Presently, all registered companies in India are required, inter-alia, under section 210 of the Companies Act, 1956 to lay down before its share holders, during its annual general meeting, a balance sheet, providing a statement of assets and liabilities of the company as at the end of the financial year. In terms of the above requirement, the shareholders of a company have access to the statement of assets and liabilities of the company and its solvency position on an annual basis. Clause 31 of the Listing Agreement requires listed entities to forward copies of their balance sheets to the stock exchanges. However, neither the Companies Act nor the Listing Agreement requires companies to submit interim disclosures of balance sheet items on quarterly or half-yearly basis.
Internationally, it has been observed that most of the jurisdictions have disclosure of balance sheet items on an interim basis.
In the wake of the recent global financial crisis and subsequent cases of global corporations going bust, the issue of solvency and not merely the profitability of entities come to the forefront from the shareholders’ perspective. It was felt that a more frequent disclosure of the asset-liability position of companies would assist the shareholders in assessing the financial health of the companies, thereby helping them in making informed investment decisions. Accordingly, the SCODA reviewed the frequency of submission of balance sheet items by listed entities to stock exchanges. After deliberations, the SCODA recommended that the audited figures of the major heads of the balance sheet prepared in accordance with Schedule VI to the Companies Act or its equivalent in other statutes may be disclosed by listed entities on a half-yearly basis.
The above recommendation of the SCODA seeks to disclose the solvency position of listed entities to the shareholders on a half-yearly basis which would be in the larger interest of the shareholders.
