Sources said companies requested for a relaxation in Section 2 (41) of the Companies Act, which deals with financial year.
The ministry of corporate affairs (MCA) has received representations from industry bodies and companies for extension of the current financial year to June 30 from March 31, as the current scenario on account of the Covid-9 outbreak has impacted crucial audit exercises like physical verification of inventories and fixed assets, among other statutory issues.
Companies have also requested the government to provide a relaxation in the corporate social responsibility (CSR) spends for FY20 and FY21 considering that firms would be stretched for capital in view of the severe economic slowdown, which has followed the outbreak of the novel coronavirus.
Sources said companies requested for a relaxation in Section 2 (41) of the Companies Act, which deals with financial year. Before the 2013 amendment to the Act, firms were allowed to determine any period as financial year. However, the Companies Act, 2013, introduced the concept of a uniform financial year — from April 1 to March 31.
Nangia Andersen director Sandeep Jhunjhunwala said, “Extension of financial year is quite crucial now given that necessary audit procedures including physical verification of inventories and fixed assets and, most significantly, validation of going concern position of an enterprise is non-viable now”.
The same source said, “Another relaxation sought is on Section 135 of the Companies Act, which deals with CSR activities. They have asked to make CSR spends non-mandatory for FY20 and FY21. Whatever has been spent for FY20 to be considered as sufficient compliance as firms are facing pressure on their operating margins now.”
On Section 125, which deals with Investors Education and Protection Fund (IEPF), the companies have urged that its balance could be used for Covid-19 eradication initiatives. IEPF has been created for promotion of investors’ awareness and protection of their interests. Last year, MCA said the size of IEPF Fund is around Rs 4138 crore. Besides, companies have also transferred about 65.02 crore shares valued at around Rs 21,232 crore.
On CSR and IEPF contributions, Jhunjhunwala said, “In this period of slump, working capital management is the foremost apprehension for business enterprises and hence government should consider relaxing mandatory CSR spend limits for FY20 and FY21. In fact, whatever has already been spent for FY20 may be considered as sufficient compliance of CSR spends. At this hour of need, the balances in IEPF could also be utilised for Covid eradication initiatives.”