Provisions on Books of Accounts under New Companies Act

Section 128 of the Companies Act, 2013 provides for Maintenance of books of accounts under the new Companies Act.

The erstwhile corresponding section 209 on “Books of accounts to be kept by company” of Companies Act, 1956 dealt with the books of accounts required to be maintained to give a true and fair view of the state of affairs of the company or branch office and to explain its transactions and also specify the place of keeping and period for which such books to be kept by the company. The responsibility for maintenance books of accounts was also fixed by this provision.

The significant changes introduces in this section are as follows:

a) books of accounts may also be kept in electronic form

b) a director of the Company can inspect the books of accounts of the subsidiary, only with the authority of the Board of Directors.

Maintenance of Books of Accounts

Maintenance of books of accounts would mean records maintained by the company to record the specified financial transaction. It has been specifically provided that -

1. Every company shall keep proper books of accounts. This clause specifies the main features of proper books of accounts as under –

(i) The company must keep the books of accounts with respect to items specified in clauses (i) to (iv) of sub-section 2(13) which defines “books of accounts”.

(ii) The books of accounts must show that all money received and expended , sales and purchasesof goods and the assets and liabilities of the company.

(iii) The books of accounts must be kept on accrual basis and according to the double entry system of accounting.

(iv) The books of accounts must give a true and fair view of the state of the affairs of the company or its branches.

2. What is required to be prepared and kept are books of accounts, other relevant books and papersand financial statements. Books of accounts are defined in clause 2(13) , ‘books and papers’ in clause 2(12) and ‘ financial statement’ in Clause 2(40). Both are required to be prepared and kept.

3. Books of accounts, books and papers and financial statements should explain the transactions effected at company’s registered office and any branch(es).

4. Records, books, papers and financial statements must relate to any specific financial year only.

5. A company engaged in production, processing, manufacturing or mining activity, is also required to maintain particulars relating to utilization of material, labour or other items of cost as the Central Government may prescribe for such class of companies.(Section 148)

6. The branches of the company, if any, in India or outside India shall also keep the books of accounts in the same manner as specified in sub-section (1), for the transaction effected at the branch office. Further the branch offices are required to send the proper summarized return made up-to-date to the company at its registered office or the other places as decided by the board.

7. Books of accounts of the company shall be kept at the registered office of the company.

8. In case of Books of accounts being maintained at any other place other than registered office in India, as may be decided by resolution of Board of Directors, company shall be required to intimate full address of such place to Registrar of Companies within 7 days.

9. The maintenance of books of accounts and other books and papers in electronic mode is permitted and is optional. (Second Proviso to Clause 128(1)).

The person responsible to take all reasonable steps to secure compliance by the company with the requirement of maintenance of books of accounts etc. shall be: (sub-section 6)

i) Managing Director,

ii) Whole-Time Director, in charge of finance

iii) Chief Financial Officer

iv) Any other person of a company charged by the Board with duty of complying with provisions of section 128.

Penal Provision

In case the aforementioned persons referred to in sub-section (6) (i.e. Managing Director, Whole Time Director, Chief Financial Officer etc.) fail to take reasonable steps to secure compliance of this section and thus, contravene such provisions, they shall in respect of each offence, be punishable with imprisonment for a term which may extend to one year or with fine which shall not be less than fifty thousand rupees but which may extend to five lakh rupees or both.