26 July 2011

Registration of overseas online firms to be made mandatory

New Companies Bill to make direct-to-home shopping sites accountabe to Registrar of Companies.

In a bid to make foreign companies engaged in online and direct-to-home business practices in India accountable, the Ministry of Corporate Affairs (MCA) will make enrolment of all such companies with the country’s Registrar of Companies (RoC) mandatory.

The need to have control over such organisations was felt in the wake of increasing instances of online businesses that cut across national boundaries.
The proposal for mandatory registration will form part of the new Companies Bill 2011, a senior official said.

The government may also verify that the promoters of the overseas firms or their business associates in India, including logistic partners, have not committed any economic offences under any national or international jurisdiction.

“The track record of the directors of the company will be sought to ensure they are not fly-by-night operators who had been convicted or banned from conducting business or establishing firms in other countries,” the official said.

Details of previous businesses of the promoters and their associates will also be sought before the company gets an approval to do business in India.

The Companies Bill 2009, a revised version of which is being finalised now, already contains the existing set of basic disclosures that are required to enable a company to operate in the country. These include details of the companies’ charter, statutes, memorandum, articles etc. Contact details of the senior management team will also be sought. Similar disclosures will have to be made about their business associates in India.

Recently, MCA had had initiated a probe into the activities of foreign companies that are registered abroad but have business operations in India.

The inquiry was triggered after complaints were registered against Singapore based SpeakAsia over its business practices. SpeakAsia, which charges an annual membership fee of Rs 11,000, pays back its members for conducting online surveys for its clients. The company had refused to disclose the names of the clients to whom it sells the survey results.

The controversy erupted in May after an investors’ protection group filed a public interest litigation before the Bombay High Court. The court issued summons to five top officials of SpeakAsia. The MCA probe was initiated in the backdrop of these allegations.