Financial year
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This article is written by Supravo Dey, pursuing a Certificate Course in National Company Law Tribunal (NCLT) Litigation from LawSikho.

Introduction

Before the commencement of the Companies Act 2013, there was no provision under the Companies Act 1956 which mandated a particular financial year for every company incorporated in India. But after the commencement of the Companies Act, 2013 it is mandatory for every company incorporated in India to follow a financial year which will start from 1st April of the year and will end on 31st March of the next year as their accounting year as per the provision section 2 (41) of Companies Act, 2013. For example: A company which is going to close its account on 31st March 2021 its financial year is 1st April 2020 – 31st March 2021.

Explanations

  1. Financial year means a period of 12 months that a company has to follow to prepare its accounts.
  2. Application means any application, interlocutory proceedings or proceedings filed under companies act 2013 before the National Company Law Tribunal as per the provision of rule 2(5) of the NCLT Rules 2016. 

This article is about to give an overview on: 

  1. Can a company change its financial year since it became mandatory to follow a specific financial year after the commencements of the Companies Act, 2013? What will happen to the companies that were incorporated before the commencement of the 2013 Act? 
  2. What are the procedures to file an application before NCLT for change in the financial year of the company and how to draft an application for change in the financial year of the company?

When a company can change its financial year?

Section 2 (41) of Companies Act, 2013 further provides that a company which is a holding company or subsidiary company of a foreign company and to consolidate its accounts it requires to follow a different financial year it may make an application to the Adjudicating Authority [National Company Law Tribunal (NCLT)] for change of its financial year and if the Adjudicating Authority satisfies that the company is required to change its financial year for consolidation of its accounts it may pass an order for change in the period of the financial year of the company which the company require to follow to maintain its accounts. 

An example for the provision stated above can be seen in an order passed by NCLT Mumbai Bench in the matter of “Aatco Foods India Private Limited” (click here) in this case the applicant company is a company incorporated under the old act (Companies Act, 1956) and follows financial year as per the provision of section 2(41) of Companies Act, 2013 for its accounting period and is a subsidiary company of a company of Oman namely Ali & Abdul Karim Group LLC which is a foreign company and follows a different financial year for its accounting period which is from 1st January – 31st December.

Ali & Abdul Karim Group LLC holds 89% of the equity share of the applicant company and Ali & Abdul Trading Company LLC is holding the rest 11 % of the equity share of the total share therefore the applicant company filed an application before NCLT Mumbai bench for change in its financial year from 1st April – 31st March to 1st January – 31st December.

After hearing the applicant the NCLT Mumbai bench passed an order in favour of the applicant by stating that to consolidate the accounts of the company it will be required to follow the same financial year as of its holding company.

What will happen to a company which is incorporated before the commencement of the 2013 Act?

Section 2(41) of Companies Act, 2013 also states that a company which is incorporated before the commencement of the Companies Act, 2013 and is following a different financial year rather than the stated in this act should change its financial year within two years from the date of commencement of this act as per the provision of section 2(41) of Companies Act, 2013.  

For example: A company incorporated under Companies Act, 1956 follows a financial year which starts from 1st January and ends on 31st December but after the commencement of companies act 2013 the company have to change its financial year from 1st January – 31st December to 1st April – 31st March within two years from the date of commencement of 2013 Act. 

Resolutions that will be required to pass by a company before filing an application for change in financial year of a company

The company will be required to pass the following resolutions:

  1. A special resolution for filing the application for change in its financial year.
  2. A board resolution authorizing a person from the company to handle all the matters relating to filing the application and all the ancillary matters thereafter on behalf of the company.

Explanations

  1. Special resolution means when the intention to propose the resolution as a special resolution has been duly specified in the notice calling the general meeting or other intimation given to the members of the resolution (board of directors) as per the provision of section 114(2) of Companies Act, 2013.
  2. Board resolution or Ordinary resolution means when general notice of meeting is given to the members of the resolution (board of directors) as per the provision of section 114(1) of Companies Act, 2013.

insolvency

Procedure to file an application for change in financial year of a company

(1) First, the company has to file an application before NCLT for change in financial year as per the provision of section 2(41) of Companies Act, 2013.

The application for change in financial year is to be drafted as follow:

  • The first page should contain cause title, index followed by who is filing the application and where the application is signed.

Illustration:

IN THE NATIONAL COMPANY LAW TRIBUNAL, [Name of the bench]

CP NO._______ OF 2021

IN THE MATTER OF:

XYZ Pvt. Ltd

 …Applicant

INDEX

Serial No.

Particulars

Page No.

1

Memo of Parties.

 

2

An application under section 2(41) of Companies Act, 2013 read with rule 11 of NCLT Rules 2016 for change in the financial year of the company.

 

3

Memorandum of appeal or Vakalatnama.

