI is apex authority in FEMA?

1) Approving Authority Transaction

3) Ministry of Surface a. Remittance of freight of any vessel chartered by PSU.

CA CS Darshan Khare For Concept Query only 8530902666 1.29

4) Director General of Shipping.

b. Remittance for container detention charges exceeding the rates prescribed by

5) Ministry of Information & Broadcasting, Remittance of Hiring Charges of Transponders.

1.30 For Concept Query only 8530902666 CA CS Darshan Khare

6) Ministry of Human Remittance of prize money or sponsorship of sports

7) Ministry of Finance Remittance for

THE SAILOR CLUB

CA CS Darshan Khare For Concept Query only 8530902666 1.31

1.32 For Concept Query only

Adver sement Import Container Hiring charges Hiring charges

Cut with Approval of CG

CA CS Darshan Khare For Concept Query only 8530902666 1.33

LRS Limit < $ 2.5 Lakhs Amount >$ 2.5 Lakhs

CUT + CAT < $ 2.5 Lakhs (PRI) RBI Approval

Prohibited CUT / CAT- Not Allowed &

1.34 For Concept Query only 8530902666 CA CS Darshan Khare

For Concept Query only

Separate Limit Transactions

Commission on Real Estate

Remi ance by personal deputa on in India

If the person is resident and not permanently resident in India.

Remi ance by an en ty in India by way of reimbursement of

1.36 For Concept Query only 8530902666 CA CS Darshan Khare

CA CS Darshan Khare For Concept Query only 8530902666 1.37

US$ 1,000,000 per project

Remi ance for consultancy service produced from outside India

US$ 10,000,000 per

Dona ons by corporate

1.38 For Concept Query only 8530902666 CA CS Darshan Khare

CA CS Darshan Khare For Concept Query only 8530902666 1.39

Liberalised Remittance Scheme

Transactions for Individual Requiring RBI Approval

1.40 For Concept Query only 8530902666 CA CS Darshan Khare

a) is a citizen of a foreign State other than Pakistan; or

Note: Liberalised Remittance Scheme (LRS):

CA CS Darshan Khare For Concept Query only 8530902666 1.41

1.42 For Concept Query only 8530902666 CA CS Darshan Khare

Importance about EEFC & RFC

Execution of Scheme II (Central Government) & Scheme III (RBI)

Totally All Transaction

3) Refund of pre-Incorporation RBI

Respective Approval Required

CA CS Darshan Khare For Concept Query only 8530902666 1.43

Master Chart Current account transaction

1.44 For Concept Query only 8530902666 CA CS Darshan Khare

Master Chart Current account transaction

CA CS Darshan Khare For Concept Query only 8530902666 1.45