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Annual General Meeting and Consequences of Default in holding Annual General Meeting

Every type of company, must once in a year hold an annual general meeting as per Section 166 of the Companies Act, 1956. Not more than 15 months must elapse between the date of one annual general meeting and that of the next.

However, a company may hold its first annual general meeting within 18 months from the date of its incorporation. In such a case, it need not hold any annual general meeting in the year of its incorporation as well as in the following year.

In the case there is any difficulty in holding any annual general meeting (except the first annual meeting), the Registrar may, for any special reasons shown, grant an extension of time for holding the meeting by a period not exceeding 3 months provided the application for the purpose is made before the due date of the annual general meeting. Generally delay in the completion of the audit of the annual accounts of the company is not treated as "special reason" for granting extension of time for holding its annual general meeting. In such circumstances, an AGM is convened and held at the proper time and all matters other than the accounts are discussed. All other resolutions are passed and the meeting is adjourned to a later date for discussing the final accounts of the company. However, the adjourned meeting must be held before the last day of holding the AGM

In case of default in holding an annual general meeting, the following are the consequences :

Power of the Central Government : Any member of the company may apply to the Central Government. The Central Government may call, or direct the calling of the meeting, and give such ancillary or consequential directions as it may consider expedient in relation to the calling, holding and conducting of the meeting. A meeting held in pursuance of this order will be deemed to be an annual general meeting of the company.

Penalty in case of default- Fine which may extend to Rs. 50,000 on the company and every officer of the company who is in default may be levied and for continuing default, with a further fine of Rs. 2500 per day during which the default continues may be levied

The Company is also required to comply with provisions of Section 210, Section 159 and Section 220 of the Companies Act, 1956 relating to AGM

Annual Accounts and Balance Sheet as per Section 210 - As per the provisions of Section 210(1) of the Companies Act, 1956, the Board of Directors of the Company shall lay before the Company in its Annual General Meeting (AGM), a Balance Sheet as at the end of the period as specified in sub-section(3) of Section 210 and a Profit and Loss account for that period. 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.Sub-section 3 (b) of section 210 specifies that the company is required to hold its annual general meeting within six months from the end of the financial year. However, in the case of first annual general meeting within 9 months from the end of the financial year.

Annual return to be made by company having share capital as per Section 159 - Every company having a share capital shall within sixty days from the day on which each of the annual general meetings referred to in Section 166 is held or where the annual general meeting for any year has not been held, the latest day on or before which that meeting should have been held in accordance with the provisions of this Act, prepare and file with the Registrar a return containing the particulars specified in Part I of Schedule V, as they stood on that day.

Three copies of balance sheet, etc., to be filed with Registrar - Section 220(1) - As per the provisions of Section 220(1) of the Companies Act, 1956, after the balance sheet and the profit and loss account have been laid before a company at an annual general meeting as aforesaid, there shall be filed with the Registrar within thirty days from, the date on- which the balance sheet and the profit and loss account were so laid or where the annual general meeting of a company for any year has not been held, there shall be filed with the Registrar within thirty days from the latest day on or before which that meeting should have been held in accordance with the provisions of this Act.

Therefore Section 159 and Section 220 (1) have to be complied with irrespective whether the annual meeting of the company was held on not. Section 166 to be read with Section 210

Section 166 allows holding of an annual general meeting within fifteen months of the last annual general meeting of the company. While this does not need approval of the Registrar of Companies (ROC), this may at times result in a company not being able to hold the annual general meeting within six months from the end of the financial year as envisaged in section 210(3)(b).

At times, there is a possibility of non-compliance emerging on this subject – while compliance would be in order for section 166 for holding the annual general meeting within nine months (taking into consideration of three month’s extended period of time by ROC), there could not be non-compliance under section 210 – for not holding the annual general meeting within six months from the end of the financial year - due to different timing specified in both these sections for holding annual general meeting.

To overcome the non-compliance situation, the department has advised that the annual general meeting of the company to be held earlier of the following dates:-

  • six months from the date of the close of the financial year.
  • Within 15 months from last annual general meeting
  • Last date of next calendar year.

