Financial Year for a company

Law stated in this post is as on 20^th December 2018.

Financial Year reflects the reporting period for the purpose of financial and non-financial reporting by a company to its stakeholders including government authorities. Since the financial year of the Government of India is 1^st April to 31^st March as per the British system. The Companies Act, 2013 aligned financial year for companies registered in India to that of the government. There are certain exemptions to have a different period for the financial year. In this post we will discuss the financial year in light of the companies (Amendment) Ordinance, 2018 read with the companies (Incorporation) Fourth Amendment Rules, 2018 and Notification S.O. 6225 (E) dated 18^th December 2018.

Financial year – General Provision

According to Section 2(41), “financial year”, in relation to any company or body corporate, means the period ending on the 31st day of March every year.

This makes a financial year for companies and body corporate regulated under the Companies Act, 2013 from 1^st April of the first calendar year to 31^st March of following calendar year. {Section 2(41)}

First Financial Year

In case of a company has been incorporated between the 1^st April to the 31^st December of a year, its first financial year shall end on 31^st March of the following financial year. {Section 2(41)}

Where a company has been incorporated on or after the 1st day of January of a year, the financial year will be the period ending on the 31st day of March of the following year. {Section 2(41)}

In such cases, the first financial year of the company may vary from 15 months to 12 months 1 day.

Alignment of Financial year

A company or body corporate, existing on the commencement of this Act, shall, within a period of two years from such commencement, align its financial year as per the provisions of this clause. {now third but originally second proviso to Section 2(41)}

This alignment period o two years has already been ended on 31^st March 2016.

Different financial year

A different financial year may be permitted by the Central Government on an application made by a company.[1] This power of the government is delegated to the Regional Directors Mumbai, Kolkata, Chennai, New Delhi, Ahmedabad, Hyderabad and Shillong vide notification Notification S.O. 6225 (E) dated 18th December 2018.

Any application pending before the Tribunal as on the date of commencement of the Companies (Amendment) Ordinance, 2018 shall be disposed of by the Tribunal in accordance with the provisions applicable to it before such commencement.

All application pending before 8^th November 2018 shall be disposed of by the Tribunal as per the law existing on the date of filing of the application. No new application may practically be accepted by the tribunal for hearing keeping in mind the amendments. All new applications shall be filed before the Regional Director having jurisdiction once Form RD – 1 get the update anytime soon.

Such application for change in a financial year may be made by a company which is which is a holding company or a subsidiary or associate company[2] of a company incorporated outside India and is required to follow a different financial year for consolidation of its accounts outside India.

The term required to follow represent a compulsion for consolidating its account outside. Such compulsion should be a legal compulsion. It may also be noted that such companies may also be required to consolidate its accounts in India under the Companies Act, 2013.

Application before Regional Directors

The application for approval of the concerned Regional Director shall be filed in e-Form RD – 1 along with the fee as provided in the companies (Registration offices and Fees) Rules, 2014. {Rule 40(1) of the Companies (Incorporation) Rules, 2013 with effect from 18^th December 2018}

The Form RD – 1 is already there in public but updated version for filing change of financial year is not yet there.

Accompanying Documents

1. Ground and reasons for the application;
2. A copy of the minutes of the board meeting at which the resolution authorising such change was passed, giving details of the number of votes cast in favour and or against the resolution
3. Power of Attorney or Memorandum of Appearance, as the case may be;
4. Details of any previous application made within the last five years for the change in the financial year and outcome thereof along with the copy of the order.

{Rule 40(1) of the Companies (Incorporation) Rules, 2013 with effect from 18^th December 2018}

Further Information

Where the Regional Director on examining the application, finds it necessary to call for further information or finds such application to be defective or incomplete in any respect, he shall give intimation of such information called for or defects or incompleteness, on the last intimated e-mail address of the person or the company, which has filed such application, directing the person or the company to furnish such information, or to rectify defects or incompleteness and to re-submit such application within a period of fifteen days, in e-Form No. RD – GNL – 5. A maximum of two re-submissions of the Form RD – GNL – 5 shall be allowed. {Rule 40(2) of the Companies (Incorporation) Rules, 2013 with effect from 18^th December 2018}

Rejection of Application

In case where such further information called for has not been provided or the defects or incompleteness has not been rectified to the satisfaction of the Regional Director, the Regional Director shall reject the application with reasons within thirty days from the date of filing application or within thirty days from the date of last re-submission made as the case may be. {Rule 40(3)(a) of the Companies (Incorporation) Rules, 2013 with effect from 18^th December 2018}

The grounds for rejection of application are:

1. the information called for has not been provided; and
2. the defect or incompleteness has not been ratified.

The Order for rejection shall be a reasoned order. The order shall be made within 30 days from the application or last resubmitted resubmission of the application.

Approval of the application

In a case where the application is found to be in order, Regional Director shall allow and convey the order within thirty days from the date of application or within thirty days from the date of the last re-submission, as the case may be. {Rule 40(3)(b) of the Companies (Incorporation) Rules, 2013 with effect from 18^th December 2018}

Automatic Approval

Where no order for approval or re-submission or rejection has been explicitly made by the Regional Director within the stipulated time of thirty days, it shall be deemed that the application stands approved and an approval order shall be automatically issued to the applicant. {Rule 40(3)(c) of the Companies (Incorporation) Rules, 2013 with effect from 18^th December 2018}

Filing of the order

The order conveyed by the Regional Director shall be filed by the company with the Registrar in Form INC – 28 within thirty days from the date of receipt of the order along with fee as provided in the Companies (Registration Offices and Fees) Rules, 2014.

[1] Earlier this power was with NCLT. The companies (Amendment) Ordinance, 2018 transferred it to Central Government with effect from 2^nd November 2018.

[2] Associate company was inserted for the purpose by the Companies Amendment Act, 2017 with effect from 9^th February 2018.