Analysis of the amended provisions of Extract of Annual Return (Form MGT-9)

Introduction:

The Companies (Amendment) Act 2017 ('CAA, 2017') introduced several amendments to the Companies Act 2013, realigning existing provisions to improve corporate governance and ease of doing business in India while continuing to strengthen compliance and investor protection.

While CAA, 2017 has brought sea changes in various provisions of the Companies Act, in absence of a clarification, some of the provisions are still left open for interpretation. One of them is with respect to requirement of Extract of Annual Return (MGT-9) forming part of Board's Report of the company.

Amendment of CAA, 2017 to Section 134(3)(a):

134. Financial statement, Board's report, etc.

(3) There shall be attached to statements laid before a company in general meeting, a report by its Board of Directors, which shall include-

(a) the extract of the annual return as provided under sub-section (3) of section 92;

"(a)  the web address, if any, where annual return referred to in sub-section (3) of section 92 has been placed;";

As may be seen above, the amendment to Section 134(3)(a) allows companies to report in the Directors Report the web address where the Annual Return has been placed. This has been notified by the MCA vide notification dated 31^st July, 2018 and is currently effective.

Amendment of CAA, 2017 to Section 92(3):

92. Annual return.

(3) An extract of the annual return in such form as may be prescribed shall form part of the Board's report.

"(3) Every company shall place a copy of the annual return on the website of the company, if any, and the web-link of such annual return shall be disclosed in the Board's report"

As explained above, the corresponding Section 92(3) which earlier provided for filing the extract of the Annual Return along with the Directors Report, though since amended, is yet to be notified by MCA. This seems to be an inadvertent miss.

Whether MGT-9 is still required?

As per section 134(3)(a), companies were required to prepare Form MGT-9 (extract of Annual Return) and such MGT-9 was required to be filed with Directors Report. However, this provision has been amended by CAA, 2017 w.e.f. 31.7.2018 vide the commencement notification dated 31st July, 2018, provision in relation to Form MGT-9 has been removed from Section 134 and a new provision added i.e. the board report shall include “the web address, if any, where Annual Return referred to in sub-section (3) of section 92 has been placed”.

Therefore, according to the amended Section 134, one can opine that MGT-9 is not required to be prepared by any Company, only web link, if any need to be mentioned in the Board's Report where Annual Return has been placed.

Section 134 is clear that extract of Annual Return has been removed from this section However, Section 92 is the reason behind confusions because, Section 92 read with Rule 12 of the Companies (Management and Administration) Rules, 2014 states that “The extract of the annual return shall be attached with the Board's Report in Form No. MGT-9.”

This is pertinent to note that the amendments of CAA, 2017 inter alia also include amendment in Section 92(3) as follows:

“Every company shall place a copy of the annual return on the website of the company, if any, and the web-link of such annual return shall be disclosed in the Board's report.”

However, the above amendment of CAA, 2017 in Section 92 has not yet been made effective. Now the anomaly is, Section 134 states that if company is having web address, it shall publish Annual Return on its website and mention the weblink of the same in the Board Report. On the other side, Section 92  read with Rule 12 states about extract of annual return (MGT-9).

The inconsistency in both the provisions may be shown as follow in tabular form:

The requirement of web link of Annual Return in Board's Report:

As per Section 92(4), companies are required to prepare and file their annual return within 60 days from the date on which the annual general meeting is held, while the extract of Annual return is being annexed in the Board's Report and sent to members along with the AGM notice well in advance. Now, due to this new introduced provision of providing weblink of annual return in the Board's Report, there are two ways of interpretation:

I. Prepare Annual Return in advance prior to AGM

Companies have a time limit of 60 days under Section 92(4) to prepare and file their annual return from the date of the Annual General Meeting. As per Section 136 read with Section 101 notice of general meeting along with directors report and financial statements are to be given to members not less than clean 21 days' in writing or through electronic mode. Henceforth, companies would require to prepare and place annual return on the website almost one month in advance to get it approved from the Board of Directors. Hence, with this the whole exercise of preparation of annual return will be finished three months in advance before getting it filed as compared to the existing practice.

II. Give the weblink in Board's Report for reflecting the filed Annual Report

The other way of interpretation of the amendment may be that while companies create a webpage for reflecting the annual return on their website and give the link of the same in their board's report, such board report will also contain a statement that the same can be viewed by the members and stakeholders, when the company upload the annual return after filing the same with Register of Companies. This interpretation is more logical because before holding the Annual General Meeting, mentioning the date of Annual General Meeting in Annual return as held and convened on a particular date, will not serve the purpose of law. The clarification or rules for mentioning the weblink in Board Report should be issued by Ministry.

Concluding Remarks:

In view of the above, we may conclude in nutshell that following clarifications are required and may be clarified by the Ministry of Corporate Affairs with respect to the requirement of Extract of Annual Return (Form MGT-9):

1. To issue an urgent clarification with respect to the requirement of MGT-9, keeping in consideration of the confusion amongst professionals in this regard and also for facilitating companies so as to enable them to comply with the provisions without fail. Meanwhile a clarification may be issued that it will be sufficient compliance if companies add the web address of the Annual Return in the Directors Report (as provided in amended Section 134(3)(a)) basis that Section 134 is the specific section dealing with the content of Board's Report. Hence the provision of Section 134 should be prevailed over Section 92(3).

2. We understand that the amendments in the CAA, 2017 with respect to the omission of MGT-9 is an attempt to reduce the burden of documentation in the Board's Report but it seems while notifying amendments in Section 134, notifying amendments of CAA, 2017 in Section 92(3) got missed by Ministry for bringing that provisions also in force. Therefore a commencement notification of CAA, 2017 for this provision as well may be issued, so as to dispel the inconsistencies between the notified amended Section 134 and un-amended Section 92(3) so as to bring harmony in both the sections;

3. Due to this anomaly between these two provisions of the Act, it is also not clear that whether companies need to comply with both the provisions. That means, as per Section 134, weblink of annual return has to be given in the board's report if company is having its website and as per Section 92(3) extract of Annual Return in form MGT-9 shall also be included in the Board's Report.

4. There is also a need to bring some rules or clarification with respect to the manner of mentioning in the board's report of the weblink, if any where annual return referred to in sub-section (3) of section 92 has been placed.