Clarification on Extension of Annual General Meeting (AGM) for the financial year (FY) ended as at 31.03.2020- Companies Act, 2013
[ICSI once again has made a request dated 26.08.2020 to MCA for extension for holding AGM due to COVID-19]
The Ministry of Corporate Affairs (MCA) vide General Circular No. 28/2020 dated 17th August 2020 has issued Clarification on Extension of Annual General Meeting (AGM) for the financial year ended as at 31.03.2020- Companies Act, 2013.
MCA has received several representations to allow companies to hold their AGM for the financial year ended on 31st March, 2020 beyond the statutory period provided in section 96 of the Companies Act 2013 (‘the 2013 Act’).
The matter has been examined MCA and it is stated that this Ministry had inter-alia, clarified vide General Circular No. 20/2020, dated 05.05.2020 [G.C. 20/2020] regarding holding of AGM through video conferencing (VC) or other audio-visual means (OAVM) for the calendar year 2020. In addition, the companies which are unable to hold their AGMs were advised to prefer applications for extension of AGM at a suitable point of time before the concerned Registrar of Companies under section 96 of the Companies Act, 2013.
In view of the above, it is once again reiterated that the companies which are unable to hold their AGM for the financial year ended on 31.03.2020, despite availing the relaxations provided in the G.C. 20/2020 ought to file their applications in form No. GNL-1 for seeking extension of time in holding of AGM for the financial year ended on 31.03.2020 with the concerned Registrar of Companies on or before 29.09.2020.
MCA advised the Registrars of Companies to consider all such applications (filed in Form No. GNL-1) liberally in view of the hardships faced by the stakeholders and to grant extension for the period as applied for (upto three months) in such applications.
In view of the above, it is submitted that MCA has already provided digital AGM platform to all the Companies. MCA vide General Circular No. 20/2020 has clarified that Companies can hold AGM for the calendar year 2020 through video conferencing (VC) or other audio visual means (OAVM). Now, Companies can voluntary file application for Extension of AGM with the concerned Registrar of Companies (despite availing the relaxations provided in the General Circular 20/2020).
Provisions of Section 96 of the Companies Act, 2013 for holding AGM and AGM Circulars issued by MCA.
We know that a Company is a separate legal entity different from its members and its affairs are generally done by Board of Directors of the Company. It is Board of the Company who provides a road map within its limited power for the progress of a Company. Under the Companies Act, 2013, certain powers are controlled by the Boards after getting consent of the Company at its general meeting. The shareholders are the owner of the company therefore, control over the proceeding of the general meeting. The AGM gives them opportunity to know the exact condition of the Company.
Pursuant to the provisions of Section 96 of the Act, 2013 every company shall hold its AGM other than the first AGM within a period of 6 months from the closure of its date of the financial year. On the other hand, in the case of the first AGM the same must be conducted by the Company within a period of 9 months from the closure of the financial year. Also, the gap between two AGMs shall not be more than 15 months.
Crux of the provisions of Section 96(1) of the Act, 2013.
1. Every company (other than OPC) shall in each year hold a general meeting namely Annual General Meeting.
2. Gap between two AGM should not be more than 15 months.
3. First AGM should be held within a period of nine months from the date of closing of the first financial year.
4. Subsequent AGM should be held within a period of six months from the date of closing of the financial year.
5. No extension is granted for companies conducting their AGM due date for the first time for the new company.
6. Extension granted in other case can be maximum for a period of 3 months.
MCA vide General Circular No. 18/2020 dated 21st April 2020 has extended the due date of AGM by 3 months for the Companies who are having their financial year closure date as 31st December, 2019.
Such extension was provided in view of that several representations have been received by MCA from stakeholders with regard to difficulty in holding AGM for companies whose financial year ended 31st December, 2019 due to COVID-19 related social distancing norms and consequential restrictions linked thereto.
These representations have been examined and it is noted that the Companies Act, 2013 allows a company to hold its AGM within a period of six months (nine months in case of first AGM) from the closure of the financial year and not later than a period of 15 months from the date of last AGM .
On account of the difficulties highlighted above, it clarified by MCA that
“if the companies whose financial year (other than first financial year) has ended on 31st December, 2019, hold their AGM for such financial year within a period of nine months from the closure of the financial year (i.e. by 30th September, 2020), the same shall not be viewed as a violation. The references to due date of AGM or the date by which the AGM should have been held under the Act or the rules made thereunder shall be construed accordingly.”
