Introduction:

Maintenance of Books of Accounts is one of the Mandatory compliances that every company needs to follow irrespective of its nature whether its a private limited, public limited, OPC, or LLP, each of these entities requires obeying Section 128 of the Companies Act, 2013 mandatorily.

Applicable Provisions:

Section 128 & 2(13) of Companies Act, 2013 and Companies (Accounts) Rules, 2014

What is Books of Accounts?

As per Section 2(13) “books of account” includes records maintained in respect of

  • all sums of money received and expended
  • the assets and liabilities
  • all sales and purchases of goods and services
  • items of cost as may be prescribed u/s 148

Features of Books of Accounts

1. True and Fair View

2. Accrual Basis

3. Double Entry

Where should be the Books of Account kept?

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.

Provided that all or any of the books of account aforesaid and other relevant papers may be kept at such other place in India as the Board of Directors may decide and where such a decision is taken, the company shall, within seven days thereof, file Form AOC-5 with the Registrar.

In what form shall it be maintained?

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 prescribed in Rule 3 of Companies (Accounts) Rules, 2014

Manner of Books of Account to be Kept in Electronic Mode

1. Shall remain accessible in India;

2. Be in original format and complete;

3. Must be in readable format;

4. Information/details received from the branch office shall not be altered

5. Capable of being displayed in legible form

6. One must keep the back-up of the books of account in servers physically located in India

Moreover, the company must inform the Registrar of Companies on an annual basis during the filing of financial statement:

1. the name of the service provider

2. IP address of service provider;

3. location of the service provider

4. where the books of account and other books and papers are maintained on the cloud, such address as provided by the service provider.

Books of Branch Section 128(2)

Where a company has a branch office in India or outside India, it shall be deemed to have complied with the provisions of sub-section (1), if proper books of account relating to the transactions effected at the branch office are kept at that office and proper summarised returns periodically are sent by the branch office to the company at its registered office or the other place referred to in sub-section (1).

Inspection of Books of Accounts- Section 128(3) & (4) Read with Rule of the Companies (Accounts) Rules, 2014

Any director can inspect the books of account and other relevant books and papers at business hours only.

However, Books of Accounts of a Subsidiary company can be inspected by a person authorized by the Board of Directors

Period for which Books to be preserved: Section 128(5)

1. Not less than 8 Financial Years immediately preceding FY

2. If a company is in existence for less than 8 years then for such entire years of  its existence

3. In case of Investigation, as directed by Central Government

Responsibility of Maintenance of Books of Accounts- Section 128(6)

1. Managing Director

2. Whole-time Director

3. Chief Financial Officer

4. Any other Competent and Reliable person as duty charged by Board.

Penalties for Non-Compliance

In case of Non-Compliance or Contravention of provisions mentioned, such managing director, whole-time director in charge of finance, Chief Financial officer or such other person of the company shall be punishable with fine which shall not be less than fifty thousand rupees but which may extend to five lakh rupees.

Does Section 128 of Companies Act, 2013 apply to Foreign Companies as well?

As per Section 384(3), provisions of Section 128 shall apply to a foreign company to the extent of requiring it to keep at its principal place of business in India, the books of account referred to in that section, with respect to monies received and spent, sales and purchases made, and assets and liabilities, in the course of or in relation to its business in India.

*****

Arushi Jain, Practicing Company Secretary can be contacted For any query / information / suggestion at [email protected]

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