Right to dividend etc. pending registration of transfer of shares
(S. 206A)
With a view to providing
protection to the investing public, a new section 206A has been introduced
providing that where the transferee gives a mandate to pay the dividend to the transferee
pending registration of transfer, the same should be paid to the transferee,
otherwise the dividend in relation to such shares should be transferred to the
special account mentioned in section 205A. It is further provided that in the
case of offer of right shares or fully paid bonus shares the same should be
kept in abeyance till the title to shares is decided. When a company returns a
transfer deed on the ground of non-tally of the transferor's signature on
the deed with the one in its own records, before the date of issue/allotment of
bonus/right shares, there will be no application for registration pending with
it on that date and it cannot be faulted for its failure to comply with section
206A. S. V. Nagarajan v. Lakshmi Vilas Bank Ltd., (1997) 26 CLA 308 (CLB).
S. 205-Reg.
85-Skipping of dividend-Board Resolution
"RESOLVED that no dividend be recommended in respect of the year ended ________ 2002 ________ and the profit earned by the Company be retained in the business to meet the working capital needs of the Company."
1. Maintenance of average
rate of dividend.-According to the Companies (Transfer of Profits to Reserve) Rules,
1975, Directors should ensure that the average rate of dividend is maintained
while declaring dividend in subsequent years.
Fixation of Record date
"RESOLVED that the ________ 2002 ________ be and is hereby fixed as the 'record date' for the purpose of payment of interim dividend so that the dividend warrant be payable to those members whose names would appear on that date in the register of members of the Company."
1. Fixing of record date.-Instead of closing the
Register of Members, pursuant to section 154 by proper notice as prescribed,
dividend may be declared to be payable to members whose names appear in the
Register of Members as on a particular date, such date named as 'record date'.
2. Advantage of record date.-The advantage of such record
date is that without closing the register of members, the list of members can
be ascertained. As a result, the provisions of clause 6(i) and (ii) of sub-section
(1A) of section 108 relating to invalidation of transfer deed will not be
invoked.
Opening of Dividend account
in a Bank
"WHEREAS the Company
declared a dividend of 25% on its paid-up equity shares at its Annual
General Meeting held on ________ ;
AND WHEREAS an account be
opened with the ________ Bank________
Branch, Nagpur 440 012, styled as the "2002 Dividend Account of
Rushabh Management Infosys.
NOW THEREFORE IT IS RESOLVED
that the said Bank be advised to honour all dividend warrants for equity shares
imprinted thereon E/42 as reference and bearing the signatures of the
authorised signatories of the company by debiting the 'Dividend Account'.
RESOLVED FURTHER that the
Secretary of the Company be directed to take further steps to give effect to
this resolution".
1. Opening of Dividend
Account.-It is common for companies to open a dividend account to centralise the
honouring of dividend warrants. Such an account can be opened as a fixed
deposit account if the company wishes to do so.
2. Bank to screen invalid
dividend warrant.-The Bank should be especially careful to screen invalid dividend
warrants and ensure that they are not honoured without revalidation thereof.
3. Banks insist on indemnity
for honouring dividend warrants.-Banks usually insist on an indemnity being executed
by the company in their favour regarding the honouring of dividend warrants.
Opening of Special unpaid dividend account
"RESOLVED that pursuant
to the provisions contained in sections 205 and 205A of the Companies Act,
1956, bank account of the Company be opened in the State Bank of India,
Parliament Street, New Delhi and the quantum of the dividend declared by the
company for the year 2000-2001 be deposited in the said account.
RESOLVED FURTHER that all
dividend warrants, be issued from the Bank Account and on the 37th day of the
declaration of the dividend, the bank may be instructed to change the
nomenclature of this account to "unpaid dividend account of ________ Company Limited".
1. Penalty for failure to
distribute dividend within 30 days.-Section 207 provides that unless dividend
warrants are posted within 30 days of the declaration of the dividend, every
Director of the company shall be punishable with simple imprisonment for a term
which may extend to three years" and shall also be liable to fine of
1,000/- for every day during which such default continues and the company
shall be liable to pay a simple interest at the rate of 18% per annum during the
period for which such default continues.
2. Transfer of unpaid
dividend to special dividend account”. -Section 205A provides that
the amount of dividend which remains unpaid/unclaimed within a period of seven
days from the date of expiry of the period of 30 days shall be transferred by a
company to a Special Account to be opened for this purpose with any scheduled
bank to be called 'Unpaid Dividend Account of ________ Company Limited'. In
several cases, dividend warrants even though posted may not be encashed within
this period of seven days and the amount of dividend represented by these
warrants remains unpaid although war rants in respect thereof have been sent
by the company and they have also not been received back unclaimed. To get
over this situation, it is suggested that as soon as dividend is declared, the
total amount of dividend payable may be deposited in a Special Account in a
scheduled bank and all dividend warrants should be paid out of this account. At
the expiry of the 48th day, the nomenclature of this account be changed to
"Unpaid Dividend Account of ________
Company Limited". This will obviate any unintentional contravention
of the provisions of the Act and at the same time it will ensure payment
against such dividend warrants which may be in transit or in pipeline, on the
37th day. At the end of seven years, the total amount standing in this account
should be transferred to the Investor Education and Protection Fund along with
a statement in the prescribed form setting forth the names and last known
addresses of the persons entitled to receive the sum, entitlement of each
person, the nature of his claim etc.
3. Object of section 205A to
prevent misuse of dividend.-The object underlying the enactment of section 205A
is to prevent misuse of the amount of dividend by the companies. Once dividend
is declared, it becomes the property of the shareholders and so long as it is
not paid to them the company holds the amount in trust for them. In large sized
companies where shareholders are scattered all over the country and their last
known addresses are not known, quite a substantial amount remains unpaid. In
very many cases the warrants have either not been posted at all or posted at
wrong addresses or genuinely delayed in delivery or even after receipt, the
recipients failed to encash them in time. This leaves a substantial amount of
the dividend remaining unpaid. The companies have been misappropriating this
amount for their day to day expenses. This section has put a stop to this
malpractice.
4. Company has no power to
forfeit dividend.-In view of the provisions of sections 205A and 205B which are mandatory
the company cannot forfeit the dividend not claimed and such a provision in the
articles will be void under section 9 of the Act.
5. Wholly-owned
Government Companies exempted.-This section does not apply to wholly owned
Government companies. (Notification GSR 231, dated 31st March, 1978, as amended
by Notification GSR 580(E) dated 16th July, 1985).
6. Penalty for default.-If default is made in
transferring the total amount of dividend which remains unpaid or unclaimed or
any part thereof to the unpaid dividend account of the concerned company, the
company shall pay from the date of such default interest on so much of the
amount as has not been transferred to the said account at the rate of 12% per
annum and the interest accruing on such amount shall ensure to the benefit of
the members of the company in proportion to the amount remaining unpaid to
them. [Section 205A(4)].
486
S. 205A-Special
unpaid dividend account-Board Resolution
WHEREAS the Company declared dividend at the Annual
General Meeting of the Company held on ________, the ________, 2002 ________ on
the paid-up equity shares of the Company;
AND WHEREAS some of the dividend warrants posted by the company have not yet been presented to the Bank for payment and some of the warrants have not been posted within forty-two days from the date of declaration thereof;
NOW THEREFORE IT IS RESOLVED that a separate bank account be opened with ________., Bank ________ Branch, Nagpur-440 012, and that the aforesaid account be called 'Unpaid Dividend Account of Wadhwa & Company Ltd.' and that the said Bank be advised to honour all dividend warrants for equity shares imprited thereon E/42 as reference by debiting the said 'Unpaid Dividend Account'.
1. Words "has not been
paid used in sub-section 205(1)"-Meaning.-The meaning of the words
'has not been paid' used in sub-section (1) has been clarified by the
Department of Company Affairs which states that where dividend warrants remain
un cashed, the money represented by those warrants should not come back to the
general account of the company but should go to the special dividend account opened
by the company under section 205A(l). (Circular No. 6/8/76-CLXIV
(8/30(205A)/75-Cl. V), dated 26-9-1977).
2. Words "payment of
dividend"-Meaning.-In the context of dividend 'payment of dividend' not
only means depositing the total amount of dividend to a specific bank account
but also relates to the warrants not cleared or collected by the member(s) to
whom these were issued, and remained outstanding. For accounting purposes, the
total amount for which dividend warrants have been issued and remained uncollected
there from is reconciled with the balance in the dividend account and such
outstanding amount is then accounted for by the company under the account head
'Unpaid Dividend Account'.
3. Non-resident
shareholders and payment of dividend.-Dividends remittable to non-resident
shareholders after taking the approval of the Reserve Bank of India, must also
be transferred to the unpaid dividend account if they are not remitted within
the period of forty-nine days from the date of declaration of dividend.
(Circular No 35/76(8/30(205A)/75-CL.V), date 28-10-1976).
Transfer of unpaid dividend
to the Investor Education and
Protection Fund
"RESOLVED that the balance as standing in the 'Unpaid Dividend Account' maintained with ________ Bank, ________ Branch, Nagpur 440 012, which have remained unpaid or unclaimed for a period of seven years be transferred to the Investor Education and Protection Fund established by the Central Government, along with a list of names of the members and showing the amount against such person the outstanding amounts, the nature of the sums and last known address of the person entitled to receive the sum, etc., and the nature of his claim thereto."
1. Transfer of unpaid
dividend to Investor Education and Protection Fund.-Pursuant to sub-section
(5) of section 205, any amount standing in the unpaid dividend account for a
period of 7 years should be transferred to the Investor Education and
Protection Fund and no claimant can claim subsequently, from the said Fund once
the money has been so transferred.
2. Procedure$ to be followed
for transfer of unpaid dividend to Investor Education and Protection Fund.-While transferring unpaid
dividends to the General Revenue Account of the Central Government under the
Companies Unpaid Dividend (Transfer to General Revenue Account of the Central
Government) Rules, 1978, the following procedure is required to be followed:
(a) Transfer of the moneys
remaining unpaid or unclaimed for three years in the unpaid dividend account of
the company to the general revenue account of the Central Government within a
period of fourteen days after the expiry of the period of three years.
(b) Such transfer to be made
to any of the branches of the Punjab National Bank under the Major [Minor Head
of Account, "068-Miscellaneous General Services-Unpaid
Dividends of Companies".
(c) Furnishing to the
Registrar of Companies concerned a statement in duplicate in Form I appended to
the above mentioned Rules (Rule 4(l) and section 205A(6)). The statement should
be got certified by a whole-time practicing Company Secretary.
(d) Furnishing a certificate
to the Registrar along with the annual return, to be filed under section 159,
stating therein that the whole of the amount of dividend remaining unpaid or
unclaimed for a period of three years from the date of the transfer to the
special account has been transferred to the General Revenue Account of the
Central Government, as required under section 205A(5).
(e) Obtaining the receipt
from that branch of the Punjab National Bank to whose account have been
transferred the unpaid and unclaimed dividend.
$3. Procedure to be followed
for claiming payment from General Revenue Account.-For claiming payment from
the General Revenue Account of the Central Government the following procedure
is to be followed:
(a) An application in
duplicate to the concerned Registrar of Companies in Form II of the said rules
has to be made.
(b) The application should
be made under the applicant's own signature or through a person holding a power
of attorney.
