In this article, Amit Kumar Asthana, a student pursuing Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata discusses the legal consequences of not holding an Annual General Meeting on time.
Introduction
Legally, a company is an artificial person and therefore, cannot act by itself and at the same time, being an artificial person it enjoys certain rights as well as duties and for that, it must act through some human intermediary. No corporate entity can effectively work and survive without meeting its legal obligations. Companies Act, 1956 which was in effect till 2013 was a complicated piece of legislation. Further, keeping in mind the international standards for regulation of a company and judicial decisions on the matter have added new dimensions to the interpretations of the several provisions of the legislation. Before passing of the new act i.e., Companies Act, 2013 The Department of Company Affairs, Government of India and Securities & Exchange Board of India, had also over the years issued a large number of clarifications and explanations related to the provisions of the Act. In view of all these considerations it has become a necessity to consolidate the provisions and regulations governing the company and to come up with a simplified version of it so as to provide an altogether different insight which can guarantee smooth functioning of a company and, therefore, the Companies Act, 2013 was passed by both houses of parliament and it came into force at once. Some provisions are yet to be notified by Central Government.
Meaning of Meeting in Company Law
Meeting in the context of Company Law has a very wide connotation and meaning. Under Companies Act, 2013, a meeting means ‘a gathering or assembly or association of a number of legal persons for the purpose of looking into or carrying lawful business of any nature and observe the compliance as per the provisions of the act’ The Company meetings must be convened and held in compliance with the provisions of Companies Act. 2013 and the rules framed therein.
Broadly, we can divide the meetings into the following types depending on the nature of it:
- Meeting to be properly convened;
- Meeting to be legally constituted and
- Meeting to be properly conducted
Types of Meetings
Section 179 of the Companies Act, 2013 states that there will be a Board of directors to manage the affairs of a company. Companies act 2013 provides for the different type of meetings of member namely:
- Annual General Meeting (AGM);
- Extraordinary General Meeting (EGM) and
- Class Meetings.
Annual General Meeting
Annual General Meeting is very important for a company because of the business transacted at that meeting and in this context a perusal of Section 96 and 102(2) is compulsory which describes the very purpose and nature of the business which is to be transacted in such meetings. Annual General Meeting as the name itself signifies is an annual meeting of every company irrespective of its being a private company or public company, having a share capital limited or unlimited must hold this meeting as per the mandate of Section 96 of the Act. It is important here to mention that the provisions of Section 96 is not applicable for One Person Company.
Section 96
Section 96 of the new Companies Act makes it mandatory to hold the First Annual General Meeting within the timeframe of 9 months from the date of the closing of the financial year of a company and no extension of time can be allowed for delaying the first AGM of any company. Additionally, it provides that the gap between the holding of two AGM’s should not be more than 15 months. To put it simply it means that there must be one AGM held in each calendar year. In cases where a company has to hold its AGM for the first time and such meeting is properly convened within 9 months from the date of closing of its financial year then it isn’t necessary for such company to hold another AGM in the year of its incorporation. In all other cases, the company has to hold its annual general meeting within a period of 6 months from the closing of its financial year.
Further, Section 96 states that Registrar may for any special reason explained to him by the company or its members extend the prescribed time period of holding AGM by a period not exceeding 3 months. In the case where a Company has to hold its first AGM, such extension can not be given even by the Registrar.
The business which is to be transacted in such AGM is provided under Section 102(2)(a) according to which all such business transacted at AGM shall be deemed special, other than:
- the consideration of financial statements and the reports of the board of directors and auditors;
- the declaration of any dividend;
- the appointment of directors in place of those retiring and the appointment of and the fixing of the remuneration of the auditors.
Apart from the above businesses, the rest are deemed to be a special business, transacted during the AGM.
Annual General Meeting is compulsory
Annual General Meeting is compulsory because consideration of annual accounts of company is one of the main business to be transacted in AGMs and the directors are under statutory obligation to hold the meeting laying down the annual reports of the company and for that annual accounts are kept ready and where such annual accounts of a company are not ready then it shall be open to the company to adjourn the AGM to a subsequent day when the annual accounts are expected to be ready. However, such adjourned meeting shall take place within the time limit prescribed under Section 96 of the Act.
Legal consequences of not holding an AGM within the prescribed time
If a company, private or public, having a share capital or not, limited or unlimited fails to comply with the provisions of Section 96 i.e., does not hold its AGM within the prescribed time then the Tribunal under Section 97 of the Act of 2013 is empowered to call or direct the calling of AGM of such company on the application of any member of the company and further order for any consequential or ancillary measures or directions as it deems fit or appropriate under the circumstances. Such meeting held under the directions of the tribunal shall be deemed to be an AGM of such company.
