Annual Reports Where State Governments Are Members (Section 395)

Understand Annual Reports Where State Governments Are Members (Section 395)

Key rules to remember

When Section 395 applies

Central Government is NOT a member + one or more State Governments are members of a Government company

If the Central Government is a member, Section 394 applies instead.

Who acts

Every State Government that is a member (or the only State Government member) causes the report to be prepared and laid

The duty is on the State Government, not on the company's Board.

Time to prepare

Within three months of the AGM before which CAG comments and the audit report are placed (Section 394(1)(a), applied by Section 395(1)(a))

Section 395 borrows the time limit from Section 394(1).

Laying

As soon as may be after preparation, before the House or both Houses of the State Legislature, with the audit report and comments upon or supplement to it

Parliament is for Section 394; the State Legislature is for Section 395.

Liquidation

Sections 394 and 395 apply, so far as may be, to a Government company in liquidation (Section 395(2))

Applies like any other Government company.

How to solve Annual Reports Where State Governments Are Members (Section 395) questions

1. 1Read the facts and identify who holds the shares: Central Government, State Government(s), or both.
2. 2Check whether the Central Government is a member. If yes, Section 394 applies. If no, and a State Government is a member, Section 395 applies.
3. 3State who must act: the State Government that is a member, or the only State Government member.
4. 4State the content: an annual report on the working and affairs of the company.
5. 5State the time limit: within three months of the AGM before which the CAG comments and audit report are placed, as in Section 394(1).
6. 6State the laying requirement: before the House or both Houses of the State Legislature, with the audit report and comments upon or supplement to it.
7. 7Mention Section 395(2) if the company is in liquidation.
8. 8Close with a clear conclusion linking the facts to the section.

Quickest way: Central or State: the one-question test

Common mistakes in Annual Reports Where State Governments Are Members (Section 395)

• Applying Section 395 when the Central Government is also a member.

  Students see a State Government holding shares and stop reading.

  Fix: Section 395 applies only where the Central Government is not a member. If the Central Government is a member, use Section 394. Section 394(2) then requires any State Government member to lay a copy of the Central report before its Legislature.

• Saying the company's Board prepares and lays the report.

  Students confuse it with the Board's report under Section 134.

  Fix: The State Government causes the report to be prepared and laid. It is a Government report to the legislature.

• Saying the report is laid before Parliament.

  Students mix up Sections 394 and 395.

  Fix: Under Section 395 it is laid before the House or both Houses of the State Legislature.

• Inventing a separate time limit for Section 395.

  Students expect each section to have its own period.

  Fix: Section 395(1)(a) refers to the time in Section 394(1): within three months of the AGM before which the CAG comments and audit report are placed.

• Leaving out the audit report and comments when describing laying.

  Students remember only the report itself.

  Fix: Always say the report is laid together with a copy of the audit report and the comments upon or supplement to it.

• Forgetting companies in liquidation.

  Sub-section (2) is short and easy to skip.

  Fix: Add that both sections apply, so far as may be, to a Government company in liquidation.

Worked examples