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Discussion on Power of NCLT for Granting Extension of AGM

By CS Santosh Pandey -

Pursuant to provisions of section 96(1) of the Companies Act, 2013 (hereinafter referred to as ‘2013 Act’) every company has to conduct an Annual General Meeting (AGM) every year. The timeline or due date to conduct such AGM depends upon the type of AGM the Company is conducting. As per Section 96(1), the first AGM of the Company shall be conducted within 9 months from the closure of the first financial year and subsequent AGM shall happen within a period of 6 months from the closure of the financial year.

Oftentimes it happens that due to some unavoidable reasons the Company could not hold its AGM within the time prescribed under Section 96(1) of the 2013 Act. In such a situation, the Act has provided a recourse to such companies to apply to the concerned Registrar of Companies (ROC) for granting an extension for holding the AGM of the Company. Such power of ROC is discretionary in nature and ROC can allow such extension only in the cases where there is a reasonable cause for not holding the AGM within the prescribed time. Here, the important point to contemplate is that what options are available with the company in case ROC does not allow such extension, Can such Companyapproach National Company Law Tribunal (NCLT)and challenge such rejection of the application by ROC for extension of the AGM.

In the year 2019, NCLT Chennai Bench in the matter of MMC Doortech Services Private Limited V. Registrar of Companies has allowed an application filed by the Company seeking an extension of AGM and issued the direction to ROC to allow the extension of AGM which was rejected by the ROC when the company made an initial application to its good office.

In this article, we will discuss the concept of extension of AGM in brief, analyze the order of NCLT in the abovesaid matter, power of NCLT to deal with such matters, the concept of the inherent power of NCLT envisaged under Rule 11 of NCLT Rules, 2016 and will conclude with a remark on the sanctity of such order passed by Hon’ble NCLT.

Concept of Extension of AGM

Pursuant to the third proviso of Section 96(1) of the 2013 Act, a company can make an application for obtaining an extension for holding the AGM beyond the prescribed due date, and ROC may provide such extension subject to the maximum period of three months and not beyond it. The application for seeking extension is made by the Company by filing e-form GNL-1 wherein detailed application mentioning the reason for such extension is attached along-with documentary proof to support the claim if any. In addition to that, such extension must be provided by the ROC only in cases where special reason exists, which will be ascertained by ROC on case to case basis.

It is to be noted that such power of ROC is discretionary in nature and not binding. The application seeking an extension must be made prior to the last due date prescribed for holding AGM. It is better to file the application for seeking an extension of AGM as soon as it is possible because the extension is not granted by the ROC then it might lead to the non-compliance of Section 96 of the 2013 Act if the AGM is not conducted within the prescribed time.

It sometimes comes to mind that whether AGM can be held in due time and adjourned for a further period beyond the prescribed timeline, will that amount to compliance of Section 96 of the 2013 Act, as the word ‘held’ has been used in the Section, and the conclusion is not the mandate to be met. This issue was addressed by Hon’ble Calcutta High Court in the matter of Bejoy Kumar Karnani v. Assistant Registrar of Companies [13th September 1984], wherein it was adjudged by the court that the word ‘held’ here construes completion also, otherwise the power of ROC will be otiose.

Facts of the Case – MMC Doortech Services Private Limited V. Registrar of Companies, Chennai

In the present case, the company has moved one miscellaneous application under Rule 11 of the NCLT Rules, 2016 before the Hon’ble NCLT, Chennai Bench seeking directions to be given to concerned ROC for granting an extension of AGM as the latter has rejected such request of the Company when made to its good office. Surprisingly, it was allowed by such Hon’ble NCLT and such bench of NCLT directed the ROC to allow the extension.

For understanding, if Hon’ble NCLT has ordered in the correct manner or not, it is important to understand the difference between a Court&NCLT, constitution of NCLT under the Act, and true essence of inherent power entrusted in NCLT.

Difference between Court & NCLT

It is to be noted that though court and tribunals seem to be similar prima facie there is a slight difference between the both, such as, in court Code of Civil Procedure, 1908 (CPC) and Indian Evidence Act, 1973 is applicable in a complete manner while in case of Tribunal, their own rules and regulations prevail. Secondly, courts are established by states and states judicial powers are entrusted in them while tribunals are established by way of the statute to deal with matters under such specified statutes.