Furthermore, where such company fails to act according to the mandate of Section 96 i.e., to hold its AGM within the prescribed time period or even where an order for holding of AGM is passed by a tribunal under section 97 and the company fails to comply with the order of the tribunal then the company and every other officer of the company acting on its behalf and are in default will be punishable with fine which may extend to INR One Lakh and in case of continuing default with a further fine which may extend to INR 5000/- per day during the continuance of such default.
Compounding of Offences
The compounding provision in the Act was first inserted on the recommendation of Sachhar Committee in 1988, which later was amended by the Companies (Amendment) Act, 2000 and now the same has been incorporated with some modifications in the Companies Act 2013.
Compounding of Offence and its effect Under Companies Act, 2013
The word “compounding of offence” is not defined under Companies Act, but it has been defined in Indian Penal Code, 1860 (Section 40) as well as in General Clauses Act, 1897 {Section 3(38)} but in the context of Companies Law the definition given under General Clauses Act, 1897 {Section 3(38)} is meaningful and useful which states that an Offence is any act or omission made punishable by any law for the time being in force.
According to the Section 439 of the Companies Act, 2013, every offence except those referred to in Section 212 (6) shall be deemed to be non-cognizable. Further Section 439 (2) provides that no court shall take cognizance of any offence unless the complaint is in writing against the company or any officer thereof who is in default, by the Registrar, a shareholder of the company or a person authorised by the central government
Further, If we analyse the Section 441 of the act, it becomes clear that compounding under the section is nothing but “admission of guilt”. And the delay or mistake in holding out an Annual General Meeting is not a Cognizable Offence, therefore, it can very well be compounded under section 441.
Section 441(1) of the Act provides that where an offence under this act is punishable with fine only then notwithstanding the provisions of CrPC, it may either before or after the institution of any prosecution be compounded by:
- The Tribunal; or
- Where the maximum amount of fine for any offence does not exceed 5 Lacs Rupees, by the Regional Director or any other officer appointed in this behalf by Central Government.
On payment of fine by the defaulter company or such other sum specified by the Tribunal, Regional Director or any other officer empowered in this behalf by Central Government.
Further, it has been provided under the section that sum so specified shall not exceed in any case the maximum amount of fine for the offence which has to be compounded.
Again if the offence is such of which investigation has been initiated or pending against such company or its officer thereof, such offence cannot be compounded.
And where the offence is such for which an offence is compounded under the provisions of this section and it has been committed again within a period of 3 years then the same cannot be compounded before the expiry of 3 years.
On the composition of an offence under Section 441, an intimation of the same shall be given by the company to the Registrar within 7 days from the date of composition of offence.
Post Compounding obligations of ROC
As per Section 441 of Companies Act, 2013, The ROC is under obligation to do the following:
- Where the compounding of any offence is made after the institution of any prosecution, such compounding shall be brought by the Registrar in writing, to the notice of the Court
- Cases in which the prosecution is pending, On such notice of the compounding of the offence being given, the company or its officer in relation to whom the offence is so compounded shall be discharged.
Effects of Compounding
Compounding of an offence under Companies Act has very significant impacts and they are as follows:
- i) Once the offence is compounded, no further prosecution shall be initiated in respect of that offence.
- ii) if any prosecution is going on in any court in respect of the offence, then on the successful compounding of the same, the person against whom the prosecution is going on shall be discharged and it will have the effect of an acquittal.
iii) Failure of compliance with the order of compounding is an offence punishable with imprisonment of six months or fine not exceeding Rs 100,000/- or with both.
- iv) Compounding or composition will have the same effect i.e., Acquittal of accused as per Section 320 0f Criminal Procedure Code, 1973.
Conclusion
A company while functioning is entrusted with numerous works but at the same time, a suitable and desirable legal framework was required to monitor the ways in which a company runs. Due to the complex nature of company, at times there is a possibility of delay or mistake in compliance with all the rules and regulations which can not be justified by saying that since company is an artificial juridical person so it should also be subjected to penal laws so an attempt has been made by the present law to differentiate between the offences by company which are of grievous nature and for that it can be punished by fixing the accountability of persons entrusted with managing the affairs of company and at the same time take a lenient approach where laches is either because of mistake or delay and in that case penalty can be imposed for such mistake so that it can run smoothly.