The department has issued a circular on this stating that section 166 and section 210 to be read together so as to get a harmonious construction and if a breach of the provisions of one or the other two section is to be avoided an annual general meeting to be held on the earlier of the three relevant dates as mentioned above.

As per the circular No. 8/45(166)/64-PR dated 12-1-1965 issued by the then Department of Company Affairs where a company holds its annual general meeting within the time prescribed under section 166, though such a meeting is held beyond the period of six months from the close of its financial year {as required under section 210(3)(b)}and the company files its annual return within 60 days of the holding of the said meeting, no action should be taken against the company for default of section 159 or 166 nor additional fee be levied in such a case in respect of the filing of the annual return and audited accounts.

The legal basis for various corporate governance norms that are considered essential for proper corporate operation and protecting the rights of stakeholders is provided  by the Companies Act, 1956 . Violations of such norms are defined as offences with associated penalties.

Non-compliance of sections related to Annual General Meeting
Compliance of Section under Companies Act, 1956 Particular section under which offence is punishable Who is punishable (Compounding application to be made by) Period (or)/(and) Amount of fine
u/ s 166 (1) read with 168 for not holding of AGM within 15 months from the date of last AGM u/ s 168 Company and every officer in default as per section 5 of the Companies Act, 1956 Rs.50,000/- and Rs.2500/- per every day during which the default continues.
u/ s 210(3) Laying of the Annual Accounts at the AGM u/ s 210(5)/(6) Every Director of the Company or Person charged with this particular responsibility. 6 months imprisonment or Fine with Rs.10, 000/- or with both
u/ s 159 Non filing of Annual Returns u/ s 162 Company and Every officer in default including persons in accordance with whose instructions the Board is accustomed to act. Rs.500/- for every day during which the default continues.
u/s 220 (1) filing of Balance Sheet with ROC within 30 days of the due date of the AGM (even when AGM is not held) and u/s 220 (2) Filing of statement of reasons for not holding AGM along with ROC. (single offence) 220(3) Company and Every officer in default. Rs.500/- for every day during which the default continues.
 

Provisions and procedure for compounding of offences: Provisions and procedure for compounding of offences, which are punishable under Companies Act, 1956 are stipulated under Section 621A of the act. In the process of compounding, the person may either Suo Moto or on receipt of notice of default/initiation of prosecution, admits the commission of default and make an application for compounding of the concern offence. The penalty as ordered by the Central Government will be paid by the defaulter.

Only those offences which are punishable with either penalty or penalty or imprisonment are compoundable under section 621A. Therefore offence which is specifically punishable with imprisonment or imprisonment plus fine is non-compoundable. The defaults under section 159, 166(1), 210(3)  and 220 are compoundable offences. It is important to note that the offence should not be a subsequent offence within a period of 3 years from compounding of offence of similar nature. If the period of 3 years has lapsed from previous compounding then the subsequent offence shall be considered as a fresh offence and shall be eligible for compounding.

The power of compounding of offence is conferred upon the Company Law Board and the Regional Director. When the maximum amount of fine which may be imposed for the commission of the offence does not exceed Rs. 50,000/- that offence is compoundable by the Regional Director. All other applications for compounding of offence is compounded by the Company Law Board.

Implications of Compounding of offence:
  1. Once the offence is compounded, no further prosecution shall be initiated either by the registrar or shareholder or any other person in respect of that offence.
  2. If the offence is committed for non filing of any return or documents need to be filed with the registrar along with fees and additional fees as may be imposed under the order and within such time frame as may be stipulated under the order.
  3. If any prosecution is going one in any court in respect of the offence, then on successful compounding of the same, the person against whom prosecution is going on shall be discharged.
  4. Failure of compliance with the order of Compounding is an offence punishable with imprisonment of six months or fine not exceeding Rs. 50,000/- or both.
  5. Once the offence is compounded, the intimation of compounding needs to be given to the Registrar within a period of 7 days from the day on which the offence is so computed.

Disclaimer: The entire contents of this document have been developed on the basis of relevant provisions and are purely the views of the authors. Though the authors have made utmost efforts to provide authentic information however, the authors and the company expressly disclaim all and any liability to any person who has read this document, or otherwise, in respect of anything, and of consequences of anything done, or omitted to be done by any such person in reliance upon the contents of this document

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