2017 (2) TMI 700 - Tri - Companies Law

Retain of financial year commencing from January 1st ending December 31st every year to align the financial year with its Holding Group of Companies that have been incorporated outside India - Held that - The holding Company is following the financial year commencing from January 1st ending December 31st every year to maintain uniformity for the purpose of consolidation of its accounts, all over the world. This is being followed in order to maintain symmetry in financial reporting of all affiliates in the Habasit Group and thereby enabling consolidation, reviewing and controlling the financial results of various entities across the globe by the Holding Companies. Therefore, in order to serve the said purpose, the Applicant Company is essentially required to retain the financial year commencing from January 1st ending December 31st every year, so as to align the financial year with its Holding Group of Companies that have been incorporated outside India. The Applicant company has placed on record true copy of the Resolution adopted on December 2015 wherein its Board of Directors has approved for filing application/petition before the Company Law Board for retention of the existing financial year of the Company from January 1st ending December 31st every year, by giving the authority to Mr. Ashok Malhotra, Managing Director, to sign and execute the application. Besides this, the current Balance Sheet placed on record goes to show that the Company has been following the financial year starting January 1st ending December 31st every year for consolidating its accounts with the Holding Company. Thus this Bench is satisfied that the prayer of the Applicant Company is genuine and in exercise of the powers conferred under First Proviso to Sec.2(41) of the Companies Act, 2013, do hereby allow the Applicant company to retain and follow the financial year starting January 1st ending December 31st every year, for consolidation of its accounts with its holding company registered outside India.

Summary

Issues:
Application under Section 2(41) of the Companies Act, 2013 for retention of financial year starting January 1st ending December 31st every year for consolidation of accounts with holding company registered outside India.

Analysis:
The application before the National Company Law Tribunal (NCLT) involved a request by a company, incorporated under the Companies Act, 1956, to retain its financial year starting January 1st and ending December 31st for consolidation purposes with its holding company situated outside India. The company, a subsidiary of a foreign entity, sought permission to align its financial reporting with the global practices of its holding group. The NCLT considered the company's documents, including the Resolution adopted by its Board of Directors and the current Balance Sheet, which demonstrated its adherence to the desired financial year cycle. The Tribunal, in exercising its powers under the First Proviso to Section 2(41) of the Companies Act, 2013, granted approval for the company to maintain the requested financial year structure to facilitate consolidation with its overseas holding company.

Furthermore, the Tribunal noted that while the company had been following the January 1st to December 31st financial year cycle, it had not aligned its financials as per the Second Proviso to Section 2(41) of the Companies Act, 2013 by March 31, 2016. However, considering that the company had filed the application in February 2016, well within the stipulated time frame, the Tribunal allowed the company to retain the financial year cycle for 2016. The Tribunal directed the Registrar of Companies to permit the filing of the Balance Sheet for 2016 based on the approved financial year structure. The company was instructed to inform the concerned Registrar of Companies about the Tribunal's decision for their records and compliance. Consequently, the application was disposed of by the NCLT, granting the requested relief to the applicant company.