Companies Act Section 136

Companies Act Section 136- Right of Members to Receive and Inspect Audited Financial Statements

1. Obligation to Circulate Financial Statements and Related Documents

As per Section 136(1) of the Companies Act, every company is legally required to send a copy of its financial statements to specific stakeholders prior to its general meeting. The financial statements must include:

Standalone financial statements of the company.

Consolidated financial statements, if the company has any subsidiaries or associate companies.

The auditor’s report.

Any other documents that are required by law to be annexed or attached to the financial statements.

These documents must be sent to:

Every member of the company (i.e., shareholders).

Every trustee for the debenture holders, if the company has issued debentures.

Other persons legally entitled to receive such documents.

Importantly, these documents must be sent at least 21 days before the date of the general meeting, where the financial statements are to be laid before the members.

2. Relaxation in Case of Member Agreement

There is flexibility if the documents are sent less than 21 days before the meeting, provided that:

For companies with share capital, members holding the majority in number and representing at least 95% of the paid-up share capital that carries voting rights agree to the shorter notice period.

For companies without share capital, members holding at least 95% of the total voting power agree to the shorter notice.

3. Special Provisions for Listed Companies

For listed companies, a slightly different rule applies. The requirement to send physical or direct copies of the full financial statements to every member is considered fulfilled if:

The financial statements and related documents are made available for inspection at the registered office of the company during working hours for a period of at least 21 days before the meeting.

The company sends a statement containing the salient features of such documents (in the prescribed form) to all members and trustees for debenture holders at least 21 days before the meeting.

Alternatively, the company can send full copies of the financial statements if it chooses, or if shareholders specifically request full financial statements.

4. Government Power to Prescribe Modes of Circulation

The Central Government also has the power to prescribe the manner in which financial statements must be circulated for companies meeting certain thresholds of net worth and turnover, which will be specified in the rules.

5. Mandatory Upload of Financial Statements on Website for Listed Companies

Every listed company is further required to publish its financial statements, including consolidated financial statements, along with all attached documents, on the company’s website, if the company maintains a website.

6. Additional Disclosure Requirement for Listed Companies with Subsidiaries

Every listed company with subsidiaries must also place on its website the separate audited financial statements of each of its subsidiaries.

This requirement extends to foreign subsidiaries (subsidiaries incorporated outside India), with specific rules:

If the foreign subsidiary is required by its home country’s law to prepare consolidated financial statements, placing the consolidated financial statements of the foreign subsidiary on the listed company’s website will satisfy the requirement.

If the foreign subsidiary is not required to prepare audited financial statements under its local laws, and the subsidiary does not voluntarily audit its financial statements, the holding Indian listed company must still place the unaudited financial statements of such subsidiary on its website.

If such unaudited financial statements are in a language other than English, the company must also place a translated English version of those financial statements on its website.

7. Inspection Rights of Members and Debenture Trustees

As per Section 136(2), every company must allow:

Every member of the company.

Every trustee for the debenture holders.

to inspect the financial statements and related documents at the company’s registered office during business hours.

8. Right to Obtain Subsidiary Financial Statements on Request

In addition, every company with subsidiaries must provide a copy of the separate financial statements (audited or unaudited, as the case may be) for each subsidiary to any member of the parent company, if the member requests a copy.

9. Penalty for Non-Compliance

Failure to comply with any provision of this section attracts penal consequences:

The company will be liable to pay a penalty of ?25,000.

Every officer in default will be liable to pay a penalty of ?5,000.