(c) An indemnity bond with
or without surety in Form III to the said rules on a non-judicial stamp
paper of the value, as required (to be paid in the state of its execution) has
to be executed.
(d) On receipt of such
payment order, a stamped receipt in favour of the Registrar has to be prepared
and got signed by two witnesses.
(e) The stamped receipt is
to be delivered to the Registrar against the cheque in payment of the amount
due.
$4. No filing fee payable
for riling statement of unpaid dividend to General revenue account with
Registrar.-No filing fee is required to be paid by the company while filing the
statement with the Registrar at the time of transferring the unpaid dividends
to the general revenue account of the Central Government under section 205A(5).
dividend to that Bank
Account
RESOLVED that the Company do open a Special Bank Account styled "Unpaid Dividend Account of ABC Limited/XYZ Private Limited with the State Bank of India, Parliament Street, New Delhi, the Company's Bankers and the said Bank be and is hereby authorised to transfer the amount as and when intimated by the Managing Director/Secretary of the Company to the said account from the "Dividend Account" of the Company.
1. Unpaid/Unclaimed
dividends to be deposited in Unpaid Dividend Account.- Section 205A provides that
all dividends remaining unpaid/unclaimed whether dividend warrants have been
posted or not, must be deposited in the Unpaid Dividend Account.
2. Amount of dividend
warrant unpaid/unclaimed to be deposited in special account.-Any dividend warrant which
has not been encashed within 42 days from the date of declaration of dividend
or has not been paid or remained unclaimed within the aforesaid period, for
whatever reasons, has to be transferred to the special account in any scheduled
bank.
3. Company cannot forfeit
dividend unclaimed.-It is to be noted that in view of the mandatory provisions of sections
205-A and 205-B, the company cannot forfeit the dividend not
claimed and such a provision in the articles now will be void under section 9.
4. Payment of dividend out
of accumulated profits.-In the event of inadequacy or absence of profits in
any year, dividend may be declared by a company for that year out of
accumulated profits earned by it in previous years and transferred by it to the
reserves. The rate of dividend shall not exceed average of dividends declared
during the last five years, or 10% of its paid-up capital, whichever is
less.
5. Withdrawal from
accumulated profits not to exceed 10% of paid-up capital.-The withdrawal from the
accumulated profits in previous years and transferred to reserves shall not
exceed 10% of the paid-up capital and free reserves, subject to the
condition that balance of reserves, after such withdrawal shall not fall below
15% of the paid-up capital of the company.
6. Expression 'profits
earned by a company in previous year and transferred to reserves'.-The expression 'profits
earned by a company in the previous year and transferred by it to reserves'
means the aggregate of net profits (after deduction of tax) actually
transferred to reserve.
7. Company may directly
carry any amount to Profit and Loss Account.-A company may not transfer
any amount to general reserve and instead may carry it directly into the profits
and loss account.
8. When sub-section
(3) not applicable.-If the company does not desire to transfer the amount realised from the
Development Rebate Reserve to General Reserve and carries it directly into the
profit and loss account of the year in which it is realised, sub-s. (3)
will have no application and it would be open to the company to distribute the
amount as dividend without any restriction of the nature imposed by Rule 2 of
the Companies (Declaration of Dividend out of Reserves) Rules, 1975.
9. Dividend payment to non-resident.-The Department is of the
view that even where the payment of the dividend cannot be made within 42 days
for want of RBI's approval in case of non-resident shareholders, the
dividend should be transferred to the unpaid dividend account (Circular No.
35176 (8)130(250A)175-CL-V, dated 28-10-1976.)
10. Government Companies
Exempted.-This section does not apply to wholly-owned Government Companies.
Notification GSR 231, dated 31-1-1978, as amended by Notification
GSR 580(E), dated 16-7-1985.
11. Penalty for default (Sub-section
(8)).-For
default of compliance with any of the requirements of this section, the company
and every officer of company who is in default, is punishable with fine which
may extend to five thousand rupees for every day during which the failure or
default continues. The offence is compoundable under section 621A.
Transfer of unpaid dividend to unpaid dividend account
"RESOLVED that a sum of Rs. ________ standing to the credit of the 'Dividend Account' and in respect of which dividend warrants have been issued but remain unencashed, be and is hereby transferred to the 'Unpaid Dividend Account of Wadhwa and Company Ltd. with the ________ Bank ________ Branch."
1. Transfer of unpaid
dividend to Unpaid Dividend Account.-Where a company declares dividend which is
not paid, or warrant is not posted within 30 days of the declaration to a
shareholder entitled to the same, then within 7 days of such 30 days, the
unpaid dividend or in respect of which warrant is not posted, will have to be
transferred to the Unpaid Dividend Account, to be opened by the company in a
scheduled bank.
2. Section not applicable
where dividend posted but not encashed.-The two contingencies
contemplated are separate and the provisions of section 205A will not apply to
a case where the Company has posted the dividend warrant within 30 days but the
warrant has not been encashed within 7 days of such 30 days.
"WHEREAS Mr. X is a registered shareholder of
the company;
AND WHEREAS Mr. X has
pledged his shares with Allahabad Bank; AND WHEREAS the said Allahabad Bank has
requested the company to pay the dividend to it in respect of these pledged
shares;
AND WHEREAS Mr. X has also
informed the Company that dividend may be paid to the Bank with whom his shares
have been pledged;
NOW THEREFORE IT IS RESOLVED
that dividend payable to Mr. X be paid to Allahabad Bank rather than to Mr.
X"
1. Appointment of bankers.-Dividends can be paid to the
bankers of the registered holders of shares of a company only when those
registered holders order the company to pay the dividend as such. In case of
share warrant issued in respect of any share, dividend should be paid to the
bearer of such share warrant or to the banker of the bearer of such share
warrant as the case may be.
2. Application not needed.-Bankers of registered
shareholders need not make a separate application to the company for payment of
dividend to them where the registered shareholder or the bearer of the share
warrant has already ordered the company to pay the dividend to the said banker.
"WHEREAS Mr. A,
transferee of shares from Mr. X, has deposited the instrument of transfer with
the Company;
AND WHEREAS an application
has been filed by the Company challenging the proposed transfer before the
Company Law Board;
AND WHEREAS Mr. X, the
registered shareholder has not given any direction for payment of dividend;
NOW THEREFORE IT IS RESOLVED
that the dividend declared by the Company be transferred to the Unpaid Dividend
Account of the Company;
RESOLVED FURTHER that the
proposed issue of ri2hts shares and bonus snares to which the registered
shareholder is entitled be also held in abeyance until the appeal filed by the
Company is decided by the Company Law Board."
1. Company's duty.-It will be tile duty of a
company to transfer the dividend in relation to shares for which the instrument
of transfer, although delivered to the company for registration, has not been
so registered, to a special account called unpaid dividend account. The company
need not transfer the dividend to the said special account if the company is
authorised in writing by the registered holders of such shares to pay the
dividend to the transferee of such shares whose name is specified in the
instrument of transfer deposited to the company.
2. Rights/bonus shares.-In case of issue of rights
shares or bonus shares the company should keep in abeyance such offer in
relation to those shares where the instrument of transfer of shares has been
delivered to the company for registration but the transfer of such shares is
still pending with the company and not registered.
3. Compliance Certificate.-A company whose paid-up
share capital is less than Rs. 12 crores but is equal to or more than Rs. 10
lakhs must obtain a compliance certificate from a secretary in whole-time
practice to be filed with the Registrar of Companies mentioning therein inter
alia that the company wherever necessary has kept in abeyance rights to
dividend, rights shares and bonus shares pending registration of transfer of
shares in compliance with the provisions of the Act as per paragraph 22 of the
Form of Compliance Certificate appended to the Companies (Compliance
Certificate) Rules, 2001 prescribed under section 383-A(l) proviso.
Penalty for failure to distribute dividend (S. 207)
This section as substituted
by the Companies (Second Amendment) Act, 1999 provides for penalty for failure
to distribute dividends declared by a company within thirty days from the date
of declaration. The failure will consist of non-payment of the dividend
including failure to post the dividend warrant within thirty-' days from
the date of declaration to the shareholder entitled to the payment of dividend.
Every director of the company who is knowingly a party to the said failure will
be punishable with simple imprisonment for a term of three years-"
and will also be liable to a fine of Rs. 1,000/- for every day during
which such default continues and the company shall be liable to pay simple
interest of 18% per annum during the period for which such default continues.
Before the aforesaid amendment the amount of fine was not mentioned in the
section and there was also no provision for payment of interest on the unpaid
dividend amount. The default as aforesaid will not be deemed to have been
committed if the dividend cannot be paid by reason of the operation of any law
or by reason of a dispute existing regarding the right to receive dividend. No
offence will also be committed by any director of a company where a shareholder
has given directions to the company regarding payment of the dividend and those
directions cannot be compiled with. In case the company has lawfully adjusted
the dividend amount against any sum due to it from the shareholder or in case
the failure to pay the dividend or to post the warrant within thirty" days
was not due to any default on the part of the company, the offence for failure
to distribute dividend within thirty" days shall not be deemed to be
committed.
Payment of interest out of capital (S. 208)
This section allows a
company to pay interest on share capital on the fulfilment of certain
conditions and any payment made without following these conditions would be
illegal. When a company issues shares for the purpose of raising money to
defray the expenses of the construction of any work or building or the
provision of any plant and the company thinks that it cannot be made profitable
for a long period of time, it may pay interest on paid up share capital for
such period as may be sanctioned by the Central Government. To make such
payment of interest on the share capital of the company it should have the
authorisation for such payment in its Articles of Association and do it only by
passing a special resolution in a general meeting of the company. The payment
of interest should also be previously sanctioned by the Central Government
which should be obtained by making an application to the Central Government.
The rate of interest to be paid on the share capital in this section should not
exceed twelve per cent per annum, which has been notified by the Central
Government under GSR 426 dated 8th September, 1995. Such payment of interest
will not operate as a reduction of the amount paid up on the shares in respect
of which it is paid under sub-section (7) of this section.
"WHEREAS the company
has declared dividend to which Mr. X, a shareholder of the company apparently
entitled;
AND WHEREAS Mr. Y has
obtained an order from the court prohibiting the payment of dividend to Mr. X
as also prohibiting the transfer of dividend to Unpaid Dividend Account;
NOW THEREFORE IT IS
RESOLVED, pursuant to the provisions of clause (a) of the proviso to section
207 that the dividend to which Mr. X is entitled be not paid and held in
abeyance till a final order of the court is obtained."
1. Punishment for non-payment
within thirty" days.-Where a company had declared dividend but has not
paid the dividend within thirty" days from the date of declaration to the
shareholders entitled to the payment of such dividend, then every director of the
company who is knowingly a party to the default, will be punishable with
imprisonment for a term of three years and will also be liable to fine of Rs.
1,000/- for every day during which such default continues and the company
shall be liable to pay simple interest of 18% per annum during the period for
which such default continues.
2. Five exemptions.-No offence, as aforesaid,
will be committed by the company in the following five circumstances
(a) dividend not paid
because of the operation of any law;
(b) company is unable to
follow the directions given by the shareholders regarding payment of dividend;
(c) dispute existing
regarding the right to receive the dividend;
(d) the dividend amount has
been lawfully adjusted against any sum due to it from the shareholder who is
entitled to get the dividend;
(e) the failure to pay the
dividend or to post the dividend warrant within thirty" days was not due
to any default on the part of the company.
