Companies should take necessary measures to ensure compliance with Section 338 of Companies Act 2013 and regularly review their accounts records
Introduction
The Companies Act 2013 came into force in 2014, replacing the 1956 act and providing an updated set of rules and regulations to govern the operation of companies in India. One of the important changes that the Companies Act 2013 brought was the increased attention and imprisonment to the proper keeping of books of accounts as required by the act. Section 338 of the Companies Act 2013 states that every company shall keep such books of accounts as are necessary to explain and explain the transactions and financial position of the company and to ensure proper compliance with the provisions of the Act and the rules made thereunder. Non-compliance with Section 338 of the Companies Act 2013 is seen as a penal offense under the act and can come with severe punishments for company directors, including a potential fine and imprisonment. This article will provide an extensive analysis of Section 338 liability where proper accounts are not kept as per the Companies Act 2013.
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Objective of Section 338 of Companies Act 2013
The objective of this article is to provide an extensive analysis of Section 338 liability where proper accounts are not kept as per the Companies Act 2013. The article seeks to answer the following questions:
• What are the requirements for keeping proper books of accounts for a company as per the Companies Act 2013?
• What are the penalties for non-compliance with Section 338 of the Companies Act?
• What steps can be taken to ensure compliance with the requirements of Section 338 of the Companies Act?
Analysis of Section 338 of Companies Act 2013
Requirements to Keep Proper Books of Accounts under the Companies Act 2013
As per Section 203 of Companies Act 2013, it is the duty of the members of the board of directors of every company to ensure that proper books of accounts are maintained for each and every financial year, including books of accounts that explain and explain the transactions and financial position of the company. This includes income and expenditure, sources of income, assets, liabilities, cash flow and expenses, etc. Additionally, Section 133 of the Companies Act also states that a company must obtain a statutory audit of its accounts, which is to be made available to the shareholders at the annual general meeting (AGM) of the company.
Penalties for Non-Compliance of of Section 338 of Companies Act 2013
As per Section 28 of the Companies Act, when proper accounts are not kept, directors of the company can be held liable and may be liable to be punished with a fine which may extend to up to fifty thousand rupees or with imprisonment for a term which may extend up to two (2) years or with both. Additionally, as per Section 234 of the Companies Act, any fraudulent omission or mis-statement of the accounts for which the directors are responsible is a criminal offense.In the case of such fraud, the penalty can be a fine up to three (3) times the amount involved in the fraud and/or imprisonment for a term up to three (3) years.
Measures to Ensure Compliance of of Section 338 of Companies Act 2013
Companies must ensure compliance with Section 338 of the Companies Act so as to avoid liability and penalties. The following steps may be taken to ensure compliance with Section 338 of the Companies Act:
- Design effective internal controls: An effective system of internal controls must be established to ensure that accounts are being properly kept, maintained, and monitored.
- Appoint a qualified auditor: Every company should appoint a qualified auditor to conduct a statutory audit of the accounts annually.
- Appoint a dedicated accountant: Companies should appoint an experienced and qualified accountant to handle the day-to-day maintenance and filing of the books of accounts.
- Prepare a checklist for compliance: Companies should make use of checklists to ensure compliance with all applicable laws, regulations and standards.
- Train staff related to accounts: All staff related to accounts must be adequately trained and made aware of the requirements of Section 338 of the Companies Act.
Conclusion
Section 338 of the Companies Act 2013 imposes a penal offence on companies in the event that proper books of accounts are not kept. While the penalty for non-compliance is significant and could be very costly to the company, compliance with Section 338 is important to ensure accuracy in accounting records. Companies should take necessary measures to ensure compliance with Section 338 and regularly review their accounts records to ensure they are adequately maintained and kept as per the requirements of the Companies Act.
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