Change in Financial Year under Companies Act, 2013

 BACKGROUND

Under the Companies Act, 1956 (Old Act), it was open to the Companies to determine any period as their financial year (for ex: 1^st April to 31^st March or 01^st January to 31^st December). However, the Companies Act 2013 (New Act) took away the leverage being given to Companies by introducing the concept of uniform Financial Year.

As per the New Act, every company is obliged to have the financial year starting from 1^st April to 31^st March.

MEANING OF FINANCIAL YEAR

Companies Act 2013 defines Financial Year under Section 2(41) as:

“Financial Year”, in relation to any company or body corporate, means the period ending on the 31^st day of March every year, and where it has been incorporated on or after the 1^st day of January of a year, the period ending on the 31^st day of March of the following year, in respect whereof financial statement of the company or body corporate is made up.

Provided that where a company or body corporate, which is a holding company or a subsidiary or associate company of a company incorporated outside India and is required to follow a different financial year for consolidation of its accounts outside India, the Central Government may, on an application made by that company or body corporate in such form and manner as may be prescribed, allow any period as its financial year, whether or not that period is a year.

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

Provided also that 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.

Major Takeaways From Provisions Of Section 2(41) Of Companies Act 2013:

1. Financial Year has to be started from 1^st of April and to be ended on 31^st of March.

2. Existing companies or bodies corporate had a transitional period of 2 years to align their financial year as per these provisions.

3. Holding company or a subsidiary of a company incorporated outside India are exempted, provided that they make an application to the Central Government and take its Approval.

4. Central Government may grant the approval on the ground that the Subsidiary Company desire to align its accounts/balance sheet for consolidation of accounts as per the laws of the land where the Holding Company is incorporated.

5. Application for seeking approval for change in the financial year need to obtained from the office of Regional Director. Approval from Tribunal (NCLT) is done away w.e.f. 12.01.2019 by the Companies (Amendment) Ordinance, 2019.

Procedural Aspects to Go About Changing the Financial Year: 

Board Meeting: The Company needs to call Board Meeting for the purpose of passing the following Resolutions:

1. Change in financial year of the Company

2. Authorization to the Company Secretary in practice for appearance before RD (Central Government).

3. Executing Memorandum of Appearance or POA.

Application to the Regional Director: The Application under the sub-section (41) of Section 2 be filed to the Tribunal in Form RD-1 and shall be accompanied by such documents namely: –

1. grounds 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 last five years for change in financial year and outcome thereof along with copy of order

Examination of application by Regional Director: 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-S.

Maximum of two re-submissions shall be allowed.

Order by Central Government: Where the application is found to be in order, Regional Director shall pass the order within thirty days from the date of application.

Filing of Order with the ROC: Certified copy of the order shall be filed with the Registrar of Companies (ROC) in form INC-28 within thirty days.