Change in Financial Year under the Companies Act, 2013
20 September 2017 • bsamrishindia.com
Companies Act 2013 (New Act) brought in many changes. One such change is the concept of uniform Financial Year. Companies Act 1956 (Old Act) defined Financial Year in Section 2(17) as:
“Financial Year” means, in relation to any body corporate, the period in respect of which any profit and loss account of the body corporate laid before it in annual general meeting is made up, whether that period is a year or not
The definition is open ended and gave leeway to Companies to have financial year of their own, either it may be a calendar year, a financial year or any period with 12 months in the year as per the convenience of the business. But for the purpose of Income Tax, the accounts were closed on 31st March every year.
However, the New Act restricts the practices that were carried out under the Old Act. As per the New Act, every company is obliged to have the financial year starting from 1st of April to 31st March. Companies Act 2013 defines Financial Year under Section 2(41) as:
“Financial Year”, in relation to any company or body corporate, means the period ending on the 31st day of March every year, and where it has been incorporated on or after the 1st day of January of a year, the period ending on the 31st day of March of the following year, in respect whereof financial statement of the company or body corporate is made up:
Provided that on an application made by a company or body corporate, which is a holding company or a subsidiary of a company incorporated outside India and is required to follow a different financial year for consolidation of its accounts outside India, the Tribunal may, if it is satisfied, allow any period as its financial year, whether or not that period is a year:
Provided further that a company or body corporate, existing on the commencement of this Act, shall, within a period of two years from such commencement, align its financial year as per the provisions of this clause.
Major takeways from provisions of Section 2(41) of the Companies Act 2013:
- Obligation on all companies or bodies corporates to follow uniform financial year starting from 1st of April and ending on 31st of March.
- From the date of notification of the section, i.e., 01/04/2014, existing companies or bodies corporates had a transitional period of 2 years to align their financial year as per these provisions.
- Exceptions to these provisions are available to those companies or body corporates, which is a holding company or a subsidiary of a company incorporated outside India, provided they make an application (in NCLT-1) to the Tribunal and take its Approval.
- Justification given while filing the application with the Tribunal can be as follows: Alignment of Financial Year of the Subsidiary Company for consolidation of accounts as per the laws of the land where the Holding Company is incorporated.
- As per the orders passed by various benches of National Company Law Tribunal (NCLT), the Tribunal is seeking a report from the jurisdictional Registrar of Companies (ROCs), wherein the ROCs are being asked to give any objection as to why the Tribunal should not Approve the application filed for change in Financial Year.
Those who are interested in knowing about the detailed procedure, please read on.
Procedural Aspects to go about changing the Financial Year:
- Board Meeting: The Company needs to call Board Meeting for the purpose of passing the following Resolutions:
- Change in financial year of the Company
- Authorization to the Company Secretary in practice for appearance before NCLT.
- Executing Memorandum of Appearance in form NCLT-12.
- Application to the NCLT: The Petition under the sub-section (41) of Section 2 be filed to the Tribunal in Form NCLT-1 and shall be accompanied by such documents as are mentioned in Annexure –B.
- NCLT 1: Petition made in the NCLT-1 should include the following:
- Details of Original Application
- Jurisdiction of the Bench
- Limitation: (If applicable)
- Facts of the case are given below
- Relief(s) sought.
- Particulars of Bank raft evidencing payment of fee for the petition
- Memorandum of appearance
- ANNEXURE B: Annexure –B of the NCLT rules, 2016 includes the following :
- Copy of Memorandum and Articles of Association.
- Copy of balance sheet of the Companies.
- Affidavit verifying the petition.
- Bank draft evidencing payment of application fee.
- Memorandum of appearance with copy of the Board’s Resolution.
- Letter of consent from the Holding Company to its Subsidiary Company to align its financial year as per the financial year followed by the Holding Company
- Order of Tribunal: Certified copy of the order shall be filed with the Registrar of Companies (ROC) in form INC-28 within thirty days.