DENIAL OF GENERAL EXTENSION FOR ANNUAL GENERAL MEETING


We are living in an era of positive presentation. Here is a news headline by a newspaper considered not so sympathetic to the Government: 

Corp affairs ministry allows companies to extend AGMs for up to 3 months

What the Government did? It did not allow any extension as of now. It has not accepted a request to grant a general extension for holding the Annual General Meeting by companies. The Government, in its clarification, mentioned good reason for denial but missed the single and straightforward reason to grant a general extension. We discuss. 

The Law:

Section 96 of the Companies Act, 2013 requires every company to hold an Annual General Meeting within Six Months from the closing of its financial year. The last financial year for Indian Companies, unless allowed by the Tribunal, ends on 31st March 2020. Accordingly, companies require to hold their Annual General Meeting on or before 30th September 2020.

The Registrar of companies may, for any special reason, extend the stature time by a period not exceeding three months. 

After that, companies may hold Annual General Meeting but should either face penalty or seek compounding of the offence.

Government stands:

The Government, by the present clarification, confirms the legal position and extend nothing. The Government merely advises Registrars to ‘consider’ all applications filed on or before 29th September 2019 to grant extension ‘only’ up to the time mentioned under the Law. 

Reason of Government Stand

Legally, the Government without amending Law cannot grant an extension beyond three months. It requires an amendment law. However, MCA has a good track record of granting relaxations by issuing circulars promising no legal action for a non-compliance.

The Government already permits holding of Annual General Meetings through Video Conferencing, audiovisual means for the calendar year 2020. 

What Government Missed 

The most ordinary purpose for holding an Annual General Meeting is to approve Annual Accounts of the company – the Balance Sheet and Profit and Loss Account. These accounts must be prepared and audited on or before 5th September 2020 to hold Annual General Meeting on the last date 30th September 2020 unless the process of shorter period notice is complied with. 

Due to present COVID -19 situation, we faced lock-down, travel restriction, social distancing norms, movement avoidance, self-imposed restrictions and various government advisories. Companies are presently focussing rightly on survival, not on account and audit. 

In an average working company, the audit exercise took three to four months. Even in a no transaction company, the auditor needs about 10-15 days to do a quality audit. Hence, this is unlikely to prepare audit within the next 15 days or 45 days. 

View of Fellow Ministry

The Ministry of Finance, Department of Income Tax, which is under same set of Ministers, already extended due date of filing income tax returns under tax audit by one month till 30th November 2020. Ordinarily Tax return be filed after adoption of accounts in General Meeting. This show, government is aware of the situation. 

Filing of Form

With above-mentioned proposition, present COVID-19 situation forces about two-third of total companies to seek an extension of time to hold Annual General Meeting. Accordingly, about 6-8 Lakh forms required to be filed, examined and approved. Assuming, all officers shall be sympathetic and will not seek further clarification. 

These 6-8 Lakh forms shall require about 1,50,000 working hours at the offices of the Registrar of companies with or without outsourcing. 

This exercise may generate corresponding revenue of about Rs. Three crores for the Government and more than Rs. 6 crores for professional providing filling and filing services. The filling and filing process requires more than 3 lakh working hours for professional assuming the portal works wonderfully fine. 

The Loss

The most significant loss: no ease of doing business. It will, however, not impact the ease of doing business ranking as it is not on the checklist of the ranking.

This compliance requirement will adversely affect micro, small and medium-sized companies.

The Sword  

What if a company requesting three months extension got a shorter extension or no extension and received communication after a long period. This unfair situation is possible considering working hours involved at government end.

Aishwarya Mohan Gahrana

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2 responses to “DENIAL OF GENERAL EXTENSION FOR ANNUAL GENERAL MEETING

  1. I completely agree with your views that what if a company requesting three months extension got a shorter extension or no extension and received communication after a long period. This unfair situation is possible considering working hours involved at government end.

    Like

  2. Pingback: FINALLY GENERAL EXTENSION FOR ANNUAL GENERAL MEETING | AishMGhrana

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