Exploring the Significance of Filing Financial Statements under Section 137 of the Companies Act, 2013

Section 137(1) of the Companies Act, 2013, pertains to the requirement for companies to file their financial statements with the Registrar of Companies within thirty days of the date of the annual general meeting of the company.

As per Section 137(2), where the annual general meeting of a company for any year has not been held, the financial statements along with the documents required to be attached, duly signed along with the statement of facts and reasons for not holding the annual general meeting shall be filed with the Registrar within thirty days of the last date before which the annual general meeting should have been held.

Financial statements include the balance sheet, profit and loss account, cash flow statement, statement of changes in equity, if applicable, and any explanatory note annexed to, or forming part of, any of the documents mentioned hereinabove.

The filing of financial statements is of utmost importance for several reasons:

Transparency and Accountability: Filing financial statements ensure transparency and accountability of a company's financial activities. It allows stakeholders, including shareholders, investors, creditors, and the general public, to gain insight into the company's financial health, performance, and decision-making.

Informed Decision-Making: Stakeholders use financial statements to make informed decisions about their involvement with the company. Investors assess the company's financial stability and growth potential, while creditors evaluate creditworthiness before extending loans or credit.

Legal Compliance: Section 137 mandates the filing of financial statements within a prescribed time frame after the conclusion of the Annual General Meeting (AGM) of the company. Failure to comply with this requirement can result in penalties, fines, and legal consequences for the company and its officers.

Statutory Requirements: Filing financial statements fulfills statutory obligations and demonstrates the company's adherence to corporate governance standards. It showcases the company's commitment to following regulations and maintaining proper financial records.

Creditability and Trust: Timely and accurate filing of financial statements enhances the company's credibility and builds trust among stakeholders. It reflects the company's commitment to providing accurate and reliable financial information.

As per section 137(3), "in case of failure to file the financial statement before the expiry of the specified period provided in sections 137(1)&(2), the company shall be liable to a penalty of ten thousand rupees and in case of continuing failure, with a further penalty of one hundred rupees for each day during which such failure continues, subject to a maximum of two lakh rupees, and the managing director and the Chief Financial Officer of the company, if any, and, in the absence of the managing director and the Chief Financial Officer, any other director who is charged by the board with the responsibility of complying with the provisions of this section, and, in the absence of any such director, all the directors of the company, shall be liable to a penalty of ten thousand rupees and in case of continuing failure, with further penalty of one hundred rupees for each day after the first during which such failure continues, subject to a maximum of fifty thousand rupees."

In a recent adjudication order issued by the Office of the Registrar of Companies, Bihar-Cum-Official Liquidator, High Court, Patna, ordered the penalty for violation of section 137 of the Companies Act, 2013, against M/s Somen Venture Private Limited.

In the said order, it has been mentioned that the said company is in default of filing its Financial Statement for the financial year 2021-22 with the office of Registrar of Companies, Patna. Hence, a notice was issued to the company for default under section 137 of the Companies Act, 2013, and having considered the facts and circumstances of the case, the Adjudicating Officer ordered the penalty of Rupees 18,500/- on company and Rupees 18,500/- on each director of the company.

Thus, in view of the above, filing financial statements is very crucial for companies to maintain transparency, compliance, and accountability for the company. The companies must understand that even in case of failure to convene an annual general meeting, it does not exempt the companies from not filing the financial statement. By complying with this provision, companies not only adhere to legal requirements but also foster trust and confidence among stakeholders. The act of filing financial statements is not merely a procedural obligation; it is a vital stride toward showcasing a company's commitment to openness, accurate reporting, and ethical conduct. Compliance with Section 137 ensures that corporate entities operate within the framework of accountability, rendering them answerable to both regulatory bodies and the public they serve.