Books of account

Books of Account etc. to be kept by Company
Section 128 of Companies Act, 2013
Rules 2A, 3 & 4 of Companies (Accounts) Rules, 2014

Sub-section 1 states

1. Place of keeping Books of account -Books of account + other relevant books and papers + financial statement for every financial year should be kept at the registered office of the Company

2. Nature - Books of Account should give a true and fair view of state of affairs

3. Details of branch office - Books of account + other relevant books and papers + financial statement should include details/data regarding branch office(s)also, if any

4. Transactions - Transaction effected both at the Registered Office + branch should be explained

5. Books of Account how maintained

• On accrual basis
• Double entry system of accounting

Proviso to Sub-section 1 states

Books of Account can be kept at any place in India except Registered Office if-

1. Board of Directors approve the same vide a board resolution
2. And intimate Registrar of Companies within 7 days of such decision
3.  In Form AOC-5- Notice of address at which books of account are maintained [as per Rule 2A of Companies (Accounts) Rules, 2014]
4. Giving full address of the place where Books of Account will be kept

Electronic Form - Company can keep Books of Account in electronic forms prescribed in Rule 3 of Companies (Accounts) Rules, 2014

Sub-section 2 states

Books of account in case of Branch Office

Company having branch (es) in / outside India will be deemed to comply the provision of sub-section 1 if-

1. Proper books of account relating to transactions of branch office are kept in that branch office and
2. Proper summarized returns are sent by that branch to the Company
3. Such returns should be sent periodically
4. At its registered office
5. Or such other place as decided by Board [after filing Form AOC-5]

Sub-section 3 states –

Inspection of Books of Account

If maintained in India-

1. