Books of account, etc., to be kept by company (Section 128 of the Companies Act, 2013) :
A new section 128 of the Companies Act, 2013 came into force from 1st April, 2014 which provides for Books of account, etc., to be kept by company. According to this section:
(i) Maintenance of books of accounts [Section 128(1)]:
(a) Every company shall prepare and keep at its registered office books of account and other relevant books and papers and financial statement for every financial year which give a true and fair view of the state of the affairs of the company, including that of its branch office or offices, if any.
(b) The company shall be in a position to explain the transactions effected both at the registered office and its branches.
(c) Such books of Accounts shall be kept on accrual basis and according to the double entry system of accounting.
(ii) Place of maintenance of books of accounts [Section 128(1)]:
(a) The books of account and other relevant papers are required to be kept at the registered office of the company.
(b) The company may also keep all or any of the books of accounts at any other place in India as the Board of directors may decide. In such a case, the company should file with the Registrar of Companies, a notice in writing giving the full address of that place within 7 days of the Boards‘ decision.
Vide Notification no. G.S.R 37(E) dated 16th January, 2015, Central Government further amended the Companies (Accounts) Rules, 2014 by the Companies (Accounts) Amendments Rules 2015. By this amendment, Rule 2A has been inserted in the Companies (Accounts) Rules, 2014 after Rule 2. Rule 2A deals with the notice of address at which books of accounts are to be maintained. The notice regarding the address at which books of account may be kept shall be in form AOC-5. This form has been inserted after AOC-4 in the Annexure given under the Companies Act, 2013.
(iii) Electronic form of Books of accounts:
(a) Rule 3 of the Companies (Accounts) Rules, 2014 provides that the company may keep its books of account or other relevant papers in electronic mode.
(b) The books of account and other relevant books and papers maintained in electronic mode shall:
(1) remain accessible in India so as to be usable for subsequent reference.
(2) be retained completely in the format in which they were originally generated, sent or received, or in a format which shall present accurately the information generated, sent or received and the information contained in the electronic records shall remain complete and unaltered.
(3) The information received from branch offices shall not be altered and shall be kept in a manner where it shall depict what was originally received from the branches.
(4) The information in the electronic record of the document shall be capable of being displayed in a legible form.
(5) There shall be a proper system for storage, retrieval, display or printout of the
electronic records as the Audit Committee, if any, or the Board may deem
appropriate and such records shall not be disposed of or rendered unusable,
unless permitted by law:
(6) The back-up of the books of account and other books and papers of the company maintained in electronic mode, including at a place outside India, if any, shall be kept in servers physically located in India on a periodic basis.
(c) The company shall intimate to the Registrar on an annual basis at the time of filing of financial statement-
(1) the name of the service provider;
(2) the internet protocol address of service provider;
(3) the location of the service provider (wherever applicable);
(4) where the books of account and other books and papers are maintained on cloud, such address as provided by the service provider.
(iv) Proper books of account in relation to a branch of the company:
(a) Proper books of account relating to the transactions effected at the branch office in India or outside India shall be kept at that branch office.
(b) Proper summarised returns periodically must be sent by the branch office to the company at its registered office or the other place as decided by the Board of directors.
(v) Persons who can inspect [Section 128(3) and (4)]:
(a) The books of account and other books and papers maintained by the company within India shall be open for inspection at the registered office of the company or at such other place in India by any director during business hours.
(b) In the case of financial information, if any, maintained outside the country, copies of such financial information shall be maintained and produced for inspection by any director subject to such conditions as prescribed under the Rule 4 of the Companies (Accounts) Rules, 2014 which provides that:
(1) The summarised returns of the books of account of the company kept and maintained outside India shall be sent to the registered office at quarterly intervals, which shall be kept and maintained at the registered office of the company and kept open to directors for inspection.
(2) Where any other financial information maintained outside the country is required by a director, the director shall furnish a request to the company setting out the full details of the financial information sought, the period for which such information is sought.
(3) The company shall produce such financial information to the director within 15 days of the date of receipt of the written request.
(4) The financial information required under sub-rules (2) and (3) shall be sought for by the director himself and not by or through his power of attorney holder or agent or representative.
(c) The inspection in respect of any subsidiary of the company shall be done only by the person authorised in this behalf by a resolution of the Board of Di rectors.
(d) The officers and other employees of the company shall give to the person making such inspection all assistance in connection with the inspection which the company may reasonably be expected to give.
(vi) Period of Maintenance [Section 128(5)]:
(a) The books of account of every company together with the vouchers relevant to any entry in such books of accounts shall be kept in order by the company for a minimum period of 8 financial years immediately preceding a financial year.
(b) Where the company had been in existence for a period of less than 8 years, it shall maintain the books in respect of all such preceding years.
(c) Where an investigation has been ordered in respect of the company, the Central Government may direct that the books of account may be kept for such longer period as it may deem fit.
(vii) Persons responsible for Maintenance & Penalty [Section 128(6)]:
(a) The following persons are responsible for the maintenance of proper books of account-
(1) The managing director, the whole-time director in charge of finance, the Chief Financial Officer; or
(2) any other person of a company charged by the Board.
(b) If any of the persons mentioned above contravenes such provisions, they shall be punishable with:
(1) Imprisonment for a term which may extend to 1 year; or
(2) Fine which shall not be less than ` 50,000 but which may extend to `5 lakh; or
(3) Both with imprisonment or fine.
The MCA vide General Circular No. 08/2014 dated 4th April, 2014 has clarified that the financial statements (and documents required to be attached thereto), auditor’s report and Board’s report in respect of financial years that commenced earlier than 1st April, 2014 shall be governed by the relevant provisions/ Schedules/ rules of the Companies Act, 1956 and that in respect of financial years commencing on or after 1st April, 2014, the provisions of the Companies Act, 2013 shall apply.