5.5       Query

Use of Accounts Not Adopted by the Previous

Annual General Meeting in the Subsequent Year.

“X” Bank was amalgamated with “Y” Bank, and a draft agreement was prepared regarding the transfer of assets and liabilities.  As per the agreement only a part of the assets and liabilities was to be taken over by the “Y” Bank and the draft agreement was duly approved by General Body at an Extraordinary General Meeting.

Subsequently on the actual day of transfer, the “Y” company took over these assets and liabilities, with certain modifications. The audited statements of account showed these transfers and auditors also gave a qualified report. The General Body Meeting was convened for the adoption of accounts which included the modifications. The shareholders in the meeting disagreed with the modifications in the draft agreement and, thus the Balance Sheet was not adopted.

Now the Balance Sheet for the subsequent year is to be prepared and placed for adoption by the shareholders. The question that arises is that when the accounts which were rejected and the balances not approved, can these balances be carried forward to the subsequent year?. Can the company prepare the Balance Sheet for the next year on the basis of the previous year’s Balance Sheet which was rejected?

Opinion                                                                                                           June 21, 1966

The General Body did not adopt the audited accounts for a particular year, say 1964, placed by the Board of Directors of the Company at the Annual General Meeting.  In light of these circumstances, can the company open the ledger accounts for the subsequent year, say 1965, with the balances appearing in the Balance Sheet as at 31-12-1964 which was not adopted at the Annual General Meeting. Further, can the company prepare the Annual Accounts for the year 1965 after bringing forward such balances in the ledger?

The Sections of the Companies Act, 1956, which must be considered in order to give an answer to this query are Sections 166, 173 and 219.

Section 166 provides that every company shall hold the Annual General Meeting in each year. The relevant provision of Section 173 is that, in the case of an Annual General Meeting all businesses to be transacted shall be deemed special business with the exception of business relating to (1) consideration of accounts, Balance Sheet and the reports of the Board of Directors and Auditors, and____________________ etc._____________________ etc.

Section 219 provides that a copy of every Balance Sheet which is to be laid before the company in General Meeting shall be sent to every member of the company not less then 21 days before the date of the meeting.

The law has not specifically provided for a contingency in which the General Meeting does not adopt the audited accounts laid before it for consideration.

From the facts given by the Querist, it appears that the Annual General Meeting has just not adopted the accounts. They have not moved any specific amendments to the accounts nor have they given any specific directions for modification of the accounts. It would appear that such action on the part of the General Body may at best be treated as a vote of no confidence in the Board of Directors of the company. However, the accounts are duly considered. The legal provision is only to the effect that the Balance Sheet and Profit & Loss Account etc., must be ‘considered’ at the Annual General Meeting. It must also be borne in mind that the Annual General Meeting would have taken place a long time after the commencement of the subsequent financial year. The books of the subsequent financial year have to be opened even before the Annual General Meeting. Such books could be opened only with the balances in the accounts in the ledger of the previous year which would have been incorporated in the Balance Sheet placed before the Annual General Meeting and not adopted by that meeting. In the absence of any specific directions given by the Annual General Meeting, such balances must stand in the ledger for the subsequent year and the subsequent year’s Balance Sheet can be drawn up only from such ledger accounts.

In the opinion of the Committee, therefore, there is no bar against the company preparing the Balance Sheet for the subsequent year from the ledger in which the opening balances are those appearing in the Balance Sheet for the previous year which was not adopted by the Annual General Meeting. The Committee is not concerned here with the other implications of the Annual General Meeting not adopting the audited accounts.

However, the Committee would add that under such circumstances it would be the duty of the auditor, to draw, in his report on the Balance Sheet as at the date of financial close of the subsequent year, pointed attention to the fact that the opening balances in the books of accounts of the company for the year under audit were those appearing in the Balance Sheet drawn up as on the date of the financial close of the previous year and that the said Balance Sheet was not adopted at the Annual General Meeting at which it was placed for consideration.

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