What is Annual General Meeting?
An Annual General Meeting (AGM) is a meeting held by a company or organization at least once a year, in which members of the organization gather to discuss and vote on important issues related to the company’s operations and management. The AGM is usually attended by shareholders, board members, and other interested parties. At AGM, the company’s management presents financial reports, updates shareholders on the company’s performance, and answers questions from shareholders.
It is also a platform for shareholders to vote on important matters such as the election of directors, the approval of financial statements, and the adoption of other important corporate actions.
Does every company required to hold AGM?
As per Section 96(1) of the Companies Act, 2013, every Company except One Person Company shall in each year hold in addition to any meetings, an annual general meeting as its annual general meeting.
However, pursuant to provisions of Section 455 of the Act, the dormant companies are not required to hold an Annual General Meeting.
Every company is required to hold an AGM once a year and the AGM must be held within a period of six months from the end of the financial year. The Act also states that not more than 15 months should elapse between two AGMs of a company.
For example, if a company’s financial year ends on March 31st, the AGM must be held by September 30th. The company and its directors can be penalized if the AGM is not held within this timeframe.
However, the first AGM of a company should be held within a period of nine months from the closing of the first financial year (Section 96(1)).
For example, if a company’s first financial year closes on March 31st, the first AGM must be held by December 31st of the same year.
It’s important to consider the specific situations, for example, companies that are in the process of winding up or under liquidation, the due dates for holding AGM for such companies may have different AGM requirements.
Consequences of not holding AGM within due date?
Not holding the Annual General Meeting can have serious consequences against the Company as well as the Directors and Key Managerial Persons of the Company.
Penalty under Section 99 – Punishment for default in holding Annual General Meeting
Section 99 of the Companies Act, 2013 provides for the penalty and punishment for not holding Annual General Meeting. Accordingly,
“If any default is made in holding a meeting of the company in accordance with Section 96 or section 97 or section 98 or in complying with any directions of the Tribunal, the company and every officer of the company who is in default shall be punishable with fine which may extend to one lakh rupees and in the case of a continuing default, with a further fine which may extend to five thousand rupees for every day during which such default continues.”
Consequences under Section 129 – Not laying Financial Statements at Annual General Meeting
As per Section 134 (2) of the Act, at every annual general meeting of a company, the Board of Directors of the company shall lay before such meeting financial statements for the financial year.
Therefore, it is the responsibility of the Board of Directors to call the Annual General Meeting and lay before the meeting financial statements for adoption by the members.
If a company contravenes the provisions of Section 134 of the Act, the managing director, the whole-time director in charge of finance, the Chief Financial Officer or any other person charged by the Board with the duty of complying with the requirements of this section and in the absence of any of the officers mentioned above, all the Directors shall be punishable with imprisonment for a term which may extend to one year or with fine which shall not be less than fifty thousand rupees but which may extend to five lakh rupees, or with both.
Consequences under Section 137 – Copy of Financial Statements to be filed with Registrar of Companies
Section 137(2) provides that, where the company has not held Annual General Meeting for any year, the financial statements along with the documents required to be attached under Section 137(1), duly signed along with the statement of facts and reasons for not holding the annual general meeting shall be filed with the Registrar within thirty days of the last date before which the annual general meeting should have been held in such manner, with such fees or additional fees as may be prescribed under Section 403 of the Act
If a company fails to file a copy of the financial statements as required under Section 137 sub-section (1) or sub-section (2), as the case may be, before the expiry of the period specified therein, the company shall be liable to a penalty of ten thousand rupees and in case of continuing failure, with a further penalty of one hundred rupees for each day during which such failure continues, subject to a maximum of two lakh rupees,
and the managing director and the Chief Financial Officer of the company, if any, and, in the absence of the managing director and the Chief Financial Officer, any other director who is charged by the Board with the responsibility of complying with the provisions of this section, and, in the absence of any such director, all the Directors of the company, shall be liable to a penalty of ten thousand rupees and in case of continuing failure, with further penalty of one hundred rupees for each day after the first during which such failure continues, subject to a maximum of fifty thousand rupees
Compounding and condonation of delay
If the AGM is not held or is held beyond the due date without seeking an extension or approval from ROC, needs to be compounded by making an application to RD or NCLT as the case may be and payment of such penalties as may be directed by the authority.
Can AGM be extended?
With reference to the third proviso to Section 96(1) of the Act, Registrar may allow an extension of the AGM by a period not more than 3 months for special reasons only. However, such an extension is not applicable for the first annual general meeting of the company.
An application for an extension of the AGM has to be filed by the company well in advance before the due date for holding AGM arrives.
What can be the reasons for the extension of the Annual General Meeting?
Below listed are few reasons due ti which AGM for a company might be extended
1. Mergers, Amalgamations and Takeovers
2. Natural calamity
3. Delay in audit report by auditors due to resignation, death or incapacity to sign
4. change in the financial year of the company
5. Confiscation of Books of Accounts by the Income Tax Department or any other Fraud and Investigation Agency
6. Non-availability of Director(s) due to sudden death or resignation which may lead to go a minimum number of directors below the minimum requirement of the Directors.
7. Loss of data in computer/system due to virus or system problem
8. delay in finalization of financial statements due to unforeseen reasons such as strikes, management disputes etc.
Procedure for extension of AGM?
1. call and convene a Board Meeting by giving not less than 7 days notice to all the directors.
2. Pass a resolution seeking an extension of the AGM, specifying the special reason for such an extension.
3. File an application for extension in Form GNL-1 to the Registrar of Companies. Attach the duly passed copy of the Board Resolution, provide the details of the special reason for the extension of AGM and other necessary information in Form GNL-1
4. Post-filing the application with ROC, the ROC will examine the application and may grant approval for holding the annual general meeting with the extended timeline.
5. Once the application is approved, the ROC will grant the certificate for granting an extension of the AGM
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