Query: Is There A New Provision Added Under The Companies Act 2013 Permitting ‘Updation’ of Annual Returns Filed with the Registrar of Companies for the Past 3 Years – Recording the Revised List of Promoters Based on a Subsequent Board Decision (After 3 Years).
Basis for the Query:
The title for this story may confuse the readers. But if a statement is made in a public document like Draft Red Herring Prospectus (DRHP), filed with the Securities and Exchange Board of India (SEBI), the capital market regulator of the country, then the veracity of such statement is normally not questionable.
That such statements made in the DRHP are certified to be true by each of the Directors/CFO/CS of the issuer company by way of declaration, viz.,
“All the relevant provisions of the Companies Act, and the guidelines/regulations issued by the Government of India or the guidelines/regulations issued by the Securities and Exchange Board of India, established under section 3 of the Securities and Exchange Board of India Act, 1992, as the case may be, have been complied with and no statement, disclosures, and undertakings made in the DRHP are contrary to the provisions of the Companies Act, 2013, the SCRA, the SCRR, the SEBI Act or rules made or guidelines or regulations issued thereunder, as the case may be. We further certify that all statements are true and correct.”
Goes to show that each and every statement in the DRHP has been not only consciously made but also confirms in affirmative terms that such statements are not contrary to the provisions of various laws, regulations, rules, etc.
Statement Found in the DRHP:
In this context, one has to consider the following statement found in the DRHP of RR KABEL LIMITED dated May 5, 2023, filed with SEBI – page 291 – on details of its promoters’ holding in the company on various dates:
“Note: Pursuant to Board meeting held on 13 February 2023, the company has revised the list of promoters resulting into a decrease in the number of promoters from 41 to 7. Consequently, the company has updated its annual return for the financial year 2021-22, 2020-21, 2019-20 filed with Registrar of Companies (ROC). Accordingly, the financial information included in RCFI for the years ended 31 March 2022, 31 March 2021, and 31 March 2020 have been restated.”
Analysis of the Statement:
It seems that, in order to keep the total number of promoters at the lowest possible level, the issuer company, for the purpose of filing the DRHP, has decided to revise (prune) the list of promoters by dropping 34 names from the list of original promoters. Since it is an unlisted company, for such revision, the prescribed procedures are not elaborate as in the case of listed companies in terms of Regulation 31A of the SEBI LODR 2015 that deals with the terms and the procedure for the reclassification of its promoters.
Any company is at liberty to revise the list of its promoters, as the law permits such revisions subject to compliance with the prescribed rules. But in this case, it may be noted that:
1. The decision to revise the list of promoters was taken by the Board on February 13, 2013 (why and who are the persons whose names were dropped from the list is not our concern).
2. Such revision is not made effective from the date of the Board decision; the revised list is made with retrospective effect from the financial year 2019-2020 onwards.
3. To reflect the revision as decided by the Board in February 2023, in the records of the Ministry of Corporate Affairs (MCA), the company has afresh filed the Annual Return in Form MGT 7 for the 3 years incorporating the revised list of promoters therein.
Obviously, the Annual Return for the 3 financial years 2019-20, 2020-21, and 2021-2022 should have been filed by this company within the respective due dates for the relevant financial years with the RoC. After the Board in February 2023 approved the revised list of promoters, the company has filed the Revised Annual Returns for the said financial years where the revised list of promoters (revised in February 2023) was mentioned as promoters on those dates, which the company has referred to as “Updated Annual Return” in its DRHP.
Questions to MCA:
In this connection, there are some questions that the MCA has to consider and clarify in public:
1. Under which provision in the Companies Act 2013 is a company allowed to file the Revised Annual Return for 2020, like in this case, based on a decision of the Board taken in 2023 (or for 2021/for 2022, in 2023)?
2. Since the company has categorically stated in the DRHP that it has updated the Annual Returns for the last 3 years, for the revision in the list of promoters as approved by its Board in February 2023, it means that such revised filing has been approved/taken on record by the MCA and it does not mean that the revised form, though filed by the company, is pending for registration.
3. The basis on which the approval for such re-filing has been given by the MCA – i.e whether by the RoC or the Regional Director/NCLT is not known (for, in certain cases, companies follow the practice of re-filing of an already filed form when, in the first filed form, certain errors are noticed post-filing, with an optional attachment to the refiled form – explaining the reason for the re-filing and a request to take on record the re-filed form. However, in the MCA portal – both the forms – viz., the original form and the re-filed form – reside).
4. Assuming the MCA has approved the re-filing, how does the re-filing of the Annual Return for recording the revised list of promoters meet the requirements under the provisions of Section 129 read with Schedule III to the Act, where the details of the promoters need to be disclosed in the specified manner? The relevant provision from Schedule III is reproduced below: “A company shall disclose Shareholding of Promoters* as below: Shares held by promoters at the end of the year % Change during the year***”
So, if revision is made in the Annual Return alone in respect of the list of promoters, it does not amount to compliance with ALL the provisions of the Act as such revision warrants corresponding revision to its Audited Accounts also.
More importantly, the provisions of Section 131 need to be complied with in case a company wishes to do voluntary revision of the Financial Statements (or in the Directors Report as specified in S134). Such revision can be made only after obtaining the order from the National Company Law Tribunal. Therefore, the revision in the List of promoters by the company here should have been made in the Audited Financial Statements only after obtaining the Order from the Jurisdictional bench of the NCLT.
Given that the Board decided to revise the list of promoters only in February 2023, and the DRHP has been filed by the company on May 5, 2023, the following question arises:
5. Whether the decision of the Board and the consequential revision in the list of promoters as on a date earlier to the filing of the DRHP – i.e, in February 2023 – can be deemed to have been made within the time prescribed under Section 92 of the Act? This is because, as per the Section, the Annual Return should be filed within 60 days from the date of holding the Annual General Meeting, and for the financial year ending March 2023, the company has to hold its AGM by September 30, 2023, and has to file the Annual Return within 60 days from that date.
Whether such revision in the List of promoters as decided by the Board is consequential to, say, a merger or consolidation that has taken place after the Annual Return for the respective financial year has been filed with the RoC is not known and not important for our discussion here. But it is not the case in this situation.
Conclusion:
Hence, it is necessary that the MCA, in the interest of public transparency and to maintain the credibility of the statutory documents filed with the MCA, should clarify how the Revised Annual Return for the last 3 financial years has been approved and taken on record by the MCA. The compliance, if any, with the provisions of the Act, need to be published so that it will serve as a reference point for companies desirous of making revision in any of the statutory documents like the Annual Returns.
It is also necessary that a thorough review of the provisions of the Act is made in respect of such revisions in the already filed documents like the Annual Returns for any financial year, particularly when such revisions are made after the due date for filing the Annual Return for that financial year is over.
This review should ensure that such revisions meet the requirements of all the provisions of the Act applicable to the document being revised.
It is equally important that necessary amendments are made to the Act as necessary to clarify and provide the framework for any such revisions, so as to avoid any ambiguity and to ensure strict compliance with the law.
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