ALIGNMENT OF FINANCIAL YEAR UNDER SECTION 2(41) OF COMPANIES ACT, 2013

ALIGNMENT OF FINANCIAL YEAR UNDER SECTION 2(41) OF

COMPANIES ACT, 2013

2(41) “financial year”, in relation to any company or body corporate, means the period ending on the 31st day of March every year, and where it has been incorporated on or after the 1st day of January of a year, the period ending on the 31st day of March of the following year, in respect whereof financial statement of the company or body corporate is made up:

Provided that on an application made by a company or body corporate, which is a holding company or a subsidiary of a company incorporated outside India and is required to follow a different financial year for consolidation of its accounts outside India, the Tribunal may, if it is satisfied, allow any period as its financial year, whether or not that period is a year:

Provided further that a company or body corporate, existing on the commencement of this Act, shall, within a period of two years from such commencement, align its financial year as per the provisions of this clause;”

The above provision of Companies, Act 2013 is not giving any express power to the Registrar of Companies or CLB for extension of financial year with a view to align the Financial Year of existing company with the provision of section 2(41). However, there would be a confusion due to first proviso of section 2(41) of the Act. The first proviso of section 2(41) requires the approval of Company Law Board, only if a subsidiary of foreign holding company is required to follow a different financial year for consolidation of its accounts outside India, and the Company Law Board may, if it is satisfied, allow any period as its financial year, whether or not that period is a year.

This implies that neither section 2(41) nor any other provision, rule, circular under the Act requires any purely Indian company, which is neither holding nor subsidiary of any other body corporate registered outside India, to take the approval of Honourable Company Law Board for the alignment of its financial year with the provision of the Act.

Further the second proviso of Section 2(41) of the Act as stated above mandates an existing company to align the financial year within two years from the commencement of this Act. As per the second proviso of the said section, the existing Company does not require the approval of Registrar of Companies or Company Law Board for the alignment.

The new law has not provided any specific procedure to comply with for such alignment during such transitional period.   Also, this is a well settled law practice that during the transitional period if the provision of new law is not applicable or not providing any specific provision or procedure to comply with, then the corresponding provision of the old Act would be applicable till the transition period is over. Hence the Companies Act, 2013 is not prescribing any procedure for the extension of financial year. Accordingly the corresponding provision of the old Act i.e. Companies Act, 1956 relating to financial year would be applicable during such transitional period.

Section 210(4) of Companies Act, 1956 inter-alia provides that:

210 (4) “The period to which the account aforesaid relates is referred to in this Act as a "financial year" ; and it may be less or more than a calendar year, but it shall not exceed fifteen months :

Provided that it may extend to eighteen months where special permission has been granted in that behalf by the Registrar.”

Now as Section 210 of the Companies Act, 2013 has been replaced by section 129 of the Companies Act 2013 which does not provide any power to either Registrar of Companies or Company Law Board to grant extension of financial year. Also Section 2(41) is also not specifying any procedure for alignment.

Different Registrars have different view on this matter. Few of them are as follows:

1.   ROC Maharashtra, Mumbai: is accepting the application in the e-form GNL-1 and granting extension up to six months in Accounting Year under section 210(4) of the Companies Act 1956.

2.   ROC Delhi: was earlier accepting the application in the e-form GNL-1 and was granting extension up to three months in Accounting Year under section 210(4) of the Companies Act 1956. Later on it started to grant extension with the condition that the company shall apply before Company Law Board for extension of financial year. And nowadays this office has started to reject the application by saying that ROC does not have power to grant the extension.

3.   ROC Rajasthan: has accepted an application in the e-form GNL – 1 and granted extension under section 210(4) of the Companies Act 1956.

4.   ROC Chennai: has accepted an application and granted three months extension in accounting year under section 210(4) of the Companies Act 1956.

   Also the ROCs of the states of Andhra Pradesh and Himachal Pradesh have asked, in an application, for the clarification as to which section of the Companies Act, 2013 requires that the extension of Financial Year has to be granted from ROC when the powers are vested with Company Law Board (CLB).

From the above, it is evidenced that different ROCs are following different practices on the same matter. The companies which are keen to comply with the law and have been trying all their efforts to align the financial year in accordance with the mandate of section 2(41) of the Companies Act 2015 are helpless in absence of any uniform practice by the Registrar of Companies and in absence of suitable guidelines or clarification from the Ministry of Corporate Affairs.  . 

From the above discussion we have arrived on the conclusion that Companies have three options for the grant of extension of Financial Year viz:

1.    To take the Approval of ROC as per section 210(4) of Companies Act, 1956 during the transitional period of a company as the practice followed by many ROCs including the Registrar of Companies, Maharashtra-Mumbai, State of Rajasthan, Chennai etc.

2.    To take the approval of CLB as per the first proviso to section 2(41) of Companies Act, 2013 as directed by Registrar of Companies, NCT of Delhi and Haryana.

3.    To pass a Board Resolution regarding the extension of Financial Year without any requirement of seeking the permission of any authority under the Law.

But different practices of different ROCs have confused the corporates to adopt a uniform procedure for alignment of the financial year in accordance with the requirement of second proviso of subsection 41 of section 2 of Companies Act, 2013.

Also, it is worth noting that Para 6 of e-form GNL-1 has asked the applicant to select the purpose of the application and out of seven radio buttons for selection  of purpose, one button is for Extending the period of Annual Accounts. GNL-1 is specially designed for filling of application under companies Act, 2013 where there is no separate form for specified matters. It means that corporates have an option to file application for extension of accounting period.

Further while interacting with various ROCs officials, it came to our knowledge that while rejecting or accepting the application for the said purposes system is automatically taking the reference of Section 210(4) of the Companies Act, 1956.

We also believe that during the transitional period if the provision of new law is not providing any specific provision or procedure to comply with, then the corresponding provision of the old Act would be applicable till the transition period is over. Hence the Companies Act, 2013 is not prescribing any procedure for the extension of financial year. Accordingly the corresponding provision relating to financial year of the old Act i.e. Companies Act, 1956 would be applicable during such transitional period.

Another view can also be taken in consideration that as Section 210 of the Companies Act, 1956 has been repealed and neither the corresponding provision i.e. section 129 nor section 2(41) of the Companies Act, 2013 is prescribing to follow any specified procedure. Hence a company can align its financial year by itself by passing a board resolution.

Thus MCA should come up with some clarification on the matter so that all corporates and ROCs should follow a uniform practice.  

CS Ravi Bhushan Kumar
Practising Company Secretary 
9990339200
cs.ravibhushan@gmail.com