The above resolution is an
example of the first circumstances.
3. Limitation for riling
complaint.-A show cause notice was served on a company for its failure to comply
with its obligation of dispatching dividend warrants within 42 (now 30) days.
The complaint was filed after more than one year from that date. The complaint
was held to be barred by limitation, NEPC India Ltd. v. ROC, (1999) 97 Com
Cases 500 (Mad).
S. 208-Power
of company to pay interest out of capital in certain cases Board Resolution
RESOLVED that pursuant to section
208 of the Companies Act, 1956 and subject to passing of special resolution at
the general meeting of the company and further subject to the previous sanction
of the Central Government interest @ 12% p.a. be and is hereby paid on the paid
up share capital of the company for the period ________ 2002;
RESOLVED FURTHER that an
Extraordinary General Meeting be convened on ________ 2002 at ________ to pass
the special resolution as contained in the draft notice of the meeting and the
draft explanatory statement which are placed before this meeting and initialed
by the Chairman of this meeting for the purposes of identification;
RESOLVED FURTHER that the
Secretary of the company be directed to issue notice of the said Extraordinary
General Meeting along with relevant explanatory statement, as approved by this
meeting;
RESOLVED FURTHER that the
Secretary of the company be and is hereby authorised to make an application to
the Central Government for obtaining the approval to pay interest out of
capital of the company and to take necessary steps in connection therewith and
incidental and ancillary thereto.
1. Capitalisation of
interest paid on capital.-Clause (b) of sub-section (1) of section 208
gives statutory recognition to the principle of capitalising the interest in
case the interest is paid on money raised to defray the expenses of
construction of any work or building or provision of any plant even though such
money constituted share capital. The same principle should hold good if interest
is paid on money not raised by way of share capital but taken as loan for the
purpose of defraying the expenses of construction etc., Challapalli Sugar Ltd.
v. C.I. T, A.P., Hyderabad, AIR 1975 SC 97.
2. Payment of interest on
capital ultra vires.-Payment on interest on capital as per section 208 must be bona fide and
in the interest of the company. Apart from this section a limited company
cannot pay interest upon the paid-up capital before any profits have been
earned. Such a payment is ultra vires and the directors sanctioning it are
personally liable.
Keeping of books of account of the company (S. 209)
The companies which are
keeping all or any of their books of accounts at any place other than the
registered office shall file a notice in Form No. 23-A with the Registrar
of Companies concerned. (Department's Circular No. 8/ 14(209)/61 -PR,
dated 9th January, 1962).
The option to keep the books
of accounts at any place in India other than the registered office of the
company should be availed of bona fide and when it is absolutely necessary,
i.e., where there is shortage of accommodation or any such like compelling
reasons. (Annual Report of the Department of Company Affairs for the year ended
31st March, 1962).
The vouchers, invoices and
other connected records should be preserved along with the books of account as
the relevant entries in the books of account cannot be substantiated without
the supporting documents, vouchers etc. (Department's Circular No. CLAS/24,
dated 27th June, 1961).
New section 55A inserted by
the Companies (Second Amendment) Act, 1999 provides that the provisions
contained in this section shall in the case of listed public companies and of
public companies which purport to be listed be administered by SEBI. In the
case of other companies that is unlisted public companies and private companies
of these provisions shall be administered by the Central Government being the
Department of Company Affairs.
Books of account to be kept in accrual basis (S. 209)
By the Companies (Amendment)
Act, 1988, section 209 has been amended to make it obligatory for companies to
maintain accounts on accrual basis and according to the double entry system of
accounting. This amendment has been made with a view to remove lacunae which
permit companies to maintain accounts on cash basis also.
Purchase of stationery,
Books of Accounts etc. etc.
"RESOLVED that the
Company Secretary be and hereby is authorised to purchase all stationery, books
of account and statutory forms and registers required by the Company from time
to time."
Authorisation not needed-It is the duty of the
Company Secretary to buy all stationary, books of accounts and other statutory
books and registers once he is appointed and no specific authorisation by the
Board is needed but such a specific authorisation can be taken as a measure of
good secretarial practice.
"RESOLVED that approval
of the Board of Directors be and is hereby given to the Company to keep the
under mentioned Books of Account of the Company at ________________ and that
the Secretary of the company be
and is hereby directed to send necessary intimation
in writing to the Registrar of Companies, pursuant to proviso to section 209(l)
of the Companies Act, 1956.
1. Resolution necessary when
books of account not kept at registered office. -The resolution is necessary
if the books of account are not kept at the registered office of the company.
2. Purpose to facilitate
inspection of books.-The purpose is to facilitate inspection of the books.
3. Quarterly summarised
returns to be sent by branch office to registered office. -If the company has a
branch office also, books pertaining to the transaction at that branch can be
kept at the branch office. However, proper summarised returns made quarterly
are to be sent to the registered office or to such other place where the books
of account are kept pursuant to any resolution adopted by the Board in terms of
proviso to sub-section (1) of section 209.
4. Books to give true and
fair view of state of affairs.-The books to be kept should give a true and fair view
of the state of affairs of the company or the branch office and should explain
all the transaction carried on at the head office and the branch office. The
accounting should be of double entry system and on accrual basis.
5. Accounting standards.-It is mandatory for
companies to provide for Gratuity liability in their books of accounts in
accordance with the provisions of section 209(3)(b) taking into account the
Accounting Standard 15 (Accounting for Retirement Benefits in the Financial
Statements of Employers) of the Institute of Chartered Accountants of India.
[General Circular No. 3/98, dated 18-5-1998 issued by the
Department of Company Affairs].
6. Company not deemed to be
keeping proper books when instructions not followed.-If these instructions are
not followed it will be deemed that the company is not keeping proper books of
account in terms of this section.
7. Failure to preserve books
of accounts for eight years punishable with imprisonment and fine.-It is necessary to preserve
books of account for a period up to 8 years preceding the current year. Failure
to comply with the provisions of the section is punishable with imprisonment
and also fine.
8. Person who can be held
responsible.-The responsibility for complying with the provisions of the section is
of the Managing Director or Manager and of all officers and other employees as
defined in section 209(6) of the Act and where there is no Managing Director or
Manager, every Director of company is liable for the default. The company may
appoint any other person and make him liable for complying with the provisions
of the section under sub-section (7) of section 209. In such a
contingency, if default is made, he shall be punishable with imprisonment up to
six months or with fine which may extend up to Rs. 10,000/- or both.
9. Filing of notice with
Registrar.-The companies which are keeping all or any of their books of accounts
at any place other than the registered office should file the notice in Form
No. 23-A with the Registrar of Companies concerned. (Department's
Circular No. 8114(209) 161-PR, dated 9th January, 1962).
10. Option for keeping books
of accounts other than registered office be availed for bona fide purpose.-The option to keep the books
of accounts at any place in India other than the registered office of the
company should be availed of bona fide and when it is absolutely necessary,
i.e., where there is shortage of accommodation or any such like compelling
reasons. (Annual Report of the Department of Company Affairs for the year ended
31st March, 1962).
11. Vouchers, invoices etc.
to be preserved along with books of account.-The vouchers, invoices and
other connected records should be preserved along with the books of account as
the relevant entries in the books of account cannot be substantiated without
the supporting documents, vouchers etc. (Department's Circular No.CLAS/24,
dated 276-1961).
"RESOLVED pursuant to
section 209(1) proviso of the Act, that the books of accounts of the Company be
maintained at the Company's main administrative office, situated at ________
New Delhi, and that the Secretary of the Company be and is hereby authorised to
file with the Registrar of Companies, Maharashtra, a notice in writing giving
the full address of such main administrative office in New Delhi within seven
days from date."
1. Books of accounts
maintained at registered office be open to inspection.-Section 209(1) requires all
books of accounts to be maintained at the registered office of the company as
it is stipulated that the books of accounts should always be open to inspection
by any Director during the business hours.
2. Board may decide to keep
books of account at a place other than registered office.-Proviso to sub-section
(1) of section 209 lays down that the Board of Directors may decide that the
books of accounts be maintained at such other place as may be decided upon by
the Directors.
3. Registrar to be notified
within seven days of decision.-The Registrar of Companies should be notified of the
full address of such office within seven days of the decision. The return to
the Registrar should be filed in the prescribed Form No. 23A. A treasury
challan should go along with the notice evidencing the payment of the requisite
filing fee. This action should be taken by the Board only when it is absolutely
necessary to do so.
4. Filing of return with
Registrar of Companies along with riling fee.-Keeping the accounts of a
company on cash or receipt basis does not amount to keeping proper books of
account under section 209(l), (2) and (3). (Letter No. 8/68(209)/64-PR,
dated 21-21965).
5. Keeping proper books of
account.-Proviso to sub-section (1) of section 209 has no retrospective
effect. (Circular No. 8/14(209)/61 -PR, dated 9-1-1962).
"RESOLVED that all
books of accounts, vouchers and other relevant papers and files, the general
ledger and cash books and other records except the fixed assets register,
wherever they are over eight years old, be destroyed under the supervision of
Mr. XYZ and Mr. NMO, the officers of the Company, who are to prepare a list of
all papers, books, and vouchers so destroyed."
1. Preservation of books of
accounts.-Pursuant to sub-section (4A), the books of accounts of every
company should be maintained for a period of not less than eight years
immediately preceding the current year together with vouchers, invoices and
other connected records relevant to any entry in such books of account.
2. Point to be kept in mind
for preservation or disposal of records.-Wherever it is desired to
preserve or dispose of company records in terms of section 163(1A) of the
Companies Act, 1956, read with the Companies (Preservation and Disposal of
Records) Rules, 1966, the following should be kept in mind:
(a) The register of members
and index of members of the company should be kept permanently.
(b) The register of
debenture-holders and index of debenture-holders should be kept for
a period of fifteen years even after the redemption of debentures.
(c) Copies of all annual
returns prepared under sections 159 and 160 and copies of all certificates and
documents required to be annexed thereto under sections 160 and 161 should be
preserved for a period of eight years from the date of filing with the Registrar.
(d) There should be
maintained a register in the form set out in the Appendix annexed to the
aforesaid rules entering therein the brief particulars of the documents
destroyed.
(e) All the entries in the
register should be authenticated by the Secretary of the company or by such
other person as may be authorised by the Board for this purpose.
3. Compliance with
provisions of Income-tax Act.-Under the Income-tax Act, 1961, the
Income-tax Officer can reopen a case of assessment up to sixteen years
from the end of relevant year. The companies therefore, may find it difficult
if any papers or vouchers relating to a disputed period are destroyed.
Microfilming of old Books of
accounts, records
and vouchers, etc.
"RESOLVED that books of
accounts, records, and vouchers of the description as per attached list
pertaining to period __________, 2002 __________ to __________, 2002 __________,
i.e, being more than eight years old, be microfilmed, and that such microfilm
record as certified by Mr ____________________ a Director of the Company, be
stored and that the original books of accounts, records, vouchers, etc., be
then destroyed."
1. Microfilming of books and
records.-Microfilming is a modern innovation helpful in preserving, through
photo copy method, the books and records, which otherwise require much space to
keep.
2. Microfilming not
permissible for preserving statutory records and registers. -Microfilming is not
permissible for preserving statutory records and registers for the statutory
period except in addition to their originals.
