Company Law and Practice · Annual Report - Concepts

Annual Reports on Government Companies under Section 394

Updated 11 October 2026 · Fact-checked

Section 394 requires the Central Government, where it is a member of a Government company, to prepare an annual report on the company's working and affairs within three months of the AGM at which the CAG comments are placed, and lay it before both Houses of Parliament with the audit report and CAG comments.

Understand Annual Reports on Government Companies (Section 394)

A Government company is one in which the Government holds a stake and which is therefore answerable to public institutions. Section 394 makes sure Parliament can see how such companies are working. The company's own annual report goes to its members. This is a separate, additional report prepared by the Government.

The section applies where the Central Government is a member of a Government company. The Central Government must cause an annual report on the working and affairs of that company to be prepared. It must then be laid before both Houses of Parliament.

Timing has two parts. First, the report is prepared within three months of the AGM before which the comments of the Comptroller and Auditor-General of India (CAG) and the audit report are placed under the proviso to Section 143(6). Second, after preparation, it is laid before Parliament as soon as may be. The Act gives no fixed date for laying.

The report is not laid alone. It goes with a copy of the audit report and the comments upon or supplement to the audit report made by the CAG. This lets Parliament read the Government's account next to the independent audit view.

Section 394(2) covers a mixed case. If a State Government is also a member along with the Central Government, that State Government must cause a copy of the report prepared under sub-section (1) to be laid before the House or both Houses of the State Legislature. The copy goes with the audit report and the CAG comments. Where only State Governments are members, Section 395 applies instead.

Key rules to remember

Who prepares (Section 394(1)): Central Government is a member → Central Government causes annual report on working and affairs; Applies to a Government company where the Central Government is a member.
Time limit for preparation: Within 3 months of the AGM at which CAG comments and audit report are placed (proviso to Section 143(6)); The three months run from the AGM, not from the financial year end.
Laying before Parliament: As soon as may be after preparation → both Houses of Parliament, with audit report and CAG comments/supplement; No fixed number of days is given for laying.
State Government also a member (Section 394(2)): State Government lays a copy of the sub-section (1) report before the State Legislature (House or both Houses) with audit report and CAG comments; Applies in addition to the Central Government being a member.
Government company in liquidation: Sections 394 and 395 apply, so far as may be, as to any other Government company (Section 395(2)); Liquidation does not remove the reporting duty.

How to solve Annual Reports on Government Companies (Section 394) questions

Use this method for any question on Government company annual reports. It keeps your answer in the ICSI order: provision, facts, conclusion.

1Identify whether the company is a Government company and who the members are: Central Government, State Government, or both.
2Choose the section. Central Government a member: Section 394. Only State Governments: Section 395.
3State the duty: the Government must cause an annual report on the working and affairs of the company to be prepared.
4State the timing: within three months of the AGM before which the CAG comments and audit report are placed under the proviso to Section 143(6).
5State the laying requirement: before both Houses of Parliament as soon as may be, with the audit report and the CAG comments or supplement.
6Add the State angle if a State Government is also a member: it lays a copy before its Legislature under Section 394(2).
7Apply to the facts, check the date arithmetic from the AGM, and end with a clear conclusion citing the section.

Quickest way: Three-question check

When to use it: Use when a short-answer or case question gives limited time and you must pick the right rule quickly.

Who is a member? Central Government means Section 394; only State Government means Section 395.
From when do three months run? From the AGM where CAG comments are placed.
What goes with the report? Audit report and CAG comments, laid before Parliament (or the State Legislature for a State).

Common mistakes in Annual Reports on Government Companies (Section 394)

Counting the three months from the end of the financial year.
Students link all annual filings to the year end.
Fix: Count from the AGM before which the CAG comments and audit report are placed.
Saying the report is laid before Parliament within three months.
The three-month limit and the laying step are mixed up.
Fix: Three months is for preparation. Laying is 'as soon as may be' after preparation.
Forgetting to mention the audit report and CAG comments.
Students focus only on the report itself.
Fix: Always state that the report is laid together with the audit report and the CAG's comments upon or supplement.
Confusing Section 394 with Section 461.
Both involve an annual report by the Central Government.
Fix: Section 394 is about a particular Government company. Section 461 is a general annual report on the working and administration of the Act, laid within one year of the close of the year to which it relates.
Applying Section 394 where only a State Government is a member.
Students overlook the separate section for State Governments.
Fix: Where the Central Government is not a member, Section 395 applies. Section 394(2) applies only when the Central Government is also a member.

Worked examples

Example 1

The Central Government is a member of a Government company. The CAG comments and audit report were placed before the company's AGM held on 20 September. By what date must the annual report under Section 394 be prepared, and where must it be laid?

Show the solution

Provision: under Section 394(1)(a), the Central Government must cause the report to be prepared within three months of the AGM before which the CAG comments and audit report are placed.
Facts: the AGM was held on 20 September.
Three months from 20 September ends on 20 December.
Under Section 394(1)(b), after preparation the report is laid as soon as may be before both Houses of Parliament.

Answer: The report must be prepared by 20 December. It must then be laid, as soon as may be, before both Houses of Parliament with a copy of the audit report and the CAG's comments or supplement.

Example 2

A Government company has both the Central Government and a State Government as members. Explain who must lay the annual report and before which body.

Show the solution

Provision: Section 394(1) places the duty on the Central Government, as it is a member, to prepare the report and lay it before both Houses of Parliament.
Section 394(2) applies as a State Government is also a member.
The State Government must cause a copy of the report prepared under sub-section (1) to be laid before the House or both Houses of the State Legislature.
The copy is laid with the audit report and the CAG's comments upon or supplement to it.
Section 395 does not apply here because the Central Government is a member.

Answer: The Central Government prepares the report and lays it before both Houses of Parliament. The State Government lays a copy, with the audit report and CAG comments, before its State Legislature under Section 394(2).

Exam tips

Write the section number early and quote the key phrase 'working and affairs'.
Always give both parts of the timeline: three months for preparation, 'as soon as may be' for laying.
Draw the line between Sections 394, 395 and 461 in one sentence each. Examiners like this contrast.
In case questions, first identify which Government is a member, then pick the section.
End with a one-line conclusion stating who must act and before which House.

Practice questions from Annual Report - Concepts

Annual Reports on Government Companies (Section 394): frequently asked questions

Who prepares the annual report under Section 394?

The Central Government, where it is a member of a Government company. It must cause an annual report on the working and affairs of that company to be prepared.

What is the time limit under Section 394?

The report must be prepared within three months of the AGM before which the CAG comments and audit report are placed under the proviso to Section 143(6). It is then laid before Parliament as soon as may be.

What is laid along with the report?

A copy of the audit report and the comments upon or supplement to the audit report made by the Comptroller and Auditor-General of India.

How is Section 394 different from Section 395?

Section 394 applies where the Central Government is a member of the Government company. Section 395 applies where the Central Government is not a member and one or more State Governments are, and the report goes to the State Legislature.