Constitution of NCLT– Section 408 of the 2013 Act

NCLT is constituted under Section 408 of the 2013 Act. Earlier, the constitutionality of NCLT and its Appellate Authority (NCLAT) was challenged by the Madras Bar Association and in the matter of Madras Bar Association V. Union of India& Ors., Hon’ble Supreme Court adjudged that the constitution and inheritance of power of High Court in NCLT and NCLAT are not unconstitutional. Though such judgment was having other findings also but majorly it upheld the constitutionality of NCLT & NCLAT. Now, Language of Section 408 of the 2013 Act says as follows-

“The Central Government shall, by notification, constitute, with effect from such date as may be specified therein, a Tribunal to be known as the National Company Law Tribunal consisting of a President and a such number of Judicial and Technical Members, as the Central Government may deem necessary, to be appointed by it by notification, to exercise and discharge such powers and functions as are, or maybe, conferred on it by or under this Act or any other law for the time being in force.” 

Comments-

From the bare perusal of the above section, it can be ascertained that the power to constitute NCLT is with the Central Government, and such NCLT must have President and Judicial and Technical Members to exercise and discharge the powers and functions conferred under the 2013 Act. It is to be noted that conferring of power and function is one of the essential requirement for every NCLT for execution, which is generally entrusted by the respective provisions of law, as it has been done in Section 252 for the revival of companies, Section 232 for merger and amalgamation of companies, Section 55 for approaching tribunal for re-issuance of preference shares against the preference shares due for redemption, etc.

In short, there must be some enabling provisions for it. Though it was held in the case of Madras Bar Association V. Union of India that the power of High Court in respect to company law matters will vest in the tribunals but that does not conclude that the power to hear application against the order of ROC and Regional Director (RD) can be challenged before NCLT except for the cases where enabling provision has been made in the Act regarding it like in case of Revival of Companies under Section 252 of the 2013 Act.

Comments on Rule 11 of NCLT Rules-

“Nothing in these rules shall be deemed to limit or otherwise affect the inherent powers of the Tribunal to make such orders as may be necessary for meeting the ends of justice or to prevent abuse of the process of the Tribunal.”

From a bare perusal of the above clause, it can be ascertained that NCLT is having an inherent power to pass any order or direction which is beneficial or required to bring justice or to avoid the perversion of the process of the tribunal. It prima-facie seems to give infinite powers to the court but the question arises whether this would provide that NCLT can deal with any matter not empowered to deal with in the Act. The clear answer to it is, No. Whenever the tribunal has to exercise its power under this rule, it has to make certain that the matter is serious in nature and requires the tribunal to step out of its normal process to bring justice to the case.

If focusing on the initial phase of the above-said rule i.e. “Nothing in these rules shall be deemed to limit or otherwise affect” it can be opined that for meeting the end of justice, the rules shall not limit or affect the inherent powers of tribunal. But this power can be exercised by the tribunal to pass such order which is required to bring justice to the case in a matter ongoing in the tribunal and is getting affected by any other rule of NCLT. However, it cannot be construed that NCLT can consider any or every matter including those where no specific power to deal with or enabling provision has been given under the Act. In no manner, these inherent powers will justify the tribunal to pass an order beyond the provisions stipulated in the law.

Giving reference to the view upheld by the apex court in the matter of Madras Bar Association V. Union of India & Ors w.r.t vesting of power of high courts of company law jurisdiction matters into tribunal does not mean that tribunal can take up any matter at its own discretion and pass the order. For instance, taking of writ matters by the high court cannot be entertained by NCLT, as the latter does not have writ jurisdiction and is a court of summary trial nature only. 

View on the case in hand-

In my view, the order passed by Hon’ble NCLT, Chennai Bench in the matter of MMC Doortech Services Private Limited V. Registrar of Companies is a problematic interpretation and untenable usage of inherent power entrusted on the tribunal through Rule 11 of the NCLT Rules, 2016. The power exercised and the matter taken by Hon’ble NCLT is insupportable as the same is not been taken through any enabling provision in the Act and only recourse which should have been opted by the Applicant was of Writ, and not filing a miscellaneous application before the NCLT to obtain direction for such extension.

Conclusion

The above view taken by Hon’ble NCLT does not seem to be proper in nature. By enabling such exercise of the right of extension, Hon’ble NCLT has acted beyond the power conferred on them by the 2013 Act and it is urgently required to be addressed by the Ministry of Corporate Affairs either by bringing an appropriate amendment to the Act or challenging the said order before the Hon’ble NCLAT. Till the time, such order is prevailing it can be a good case to be referred in cases where any adverse order has been passed by ROC or RD and the aggrieved person wants to challenge such order. After this order, such a person can approach Hon’ble NCLT instead of knocking doors of High Court and can save his time by not getting into proper prosecution or trial, as the case may be.

 

CS Santosh Pandey is a Company Secretary Practising in New Delhi. He can be reached at info@spcounsels.com