S. 209(4A)-Destruction
of old records-Board Resolution
"RESOLVED that all books of accounts, bills, invoices, vouchers and records for the years up to and inclusive of the period ended 31st March. 1993, as per list presented before the Board and initialled by the Chairman for purpose of identification and being more than eight years old be and are hereby destroyed.
RESOLVED FURTHER that the
list of the documents destroyed may be entered in a "register of documents
destroyed" kept by the company in the form prescribed by the Companies
(Preservation and Disposal of Records) Rules, 1966."
1. Check Companies
(Preservation and Disposal of Records) Rules, 1966 before deciding about
destruction of records.-Some records like the Register of Members and index
of members should be kept permanently. There are certain records like Register
of Debenture- holders and index which is required to be kept for fifteen
years. Consult the Companies (Preservation and Disposal of Records) Rules,
1966, before taking any decision in this regard.
2. Tax law to be kept in
mind.-There
are provisions in other laws also, e.g., Income tax Act, Sales Tax Act etc.,
regarding preservation of the records which should also be kept in view. Also
records pertaining to matters in litigation have to be preserved till the
litigation comes to an end.
S. 209A-Inspection
of books of accounts of companies-Board Resolution
"RESOLVED that the
Secretary of the Company be and is hereby authorised to acknowledge receipt of
a letter under reference number __________ dated, the __________ 2002
__________ from the Registrar of Companies, Maharashtra, informing that an
Inspector would take up inspection of books of accounts of the Company pursuant
to section 209A of the Companies Act, 1956, which is submitted to this meeting
and perused."
1. Inspection of books by an
Inspector deputed by Registrar of Companies.-Section 209A was inserted by
the Companies (Amendment) Act, 1974, making provisions for inspection of books
of accounts at any time during the business hours of the company by an
Inspector deputed by the Registrar of Companies. This section has been
introduced in place of clauses (b), (c) and (d) of sub-section (4) of
section 209. The power conferred under this section is varied and elaborate and
had not been there in this specific form. There were serious allegations
against a company in a petition for prevention of oppression and mismanagement,
and a prayer was made therein for an order for investigating the affairs of the
company, the Company Law Board ordered inspection of the books of accounts and
other records of the company under section 209A. Dessein (P) Ltd. v. Electrim
India Ltd., (2001) 3 Comp LJ 459 (CLB).
2. What can be inspected by
Inspecting officer.-The Inspecting Officer can inspect the accounts of a firm in which the
company concerned is a partner. If it is a partner of a firm, the company can
inspect and copy the accounts of the firm under section 12 of the Partnership
Act and, thus, the company can also in turn, make the accounts accessible to
the inspecting officer under section 209A. (Letter No. 7/9/74-CL.II,
dated 24-1-1976).
3. Right of Inspecting
officer to inspect company's joint venture record.-The Inspecting Officer can
also have information about the company's joint ventures with other bodies
which are not companies. (Circular No. 25/75, dated 19-11-1975).
4. Inspection of books of
officers of SEBI.-Companies (Second Amendment) 1999 has added clause (iii) after clause
(ii) in sub-section (i) and also a second proviso giving powers to SEBI
to authorise such officers of It to inspect books of account and other books
and papers of all listed public companies and other public companies which
purport to be listed. Such inspection will be made in respect of matters
covered under sections referred to it in the new section 55A.
Financial year of the company (S. 210(4))
It is mandatory for every
company to prepare a profit and loss account from the date of its
incorporation. (Department's Circular No. 2/17/64-PR, dated 29th January,
1964).
501
"RESOLVED that the
financial year of the Company be and is hereby adopted as from April 1 to March
31 following in the next calendar year provided that the first accounts of the
Company be prepared for the period from 15th October, 2001 (being the date of
incorporation) to 31st March, 2002."
1. Uniform accounting year
under the Income-tax Act, 1961.-The concept of a uniform accounting year has
been brought in from the assessment year 1989-90, as per section 3 of the
Income-tax Act, 1961, as amended by the Direct Tax Laws (Amendment) Act,
1987. Approval of the Income-tax Officer is to be obtained for change in
the financial year, unless the company is prepared to finalise the accounts
twice over-one for the purposes of income-tax and the other for the
purposes of the Companies Act, 1956.
2. Financial year not to
exceed fifteen months unless Registrar's permission obtained for extension.-Financial year of a company
shall not exceed fifteen months unless permission of the Registrar of Companies
concerned is obtained when it can be extended up to 18 months. There is no
prescribed form of application" for obtaining this extension.
3. Company to prepare profit
and loss account from date of incorporation.-It is mandatory for every
company to prepare a profit and loss account from the date of its
incorporation. (Department's Circular No. 2/17/64-PR, dated 29th January,
1964).
Change of financial year
S. 210(4)-Changing
financial year of the company-Board Resolution
"RESOLVED that subject
to approval of the Registrar of Companies, the financial year of the Company,
which ends on 31st March of this year beginning from the 1st April of the
previous year, be extended to close on the 30th September of this year and
shall close on that date every subsequent year hereafter so that the balance-sheet
and the profit and loss account giving effect to such extension shall be
compiled for a period of eighteen months for the financial year 2002 _________
and that necessary application be made seeking approval of the Income-tax
Officer for such change of financial year."
1. Term "Financial
year"-Meaning.-Pursuant to the proviso to sub-section (4) of
section 210, 'financial year' of a company, with special permission granted by
the Registrar, may be extended to eighteen months for purpose of preparation of
balance-sheet and the profit and loss account for laying these before the
members at the Annual General Meeting of a company held in pursuance of section
166.
2. Expenditure and income
account be submitted to shareholders.-Account of expenditure and income incurred
during period of construction must also be submitted to the shareholders under
section 210(2) of the Companies Act, 1956. (Letter No. 2/17/64PR, dated 29-1-1964).
3. Transferor company to
continue drawing up final accounts till making of amalgamation order and
sanctioning of Scheme.-In case of amalgamation, transferor company must
continue drawing up its final accounts in accordance with sections 210 and 211
till the amalgamation order is made by the Court and the scheme is actually
sanctioned. (Circular No. 12/77(1/1/77-CL.V and 2/331/75-CL.II)
dated 21-11-1977).
4. Penalty for default.-If any director of a company
falls to take all reasonable steps to comply with the provisions of section 210
or any person not being a director of the company who is charged by the Board
of Directors with the duty of seeing that the provisions of section 210 are
compiled with, makes default in doing so, the director or that person will be
punishable for each offence with imprisonment for 6 months or with fine of upto
Rs. 10,000/ or with both.
Constitution of National Advisory Committee on Accounting
Standards (S. 210A)
This new section has been
inserted by the Companies (Amendment) Act, 1999 with effect from 31-10-1998.
The said Amendment Act enforced with effect from 1st April, 1999 has empowered
the Central Government to constitute a National Advisory Committee on
Accounting Standards to advise the Government on the formation and laying down
of accounting policies and accounting standards for adoption by companies or
class of companies. Till such time the new accounting standards are prescribed
by the Central Government, the standards of accounting specified by the
Institute of Chartered Accounts of India shall be deemed to be the accounting
standards.
Form of annual accounts
S. 211(4)-Adoption
of Form of annual accounts-Board Resolution
"RESOLVED that pursuant
to section 211(4) of the Companies Act, 1956, the form of balance-sheet
and the profit and loss account of the Company, as per the specimens submitted
to this meeting, be and are hereby approved subject to the sanction of the
Central Government."
1. Adoption of form of
annual accounts by a company.-Section 211(4) provides that a company can adopt any
form other than that mentioned in Schedule VI to the Companies Act by passing a
Board resolution after taking sanction of the Central Government. There is no
prescribed form for this application.
2. Giving corresponding
figures of previous year.-The requirements of giving corresponding figures of
previous year under section 211 (1) and (2) will be complied with if they are
given for each group head as a whole and not for each particular item.
(Circular No. 6(2)-CL.VI/ 57, dated 7-3-1977).
3. Provisions for proposed
dividend to be given under the head "current liabilities and
provisions".-Provision for proposed dividend should be given under the head 'current
liabilities and provisions' in the balance-sheet of the company, as It is
a statutory obligation of each company to show it. (Circular No. 3/124/75-CL.V.,
dated. 22-11-1976).
4. Making of provision for
payment of bonus.-Bonus payable should be provided in the accounts of the year and may be
paid in the following years. (Circular No. 3/20/CL.VI/69, dated 22-9-1969).
5. Accounting Standards to
be followed-Sub-sections (3A) and (313) have been added to Section 211 by the
Companies (Amendment) Act 1999 with retrospective effect from 31st October,
1998 to section 211. The provisions of these two sub-sections require
every profit and loss account and balance sheet of every company to comply with
the accounting standards and in case the profit and loss account and the
balance sheet of a company do not comply with the accounting standards such a
company must disclose in its profit and loss accounts and balance sheet, the
deviation from the accounting standards, the reasons for such deviation and the
financial effect, if any, arising due to such deviation. Sub-section (3C)
has also been added to section 211 by the said Amendment Act giving the meaning
of the expression "accounting standards". It means the standards of
accounting recommended by the Institute of Chartered Accountants of India
constituted under the Chartered Accountants Act, 1949, as may be prescribed by
the Central Government in consultation with the National Advisory Committee on
Accounting Standards established under sub-section (1) of section 210A.
Provided that the standard of accounting specified by the Institute of
Chartered Accountants of India shall be deemed to be the Accounting Standards
until the accounting standards are prescribed by the Central Government under
this sub-section.
Form of Annual accounts
(Another format)
"RESOLVED that the form of balance-sheet and profit and loss account of the Company be and is hereby approved as per the specimen placed before the Board, and initialled by the Chairman of the meeting for purpose of identification.
RESOLVED FURTHER that
pursuant to section 211(4) of the Companies Act, 1956, an application be made
to the Central Government seeking their approval to the adoption of the form of
the balance-sheet and profit and loss account and the Secretary of the
company be and is hereby authorised to take all necessary action as may be
necessary."
1. No form prescribed.-The application can be made
on the letter head of the company as no particular form has been prescribed.
2. Obtaining of approval
necessary.-Approval will be necessary not only to the form of presentation of
accounts but also where it is proposed to change the particulars contained in
the accounts.
3. Obtaining of approval
regarding contents and manner of presentation.-The company is permitted to
prepare the balance-sheet in horizontal form which has been in vogue or
in the vertical form now prescribed. Therefore, the approval to be sought would
be in respect of contents and the manner of their presentation.
4. Approval be obtained
without reference to particular year.-It will be advisable to obtain approval
without reference to a particular year so as to obviate application every year.
5. Copy of resolution be
annexed with application.-The copy of the resolution is to be sent along with
the application to the Central Government. If there are any special reasons for
adopting the specimen, the same should be stated in the application.
6. Application by Hotel
Companies.-Notification No. GSR 365(E) dated 14th May 2002 provides that every
application made by a hotel company under this section for exemption from paras
3(i)(a) and 3(ii)(d) of Part II of Schedule VI of the Act for a period of 3
years at a stretch should be accompanied by appropriate fee of Rs. 2,500/-,
where the hotel company's authorised share capital is less than Rs. 25 lakhs
and Rs. 5,000/- where its authorlsed share capital is Rs. 25 lakhs or
more but less than Rs. 5 crores and Rs. 10,000/- when its authorised
share capital is Rs. 5 crores or more.