 

4

Such other necessary document as prescribed by the statute or necessary for filing the application as Annexures.

 

                                                           THROUGH

____________________

COUNSEL FOR THE APPLICANTS

[Insert Address]

PLACE:

DATE:

  • The next page should contain a memo of parties and who is filing the application and where the application is signed.

Illustration:

IN THE NATIONAL COMPANY LAW TRIBUNAL, [Name of the bench]

CP NO._______ OF 2021

IN THE MATTER OF:

XYZ Pvt. Ltd

 …Applicant

MEMO OF PARTIES

XYZ. Pvt. Ltd.,

CIN:************

Registered office address: ABC ……,

Email – [email protected], Ph. No. *****

…Applicant

THROUGH

____________________

COUNSEL FOR THE APPLICANTS

[Insert Address]

PLACE:

DATE:

  • The next page should contain the application under section 2(41) of Companies Act, 2013 read with rule 11 of NCLT Rules 2016 for change in the financial year of the company.

Illustration:

IN THE NATIONAL COMPANY LAW TRIBUNAL, [Name of the bench]

CP NO._______ OF 2021

IN THE MATTER OF:

XYZ Pvt. Ltd

 …Applicant

An application under section 2(41) of Companies Act, 2013 read with rule 11 of NCLT Rules 2016 for change in financial year of the company

Facts of the case

The applicant has to state what are the facts of the case and why this application.

Submission of the Applicant

After the facts the applicant has to make its submission under which provisions of law the application is valid and why the Hon’ble Tribunal should approve it.

  • After the application, an affidavit by the person who is authorized by board resolution for filing this application on behalf of the company is to be filed along with the application stating that –
  1. He/ she is authorized by board resolution to file this application.
  2. That all the submissions made in the application are true to the best of his/her knowledge.
  3. That the documents filed therewith the application are true copies of their respective originals

Illustration:

Affidavit

I  Mr. X, Son of Mr. Y, Residing at: ABC ………. do hereby solemnly affirm and declare as follows:

  1. That I am the director of the applicant company and authorized by board resolution to represent the applicant on its behalf.
  2. That the contents of the accompanying application have been drafted by the applicant counsel at the applicant instructions and the contents thereof are true and correct to the best of my knowledge. Nothing material has been concealed there from. 
  3. That the documents filed therewith the application are true copies of their respective originals.

X

DEPONENT

Identified by me,

Advocate

  • The affidavit should be followed by a verification as:

VERIFICATION

Verified at _________ on this ____ day of _________, 2021, that the contents of the above affidavit are true and correct to my knowledge and information therein is derived from the records and no material fact has been concealed.   

DEPONENT

(2) Following documents are required to be annexed with an application under section 2(41) of Companies Act 2013 read with rule 11 of NCLT Rules 2016 as per the provision of  annexure- B 1 of NCLT Rules 2016:

  1. Copy of the memorandum and articles of association.
  2. Copy of balance sheet of companies.
  3. Affidavit verifying the petition.
  4. Bank draft evidencing payment of application fee.
  5. Memorandum of appearance with a copy of the Board Resolution or the executed Vakalatnama, as the case may be.

Apart from the documents stated above a board resolution authorizing the person for signing the application on behalf of the company should be annexed with the application.  

Application fee – The fee that is required to file an application under section 2(41) of Companies Act, 2013 read with rule 11 of NCLT Rules 2016 is 5,000 as per schedule of fees prescribed in NCLT Rules, 2016 read with rule 112 of NCLT Rules, 2016. 

Procedure to pay the application fee 

As per the provision of rule 112(3) of NCLT Rules, 2016 the fees for submitting an application before NCLT is to be paid by drawing a bank draft in favour of the Pay and Accounts Officer of The Ministry of Corporate Affairs of the appropriate jurisdiction as the case may be.

Conclusion

After the commencement of the Companies Act, 2013 it is mandatory to follow the financial year as stated in Section 2(41) of the 2013 Act and the company which is incorporated before the commencement of the 2013 Act it should change its financial year within two years from the date of commencement of the Act.

A company which is a subsidiary company or a holding company incorporated outside India can file an application before NCLT for change in its financial year for consolidation of its accounts as per the provision of section 2(41) of the Act and if the NCLT thinks that fit it may pass an order for change in its financial year.

References

  1. For section 2(41) & other sections refer Companies Act 2013 (https://nclt.gov.in/sites/default/files/All-PDF/the_companies_act_2013.pdf )
  2. For Rules refer NCLT Rules 2016 (https://nclt.gov.in/sites/default/files/All-PDF/Rules_NCLT_latest.pdf)
  3. Aatco Foods India Private Limited case (https://nclt.gov.in/sites/default/files/final-orders-pdf/Aatco%20Foods%20India%20Private%20Limited%20CP%20218-2018%20NCLT%20ON%2022.01.2019%20FINAL.pdf)

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