Article explains What is meant by reopening and recasting of accounts under Companies Act, 2013, who can apply for reopening of accounts, Punishment and Compoundability, Grounds on which application for reopening of accounts can be made and Duration for which revision is permitted. Section 130 read with section 131 are newly inserted provisions that prohibits the company from suo-moto opening its accounts or revising its financial statements. The procedure for the same has been provided in the Act.
Reopening of accounts means opening of accounts which are closed and filed at the appropriate authority and recasting means attempt is being made to give different form by reshaping the accounts.
So both reopening and recasting are not allowed. Hence a company shall not re-open its books of account and not recast its financial statements. Thus books of accounts and the financial statements cannot be changed unless it is done as per the provisions of the companies Act 2013.
Several instances of falsification of books of accounts were notice earlier. To overcome this menace, new provisions were introduced in the companies Act 2013. One such measure is introduction of section 130 and 131 . These sections prohibit the company from suo-moto opening its accounts or revising its financial statements.
“This is a new section which seeks to provide for the re-opening of books of accounts and recasting its financial statements on an order by the competent court or Tribunal if it was found that earlier accounts were prepared in fraudulent manner or financial statements are not reliable due to mismanagement of affairs of the company.”
The powers of the Tribunal to permit re-opening or recasting should be extended in addition to incidents of fraud or mismanagement, to an event of a manifest or patent error and for any other reason that the Tribunal may deem just and proper.
It is hereby clarified that a company could reopen and revise its accounts even after their adoption in the annual general meeting and filing with the Registrar in order to comply with technical requirements of any other law to achieve the object of exhibiting true and fair view. The revised annual accounts would be required to be adopted either in the extraordinary general meeting or in the subsequent annual general meeting and filed with the Registrar of Companies.”
Few companies have been filing their annual accounts under section 220 more than once resulting into filing/availability of more than one such account in the Registry for a particular financial year. The matter has been examined in the Ministry in detail and it has been concluded that keeping in view the provisions of section 220 of the Act read with Ministry’s General Circular 1/2003, a company cannot lay more than one set of annual accounts for a particular financial year unless it has reopened/revised such annual accounts after their adoption in the Annual General Meeting on the grounds specified in Ministry’s circular Number 1/2003. Accordingly, it is hereby directed that ROCs should keep a watch on such kinds of repeat filings of annual accounts and such accounts should not be accepted except in accordance with provisions of section 220 read with Ministry’s General Circular 1/2003.”
As per the provision of sub-section (1) of section 130, a company is allowed to reopen the books of accounts or recast its financial statements only on the order of court of competent jurisdiction or the Tribunal made upon application of specified persons. The words ‘reopen’ and ‘recast’ represent the nature of treatment required for books of accounts and financial statements respectively.
Finality of accounts so recast the accounts so revised or re-cast as per the order of the court or Tribunal shall be final. Hence, after the order of Tribunal or Court, no further revision can be made.
Sections 130 and 131 of Companies Act, 2013 (‘CA, 2013’) deals with re-opening and revision of accounts of companies. One of the major differences between the two is that the former section can be enforced by an order of any Court or NCLT based on an application made by any authority. On the other hand, the latter section provides for voluntary revision in the accounts of the company if there are any inconsistencies as per law by making an application to the Tribunal.
Both these sections were notified by the Ministry on 1st June, 2016. The concept of re-opening and revisiting the financial statements was introduced for the first time in India by 2013 Act as there was no corresponding section in the Companies Act, 1956 Act (‘Erstwhile Act’). Though, there was no corresponding section under the Erstwhile Act for re-opening the books of accounts of the Company, there were various department circulars dealing with the issue of re-opening of accounts after their adoption by members in the general meeting. The department circulars on the subject provided that in case of technical requirements or requirement of any specific law, the company can be directed to re-open its books of accounts subject to the condition that the shareholders approve the said event in the general meeting.
Even though, the provisions of section 130 of the CA, 2013 are a couple year old, however, the Government till date never ordered for re-opening of books of accounts of any company. However, for the first time in India, the National Company Law Tribunal of India, Mumbai Bench has invoked its powers under section 130 of the Act and ordered reopening of books of the Company and its two listed subsidiaries namely ITNL and IL &FS Financial Services for the past five years.
In this regard, the Serious Fraud Investigation Office (SFIO) and Institute of Chartered Accountants of India (ICAI) initiated investigation against the Company. Before analyzing the matter further, we have to first understand the power of SFIO to investigate the affairs of the Company.
The following authorities have the right to reopen the financial statements
a) Central Govt
b) Income tax authorities
d) Any other statutory regulatory body
e) Any person concerned
Any other statutory regulatory body means that any authority can apply for reopening of account. The act does not specify the nature of authority. Hence even though that authority does not have any control over the company, can apply for reopening of accounts. Hence RBI, Provident Fund Regulatory Authority apart from the authorities mentioned above.
There are no specific penal provisions provided in this section 130. Therefore the penal provisions under section 450 would apply in case of any non-compliance of this section. Accordingly, for contravention, the company and every officer of the company who is in default shall be punishable with a fine up to Rs.10,000, in case the contravention is a continuing one then the fine shall be Rs. 1,000 every day. The offences under this section are compoundable under section 441 of the Act.
1. Events in which one can apply for reopening the financial statements
a) Earlier accounts were prepared in the fraudulent manner
b) Affairs of the company were mismanaged casting a doubt on the reliability of the financial statement
2. Voluntary revision of financial statements
a) Directors of the company states the financial statements of the company does not comply with section 129 of the companies act 2013
b) Directors of the company states the Board report of the company does not comply with section 134 of the companies act 2013
Section 130 deals have not provided the procedure for reopening of books of accounts. But as per NCLT rules the procedure is
Issue notice of Board meeting and circulate to all the directors of the company while complying the provisions of companies Act 2013 and secretarial standards are complied with
Authorize practicing CA/Cost accountant /CS to attend the meeting
Company shall pass board resolution for the reopening of books of accounts
Within 14 days of decision taken in the board meeting, petition in form no NCLT 1 is to be filed with Tribunal
Along with NCLT 1 submit audited financial statements of relevant period, copies of Memorandum of association and articles of association, Name and contact details of Managing director, CFO, Directors, company secretary, and other officers of company responsible for making and maintaining the books of accounts and financial statements and if the statements are audited, the name and address of auditor, copy of board resolution and proof of payment of fees
Before 14 days of date of hearing, advertise the petition in form NCLT-3 in English and also in vernacular language newspapers
Every advertisement shall state the, date on which application was presented, name and address of the applicant and his authorized representative, date of hearing, and name and address of the person whose rights are likely to be affected, name and address of the persons who opposed the application, supported the application, and such persons should send their interest or grounds of opposition to the petitioner at least two days before hearing commences.
Upon hearing the petition, the tribunal will pass the order as it thinks fit
Company within 30 days of receipt of order from Tribunal, file INC-28 with ROC
The revision of financial statements and board report in respect of any of the three preceding financial year are permitted by the Tribunal. The revised financial statements and boards report shall not be prepared or filed more than once in a financial year. The detailed reason for which revision of financial statements or board report shall be disclosed in the board report in the relevant financial year in which such revision is being made
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