7. Citizen's Charter.-As per Citizen's Charter
issued by the Department of Company Affairs, the application made under this
section is required to be processed within 30 days. [File No. 5/25/99 CL-V;
Press Note No. 9/99, dated 9-8-1999].
8. Exemption.-Central Government by
Notification No. S.O. 954(E), dated 25th September, 2001 has exempted the
companies engaged in the cultivation or processing of tea from disclosing in
the profit and loss account the information mentioned in sub-clause (1)
of clause (a) of sub-para (ii) of Para 3 of Part II of Schedule VI of the
Act subject to certain conditions for a period of 3 years.
9. Penalty for default.-If any director of a company
falls to take all reasonable steps to secure compliance by the company as
respects any accounts laid before the company in general meeting with the
provisions of section 211 or any person not being a director of the company who
is charged by the managing director, manager or Board of Directors as the case
may be with the duty of seeing that the provisions of section 211 and other
requirements aforesaid are compiled with makes any default in doing so, the
director or that person will be punishable for each offence with imprisonment
for a term of 6 months or with fine of up to Rs. 10,000/- or with both.
[Section 211(7) & (8)].
Exemption from incorporation
of subsidiary's account
destroyed by fire
"RESOLVED that an
application be made to the Central Government for exempting the Company from
complying with the provisions of section 212 of the Act in relation to Messrs.
A.B.C. Limited, a subsidiary of the company on the ground that the office of
the Company having been gutted by fire and all accounts and books having been
destroyed, no information is available to the company as to the balance sheet
and other statements of that company required to be incorporated in the balance-sheet
of the holding company."
1. No form prescribed.-No form of application is
prescribed and the application is to be made on the letter head of the company.
As per guidelines issued by the Department of Company Affairs the application
must contain inter alia the following information:
(a) the financial year for which exemption is sought and that year should also be the year mentioned in the body of the board resolution passed for the purpose;
(b) precise reasons or
Justification for seeking the exemption;
(c) latest year for which
accounts have been adopted by the company;
(d) names of subsidiaries in
respect of which exemption is sought;
(e) dates on which the
companies became subsidiaries of the company;
(f) the financial years of
the holding company and the subsidiary companies referred to in the
application.
2. Reasons to be mentioned
for non-compliance with provisions.-Explain fully the
circumstances under which the provisions of section cannot be compiled with.
3. Approval to be obtained
every year.-Approval will have to be obtained every year unless in a given case the
facts are such that provisions of the section can not be complied with for
several years.
Exemption from the provision
of incorporating subsidiary's
account situated in foreign
land
"RESOLVED that as the
Company's subsidiary, M/s. ABC & Co. Ltd., is situated in Pakistan and no
information is available to the Company as to the balance-sheet and other
statement of that company, required to be incorporated in the balance-sheet
of the company pursuant to the provisions of section 212 of the Companies Act,
1956, the Secretary of the Company be and is hereby authorised to apply to the
Central Government to direct that in relation to M/s. ABC & Co. Ltd., a
subsidiary of the Company, the provisions of section 212 shall not apply."
1. Requirements as to the
manner and contents, etc., of the documents to be attached.-Pursuant to the provisions
of section 212 of the Companies Act, 1956, a holding company is to attach to
its balance-sheet, a copy of the balance-sheet of the subsidiary
profit and loss account, report of its Board of Directors, and a copy of the
Auditors' Report.
2. Power of Central
Government to exempt. -Sub-section (8) of the said section provides
that the Central Government may, on the application of the company, direct that
in relation to any subsidiary, the provisions of this section shall not apply
or shall apply only to such extent as may be specified in the direction.
3. No form prescribed.-No particular form of
application to the Central Government has been prescribed and the application
should be in the form of a letter explaining circumstances as to why it has not
been possible to incorporate such information.
4. Penalty for default.-If any director of a company
falls to take all reasonable steps to comply with the provisions of section 212
or any person not being a director of the company who is charged by the
managing director, manager or Board of Directors as the case may be with the
duty of seeing that the provisions of section 212 are complied with makes a
default in doing so, the director or that person will be punishable with
imprisonment for a term of 6 months or with fine of upto Rs. 10,000/- or
with both.
5. Citizen's Charter.-As per the Citizen's Charter
of the Department of Company Affairs, the application under this section made
to the Central Government is required to be processed within 30 days. [File No.
5/25/99- CL- V; Press Note No. 9/99, dated 9-8-1999].
Change in financial year to
coincide with financial year of the
subsidiary
"RESOLVED that subject
to the approval of the Central Government, the financial year of the Company be
changed to calendar year so as to secure that the end of the financial year of
the subsidiary company, Messrs ABC Limited, does not precede the end of the
financial year of the holding company by more than six months.
RESOLVED FURTHER that the
Company Secretary be and is hereby authorised to make an application to the
Central Government and to do all such acts and things as may be necessary in
this regard."
Financial Year of the subsidiary company-Board
Resolution
"RESOLVED that the
consent of the Board of Directors of the Company be and is hereby given to the
extension of the financial year of the company so as to close on 31st March
every year so that it coincides with the closing date of the financial year of
the holding company."
1. No form prescribed. -No form of application is
prescribed and the application should be made on company's letter head.
2. Obtaining approval of the
Income-tax Officer. -The approval of the Income-tax Officer to the
change in the financial year be obtained.
3. Copy of Resolution and Annual Accounts to be annexed with application.-The copy of the resolution passed in this connection may be attached with the application made to the Central Government along with the copy of the annual accounts of the previous financial year.
Changing financial year to
coincide with subsidiary's
(Another format)
"RESOLVED that subject
to the approval of the Central Government pursuant to section 213(2) of the
Companies Act and subject to the approval of income-tax authorities, the
Company's financial year be changed to the calendar year in order to secure
that the end of the financial year of the subsidiary does not precede the end
of the holding company's financial year by more than six months."
1. Changing of financial
year to coincide with subsidiary.-Where it is desired to change the financial year of
the holding company or the subsidiary company because they do not coincide and
there is a difference of more than six months between the end of the financial
year of the subsidiary and the end of the financial year of the holding
company, (section 212(2)(b) then it should be changed by Board Resolution
subject to the approval of the Central Government (section 213) and subject
further to approval under the Income-tax Act, 1961.
2. Procedure.-Application to the Central
Government has to be made on plain paper as there is no prescribed form. It
should be submitted to the Department of Company Affairs, Shastri Bhawan, New
Delhi with requisite application fee as prescribed under Companies (Fees on
Application) Rules, 1999, along with certified copy of Board Resolution.
S. 213-Extension
of Financial year of subsidiary company-Board Resolution
"RESOLVED that the
financial year of the Company which is a subsidiary of M/s. AND & Co. Ltd.,
be extended to close on 30th June every year so as to coincide with the closing
of the financial year of the Company's holding company.
RESOLVED FURTHER that for
the purpose of giving effect to the aforesaid extension an application be made
to the Central Government for the necessary approval and for late submission of
the annual return pursuant to section 213 of the Companies Act, 1956."
1. Changing of financial
year of subsidiary.-Pursuant to the provisions of subsection (1) of section 213, action can
be initiated by the subsidiary company to change the financial year so that
subsidiary's financial year may end with that of the holding company.
2. Extension of financial
year.-The
Central Government may on the application" of the company whose financial
year is to be extended, direct that in the case of that company, the submission
of accounts to a General Meeting, the holding of an Annual General Meeting or
making of annual return, shall not be required to be submitted, held or made,
earlier than the dates specified in the direction, notwithstanding anything to
the contrary in the Act or in any other law for the time being in force.
Authentication of balance-sheet
etc.
"RESOLVED that the written down value of a milling machine amounting to Rs. ________ (Rupees ________________________) scrapped during the year be written off to the debit of profit and loss account for the year ended ________ 2002 ________
RESOLVED FURTHER that the
amount charged off as depreciation amounting to Rs. ________ relating to the
part of the buildings depreciated during the year be transferred from
depreciation account to the credit of building account (Factory Building Class
11) as at ________ 2002 ________
RESOLVED FURTHER that Rs. ________ (Rupees ________________________) be transferred to the debit of profit and loss account for the year ended ________ 2002 ________ being claim not admitted by the under noted parties and accordingly written off
J.R. Co. Ltd. Rs
________
A.K. Corporation Rs
________
M.K.K. Rs
________
Mumbai
Metal Mart Rs
________ Rs
________
RESOLVED FURTHER that a provision be made for Rs. ________ being the amount of bills receivable from Mr. PQR considered to be doubtful of recovery in the profit and loss account of the company for the year ended ________ 2002 ________
RESOLVED FURTHER that Rs ________ be transferred to the 'General Reserve' by debiting the profit and loss appropriation account for the year ended ________ 2002 ________
RESOLVED FURTHER that the
draft balance-sheet as at ________ 2002 ________ and the profit and loss
account for the year ended as on the aforesaid date as amended be signed by the
Directors and the Secretary of the Company in authentication thereof and that
the Secretary be and is hereby instructed to forward such draft accounts as
hereby signed and approved to the Auditors of the company for their report thereon."
1. Authentication of balance-sheet
and Profit and Loss Account.-It is customary to get the balance-sheet and
the profit and loss account signed by the Chairman and the Secretary and all
the Directors who are present at the Board Meeting which considers the draft of
such accounts. The accounts, however, can be signed on behalf of the Board of
Directors by Manager or Secretary, if any, and not less than two Directors of
the company one of whom shall be a Managing Director where there is one.
2. Authentication of annual
accounts when only one director available.-Pursuant to section 215,
even one Director may authenticate the balance-sheet and the profit and
loss account provided he is the only Director present for the time being in India,
but in such a case, there should be attached to the balance-sheet and the
profit and loss account a statement signed by him explaining the reason for non-compliance
with the provisions in connection with the signing of balance-sheet and
the profit and loss account pursuant to sub-section (1) of section 215.
3. Balance-sheet and
Profit and Loss Account to be approved by Board before they are signed.-Pursuant to sub-section
(3) of section 215, the balance-sheet and the profit and loss account
must be approved by the Board of Directors before they are signed on behalf on
the Board in accordance with the provisions of this section and before they are
submitted to the Auditors for their report thereon. This power of the Board
cannot be delegated to a committee of Directors or some of the Directors.
(Letter No. 8/22(215) 76-CL.V., dated 27-10-1976). Company
Law Board can issue direction on an application by a member under section 167
for the convening of the annual general meeting for the adoption of its accounts
which had not been approved by the Board of Directors. Gates Corporation v.
Anand Gates (India) (P.) Ltd., (2000) 36 CLA 258 (CLB-NR).
4. Accounts cannot be said
to be not properly audited when signed by Directors and Auditors on same day.-If the balance-sheet
of the company is signed by the Directors and the Auditor on the same date,
then it cannot be said that the Auditor has not audited it properly. (Circular
No. 7/74, dated 26-4-1974).
5. Responsibility of
Secretary for signing Balance-sheet and Profit and Loss Accounts.-The Secretary of a company
signs the balance-sheet and the profit and loss account of the company
'on behalf of the Board of Directors'. His responsibility as to any error
appearing in these two statements is only as an officer of the company under
section 628 and not under section 215 of the Companies Act, 1956. (Circular
No.7/72, dated 125-1972).
