Recently, while dealing with the situation with regard to adjournment of Annual General Meeting (hereinafter referred to as ‘AGM’) due to lack of quorum availability, OR inadequacy to conduct AGM due to non-availability of audited accounts, few concepts were discussed about its practicality and possibilities. In this article, we will be dealing with the aspects of adjournment of AGM and the extent of its possibility by analysing provisions of the Companies Act, 2013 (hereinafter referred to as ‘the 2013 Act’) and various case laws decided over the said matter. We will also consider the consequences of the failure of the Company to conduct AGM.
The question which we will be dealing out in the whole article will be-
“WHETHER THE MEETING HELD AND NOT ABLE TO GET COMPLETED AND THEREFORE ADJOURNED DUE TO UNAVAILABILITY OF AUDITED FINANCIALS WILL TENTAMOUNT TO CONTRAVENTION OF PROVISIONS OF SECTION 96 OF THE 2013 ACT? OR WHAT WILL BE THE IMPACT OF NON-AVAILABILITY OF AUDITED FINANCIALS LEADING TO ADJOURNMENT OF AGM BEYOND DUE DATE PRESCRIBED UNDER SECTION 96 OF THE 2013 ACT?
WHETHER ADJOURNMENT OF AGM DUE TO LACK OF QUORUM BEYOND THE DUE DATE, AS PRESCRIBED IN SECTION 96 OF THE 2013 ACT IS POSSIBLE? OR WHAT WILL BE THE IMPACT OF ADJOURNMENT OF AGM BEYOND THE DUE DATE PRESCRIBED UNDER SECTION 96 OF THE 2013 ACT?”
EXAMINATION TO ABOVE ISSUES-
SECTION 96(1) OF THE 2013 ACT-
“(1) Every company other than a One Person Company shall in each year hold in addition to any other meetings, a general meeting as its AGM and shall specify the meeting as such in the notices calling it, and not more than fifteen months shall elapse between the date of one AGM of a company and that of the next:
Provided that in case of the first AGM, it shall be held within a period of nine months from the date of closing of the first financial year of the company and in any other case, within a period of six months, from the date of closing of the financial year :
Provided further that if a company holds its first AGM as aforesaid, it shall not be necessary for the company to hold any AGM in the year of its incorporation:
Provided also that the Registrar may, for any special reason, extend the time within which any AGM, other than the first AGM, shall be held, by a period not exceeding three months.”
By analysing the provisions of Section 96 of the 2013 Act, it strictly stipulates certain time limit on the Company to conduct an AGM.
For newly incorporated companies and first AGM- its 9 months from the date of end of financial year,
For other companies- its 6 months from the date of end of financial year.
Further, the maximum time gap between two AGM shall not exceed 15 months.
Ambiguity– Section 96 of the 2013 Act, only stipulates that AGM shall be held within the prescribed time, it does not stipulates that the meeting shall also get completed within the prescribed time.
CLB CIRCULAR LETTER NO. 35/9/72-C. L.III DATED FEBRUARY 2, 1974-
Relevant portion of the said circular is as under-
“In case the annual accounts are not ready for laying at the appropriate AGM, it is open for the company concerned to adjourn the said AGM to a subsequent date when the annual accounts are expected to be ready for laying. This may be done by suitable resolution adjourning the said AGM to a specified date or to a date to be specified later on.”
As per the plain reading of the above circular, it was very much clear that the AGM of the Company can be adjourned by passing suitable resolution, if the annual accounts of the Company are not ready to be placed.
Now, there were two schools of thoughts in the situation at that time-
First, the adjourned AGM of the Company is nevertheless considered as the continuation of the Original AGM, and therefore, if the suitable resolution has been passed for the adjournment than, it can be adjourned to any period, and that will not attract any violation.
Second school of thought was that, prescribed circular shall be read in conformity of the provisions stipulated under the Companies Act, 1956 (hereinafter referred to as ‘the 1956 Act’) and even the said adjourned AGM shall be held and the annual accounts shall be placed before the AGM within the stipulated time prescribed under Section 210 of the 1956 Act.
CASE LAW- ‘M.D. MUNDHRA AND ORS. V. ASSISTANT REGISTRAR OF COMPANIES- 01 DECEMBER, 1978’
Judgement- P.C. Barooah, J.
In this case, the Assistance Registrar of Companies has prosecuted the Company and its director for not placing the Balance Sheet before the AGM, and the counsel appearing on behalf of Assistant Registrar of Companies, alleged that the said CLB Circular shall be read in conformity to the Act. On the other hand, the view point of the Counsel appearing on behalf of the petitioner(s) i.e. Directors of the Company was that, they have acted on the circular of CLB and that shall not be construed as the violation of the respective provisions of 1956 Act.
