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Right of shareholders to receive complete copy of B/S and P&L

[2010] 98 CLA (Mag.)

Right of shareholders to receive complete copy of balance sheet and profit and loss account including Employees Statement

T V Narayanaswamy

Interesting legal issues often crop up on which there can be more than one view. It may be useful for any one faced with such issues to have them examined from as many angles as possible to enable him to decide how best he can deal with them, but always bearing in mind that an opinion is not an advice. Shri T V Narayanaswamy has graciously offered himself for providing an insight to the problems that baffle readers.

Annual accounts/Employees statement Requirement of sending complete copy of balance sheet/profit and loss account including employees statement to shareholders along with annual general meeting notice A company whose shares are not listed on a stock exchange, need not send the employees statement to every member if it keeps the same available for inspection at least for a period of twenty-one days during working hours and supply the same on request and in the case of listed companies the statement should be sent to at least one member of a household.

Query

Is it necessary for a company to send a complete copy of the balance sheet and profit and loss account (including the employees statement) to its shareholders along with the annual general meeting notice?

Reply

Sub-section (1) of section 219 of the Companies Act, 1956, (˜the Act™), a copy of every balance sheet (including the profit and loss account, the auditors™ report and every document required by law  to be annexed or attached, as the case may be, to the balance sheet) which is to be laid before a company in general meeting shall, not less than twenty-one days before the date of the meeting, be sent to every member of the company, to every trustee for the holders of any debentures issued by the company, whether such member or trustee is or is not entitled to have notice of general meeting of the company sent to him, and to all persons other than such members or trustees, being person so entitled. In terms of sub-section (1) of section 217 of the Act, a report from the Board of directors is required to be attached to the balance sheet and in terms of sub-section (2A)  of section 217 a statement showing the prescribed details about the employees is required to be attached to the directors™ report and, hence, employees™ statement is required to be invariably sent to all the members of the company. However,  under sub-clause (iv) of clause (b) of sub-section (1) of section 219, in the case of a company whose shares are listed on a recognised stock exchange, if the copies of the aforesaid documents are made available for inspection at its registered office during working hours for a period of twenty-one days before the date of the meeting and a statement containing the salient features of such documents in the prescribed form or copies of the documents aforesaid, as the company may deem fit, is sent to every member of the company and to every trustee for the holders of any debentures issued by the company not less than twenty-one days before the date of the meeting.

Thus, under the Act it is permissible not to send the statement of employees provided it is kept open for inspection for a period of twenty-one days before the date of the meeting during working hours (as distinct from,  requirement of allowing inspection not less than two hours in each day stipulated in sub-section (2) of section 163) and a copy thereof is sent to the members on request. Taking advantage of this relaxation number of leading listed companies do not send the employees statement to its members and the directors™ report of such companies do contain a statement that the same is available for inspection and will be sent to those who desire to have a copy thereof.  But such companies violate the contractual obligation assumed by them while getting their securities listed on a stock exchange, as under   clause 32 of the Listing Agreement, such companies have agreed to supply a copy of the complete and full balance sheet, profit and loss account and the directors™ report to each shareholder and upon application to any member of the stock exchange. However, the said clause permits companies to supply single copy of complete and full balance sheet and profit and loss account and directors™ report (which would obviously include the employees statement) to shareholders residing in one household (i.e., having the same address in the books of the companies/registrars/share transfer agents), and to supply abridged balance sheet to all the other shareholders in the same household. Such companies have further agreed that on receipt of request they would supply the complete and full balance sheet and profit and loss account and directors™ report also to any shareholder residing in such household.

In the light of the foregoing discussion, it would be clear that a company whose securities are not listed on a stock exchange, need not send the employees statement referred to in sub-section (2A) of section 217 to every member thereof if such a company keeps the same available for inspection of members at least for a period of twenty-one days during working hours (which expression implies that these documents need not be kept open for inspection on Sundays and other holidays falling within the period of the aforesaid twenty-one days) and supply the same to the members on request and in the case of listed companies the employees statement should be sent to at least one member of a household and on request to other members of the household.

Source: Corporate Law Adviser

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