6. Secretarial Standard.-As per paragraph 7.1 of
Secretarial Standard-1, the annual accounts of a company should be
approved at a meeting of the Board of Directors and should not be approved by
means of resolution passed by circulation.
Approval of draft balance
sheet and profit and loss account
"RESOLVED that the draft balance sheet as at ________ 2002 ________ and the profit and loss account of the Company for the year ended as on the aforesaid date be and hereby is approved.
"RESOLVED FURTHER that
the draft balance sheet and profit and loss account mentioned above be signed
by the Directors and the Secretary of the Company in authentication thereof.
RESOLVED FURTHER that the
draft balance sheet and profit and loss account duly authenticated as above be
forwarded to the Auditors of the Company for their report thereon."
1. Signature of Managing
Director.-Balance sheet and profit and loss account of the company should be
signed by the manager or secretary if any and by not less than two directors of
the company out of whom should be a managing director where there is one.
2. Annexures to Profit and
Loss Account and Balance Sheet.-Auditors Report including the auditors' separate,
special or supplementary report if any and a report by the board of directors
of the company should be attached to the balance sheet and profit and loss
account of the company.
Approval of Annual Accounts
of Government companies
"RESOLVED that Balance-sheet
and Profit and Loss Account of the Company for the period ended on 31-3-2002
be and are hereby adopted and approved subject to such changes as may be
incorporated on receipt of comments of the Statutory Auditors and Directors,
Commercial Audit.
RESOLVED FURTHER that
aforesaid accounts be authenticated by Shri SKM, Managing Director, Shri AKM or
Shri OPW, Directors and Shri RSR, Secretary of the Company.
RESOLVED FURTHER that Shri
SKM, Managing Director be and is hereby authorised to approve changes as may be
made in the accounts for the aforesaid period subsequently on receipt of
comments of the Statutory Auditors and Director, Commercial Audit and sign the
same along with Secretary of the Company."
"RESOLVED FURTHER that-
(1) Depreciation on
Company's assets be calculated on written-down value method with rates
for depreciation as per the Income-tax Rules.
(2) The Balance-sheet
and Profit and Loss Account for the year ended 31st March, 2002, enclosed with
this note as Annexure-A are hereby approved. Shri OPM, Chairman, Shri
SKM, Managing Director, Shri AKM Director, of the company are authorised to
sign the said Balance-sheet and Profit and Loss Account on behalf of the
Board besides the General Manager (Commercial) and Secretary of the company.
(3) The Balance-sheet
and Profit and Loss Account for the year ended 31st March, 2002 together with
the reports of the Comptroller & Auditor General and Company's Auditors be
circulated to the shareholders, for their consideration and adoption in the
next Annual General Meeting of the Company."
1. Approval by Board.-Section 215 provides that
the annual financial statements referred to in section 210 should first be
approved by the Board of Directors and thereafter they should be signed on
behalf of the Board.
2. Authentication of annual
accounts.-The Balance-sheet and Profit and Loss Account of a company are
required to be signed on behalf of the Board of Directors by not less than two
directors, one of whom shall be a managing director, where there is one.
Additionally, the said financial statements are also required to be signed by
its manager or secretary, if any.
3. Signature by Managing
Director must.-As per section 269, every public company and every private company
which is a subsidiary of a public company, having a paid up share capital of
Rs. one crore or more shall have a managing or whole-time director or a
manager. The signature by the managing director is a must, if the company has
one.
4. Authentication of Annual
Accounts when company has no Secretary.-Where the company has not
appointed a Secretary the accounts would be deemed to have been properly
authenticated if they have been signed by two directors, including the Managing
Director, if any.
5. What authentication
implies.-Authentication does not mean that the facts and figures or truth or
accuracy of the transactions in the accounts are all certified as true.
Authentication only implies that the documents authenticated are genuine and
not faked.
6. When only one director
available for authentication of Annual Accounts.-If only one director or
managing director is, for the time being, in India, he will sign the balance-sheet
and the profit and loss account. However, in such a case, he is required to
file with the Registrar of Companies, along with the balance-sheet and
the profit and loss account, a signed statement explaining the reason as to why
compliance with the provisions of sub-section (1) of section 215 was not
possible.
7. Submission of Annual
Accounts to the auditor.-The balance sheet and the profit and loss account
should be duly considered and approved by the Board and after being signed on
behalf of the Board, should be handed over to the statutory auditors for their
report thereon.
8. Statutory Auditor to
submit a copy of Report to Comptroller and Auditor General of India.-The Statutory Auditor is
required to submit a copy of his audit report to the Comptroller and Auditor
General of India who shall have the right to comment upon or supplement the
audit report in such manner as he thinks fit. The comment upon or supplement to
the audit report are required to be placed before the Annual General Meeting of
the company.
9. Laying of Annual Report
on Government Companies before both Houses of Parliament.-The Annual Report on
Government Companies is to be laid before both Houses of Parliament or both
Houses of State Legislature with a copy of the audit report and comments or
supplement to the audit report made by the Comptroller and Auditor General of
India.
Approval of revised Balance-sheet and Profit and Loss
Account
"RESOLVED that revised Balance-sheet and Profit and Loss Account of the Company for the period ended on 31st March, 2002, and draft Directors' report on accounts, a copy each of which is placed before the Board duly initialled by the Chairman for purposes of authentication, be and are hereby approved and adopted.
"RESOLVED FURTHER that
Sarvashri SKM, Managing Director, AKM or SPR, directors of the Company, and
Shri OPM, Secretary of the Company be and are hereby authorised to sign the
aforesaid accounts."
"RESOLVED FURTHER that
the draft Balance-sheet and Profit & Loss Account of the company for
the period ended on 31-3-2002, as circulated to the Board duly
initialled by the Chairman for purposes of identification, be and are hereby
approved and adopted subject to (a) broad details of Selling and Distribution
expenses of Rs. 75.80 lakhs to be shown separately and (b) commitments on
capital account not executed and estimated at Rs. 520.65 lakhs were subject to
the approval of the Board, financial institutions and the Government.
"RESOLVED FURTHER that
a copy of the draft Balance-sheet & Profit & Loss Account for the
period ended on 31-3-2002 as approved and authenticated by the
Board be delivered to the Statutory auditors for further action."
1. Board Meeting.-Hold a Board Meeting and get
the Balance-sheet and Profit & Loss Account approved by the Board of
Directors. It is only thereafter they should be signed on behalf of the Board.
2. Authentication of Annual
Accounts.-The Balance-sheet and Profit & Loss Account should be signed
on behalf of the Board by (a) the Manager or Secretary, if any, and, (b) by the
Managing Director, and (c) one more director. If there is no Managing Director
then by the Manager or Secretary, if any, and any two directors should sign the
same,
3. Submission of Annual
Accounts to auditor.-The Balance-sheet and the profit and loss account should be duly
considered and approved by the Board and after being signed on behalf of the
Board should be handed over to the statutory auditor for their report thereon.
4. Procedure for
authentication when only one Director available.-If only one director or
Managing Director is, for the time being, in India he will sign the Balance
sheet and profit and loss Account. However in such a case he is required to
file with the Registrar of Companies concerned along with the Balance-sheet
and Profit and Loss Account a signed statement setting out the reasons as to
why compliance with the provisions of sub-section (1) of section 215 was
not possible.
"RESOLVED that modified, Balance- sheet and Profit & Loss Account of the Company for the period ended on 31st March, 2002 as circulated to the Board duly authenticated by the Chairman and Managing Director of the Company for purposes of identification, be and is hereby approved and adopted together with auditor's report thereon."
"RESOLVED FURTHER that
S/Shri SKM, Chairman & Managing Director, AKM or RSR, directors and Shri
SPM, Secretary of the Company be and are hereby authorised to authenticate the
Balance sheet and Profit & Loss Account for the period ended on 31st March,
2002 in terms of requirements of Section 215 of the Companies Act, 1956.
"RESOLVED FURTHER that
draft directors' report of the Company on the accounts as placed before the
meeting, duly initialled by the Chairman for purposes of identification, be and
is hereby approved."
"RESOLVED FURTHER that
Shri SKM, Chairman & Managing Director of the Company be and is hereby
authorised to approve the notice convening the Annual General Meeting and to
fix the time, date and venue for holding the Annual General Meeting for the
year 2002".
1. Approval of Annual
Accounts by Board.-The Annual Accounts are required to be approved by the Board of
Directors before they are laid before the Annual General Meeting for approval
by the shareholders.
2. Documents annexed and
attached.-The auditor's report is required to be attached and the profit and loss
account annexed to the balance-sheet. The report of the Board of
Directors is also to be attached to the balance-sheet.
3. Authentication of Annual
Accounts.-The balance-sheet and profit and loss accounts are to be signed
on behalf of the Board by the Secretary and the Managing Director and one
Director. If there is no Managing Director then by secretary and any two
Directors.
4. Filing with Registrar of
Companies.-E n sure to file three copies of the Annual Accounts within thirty days
after they are laid before the Annual General Meeting, after payment of
requisite filing fee in cash as per Schedule X.
5. Penalty for default.-If any copy of a balance-sheet
or profit and loss account which has not been signed as required by section 215
is issued circulated or published, the company and every officer of the company
who is in default will be punishable with fine which may extend to Rs. 5,000/-.
[Section 218(a)]
"RESOLVED that the unaudited results of the Company for the half year ending ________ be and are hereby taken on record and Shri AB ________________ Director be and is hereby authorised to sign the same and Shri CD Secretary be and is hereby directed to notify the Stock Exchange of ________ and issue necessary advertisements of the unaudited half yearly results, is one issue of________ .”
1. Publication of quarterly
unaudited balance sheet. -Clause 41 requires a company to furnish unaudited
financial results on a quarterly basis with effect from the quarter ending on
31 st March, 2000 in a prescribed proforma within one month from the end of
quarter to the stock exchange and will make an announcement to the stock
exchange where the company is listed, immediately after the market hours on the
date of the Board meeting or meeting of sub-committee of the Board of
Directors (consisting of not less than one third of the directors), in which
the unaudited financial results are placed. The unaudited results should not
substantially differ from the audited results of the company and if the sum
total of the first, second, third and fourth quarterly unaudited results in
respect of any item given in the same proforma varies by 20% when compared with
the results for the full year the company shall explain the reasons to the
stock exchanges. In respect of results for the last quarter of the financial
year, if the company intimates in advance to the stock exchange/s that it will
publish audited results within a period of 3 months from the end of the last
quarter of the financial year, in such a case unaudited results for the last
quarter need not be published/given to the stock exchanges. The quarterly
results shall be prepared on the basis of accrual accounting policy and in
accordance with uniform accounting practices adopted for all the periods on
quarterly basis.
2. Board's approval of half
yearly results.-The company should also prepare half yearly results in the same
proforma as the quarterly results are prepared with effect from half year
ending 3 1 st March, 2000 and the same should be approved by the Board of
Directors and subjected to a limited review by the auditors of the company and
a copy of the review report should be submitted to the stock exchanges within 2
months after the close of the half year. Half year should be construed as
consisting of the first two quarters of the company's financial year. If the
sum total of first and second quarterly unaudited results in respect of any
item given in the same proforma format varies 20% or more from the respective
half yearly results as determined after the 'limited review' by the auditors,
the company should send a statement approved by the Board explaining the
reasons to the stock exchanges along with review report.