After hearing to both the parties to the case, the Calcutta High Court has made the judgement that, if the Company had acted in accordance to the circular issued by CLB, than that shall not be construed as the violation of the provisions stipulated and it is not open for the Assistant Registrar of Companies to initiate prosecution against the Company.
LATER CASE LAW- BEJOY KUMAR KARNANI V. ASSISTANT REGISTRAR OF COMPANIES – [13TH SEPTEMBER, 1984]
Judgement- Sankar Bhattacharyya, J.
In this case the same allegations and views points were placed before the Hon’ble Calcutta High Court, but, the same High Court has reversed the earlier judgement passed by it, and it was held the CLB Circular shall not be used as the circumvention and subversion of the respective provisions of the 1956 Act, and construed that while reading the said CLB Circular, the point of law shall be ascertained and that shall not in any manner override the provisions stipulated under Section 210 of the 1956 Act.
Further, the point was raised, that Section 166 of the 1956 Act, stipulates meeting to be HELD and it no where binds the company to complete the meeting also. In contrary to this point, the High Court in this present case declared that, the word ‘held’ shall be followed by necessary implication that it MUST BE COMPLETED within the Stipulated time.
View Point of the Hon’ble High Court- If the said circular will be read as the tool for overriding the act, than what will be the significance of the discretionary power of Registrar of Companies to provide extension to AGM.
The Hon’ble High Court while making judgement has also given the reference to the case of State of Bombay v. Bandhan Ram Bhandani , in which the Hon’ble Supreme Court has laid certain principles.
After this Landmark judgement, it was contented that the AGM of the Company shall not be adjourned beyond the due date stipulated in the Act.
ADJOURNMENT DUE TO LACK OF QUORUM [SECTION 103(2) OF THE 2013 ACT]-
Some professional are having query that, the Act itself provides that in what circumstances the General Meeting of the Company shall stand adjourned, than whether it can override the provisions stipulated under Section 103(2) of the 2013 Act, and the AGM can be adjourned beyond the due date prescribed therein?
Let us discuss this aspect by analysing the provisions of Section 103(2) of the 2013 Act, which says that-
“(2) If the quorum is not present within half-an-hour from the time appointed for holding a meeting of the company—
(a) the meeting shall stand adjourned to the same day in the next week at the same time and place, or to such other date and such other time and place as the Board may determine;
(b) the meeting, if called by requisitionists under section 100, shall stand cancelled.”
By going through the plain reading of the above provision, it clearly mentions that if the quorum of General Meeting is not present than the meeting shall stand adjourned. Further, if we analyse the later part of clause (a) than, it empowers the Board to determine the suitable date, time and place.
Now the query is whether this empowerment to the Board can be read as the absolute power in the hand of them? Or whether the adjournment can be done beyond the stipulated time where, accounts are ready but quorum is not present?
MY VIEW– The said automatic adjournment due to lack of quorum and/or empowerment to the Board shall not be superseding other provisions of the Act. The Act shall be read in the strict manner and the view point(s) provided in the case of Bejoy Kumar Karnani v. Assistant registrar of companies will be influencing in the present situation.
The power of the Board shall not be read in the destructive manner to the Act.
CONSEQUENCES OF NOT HOLDING AGM WITHIN STIPULATED TIME-
1. Violation of Section 129(2) of the 2013 Act –
Section 129(2) of the 2013 Act, clearly states that, it is the duty of the Board of Directors of the Company to lay before the AGM, the financial statement of the Company for the financial year.
Impact of violation
Officer in default prescribed under 129(7) of the 2013 Act-
Imprisonment- Maximum 1 year,
Penalty- INR 50,000/- to INR 5,00,000/-
2. Violation of Section 121 of the 2013 Act-
Section 121 of the 2013 Act, clearly stipulates that Every Listed Company shall prepare report on every AGM and confirm in the report that the meeting was convened, held and conducted as per the provisions of this Act. Further, the Company shall file with the Registrar the said report within 30 days of the conclusion of the AGM.
Impact of violation
Penalty– Company- INR 1 Lac to 5 Lacs
Officer in default- INR 25,000/- to 1,00,000/-
3. Ordinary Business of Annual General Meeting prescribed under Section 102(2)(a) of the 2013, will also get into pendency, which may lead to various implications and harm to the Company accordingly.
Note- The above consequences are being given after presuming the situation, where all other formalities have been complied with, but the Annual General Meeting was not held before the due date prescribed due to any reason and extension was also not availed.
After analysing various provisions under the 1956 Act, and 2013 Act, we can conclude that the power stipulated for adjournment of AGM in the act shall be read in conformity and in consonance of the other provisions of the Act, and shall not be taken at the absolute power.
Further, we should also adopt the practice of not searching the loopholes and act on it, rather try to make the act complied in the best possible manner wherever such kind of situation persists. As a professional, it is better to advise the Company to avail extension instead of going into complexities.
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