One of the most significant compliance requirements of the Companies Act, 2013, is the Annual General Meeting (AGM). It is an obligation of all companies, both public and (where applicable) private, to conduct their AGM within the time period prescribed, to present financial statements, to submit approval of any dividend, and to submit approval of any auditor. Nonetheless, there are situations when the companies may not be able to hold the AGM within the statutory period. AGM is extended by law in this situation.
The AGM extension procedures and implications of AGM delay are important issues that directors, company secretaries, and compliance professionals need to understand. The blog gives a step-by-step account of the extension seeking process, applicable provisions and the repercussions on failure to fulfil the same.
AGM Provision under the Companies Act, 2013
- According to Section 96 of the Companies Act, 2013, all companies except an OPC (One Person Company) and a small company shall conduct their first AGM within 9 months of the completion of the first financial year.
- The AGMs that follow should be within 6 months following the close of the financial year, but not exceed 15 months following the last AGM.
- In case a company does not hold AGM within the time frame, it can seek an extension of AGM with the Registrar of Companies (ROC).
Grounds for Extension of AGM
An extension may be requested by the company when it is not possible to hold the AGM because of unavoidable factors. Common grounds include:
- Late preparation of accounts due to technical or audit reasons.
- Financial data as a result of a system failure or a cyber-attack.
- Lack of statutory auditors.
- Emerging natural disasters or unpredictable occurrences that interfere with operations.
- Awaiting the regulatory approval of financial statements.
Who Grants AGM Extension?
The authority to grant AGM extension is with the Registrar of Companies (ROC). But the maximum period of an extension is 3 months, which is not applicable to the first AGM.
Procedure for AGM Extension
Step 1: Hold a Board Meeting
- Board of Directors has to conduct a meeting where the suggestion to apply AGM extension should be passed.
- It must pass a resolution to authorise a director or company secretary to make the application to the ROC.
Step 2: Application in Form GNL-1
- The company should submit Form GNL-1 to the ROC with a valid reason for the delay.
- The supporting documents, such as the board resolution, the cause of delay and the financial details, should be included.
Step 3: ROC Approval
- The ROC reviews the application and can allow the AGM extension to a maximum of 3 months.
- After the approval, the company will have to conduct its AGM in the extended period.
Consequences of Not Holding AGM on Time
The Companies Act, 2013, entails serious consequences in case of failure to conduct an AGM without asking the company to have an extension.
- Penalty on the Company: Failure by the company to hold the AGM in time is liable to a fine of Rs. 25,000.
- Penalty against Directors in default: All officers of the company, whether directors or not, who are in default shall be liable to a penalty of Rs. 5,000.
- Prosecution Risk: In severe situations, frequent cases of defaults can lead to officers being prosecuted by the Ministry of Corporate Affairs (MCA).
- Effect on Corporate Governance: Non-compliance impacts the reputation of the company, investor confidence, and the company can be subjected to more rigorous scrutiny by regulators.
Importance of Timely AGM
- Maintains transparency and accountability of corporate governance.
- Gives the shareholders the right to question the management.
- Assists with statutory filing, such as dividend declaration, appointment of auditors and adoption of accounts.
- Earns the confidence of investors, creditors and regulators.
Best Practices to Prevent AGM Delay
- Begin the audit and finalisation of accounts early.
- Ensure good communication with the auditors and the financial teams.
- Monitor the due dates with compliance management tools.
- Consult professional assistance when extending the AGM procedures in case it is necessary.
Conclusion
AGM extension is a relief, which has been offered by the Companies Act, 2013, and it should not be considered as a standard practice. To prevent fines and negative publicity, companies should make sure that they meet the requirements of statutory deadlines. In case of the need to be extended, the AGM extension procedure with the ROC using Form GNL-1 is obligatory.
Compliance with AGM in time indicates good governance, enhances confidence among investors and safeguards the company against regulatory effects.
FAQs
1. Can the first AGM be extended?
No, it is not possible to have the extension of the first AGM of a company according to the Companies Act, 2013.
2. What is the number of months’ extension AGM can get?
The ROC has the right to a 3-month AGM extension, with the exception of the initial AGM.
3. What type of AGM extension is filed?
With the ROC, companies have to submit the Form GNL-1 along with the relevant documentation.
4. What is the sanction for failing to hold AGM on time?
A penalty of Rs. 25,000 is due against a company, and every defaulting officer may be subjected to a penalty of Rs. 5,000.
5. Would an extension of AGM be allowed beyond the due date?
No, the extension of the AGM application has to be submitted prior to the AGM due date.
