Annual Return of a Company

Introduction

The Annual Return of a Company is a comprehensive, detailed document that comprises information with regards to a company’s share capital, assets, liabilities, shareholders, directors, changes in executive positions, governance disclosures and so on. It is the most crucial document that any company must file with the Registrar of Companies under Section 92 of the Companies Act. The director of the company and the company secretary are the signatories of an annual return. This document must be signed by the director of the company and the company secretary, or by the secretary in practice of the company during the absence of the company secretary. The annual return for a one-person corporation or a small business must be signed by the company secretary, or if there is not a company secretary, by the company director.

Section 92 of the Companies Act, 2013[1] states that every business must file an annual return in the required format, detailing the details of its operations as of the end of the fiscal year regarding-

1. Its registered office, main business activity, holding company information, subsidiary and affiliated companies;
2. Its stock, bonds, and other securities, as well as its shareholding pattern
3. Its liabilities;
4. Its debenture holders and members, as well as any changes from the past fiscal year’s end;
5. Its proprietors, directors, and key executive employees, as well as any changes since the past fiscal year’s end;
6. Member’s meetings, the Board of Directors, and its numerous committees, as well as attendance related details;
7. Directors’ and senior managerial personnel’s compensation;
8. Information of compounding of charges and pleas made against such punishment or penalty imposed on the corporation, its directors or executives;
9. Matters pertaining to certification of compliances, as well as any other disclosures that may be required;
10. Details in respect of shares held by or on behalf of Foreign Institutional Investors, as may be prescribed.

Importance of Annual Returns

Incorporation of a business or a company is followed by a number of legal obligations. One such obligation includes the filing of the company’s annual return with the registry of companies. An annual return, like audited annual reports, is a significant document that informs members and other stakeholders about the corporation, members, promoters, meetings, and the profit sharing of Directors and key executive personnel. The company’s structure is revised and essential information about the company are included in the annual filing. The company’s capital structure on data source, any adjustments in directorship, and the transfer of shares and securities up until the Annual General Meeting are reflected in the report. Its significance can be seen under the premise that every corporation must make the arrangements for any member or debenture holder to see the Annual Return without paying a charge or fee during the company’s working hours.  Although information relating to a company’s affairs may be easily acquired through numerous channels such as business prospectus, official public statements, social media platforms, and so on, in today’s world, annual returns of Indian corporations have evolved into a crucial manner of corporate reporting. Business magazines, newspapers, investment advice agencies, and legislative rules, in addition to the aforementioned media, provide relevant information on an organization’s finances. Despite the availability of numerous informative sources, yearly return reports of a corporation are considered the most reliable.

A company’s annual report is also important for a variety of additional reasons such as-

1. Annual reports of a company feature extra company specifics like the business achievements, an official declaration from the chairman of the company, strategies and policies of a company, all of which are not available in other financial documents.
2. A company’s annual report contains audited information, which helps instil confidence and build trust among the general public and all the existing shareholders.
3. This financial document is used by both veteran as well as inexperienced investors to calculate a company’s financial situation. A criterion for potential investors to predict the company’s future stock values and portion of dividends derived from corporate profit is set in an annual report.

Therefore, present and potential shareholders, employees, creditors, investors, and any other interested party can rely on a company’s annual reports for a dependable financial analysis. Interim reports are released by companies for periods are shorter than a fiscal year detailing the company’s financial standing for the specified time period.

Filing of an Annual Return as Per Section 92

As mandated by Section 92 of the Companies Act, within 60 days from the Annual General Meeting, the company must file its annual return with the Registrar of Companies. If no annual general meeting is conducted in any year, the return must be filed within sixty days from the date on which the Annual General Meeting would have been conducted, along with a statement explaining why the annual general meeting was not convened and along with any additional fees if prescribed.

A Practicing Company Secretary must certify in Form No. MGT. 8, as a supplement to the electronic Form MGT-7, the annual return filed by a listed firm or a company with a paid-up share capital of ten crore rupees or a turnover of fifty crore rupees or more, declaring that the annual return accurately and fully reveals the facts and that the corporation has adhered to all of the Act’s provisions.

Case Laws

• In the case of A.L Mudaliar v. Asst. Registrar of Companies[2], it was held by the court that the petitioner was not responsible for any alleged default of not filing a balance sheet for the recent year, as per the complaint which was filed by the Registrar of Companies. This was because the petitioner was a non-executive director of a company from which he had resigned several years prior to the events of the allegations.
• During the case of State of Bombay v. Bandhan Ram Bhandani[3],Failure to conduct an annual general meeting is not a defence to non-filing or late filing of an annual return, according to the court.
• The court determined during the case of Registrar of Companies v. Utkal Distributors Pvt. Ltd.[4]  that holding an annual general meeting is not a prerequisite for filing a return with the registrar.

Penalty for Non-Filing

A company which fails to file annual return with Registrar of Companies (ROC) before the expiry of period specified (i.e., within 60 days from the date of annual general meeting) in pursuance to Section 92(5) of Companies Act, 2013, then the company inclusive of every officer who is in default shall be liable to a penalty of fifty thousand rupees. If the failure is continued further then they will be liable to a penalty of one hundred rupees for each day, subject to a maximum of five lakh rupees. Further, they will be liable for the penalty or punishment provided under this Act, without prejudice to the liability for payment of fee and additional fees.

In case of a One Person Company or a small company, failing to comply with the provisions of Sub-section (5) of Section 9, then they will in pursuance to Section 446B of the Companies Act, 2013, Notwithstanding anything contained in this Act shall be liable to a penalty which shall not be more than one half of the penalty specified in such section.

Conclusion

Whenever it’s time to file the annual returns, Section 92 of the Companies Act 2013 comes into application for every corporation. Section 92 is a crucial section because it establishes the rules and procedure for each company’s annual returns. The section ensures that a company’s corporate governance framework or system is in place, which serves to protect the company’s rights and its shareholder’s interests. Section 92, in its entirety, is one section to which every corporation must pay close attention to, and adhere or follow every procedure, or face the severe penalties set forth in this section. The section is an expansion of India’s disclosure framework, ensuring that the company’s financial records and competencies are freely accessible to current and potential investors.

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References:

[1] Companies Act. 2013 § 92

[2] A.L. Mudaliar v. Asst. Registrar of companies (2009) 97 CLA 103 (Mad.)

[3] State of Bombay v. Bandhan Ram Bhandhani (1961) 31 CompCas 1 (SC)

[4] Registrar of Companies v. Utkal Distributors Pvt. Ltd (1978) 48 CompCas 768 (Ori.)