In this blog post, Varun Sen, a student pursuing a Diploma in Entrepreneurship Administration and Business Laws by NUJS, lists the documents that have to be submitted by a foreign entity to the AD Bank at the closure of a Liasion or Branch Office. 

Documents to be Submitted by a Foreign Entity

As per the Master Circular No.7/2014-15[1] of the Reserve Bank of India, the documents that have to be submitted to the Authorized Dealer Bank at the time of closure of a Liaison or Branch Office by a foreign entity include the following:

1. A copy of the RBI’s permission/approval from the concerned sectoral regulator(s) for establishing the concerned Liaison /Branch Office.
2. An Auditor’s certificate, which indicates the:
   1. The manner in which the remittable amount has been arrived at.
   2. Statement of assets and liabilities of the applicant
   3. Manner of Disposal of Assets
   4. Confirmation that all liabilities in India (including arrears of gratuity and other benefits to employees, etc.) of the Office have been either fully met or adequately taken care for.
   5. Confirmation that no income was accruing from sources outside India (including proceeds of exports) has remained unrepatriated to India.
3. A No-objection / Tax Clearance Certificate from the Income-Tax authority for the remittance(s).
4. A Confirmation from the applicant/parent company that no pending legal proceedings in any Court persist and no legal impediments to the remittance(s) exist.
5. A report from the Registrar of Companies indicating all compliance with the provisions of the Companies Act, 1956 that pertain to winding up of the Office in India.
6. Any other document/s as specified by the Reserve Bank while granting approval. The designated AD Category – I banks have to ensure that the concerned Offices had filed their respective Annual Activity Certificates with the Reserve Bank for the previous years, in respect of the existing Branch/Liaison Offices. Obtaining confirmation regarding the same requires approaching the Central Office of the RBI (in cases involving Branch Offices) or the Regional Office concerned (in cases involving the Liason Offices) as the case may be.

The above documents may be retained by the AD Bank for the verification conducted by their internal auditors or by inspecting officers of the RBI.

The designated AD bank has to report the closure of the concerned Office to the RBI upon receipt and scrutiny of the above, indicating the same to the RBI via a declaration. In cases where the documents are not in order or those where delegated powers do not cover the concerned issue, the AD bank may forward the application to the RBI with their comments for necessary action. Upon doing so, the AD bank may permit the concerned remittances subject to the directions issued by the RBI and payment of applicable taxes in India, if any.

Thus, we see that the documents that are to be submitted upon closure, are efforts by the RBI to ensure that foreign entities do not attempt to leave the country by denying Indian creditors, or legal beneficiaries their rightful amounts, or try to evade tax for the same. This is an important aspect of corporate governance, as it imposes strict due diligence requirements for the purposes of preventing fraudulent or dishonest financial transactions that could take place through a Branch or Liaison Office.

Reference:

[1]Master Circular on Establishment of Liaison / Branch /Project Offices in India by Foreign Entities (No.7/2014-15), Reserve Bank of India, (July 01, 2014).