3. Secretarial Standard.-As per paragraphs 7.2 and
7.3 of Secretarial Standard 1, quarterly or half-yearly financial results
should be approved at a meeting of the Board of Directors or its Committee and
should not be approved by means of a resolution passed by circulation, and in
the case of a listed company, if there is any material variance between un-audited
and audited results, the limited review report of the auditors should also be
discussed and approved at a meeting of the Board and not approved by means of a
resolution passed by circulation.
Publication of quarterly un audited financial results
(provisional)
"RESOLVED that the
Board of Directors takes on record the unaudited financial results
(provisional) of the company for the quarter ended ________
"RESOLVED FURTHER that
the Managing Director of the Company be and is hereby authorised to sign the
said quarterly unaudited financial results (Provisional and furnish the same to
the ________ Stock Exchange and get them published in two newspapers pursuant
to clause 41 of the Listing Agreement."
1. Compliance with clause 41
of listing agreement. -The listed companies as per clause 41 of the Listing
Agreement are required to forward their quarterly unaudited financial results
(provisional) to he Stock Exchange concerned and have the same published in two
newspapers one in English and the other in the language of the place where the
registered office of the company is situated.
2. Time-limit. -The quarterly yearly results
are to be sent to the Stock Exchange concerned and the same have to be got
published within from the end of the quarter of that year.
3. Board's approval. -The unaudited results (provisional)
will have to be got approved by the Board or a sub-committee of the Board
and duly signed by the Managing Director/Director. The same has to be got
published in two newspapers within 48 hours of the Board Meeting.
4. Publication of press
note.-Publish
a press note in two newspapers one national newspaper and one regional language
newspaper seven days before the Board meeting at which the said results are to
be taken on record and also inform about the said Board or sub-committee
meeting to the Stock Exchange where the company's securities are listed at
least 7 days in advance about the date of the aforesaid Board or sub-committee
meeting.
5. Filing with stock
exchange.-Forward the copies of the press note on the Stock Exchange concerned
forthwith.
6. Amendment to Listing
Agreement.-Amendment in Clause 41 of the listing agreement has been made by SEBI
vide SMD/Policy/Cir- 11/02, dated 10th May, 2002. This amendment provides
that the companies which opt to publish audited results for the entire year within
3 months instead of publishing un-audited results for the last quarter
within 30 days shall be required to publish annual audited results in the
format specified in Annexure-I to this notification.
Section 217 has been amended
by the Companies (Amendment) Act, 1988, and accordingly it is made obligatory
that the Directors' Report should disclose conservation of energy, technology
absorption, foreign exchange earnings and outgo in such a manner as may be
prescribed.
The Government has since
framed the Companies (Disclosure of Particulars in the Report of Board of
Directors) Rules, 1988, which prescribes the manner in which disclosure of such
particulars is to be made vide Notification GSR No. 1029, 31-12-1988
with effect from 1-4-1989.
Further, the Central
Government has been empowered to prescribe monetary limits with regard to
employees whose particulars of remuneration are required to be published under
section 217(2A). This enables the Central Government to revise the ceilings on
remuneration for publication of particulars of employees from time to time
through the amendment of the Companies (Particulars of Employees) Rules, 1975.
The amendment also prescribes that if any employee receives remuneration in
excess of that drawn by any other managerial personnel and he holds by himself
or along with his spouse or dependent children not less than two per cent of
the equity shares of the company, the particulars of remuneration of such
employee should be disclosed.
The Government has vide
Notification GSR No. 288(E) dated 17-4-2002 w.e.f. 17-42002,
prescribed the limits under section 217 as under:
(1) if employed throughout the financial year was in receipt Rs. 24,00,000/- per of remuneration for that year which in the aggregate was financial year not less than
(ii) if employed for a part of the financial
year was in receipt Rs. 2,00,000/- of remuneration for any part of that
year, at a rate which, p.m. in the aggregate was not less than
The Directors' Report should
also specify the reasons for the failure, if any to complete the buy-back
of shares or other specified securities under sub-section (2B) of section
217.
Directors' Liability for the Report (S. 217)
A Director may incur
liability to individual shareholders who act in reliance upon a negligent
misstatement in the Directors' Report. Hedley Byrne & Co. Ltd. v. Helter
and Partners Ltd., (1963) 2 All ER 575 : (1964) 1 Comp U 14 (HL).
Whether a similar liability
may be incurred to non-members is a question of fact in each case
depending upon the circumstances in which the statement is made. Palmer's
Company Law, (Para 64.06 p. 973 24tth Edn. 1987).
Mere failure to properly
number the pages or providing name of employees in loose sheet in a balance-sheet
would not constitute an offence so as to make the directors liable. T.P.G.
Nambiar v. ROC, (1998) 30 CLA 83 (Kar).
The jurisdiction for the
purposes of a complaint under section 217 will be in the courts of the place
where the company's registered office is situate. Karnataka Bank Ltd. v. B.
Suresh, (2001) 105 Com Cases 110 (Kant).
Particulars of employees (S. 217(2A))
The expression
'remuneration' will include all expenses incurred by the company in providing
any benefit or amenity to the employee and it will also include perquisites and
other benefits valued on the basis of the provisions of the Income-tax
Act, 1961, and the Rules made thereunder. The company should therefore indicate
the salary and perquisites drawn by all employees in terms of the actual
expenditure incurred by the company. (Department's Circular No.
23/76(8)/27(217)/75-CL. V, dated 6th August, 1976).
Directors Responsibility Statement (S. 217 (2AA))
Companies (Amendment) Act,
2000 has inserted sub-section (2AA) in section 217 requiring every Board's
Report to include a Directors' Responsibility Statement highlighting the
accountability of directors in good corporate governance. The particulars to be
indicated in such a statement relate to adoption of applicable accounting
standards, selection and application of accounting policies, maintenance of
adequate accounting records and preparation of annual accounts on a going
concern basis.
Increased from Rs. 12 lakhs per year, by GSR 288 (E)
dated 17-4-2002. Increased from Rs. 1,00,000/p.m., by GSR 288 (E)
dated 17-4-2002. Ins. by the Companies (Amendment) Act, 1999
(w.e.f. 31-10-1998).
Adoption of Directors'
Report
"RESOLVED that the draft of the Directors' Report for the year ended 31 st March, 2002, as submitted before the meeting, duly initialled by the Chairman of the meeting be and is hereby approved and that the same be signed on behalf of the Board by Shri ……the Chairman of the meeting."
PRACTICE NOTES
1. Directors' Report to
contain explanation on reservation qualification/adverse remarks made in
Auditor's report.-The Directors' Report should give fullest information and explanation
in an addendum to the report on every reservation, qualification or adverse
remarks given by the Auditors in their report.
2. Material changes
subsequent to close of financial year.-All material changes subsequent to the close
of the financial year should be reflected in the Directors' Report.
3. Signing of Directors'
Report.-
The Directors' Report is to be signed by the Chairman or any other Director if
so authorised by the Board.
4. Disclosure in Directors'
Report on conservation of energy etc.- As per the Companies (Amendment) Act, 1988,
the Directors' Report should contain the steps taken by the company for
conservation of energy, technology absorption, foreign exchange earnings and
outgo as may be prescribed.
5. Board's report to contain
names of certain employees.- The Directors' Report should also include a
statement showing the name of every employee of the company whether employed
throughout the year or part thereof who are in receipt of remuneration of not
less than Rs. 24,00,000/(Increased by GSR No. 288(E), dated 17-4-2002),
per financial year and not less than Rs. 2,00,000/per month respectively and
other particulars as prescribed under the Companies (Particulars of Employees)
Rules, 1975.
6. Directors' report to
contain statement about Managing /Whole-time Director or Manager.- The Directors' Report
should also contain a statement with respect to the Managing Director or Whole-time
Director or Manager who holds by himself or along with his spouse and dependent
children not less than 2% of the equity shares of the company.
7. Speech of Chairman.- The speech of the Chairman
at the Annual General Meeting is not a part of the Report of Directors.
8. Filing of Directors'
Report.-
File the Directors' Report along with the annual accounts with the Registrar of
Companies within thirty days of the conclusions of the Annual General Meeting.
9. Information/Explanation
on qualification in Auditors' Report.- Where the qualification is contained only in
the Auditors' Report, separate information or explanation by the Board is
called for.
10. Board's report to
specify reasons for failure of buy-back within time- The Companies (Amendment)
Act, 1999 with retrospective effect from 31st October, 1998 inserted sub-section
(213) to section 217 requiring Board's report to specify the reasons for the
failure if any, to complete the buy-back of shares or other specified
securities of a company within 12 months from the date of passing of the
special resolution under section 77A(4).
11. Penalty for default -If any director of a
company fails to take all reasonable steps to comply with the provisions of sub-sections
(1) to (3) or being the Chairman, signs the Board's report otherwise than in
conformity with the provisions of sub-section (4) and if any person not
being a director having been charged by the Board of Directors with the duty of
seeing that the provisions of sub-sections (1) to (3) are complied with
makes default in doing so, he will in respect of each offence be punishable
with imprisonment of 6 months or with fine of up to Rs. 20,000/- or with
both.
Approval of Board's Report
(Another format)
"RESOLVED that subject
to the Auditors' Report under section 227(2) of the Companies Act, 1956, being
without any reservation or qualification or adverse remark, the draft of the
Directors' Report for the year ending .. 2002
as laid on the table, be and is hereby
approved and signed by the Chairman on behalf of the Board and that the
Secretary of the Company be directed to issue the same to the members of the
company together with the printed copies of the audited accounts, and the
Auditors' Report after receipt of the Auditors' Report either with or without
any adverse comment or remark thereon."
PRACTICE NOTES
1. Signing of Directors'
Report and addendum thereto.- The Board's report and any addendum thereto must be
signed by the Chairman, if he is so authorised in that behalf by the Board, and
where he is not so authorised, must be signed by such number of Directors as
are required to sign the balance-sheet and the profit and loss account of
the company by virtue of section 215.
2. Directors' Report to
indicate material changes and commitments affecting financial position of
company.- Clause (d) of sub-section (1) of section 217 requires that the
Board of Directors should indicate in its report the 'material changes and
commitments, if any, affecting the financial position of the company, which
have occurred between the end of the financial year of the company and the date
of the report'. The consequential changes pursuant to this clause may be:
(i) Loss or destruction either by fire or
otherwise or selling out substantial part of the undertaking of the company or
nationalisation or any other event affecting the company's business.
(ii) Material change in the demand pattern
and sudden fall in selling price of inventories or the finished goods marketed
by the company or the investment portfolios of the company.
(iii) The expiration of any important
selling/buying contract.
(iv) The settlement of liabilities of prior
period or the settlement of any legal or other proceedings, favourable or
adverse to the company.
(v) Legal proceedings, of important nature either brought by or
against the company and awards in litigation.
(vi) Material changes in the capital structure
resulting from the issuance, retirement or conversion of any loan to equity, or
issue of or redemption of preference shares, or alteration in the wage
structure arising out of trade union negotiations.
(vii) Result of budget imposition of either
direct or indirect tax or any imposition of import duty on the machinery used
by the company.
(viii) Extraordinary profit or loss of a capital
or revenue nature.
(ix) Refund of taxes or completion of assessments.
