Introduction
The Annual General Meeting (AGM) is a crucial event in the corporate calendar, providing a platform for shareholders to exercise their rights and understand the company’s performance. However, there may be instances where unforeseen circumstances necessitate an extension of the AGM. This article delves into the provisions governing AGM extensions under the Companies Act, 2013, and explores key regulations, examples and best practices.
What is an Annual General Meeting?
An Annual General Meeting is a key platform where the members of a company, who are the ultimate owners of the company, gather once a year to review and assess the company’s performance.
AGM serves as an important tool to promote shareholder activism, providing shareholders with the opportunity to hold management accountable, discuss financial results, elect or re-elect directors, and influence major decisions. Through the AGM, shareholders actively participate in shaping the company’s future, ensuring transparency and alignment with their interests.
What is the timeline to hold an Annual General Meeting?
As per section 96 of the Companies Act, 2013, every company other than One Person Company is required to hold an Annual General Meeting every year.
Here are the key provisions regarding the holding of an Annual General Meeting:
- Annual General Meeting must be held once in each calendar year;
- First Annual General Meeting should be held within 9 months from the closing of first financial year. Therefore, it is not required for the company to hold any Annual General Meeting in the year of its incorporation;
- Subsequent Annual General Meeting should be held within 6 months from the closing of financial year;
- The gap between 2 Annual General Meeting should not exceed 15 months.
For Top 100 Listed Entities
Regulation 44(5) of SEBI (LODR) Regulations, 2015 provides that for the top 100 listed entities by market capitalization, determined as on March 31st of every financial year, shall hold their Annual General Meetings within a period of five months from the date of closing of the financial year.
The top 100 listed entities shall provide one-way live webcast of the proceedings of the annual general meetings.
Is extension for holding an Annual General Meeting allowed?
The Registrar of Companies (RoC) has the authority to grant a 3 month extension for holding an AGM.
To apply for an extension, the company is required to submit a request seeking extension for holding AGM in eForm GNL-1 before the due date for holding its AGM. The Form should include a board resolution and a clear explanation of why the AGM can’t be held on time.
The RoC will review the details, assess the reasons, and issue approval if justified. However, it’s important to note that no extension is allowed for the first AGM.
In summary an extension is allowed for holding an Annual General Meeting except first Annual General Meeting. For seeking extension, the company is required to file eForm GNL-1 with the RoC and the RoC upon proper justification may allow the extension which should not be more than 3 months.
What are the reasons for seeking and extension of Annual General Meeting?
The following are the potential reasons for seeking an extension of time period for holding Annual General Meeting of a company.
The following list is illustrative and not exhaustive:
- Change in financial year;
- Delay in finalizing the financials;
- Merger and Acquisition;
- Delay in audit report due to absence of auditors because of reasons such as resignation, incapacity to conduct the audit, insolvency, death or any other reason;
- Information loss in a computer due to cyber attack or system related issues;
- Force Majeure events such as pandemic, natural disasters, unforeseen circumstance;
- Non-readiness of the economic records due to natural calamity, loss of commercial data, and vacancy of directors;
- Non-availability of shareholders leads to the absence of a quorum;
- Non-availability of directors on valid grounds such as resignation, incapacity to perform duties, insolvency, death or any other reason;
- Confiscation of books of accounts by Income Tax department, Serious and Fraud Investigation Cell or any other government authority;
- On going court cases or investigations preventing the company to hold the AGM;
- Other valid reasons as the case maybe.
What is the procedure for seeking extension?
Step 1: Convene a meeting of Board of Directors of the Company to pass the resolution to consider and approve the proposal of extension of time limit for holding Annual General Meeting (AGM) of the company.
Step 2: File Form GNL-1 with the Registrar of Companies (RoC).
The company shall prepare an application in Form GNL-1 for obtaining approval of the RoC for extension of time period to hold its AGM along with the reason due to which the company is not able to hold its AGM within the due timeline.
The Form GNL-1 shall be accompanying with following documents:
- Board resolution passed for the purpose of making an application for extension of AGM;
- Detailed application containing the “Reason for extension” and “Period for which extension is required (this should not be more than 3 months)”;
- Any other information can be provided as an optional attachment.
What are the consequences for not holding an Annual General Meeting within the due timeline?
In case a company does not hold its Annual General Meeting within the prescribed timeline or fails to obtain extension then the Tribunal itself or on an application filed by its directors or members order an AGM to be conducted as per its directions.
If the company further fails to hold an Annual General Meeting as per the directions of the Tribunal, the company and every officer of the company who commits the default shall be punishable with a fine of up to Rs 1 Lakh. For continuing default, a fine of Rs 5,000 per day is levied for each day during which default continues.
Case Law
It is well settled that the annual general meeting must be called, whether or not the annual accounts are ready for consideration at the meeting. “There is a clear statutory duty on the directors to call the meeting whether or not the accounts the consideration of which is only one of the matters to be dealt with at an Annual General Meeting are ready or not.” [Re. El Sombrero Ltd. (1958) 3 All ER 1 at 6 (1958) 28 Com Cases 619 (Ch D)].
Conclusion
Requesting an AGM extension is a serious process that requires careful consideration and adherence to legal requirements. By understanding the provisions governing AGM extensions and following best practices, companies can navigate these situations effectively and maintain their credibility with shareholders.
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