[The following post is contributed by Esha Chakraborty of Vinod Kothari &
Co. She can be contacted at [email protected]]
Co. She can be contacted at [email protected]]
The
financial year (F.Y.) 2014-15 seems overwhelming for India Inc. as it faces the
daunting task of meeting regulatory time-lines on the implementation of several
new provisions introduced under the Companies Act, 2013 (the ‘Act,
2013’). The requirement of ‘Uniform Financial Year’ for all Indian companies is
one such provision.
financial year (F.Y.) 2014-15 seems overwhelming for India Inc. as it faces the
daunting task of meeting regulatory time-lines on the implementation of several
new provisions introduced under the Companies Act, 2013 (the ‘Act,
2013’). The requirement of ‘Uniform Financial Year’ for all Indian companies is
one such provision.
Provisions under
Act, 2013
Act, 2013
Section 2(41) of Act, 2013 defines
‘financial year’ as –
‘financial year’ as –
‘the
period ending on the 31st day of March every year, and where it has been
incorporated on or after the first 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 corporate body is made up’
period ending on the 31st day of March every year, and where it has been
incorporated on or after the first 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 corporate body is made up’
Essentially, the clause has mandated
all existing Indian companies to align their financial year from the
commencement of this clause, i.e. from September 12, 2013. However, a
transition time limit of two years has been allowed.
all existing Indian companies to align their financial year from the
commencement of this clause, i.e. from September 12, 2013. However, a
transition time limit of two years has been allowed.
Delving further, the requirement of
maintenance of books of account, preparation, adoption and filing of financial
statements and documents required to be annexed thereto (Auditors’ Report and
the Board’s Report) have also been brought into effect from April 1, 2014.
Considering the practicalities, the Ministry of Corporate Affairs through General
Circular No. 08/2014[1]
dated April 4, 2014, came forth with a further clarification that for the relevant
financial year, 2014-15, all such companies having accounting year commencing
earlier than April 1, 2014, may prepare their financial statements in
accordance with the erstwhile Act, 1956 and then convert to an uniform
financial year (April-March) in the forthcoming accounting year in accordance
with the Act, 2013.
maintenance of books of account, preparation, adoption and filing of financial
statements and documents required to be annexed thereto (Auditors’ Report and
the Board’s Report) have also been brought into effect from April 1, 2014.
Considering the practicalities, the Ministry of Corporate Affairs through General
Circular No. 08/2014[1]
dated April 4, 2014, came forth with a further clarification that for the relevant
financial year, 2014-15, all such companies having accounting year commencing
earlier than April 1, 2014, may prepare their financial statements in
accordance with the erstwhile Act, 1956 and then convert to an uniform
financial year (April-March) in the forthcoming accounting year in accordance
with the Act, 2013.
However, Section 2(41) does grant a carve-out
for a holding or subsidiary of a foreign company to follow a different
financial year for its accounts consolidation purpose. These companies may
follow an alternate accounting period as ‘financial year’. But, it is to be noted that even this
grant is not automatic, but rather it is subject to specific approval of the
National Company Law Tribunal (NCLT).
for a holding or subsidiary of a foreign company to follow a different
financial year for its accounts consolidation purpose. These companies may
follow an alternate accounting period as ‘financial year’. But, it is to be noted that even this
grant is not automatic, but rather it is subject to specific approval of the
National Company Law Tribunal (NCLT).
Impact on
India Inc.
India Inc.
An earlier publication, ‘Understanding
Companies Act, 2013[2], put across, in detail,
the underlying implementation concerns with regard to the above provision. The
requirement of uniformity in financial year would gravely hit the Foreign Owned
& Controlled Companies (‘FOCCs’), if they are not granted the eligible
exemption. By its very name, FOCC means an Indian company, which is not owned
and/or controlled by resident entity/ies. It is essential for such companies to
follow the calendar year/other accounting period to consolidate the accounts
with their foreign parent.
Companies Act, 2013[2], put across, in detail,
the underlying implementation concerns with regard to the above provision. The
requirement of uniformity in financial year would gravely hit the Foreign Owned
& Controlled Companies (‘FOCCs’), if they are not granted the eligible
exemption. By its very name, FOCC means an Indian company, which is not owned
and/or controlled by resident entity/ies. It is essential for such companies to
follow the calendar year/other accounting period to consolidate the accounts
with their foreign parent.
As per recent surveys, all the major
FOCCs in India have July-June or Jan-Dec as accounting years. The obvious
ambiguity continues on compliance with the provisions of Section 2(41) read
with the afore-stated MCA Circular. Even with the exemption being enforced,
such companies are left with no other option but to wait until the constitution
of NCLT.
FOCCs in India have July-June or Jan-Dec as accounting years. The obvious
ambiguity continues on compliance with the provisions of Section 2(41) read
with the afore-stated MCA Circular. Even with the exemption being enforced,
such companies are left with no other option but to wait until the constitution
of NCLT.
Evidently, the question arises before
the management as to how such a company will prepare its financials for the
broken period (i.e., from end of this current F.Y. upto March 31, 2015) or why it
should not be allowed to continue the relevant F.Y. till March 31, 2015, if
they cannot avail the exemption clause.
the management as to how such a company will prepare its financials for the
broken period (i.e., from end of this current F.Y. upto March 31, 2015) or why it
should not be allowed to continue the relevant F.Y. till March 31, 2015, if
they cannot avail the exemption clause.
Ministry Notification
– way ahead
– way ahead
On November 3, 2014, MCA vide a
notification[3] has amended the Company
Law Board (Fees on Applications and Petitions) Amendment Rules, 2014, wherein the
CLB can now take up applications for allowing companies to opt for any period
other than April-March as financial year.
notification[3] has amended the Company
Law Board (Fees on Applications and Petitions) Amendment Rules, 2014, wherein the
CLB can now take up applications for allowing companies to opt for any period
other than April-March as financial year.
Therefore, it seems for the FOCCs that although
in the current financial year they may follow the earlier accounting norms, in
order to continue with different accounting period effective from F.Y. 15-16,
such companies should apply for the requisite order of CLB, way before March
31, 2015.
in the current financial year they may follow the earlier accounting norms, in
order to continue with different accounting period effective from F.Y. 15-16,
such companies should apply for the requisite order of CLB, way before March
31, 2015.
– Esha Chakraborty
[1]
Read the entire text at https://indiacorplaw.in/wp-content/uploads/2014/11/General_Circular_8_2014.pdf
Read the entire text at https://indiacorplaw.in/wp-content/uploads/2014/11/General_Circular_8_2014.pdf
[2] http://vinodkothari.com/understanding-companies-act-2013/
[3] http://www.mca.gov.in/Ministry/pdf/Amendment_Rules_03112014_3.pdf