3. Directors' Report to
include names of certain employees.- Section 217(2A) provides for a statement of
certain employees of the company to be included in the Board's report.
Particulars to be stated in that statement is indicated in the Companies
(Particulars of Employees) Rules, 1975. Rule 2(b) of the said Rules uses the
words 'remuneration received' which should include all expenses incurred by a
company in providing any amenity or benefit to the employee concerned. Thus,
salary and perquisites drawn by the employee must be stated in terms of actual
expenditure incurred. (Circular N6.23n6 (8/27(217)/75-CL.V) dt. 6-8-1976).
4. Valuation of perquisites.- The valuation of the
perquisites such as residential accommodation, furniture, etc. may be made on
the basis of ten per cent of the original cost of the items. Expenditure
incurred on repairs and maintenance thereof must not be again included in
remuneration of the employee if these have been already included in determining
the value of housing perquisite. (Circular No.. 8/27(217)n5-CL.V) dt. 15-7-1977
addressed to FICCI).
5. Expression "last
employment held by such employee before joining the company"-Meaning.- Rule 2(i) of the Companies
(Particulars of Employees) Rules, 1975, refers to the expression 'last
employment held by such employee before joining the company' which should be
understood to mean the post last held in any other company or in any
organisation, etc. Particulars of the last employment including designation of
the post and the period during which it was held should also be indicated.
(Circular No.33/76 (5n174-CLN) dt. 28-9-1976).
Particulars of Employees
"RESOLVED that the
statement showing the names of the employees employed throughout the year or
for a part of the financial year who were in receipt of remuneration during the
year ended on 31st March, 2002, in the aggregate of not less than Rs
. p.a. and not less than Rs . p.m. respectively together with the
particulars required under the Companies (Particulars of Employees) Rules,
1975, placed be fore the meeting, duly initialed by the Chairman for purposes
of identification, be and is hereby approved and the ' same be attached to the
Directors' Report on the accounts of the company for the financial year ended
on 31st March, 2002."
PRACTICE NOTES
1. Passing of a separate
resolution not required.- It is not incumbent on the company to pass a
separate resolution. It is sufficient compliance in case the Directors' Report
along with the statement containing the particulars of employees is approved.
2. Expression
"remuneration"-Meaning.- The expression
'remuneration' will include all expenses incurred by the company in providing
any benefit or amenity to the employee and it will also include perquisites and
other benefits valued on the basis of the provisions of the Income-tax
Act, 1961 and the Rules made there under. The company should, therefore,
indicate the salary and perquisites drawn by all the employees in terms of the
actual expenditure incurred by the company. (Department's Circular No.
23/76(8/27(217)/75- CL.V), dated 6th August, 1976).
3. Filing of statement with
Directors' Report and Annual Accounts with Registrar.- File the statement along
with the Directors' Report and Annual Accounts with the Registrar of Companies
concerned within 30 days of the conclusion of the Annual General Meeting.
Statement of Employees
(Another format)
"RESOLVED that the
Statement of Employees prepared in pursuance of the provision of section
217(2A) of the Companies Act, 1956, and the Companies (Particulars of
Employees) Rules, 1975, a copy of which is placed before the meeting duly
initialed by the Chairman be approved and included in the Board's Report for
the year ended 31-3-2002."
PRACTICE NOTES
1. Receipt of more than Rs.
2,00,000/- per month.- Statement should include those employees who are in
receipt of Rs. 2,00,000/- per month or Rs. 24,00,000/- per year.
2. Receipt of remuneration
more than Managing Director or Whole-time Director.- Statement should also
include those employees who are in receipt of remuneration more than the
remuneration received by the managing director or whole-time director of
the company.
3. Name of employee being
relative of director.- Statement should also indicate whether any of the
above mentioned employees is a relative of any director or manager of the
company and if so then name of such director.
Directors' Responsibility Statement
"RESOLVED that the
Directors' Responsibility Statement as per the requirements of sub-section
2AA of section 217 placed before the meeting and initialed by the Chairman for
the purpose of identification be and is hereby approved to be included in the
Board's Report.
PRACTICE NOTES
1. New sub-section
inserted.- Sub-section 2AA has been newly inserted to section 217 by the
Companies (Second Amendment) Act, 1999 with a view to add more responsibility
on the Board relating to good corporate governance. The said sub-section
requires the Board's Report to include the following statements:
(i) that in the preparation of the annual
accounts the applicable accounting standards have been followed along with
proper explanation relating to material departures;
(ii) that the directors had selected such
accounting policies and applied them consistently and made judgments and
estimates that are reasonable and prudent so as to give a true and fair view of
the state of affairs of the company at the end of the financial year and of
profit or loss of the company for that period;
(iii) that the directors have taken proper and
sufficient care for the maintenance of adequate accounting records in
accordance with the provisions of the Companies Act, 1956 for safeguarding the
assets of the company and for preventing and detecting fraud and other
irregularities;
(iv) that the directors had prepared the annual accounts on a going
concern basis;
Abridged annual report to members (S. 219)
By the Companies (Amendment)
Act, 1988, section 219 has been amended providing that a copy of every balance-sheet
and other documents should be sent to apart from every member of the company,
every trustee for the holders of any debentures issued by the company. No
company is now obliged to send balance-sheet etc. to its
debentureholders.
Further, as an alternative to sending detailed annual report to members, it has been provided in the case of listed companies that the financial highlights in the prescribed form should be sent to every member and trustee of debe n ture- holder with notice of not less than 21 days before the date of meeting. However, the member or debenture-holder or depositor shall be entitled to be furnished with a copy of the full annual report free of cost on demand.
Approval of abridged Balance-sheet
"RESOLVED that the
abridged financial statements as per format laid down in Form 23-AB of
the Companies (Central Government's) General Rules and Forms, 1956, placed on
table, duly initialed by the Chairman of the Meeting for the purposes of
identification, be and is hereby approved and same be signed on behalf of the
Board in accordance with the provisions of sub-section (1) of section 215
of the Companies Act, 1956.
"RESOLVED FURTHER that
the Secretary of the Company be and is hereby directed to send the abridged
financial statements to every member and to every trustee of debenture holders
21 days before the meeting."
PRACTICE NOTES
1. Approval by Board.- The Statement containing
salient features of balance-sheet and profit and loss account etc. as per
section 219(l)(b)(iv) in Form No. 23-AB is to be approved by the Board of
Directors.
2. Signing of the Statement.- The Statement is to be
signed on behalf of the Board in accordance with the provisions of section
215(l) of the Act, that is, by the Secretary and two directors of the Company
one of whom shall be the Managing Director of the Company where there is one.
3. Statement to be attached
with balance-sheet etc.- The Statement is to be attached to the balance-sheet
etc. to be filed with the Registrar of Companies pursuant to section 220 of the
Act.
4. Abridged financial
statements not to be audited by statutory auditors.- The abridged financial
statements are not required to be audited by the auditors of the company. Many
companies, however, get them audited by their statutory auditors.
5. Penalty for default.- If default is made in
complying with the provisions of subsection (1) of section 219, the company and
every officer of the company who is in default will be punishable with fine of
up to Rs. 5,000/-.
Filing of balance-sheet
etc., with Registrar
"WHEREAS the balance-sheet
and profit and loss account were laid before the annual general meeting of the
Company held on 2002
OR
"WHEREAS the annual
general meeting of the Company for the year ended 31st March, 2002
could not be held."
OR
"WHEREAS the annual
general meeting of the Company held on
……2002 ……before which the
balance-sheet was laid did not adopt the balance-sheet."
OR
"WHEREAS the annual
general meeting of the Company held on
……2002 ……was adjourned without adopting the balance-sheet;
NOW THEREFORE IT IS RESOLVED
that the reasons for not holding annual general meeting shall be annexed to the
balance sheet and while filing the balance-sheet and profit and loss
account these reasons must also be furnished to the Registrar;
RESOLVED FURTHER that three
copies of the balance sheet and profit and loss account signed by Mr. X, a
Director of the company together with three copies of all documents which are
required to be annexed and attached to the balance sheet and profit and loss
account be filed with the Registrar within thirty days from the date on which
the balance-sheet and profit and loss account were laid before the annual
general meeting."
PRACTICE NOTES
1. Filing of copies of
balance sheet.- Every company should file with the concerned Registrar of Companies
three copies of the balance sheet and the profit and loss account signed by the
Managing Director or Secretary of the company. This should be filed within
thirty days from the date on which the balance sheet and profit and loss
account were laid before the annual general meeting of the company or where the
said annual general meeting of the company has not been held within the said
thirty days, thirty days will be counted from the latest day on or before which
the, annual general meeting should have been held under the provisions of
section 166 read with section 210 of the Act.
2. Private companies.- In the case of a private
company, copies of balance sheet and copies of profit and loss account must be
filed separately with the concerned Registrar of Companies within the said
period of thirty days-, as stated above.
3. Annual General Meeting
not held or adjourned.- If a company's annual general meeting does not
adopt the balance sheet and is adjourned without adopting the balance sheet or
if the annual general meeting of a company is not held in any year for some
reason or the other, a statement to that effect should also be annexed to the
copies of the balance sheet before filing with the Registrar of Companies.
4. Penalty.- For non-compliance of
the requirements of section 220 read with section 162 of the Act, the company
and every officer of the company who is in default will be punishable with fine
which may extend to rupees five hundred for every day during which the default
continues. If a director takes no action in filing the requisite documents with
the Registrar of Companies inspite of the default notice, the court can take
cognisance of the offence under sub-section (3) of section 220 and if the
complaint shows other necessary ingredients, the process can be issued. Shasti
Sood v. Asst. ROC, (2001) 41 CLA 388 (Cal).
5. Compounding of offence.- If the fine is not more
than rupees fifty thousand for contravention of the provisions of section
220(3) read with section 162, the application" for compounding of offence
will lie before the concerned Regional Director under section 621-A(l)(b)
and if the fine is more than rupees fifty thousand, then, the application will
lie before the concerned Regional Bench of the Company Law Board under section
621-A(l)(e).
Information furnished by
Chief Accounts Officer
"WHEREAS the Chief
Accounts Officer had furnished to the Company's auditor, information relating
to payment made to Mr. X, a Director of the Company, by XYZ Ltd., a subsidiary
of the company.
NOW THEREFORE IT IS
RESOLVED, on the basis of the copy of the memorandum sent by the Chief Accounts
Officer to the auditor of the company, that the said information be included in
the notes to accounts while finalising the balance-sheet and profit and
loss account."
PRACTICE NOTES
1. Furnishing of
information.- It will be the duty of the concerned officer of the company to furnish
information, if any, required to be given in the balance sheet and profit and
loss account of the company or in any document annexed to them. The said
information should be given in as full a manner as possible.
2. Information related to.- Information required to be
given may relate to even payments made to any director or other person by any
other company, body corporate, firm or person.
3. Penalty.- Non-compliance of the
provisions of section 221 of the Act attracts penalty of imprisonment up to six
months or fine up to rupees fifty thousand or with both on the person on whom
the duty of furnishing information has been delegated and who knowingly makes
default in discharging his duties
4. Compounding of offence.- If the fine is more than
rupees five thousand for contravention of the provisions of section 221(4), the
application" for compounding of offence will lie before the concerned
bench of the Company Law Board under section 621-A(l)(a).