Mindvoice aloud – MCA, ANNUAL RETURN & ENVIRONMENT – Eshwars
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Mindvoice aloud – MCA, ANNUAL RETURN & ENVIRONMENT

Rule based governance of Indian companies was ushered in by the Companies Act, 2013 and the related rules. The rules even went to the extent of prescribing matters to be stated by directors if they were to attend meetings by video conferencing. The rules traversed into areas that the law did not, and at times the law stated matters that were increasing duplication of information.

One such requirement was to append an “Extract of Annual Return” in the board’s report. This only contributed to the size of the annual reports of companies by adding some 10 pages. The primary information in an extract of annual return was the information about shareholding pattern and indebtedness of the Company.

For listed companies, the information about shareholding is  already available in public domain. For unlisted and private companies, the information on the format provided by MCA had more NIL’s than data, which only resulted in companies having to use more paper!.

The Companies Law Committee [“2016 CLC”], by its report in February 2016, recommended to omit the provisions relating to extract of annual return, and suggested to provide the annual return on the website of the company, if it has one, and provide the weblink in its board’s report. With email annual reports becoming the norm, access from such electronic documents to the data contained in the annual return to a shareholder becomes easy.

This recommendation of the 2016 CLC, found way into the Companies (Amendment) Act, 2017, which also received the Presidential assent on the 3rd January 2018.

However MCA chose to notify the provision amending this on the 28th August 2020, well after most of the listed companies had finished holding their AGM after sending the annual reports.

With this, the enactment does away with the concept of “Extract of Annual Return”, and any format prescribed by the rules for this is beyond the scope of the law.

But there seems to be a conundrum in the minds of the decision makers in the MCA with regard to the extracts, and despite the law doing it away, instead of deleting the provision prescribing the format for the “extracts”, MCA has chosen to retain the provision in the rules and also added a proviso to that rule, and the language of which has now added a new dimension into discussion, what about companies that have no web-site?

It is now a settled law, that the delegated legislation cannot go beyond the statute, and since, the provision in sub-section (3) of section 92 of Companies Act, 2013, that mandated an extract of annual return to be in the format prescribed and form part of the board’s report, stands replaced with the new provision, it would be sufficient compliance for companies that do not have a website, to file it with the registrar of companies within 60 days of their annual general meeting.

One has to thank MCA for contributing to the environment by doing away with this requirement, so that all companies – listed, unlisted public companies and private companies can reduce the size of their board’s report.

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