No doubt that MCA had given relief vide above said circular by extending the due date of AGM by 3 months for the Companies who are having their financial year closure date as 31st December, 2019. But it was not possible for the companies to hold its AGM physically due to lockdown situation and COVID disease.
Therefore, on account of need for continuous adherence to the social distancing norms and restrictions placed on movement of persons, MCA had decided to allow companies to hold their AGM by Video Conferencing (VC) or other audio-visual means (OAVM) during the calendar year 2020. Accordingly, the General Circular No: 20/2020 dated 5th May 2020 (‘AGM Circular’) has been issued by MCA. This is a welcome move of MCA as the Act does not provide any provision for holding any General Meeting including AGM through such mode.
MCA provided that the framework provided in the earlier Circulars [General Circular No. 14/2020, dated 08.04.2020 (EGM Circular – l) and General Circular No. 1712020 dated 13.04.2020 (EGM Circular – ll)] for holding of extraordinary general meeting (EGM) would be applicable mutatis mutandis for conduct of AGMs during 2020, based on the classification of companies which are required to:
(i) provide the facility of e-voting or have opted for the same, and
(ii) those companies which are not required to provide such a facility.
Owing to the difficulties in sending physical copies of the financial statements, the Circular allows the companies to send the financial statements, along with Board’s reports, Auditor’s reports and other documents required to be attached therewith, only through email. The companies are also required to provide a window to the shareholders for registering their mandate for transferring dividends electronically to them through the Electronic Clearing Service (ECS) or any other means.
The General Circular No: 20/2020 dated 5th May 2020 has been divided into two major parts i.e. Part A which is including those companies who are having the mandatory requirement to provide the e-voting facility and Part-B which covers in its ambit the companies which are not having a mandatory requirement to provide e-voting facility.
Further, the present circular i.e. 20/2020 is linked to two circulars earlier issued by MCA w.r.t holding of Extra-ordinary General Meeting via VC or OAVM on 8th April 2020 (EGM Circular-I) and 13th April 2020(EGM Circular-II) respectively, and the company has to comply with the mentioned clauses of such circular depending upon the category prescribed in the AGM Circular in which such company is falling i.e. either Part-A or B.
Moreover, pursuant to the provisions of Section 96 of the 2013 Act, a company can make an application to the Registrar of Companies to obtain the extension of the period for holding AGM beyond the prescribed time period. On such an application, the Registrar can allow the extension for a maximum period of 3 months and not beyond it.
In the AGM Circular it has been clearly stated that “the companies which are not covered by the General Circular No. 18/2020, dated, 21.04.2020 and are unable to conduct their AGM in accordance with the framework provided in this Circular are advised to prefer applications for extension of AGM at suitable point of time before the concerned Registrar of Companies under Section 96 the Act.”
At this time the application for extension having the reason for non-holding of AGM due to inability to hold physical meetings will be a fit case of reasonable cause.
Due to the outbreak of COVID-19 disease all over the world, holding an AGM physically is risky, therefore, if the Company is holding AGM physically then the same shall be done by the Company adhering to the social distancing norms and any other rules and regulations stipulated by any local authority within the State.
The AGM Circular is an appreciable move which allows the Companies to hold AGM virtually, which will eventually also low down the cost burden for the companies to hold AGM, and therefore it is advisable to all the corporates to hold AGM keeping in mind the true intention behind allowing such mode for holding AGM which is to make the members aware of the actual financial position and affairs of the Company, and Company must adhere to such AGM Circular in a constructive and ethical manner.
Companies which are unable to conduct their AGM in accordance with the framework provided in this Circular, be advised to go for extension of AGM before the concerned Registrar of Companies (‘ROC’) under Section 96 the Act, 2013.
No doubt, company may file an application for extension of time limit for holding of AGM. But it is to be noted that the date of filing of an application must be well in advance. Once the extension is being granted, the company may convene the AGM of the Company within the period as allowed by the ROC. It is to be noted here that the extension can be granted only once in a Financial Year. Since the Act does not allow ROC to give further extension.
Compounding in case AGM is not held or held after due date without approval from ROC: If the AGM is not held within the due date mentioned above or held after the due date but without taking approval of ROC for an extension then the Company will have to go to NCLT/RD, as the case may be, for compounding.
Disclaimer: Nothing contained in this document is to be construed as a legal opinion or view of either of the authors whatsoever and the content is to be used strictly for educative purposes only.