Section 393 — Effect of Non-Compliance on Contracts of Foreign Companies
# Section 393 — Validity of Contracts Despite Non-Compliance
## The Two-Sided Rule
### Side 1: Contracts Stay Valid
Any failure by a foreign company to comply with Chapter XXII provisions:
Shall NOT affect the validity of any contract, dealing or transaction entered into by the company
Shall NOT affect its liability to be sued in respect thereof.
Why? This protects third parties (customers, vendors, lenders) who dealt with the foreign company in good faith. They should not lose contractual rights because the foreign company failed to file its papers.
### Side 2: Foreign Company Cannot Enforce
The non-compliant foreign company shall NOT be entitled to:
Bring any suit
Claim any set-off
Make any counter-claim
Institute any legal proceeding
...in respect of any such contract, dealing or transaction — until it has complied with the Act's provisions applicable to it.
## The Logic — Asymmetric Treatment
Party
Can Enforce?
Third party suing the foreign company
✅ YES
Foreign company suing the third party
❌ NO (until compliance)
Result: Non-compliance becomes a shield for others, never a sword for the defaulter. The foreign company can 'cure' the disability by complying retrospectively.
## Practical Insight
This provision incentivizes compliance without unjustly punishing innocent counterparties. It's a classic example of statutory carrot-and-stick design.
Worked example
### Example 1
Example 1: Foreign Co. P (non-compliant with Sec 380) sells goods worth ₹50 lakh to Indian buyer B. B fails to pay. P files a recovery suit. — Result: P cannot maintain the suit under Section 393 UNTIL P complies with Chapter XXII. Once P files all pending documents with the ROC, P can prosecute the suit.
### Example 2
Example 2: Foreign Co. Q (non-compliant) is sued by an Indian supplier for breach of contract. Q argues the contract is void due to its own non-compliance. — Result: Q's defence fails — Section 393 says non-compliance does NOT affect contract validity and Q remains liable to be sued.
### Example 3
Example 3: Foreign Co. R has a counterclaim against an Indian plaintiff in a suit filed against R. R is non-compliant. — Result: R cannot pursue the counterclaim until it complies — even though it can defend the suit on merits.
⚠️ Common exam mistakes
Thinking the contract becomes void — it remains fully valid and binding.
Believing the disability is permanent — it's curable: 'until the company has complied' is the key qualifier.
Forgetting the disability covers set-offs and counterclaims, not just plaints.
Confusing the company's inability to sue with an inability to be sued — the company can still be SUED.
Bare-Act text Section 393 · Companies Act, 2013 · click to expand
Section 393: 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, but the company shall not be entitled to bring any suit, claim any set-off, make any counter-claim or institute any legal proceeding in respect of any such contract, dealing or transaction, until the company has complied with the provisions of this Act applicable to it.