Financial Year For New Companies under Companies Act, 2013

In this write-up, we will discuss the meaning of the Financial Year for the company incorporated after 1st January.

In Companies Act, 2013 only define Financial Year.  However, “the year” is not defined. So the definition under the General Clauses Act, 1897 will be applicable, and as per the General Clause Act, 1897, year means year reckoned according to the British calendar.

British calendar is the Gregorian calendar that is one year which begins on 1st January and ends on 31st December.

Further, as per Companies Act, 2013, Financial Year means;

Section 2 clause (41) “financial year”, in relation to any company or body corporate, means the period ending on the 31st day of March every year, and where it has been incorporated on or after the 1st day of January of a year, the period ending on the 31st 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 further that any application pending before the Tribunal as on the date of commencement of the Companies (Amendment) Ordinance, 27[2019], shall be disposed of by the Tribunal in accordance with the provisions applicable to it before such commencement.

In the different provisions of the Companies Act, 2013, if the word year is used, then it’s generally referred to as Calendar Year. For example, Section 173 provides that every company shall hold at least four board meetings each year. Here, year means calendar year and the same is provided in the Guidance Note issued by the ICSI.

In the definition of the financial year, it is provided that the period ending on 31st March is the financial year, and hence, from 1st April of the year, the new financial year will start. Hence, the financial year starts from 1st April and end on 31st March.

However, in the case of a company incorporated on or after 1st January, the financial year will end on the 31st March of the following year.

For example, if the company was incorporated on 31st December 2020, the financial year will end on 31st March 2021. But in case the company is incorporated on 1st January 2021, the financial year will end on 31st March 2022.

The financial statement of the company shall be drawn according to the end of the financial year.

However, the following company can have a different period as financial year;

• a holding company, or
• a subsidiary company, or
• an associate company of a company incorporated outside India, and they are required to follow different financial years for consolidation of the account.

It is important to note that both conditions need to be fulfilled to follow different financial years. For example, Nestle follows the financial year of 1st January to 31st December as their financial year.

FINANCIAL YEAR AND FIRST ANNUAL GENERAL MEETING

Provision regarding the first Annual General Meeting is provided in the First Proviso to Section 96 Subsection (1).  As per the proviso, the company shall hold its First Annual General Meeting within Nine months from the end of the financial year.

So the date of the Annual General Meeting will depend on the closure of the financial year. If a company is incorporated, before 1st January, it shall hold Annual General Meeting latest by 31st December of the succeeding year. Time-line for Annual General Meeting of different companies based on the date of their incorporation.

It is also important to note that there is no provision for the extension of the First Annual General Meeting.

It is important to consider all these provisions while deciding about the preparation of the financial statement and their subsequent approval.