The financial year was not defined under the Companies Act, of 1956. However, the Companies Act, 2013 (“the act”) amended the same and added the definition of the financial year to avoid any differing financial years. The financial year is important because it decides for which period a set of records, is to be analyzed, prepares, and compared with previous and future periods. This paper will look at the definition of the financial year under the Companies Act, 2013 and other relevant procedures and regulations related to it.
Under the Companies Act, 2013, the financial year starts on 1st April of every year and ends on 31st March, it is defined in relation to a company or a body corporate.[i] This raises the question of what happens when a company is incorporated before or after 1st April, the definition itself clarifies that when this is the case, the first financial year of the company is from the date of incorporation of the company to 31st March of the following calendar year. That is, for a company incorporated after the 1st of January of a year, their financial year will end on the 31st of March of the following year. This period is stipulated within the act itself, however, it is possible to change the financial year. After the companies act, 2013 was introduced, companies were given 2 years to transition to align their company’s operations with this financial year.
Generally, a change in the financial year is required for companies which operate in India but have their headquarters placed somewhere else in the country, for example, Multi-National Corporations, which outsource work such as call centres from India. Other examples include companies which are holdings, subsidiaries, or associates of companies which are located outside India, and they need to consolidate the financial years of all their holdings, associates, and subsidiaries across the world. Thus, allowing a change in the financial year also attracts companies to the country, as differing financial years mean added work for the company. To address the issue of differing financial years, and allowing amendments to it according to each company’s needs, section 2(41) was amended to include, that the central government will allow a change in a financial year if there is a body corporate which is a subsidiary, holding, or associate company of company incorporated outside India and needs to follow a different financial year if the correct procedure is followed to change the year. The financial year can also only be changed to the financial year of the country where the holding company is incorporated.[ii]
Only companies which are holdings, subsidiaries, or associates of a company incorporated outside of India can apply for a change in their financial year. This option is not available to domestic or domiciled companies in India. This is because the Income Tax Act, of 1961 treats the financial year to end on 31st March, for the purposes of taxing everyone in the country including companies. So, to maintain the payment of taxes and filing of returns, the financial year for domestic companies cannot be changed. Moreover, changing the financial year of the company is a lengthy process. The company first needs to call for a board meeting.[iii] The notice of the board meeting needs to be given at least 21 days before the date of the Emergency General Meeting [iv] and should specify the place, day, date, and time of the meeting along with notice stating the business being discussed in the meeting.[v] An emergency general meeting needs to be called if the minimum requirement is to meet the numerical and procedural compliances under section 100 of the act.[vi] And pass resolutions regarding the change in the financial year of the company, to authorize a company secretary or a director of the company to file Form RD-1 in the office of the Regional Director of the area or the registrar of companies, and the execution of the Memorandum of Appearance or Power of Attorney stating the same.
A memorandum of appearance is a temporary document which is required by a lawyer to represent his client in court if the Vakalatnama has not been issued; while a power of attorney allows someone to act on behalf of someone else. The form RD-1 submitted to the regional director is to be filed with the reasons for the application, a copy of the minutes of the board meeting in which the resolution was authorized with details of the number voted in favor and those against, details of all previous applications made within the past 5 years for a change of financial year and its outcome, and the power of attorney or memorandum of Appearance whichever was preferred by the company.[vii] The same will then be examined by the regional director and if they find it necessary they shall call for more information from the company, or if they find some defects or incomplete information in the application then give the company some period to rectify the defect or provide with the additional information, and then to re-submit the form within a period of 15 days. Only 2 such re-submissions are allowed.[viii]
Once the regional director approves the application, they are required to imitate such approval within 30 days of the date of the application. The certified copy of the order will be filed with the registrar of companies within 30 days of such imitation to the company. The change of the financial year needs to be made in the Articles of Association of the company. This is important because the articles regulate the internal management of the company, and established a contract between the members and the company.[ix]
The financial year is very important for the governance of the company for the government because it is when the companies submit their documents for the year and file their taxes. It is thus important to have a set period instead of allowing companies to choose their financial years. Allowing associates, subsidiaries and holding companies to change their financial year is in opposition to this idea for the convenience of the government. however, the strict regulations to change the year makes it harder for the companies to circumvent taxes in the country by changing their financial year. Moreover, by only allowing companies to change their financial year in according to their holding company’s country’s tax regulations allows some form of regulation over the working of the company. Furthermore, since companies have to make this change of financial year in their article of association, it allows there to be certain restrictions on the company changing the financial year on their whims and fancies. This is because, it is hard for companies to change their article of association and requires the approval of the board members, which in itself is a lengthy process. The same also needs to be filed with the registrar of companies within 1 month of change in the article of association.[x] Therefore, the current act has progressed a lot from the previous act, wherein other than adding the definition of the financial year, it has also added checks and balances, as well as situations where the same can be changed. Companies Act, 2013 has created a comprehensive set of rules and regulations for the financial year for companies in the country.
[i] Companies Act, 2013, Section 2(41).
[ii] Mohammad Khalid, ‘Change in Financial Year Under Companies Act, 2013,’
(TaxGuru, March 2019) <https://taxguru.in/company-law/change-financial-year-companies-act-2013.html> Accessed 10th October, 2022.
[iii] Companies Act, 2013, Section 173;
[iv] Companies Act, 2013, Section 101.
[v] N.V.R. Nagappa Chettiar & Anr. v. The Madras Race Club, AIR 1951 Mad 831.
[vi] Zee Entertainment Enterprise Limited v. Invesco Developing Market Funds, Decided on 26 October 2021.
[vii] Companies (Incorporation) Fourth Amendment Rules, 2018, Rule 40.
[ix] Naresh Chandra Sanyal v. Calcutta Stock Exchange Association Ltd., (1971) 1 SCC 50, 56: (1971) 41 Comp Cas 51.
[x] Companies Act, 2013, Section 31.
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