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Holding of Annual General Meeting beyond Prescribed Time

Dilip K Raina , Last updated: 17 April 2012  
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Section 166 of the Companies Act 1956:

As per the requirements of Section 166 of the Companies Act 1956 every company whether a public company or private company is required to hold in addition to other meetings a meeting of its members annually called an annual general meeting. Thus holding the annual general meeting every year is mandatory by law for all companies under section 166 of the Companies Act 1956. Further while complying this section a company can hold its annual general meeting within fifteen months of the last annual general meeting. No approval from any regulatory authority is required for hold such meeting.

In case an annual general meeting is not held within the time limit prescribed under section 166 due to unforeseen reasons the same can be held at any other date for which extension has been granted by the Registrar of Companies. Registrar of companies has the power to grant such extension-for any special reasons- by a period not exceeding three months. However, in the case of first annual general meeting of the company the meeting can be held within a period of not more than eighteen months from the date of incorporation thus a company is not required to hold any annual general meeting in the year of its incorporation or in the following year.

Section 210 of the Companies Act 1956:

As per sub-section 3(b) of section 210 every company is required to hold its annual general meeting within six months from the end of the financial year.

While reading both section 166 and section 210(3) (b) there seems to be some contradiction between the provisions. There is no need to have an approval from Registrar of Companies in case an annual general meeting of a company is held within fifteen months of the last annual general meeting-section 166. If the said provision is followed there can be cases where annual general meeting cannot be held within six months from the last date of the financial year as required under section 210(3)(b).

To overcome the non-compliance situation, the department has advised that the annual general meeting of the company to be held earlier of the following dates:-

Within six months from the date of the close of the financial year.

a. Within fifteen months from last annual general meeting.

b. Last date of next calendar year.

As per the circular issued by the department it is advised to read section 166 and section 210 together to arrive at a conclusion with respect to holding of annual general meeting in a manner that there is no breach of provisions as laid down under both the sections.

As per the circular issued by the then Department of Company Affairs where a company holds its annual general meeting within the time prescribed under section 166, though such a meeting is held beyond the period of six months from the close of its financial year {as required under section 210(3)(b)}and the company files its annual return within 60 days of the holding of the said meeting,  no action should be taken against the company for default of section 159 or 166 nor additional fee be levied in such a case in respect of the filing of the annual return and audited accounts.

Is holding of annual general meeting beyond the permissible limits as defined above not valid as per law? The answer is no. As per section 168 of the Companies Act an annual general meeting held beyond the time prescribed under section 166 and 210(3)(b) a penalty for commuting the offence has to paid, as laid down in the said section. The section 168 talks of penalty for late holding of annual general meeting but does not debar the company from holding an annual general meeting. The said view has been upheld by the Hon’ble High Court of Calcutta in the case of Ruby General Hospital Limited in the case of Ruby General Hospital Limited vs. Sajal Dutta on March 28, 2012. The relevant Paragraphs 13 and 14 of the said judgment are inserted below:

"13. With great respect to the Hon'ble Judges of the said Division Bench, we are unable to subscribe to the view taken by Their Lordships regarding interpretation of section 167 of the Act as, in our opinion, it is not the mandate of the law that in case of default under section 166 of the Act, it is obligatory upon the company or the defaulting Directors to approach the Company Law Board even if they propose to rectify their mistake and by giving penalty prescribed under section 168 of the Act for the default already committed, decide to call a meeting of the AGM beyond the time prescribed by law. The object of the said provision, in our view, is to give right to a member of the company to approach the Company Law Board if the existing management of the company avoids facing the share holders by not calling any AGM and at the same time, retains the office. But by that provision, the right of the Directors of the company to call AGM beyond the date prescribed under section 166 of the Act is not taken away.

14. As we intend to take a view which is in conflict with the one taken in the past by another Division Bench of this Court, we propose to refer the matter before the Hon'ble Chief Justice for constituting a larger Bench for deciding the following questions of law before proceeding further:

(1) Whether after the expiry of the period mentioned in section 166 of the Act, the Directors of the company become incapable of calling an AGM except by taking recourse to section 167 of the Act on the basis of the order passed by the Company Law Board.

(2) Whether the provisions contained in section 167 of the Act is merely enabling one and does not take away the rights of the defaulting Directors to call an AGM of its own without approaching the Company Law Board under section 167 of the Act without however avoiding their penal liability for the default already committed in terms of section 168 thereof."

By detailed reasons in paragraph 10, 11, 12 and 13 of that judgment the Division Bench has departed from the earlier Division Bench judgment but did not put a stamp of finality on its own judgment, by referring it to a larger bench. Nevertheless, it was not a plain and simple reference to a larger bench. The judgment contained reasons why this Court thought Ambari was not correctly decided. Those reasons, being a later decision, are in my opinion binding on me, till the larger bench decides the issue.

The Division Bench decision threw considerable cloud on the correctness of Ambari Tea (Supra). Thus, the effect of Ambari Tea is substantially diluted. So are the decisions in In Re Coal Marketing Co. India Private Ltd. and Bajrang Prasad Jalan (Supra).

In interpreting the above group of sections, the penal provisions contained in section 168 are most important, in my opinion. It does not say that after expiry of time no annual general meeting can be held or its holding would be an offence. It says that in case of default the company and every officer responsible for it shall be punishable with fine which might extend to Rs. 50,000/-. The next part of the section convinces me that this penal provision does not debar holding of an annual general meeting beyond the prescribed time but enacts that in case of continuing default there would be an additional fine for each day of default.

That has to be the position, for, if one looks at the surrounding sections of the statute regarding preparation of accounts at the instance of the Board of Directors, the appointment of an auditor of the company at an annual general meeting, laying of the balance sheet and profit and loss account before the said general body, the appointment of directors, the removal of directors and laying of other affairs of the company before the general body, it would seem that the whole business of the company would come to a standstill, if there was default in holding a single general meeting. The company would lose its power to convene the general meeting. The registrar would lose it after three months. Nobody in the company would have the power to convene it. It would indeed be a very unsatisfactory state of affairs.

Therefore, I feel reasonably free from doubt that a company can convene an annual general meeting beyond time but subject to payment of penalty. ”

DILIP K RAINA –Chartered Accountant

B.Com; FCA (ICAI); PGDFM; PGDCA; DBM; Cert. IFRS (ICAEW); NCFM Capital Market (Dealers Module); Microsoft Certified IT Professional: Application for Microsoft Dynamics NAV (ERP) & AXAPTA (ERP).


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Dilip K Raina
(Consultant)
Category Corporate Law   Report

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