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MMaintenance of Books of Accounts is one of the mandatory compliances that every company needs to follow. Whether it’s a private limited, public limited, OPC, or LLP, each of these entities requires obeying Section 128 of Companies Act, 2013 mandatorily.
Earlier, Section 209 of the Companies Act, 1956 dealt with the maintenance of books of accounts of the company. It was crucial to keep the records so that one can get a true and accurate view of the company’s state of affairs or branch office.
Furthermore, maintaining the books of accounts was necessary to get a correct summary of the transactions made by the company. Besides, it also specifies the period for which the company has kept the record and the place of keeping.
Hence, in this blog, we are going to get an overview of what Section 128 of the Companies Act, 2013 explains.
Maintenance of Books of Accounts refers to the records that company has to maintain to keep the details of the specified financial transaction.
Section 128 of the Companies Act, 2013 specifies the following key features related to the proper books of account as under:
As per Section 128(1), every company must prepare and keep its books of accounts and other relevant books, financial statements, and papers at its registered office.
However, the place of keeping any or all of the aforesaid books could change at such other place in India as decided by the Board of Directors.
In case the place changes, the company needs to intimate such decision with the ROC within seven days. This must be in the form of a notice which needs to be in the writing form consisting of the full address of the decided place.
As per the second proviso of Section 128(1), all the companies may keep its books of account or other such relevant paper and books in electronic mode or as may be prescribed.
Such books of accounts shall remain accessible in India so that it can be used for subsequent use (the Companies (Accounts) Rules, 2014 hereinafter referred in this Chapter as Rule) (Rule 3(1)).
Therefore, the books of account along with other relevant papers and books maintained in electronic mode:
Moreover, the company must inform the Registrar of Companies on an annual basis during the filing of financial statement:
The branch of the company, whether in India or outside India, shall also keep the books of account in the same way as specified in sub-section (1), for the transaction effected at the branch office.
Further, the branch office is supposed to send the proper summarized return at its registered office on a quarterly basis to the company. Moreover, it must be kept open to directors for the purpose of inspection.
As described above, the company must keep its books of account in on accrual basis and based on the double entry system of accounting.
As per Section 128(3), any director can inspect the books of account and other relevant books and papers at business hours. Section 2(12) defines the term “Books and Papers” as expression which consists of vouchers, accounts, writings, deeds, and documents.
However, the proviso to sub-section 3 states that director holds the right to examine the books of accounts of the subsidiary only when the Board of Directors provides the authorization.
Besides, if the director requires any other financial detail kept outside the country, the director needs to submit a request to the company.
Moreover, the director needs to provide complete information of the financial details he seeks. Along with, he also needs to mention the time period for which the director is seeking such information.
Also Read: Mandatory Compliances under Companies Act 2013
Section 128 of Companies Act, 2013 has defined a specified period for the maintenance of the Company’s Books of Account. They are as follows:
As per Section 128 (6) of the Companies Act, 2013, the following entities are liable for the proper maintenance of Books of Accounts of the company:
If any of the above-described entity fails to maintain the proper books of account of the company, then the person-in-charge shall be held punishable with the following:
Whether Section 128 applies to foreign companies or not depends on the principal location of the business. If it is located in India, then it would have to follow the provisions of Section 128 of the Companies Act, 2013.
According to Section 384 (3) of the Companies Act, 2013, the provisions of Sec 128 shall apply to a foreign company in the following cases:
in relation to or in the course of its business in India.
It’s quite apparent from the above discussion that the maintenance of books of accounts is mandatory for every company. Besides, the companies need to ensure that it is kept on an accrual basis and at its registered office.
Moreover, the accounts must represent the actual and fair view of the financial transactions of the company. Apart from these, it must be inspected only by the director of the company and kept in electronic format.
If the company doesn’t maintain the books of account, it will have to pay hefty penalties. Therefore, maintaining such accounts is a mandatory compliance for every form of company. In case of queries, leave a comment below.
Also Read: Annual Compliances for Wholly Owned Subsidiary Company