Chinese companies and associated rules in India

Chinese companies and associated rules in India

Subject: Economy

Section:  External Sector

Context: Scores of chartered accountants, company secretaries and cost accountants are currently under the regulatory scanner for alleged violations of the companies law with respect to setting up of certain Chinese companies and their subsidiaries in India.

Concept:

• Chinese companies in the sense that they have Chinese directors as promoters.
• The incorporation process involves various services such as drafting and certifying the documents and submission of the same to the Registrar of Companies for their approval.

Steps taken:

• The corporate affairs ministry laid stricter norms for appointment of individuals from certain countries, including China, as directors on the boards of Indian companies, by making security clearance mandatory for such individuals.
  • Land border-sharing nations’ citizens who are appointed as directors on boards of companies have to obtain a security clearance from the Ministry of Home Affairs along with the consent form.
• FEMA has been made mandatory for entities from such countries involved in amalgamations with Indian companies.
• The April 2020 guidelines required mandatory government approval for foreign investment coming from countries sharing land borders with the country. Previously, only investments from Pakistan and Bangladesh faced such restrictions.
  • Aimed primarily at China, the new rule stated that foreign investors from these nations would have to seek regulatory approval before investing in India or increasing their stakes in Indian companies.

Registrars of Companies (ROC)

Registrars of Companies (ROC) appointed under Section 609 of the Companies Act covering the various States and Union Territories are vested with the primary duty of registering companies and LLPs floated in the respective states and the Union Territories and ensuring that such companies and LLPs comply with statutory requirements under the Act. These offices function as a registry of records, relating to the companies registered with them, which are available for inspection by members of the public on payment of the prescribed fee. The Central Government exercises administrative control over these offices through the respective Regional Directors.