Sections 393, 393A and 394 of the Companies Act, 2013

Sections 393 and 393A form part of Chapter XXII of the Companies Act, 2013, which deals with companies incorporated outside India. Section 394 begins Chapter XXIII and deals with annual reports on Government companies. This article reproduces the substance of these provisions and explains their practical effect.

On this page

Section 393 - Company's failure to comply with provisions of this Chapter not to affect validity of contracts, etc.

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. However, the company is not entitled to bring a suit, claim a set-off, make a counter-claim or institute a legal proceeding in respect of such contract, dealing or transaction until it has complied with the provisions of the Act applicable to it.

Meaning and effect of Section 393

Section 393 protects the validity of contracts, dealings and transactions despite a company's failure to comply with applicable requirements of Chapter XXII. At the same time, the defaulting company faces a procedural disability: it cannot enforce the relevant contract or transaction through a suit, set-off, counter-claim or other legal proceeding until the applicable statutory requirements have been complied with.

Key point: Non-compliance under Chapter XXII does not, by itself, make the underlying contract or transaction invalid. The section instead restricts the non-compliant company's ability to initiate or pursue the specified legal remedies until compliance is completed.

Section 393A - Exemptions under this Chapter

The Central Government may, by notification, exempt any class of:

(a) foreign companies; or

(b) companies incorporated or to be incorporated outside India, whether or not such a company has established, or when formed may establish, a place of business in India,

as may be specified in the notification, from any of the provisions of Chapter XXII. A copy of every such notification is to be laid before both Houses of Parliament.

Meaning and scope of Section 393A

Section 393A gives the Central Government a statutory power to grant class-based exemptions from provisions of Chapter XXII by notification. The provision was inserted by the Companies (Amendment) Act, 2020 and came into force on 22 January 2021.

Whether an exemption applies in a particular case depends on the terms, class of companies and conditions stated in the relevant Central Government notification. The current notification position should therefore be checked on the Ministry of Corporate Affairs portal before relying on an exemption.

Section 394 - Annual reports on Government companies

Sub-section (1): Where the Central Government is a member of a Government company, it must cause an annual report on the working and affairs of that company to be prepared within three months of the annual general meeting before which the comments of the Comptroller and Auditor-General of India and the audit report are placed under the proviso to Section 143(6). As soon as may be after preparation, the report is to be laid before both Houses of Parliament together with the audit report and the CAG's comments upon, or supplement to, that audit report.

Sub-section (2): Where a State Government is also a member of such Government company, that State Government must cause a copy of the annual report prepared under sub-section (1) to be laid before the House or both Houses of the State Legislature together with the audit report and the CAG's comments or supplement referred to in sub-section (1).

Purpose of Section 394

The provision creates legislative reporting requirements for Government companies in which the Central Government is a member. It links the annual report with the special audit framework applicable to Government companies under Section 143, including the role of the Comptroller and Auditor-General of India.

Relevant definitions and connected provisions

Foreign company - Section 2(42)

A "foreign company" means a company or body corporate incorporated outside India that has a place of business in India, whether by itself or through an agent and whether physically or through electronic mode, and conducts business activity in India in any other manner.

Government company - Section 2(45)

A "Government company" is, in substance, a company in which not less than 51 percent of the paid-up share capital is held by the Central Government, one or more State Governments, or jointly by the Central Government and one or more State Governments; the definition also includes a subsidiary of such a Government company.

Section 143(6) - CAG comments on audit report

Section 394 refers to the audit framework in Section 143(6). That provision gives the Comptroller and Auditor-General of India specified powers concerning supplementary audit and comments upon or supplementation of the audit report for covered Government-controlled companies.

Official resources

Updated: 17 September 2026. Readers should verify later amendments and notifications from official sources before acting on the provision.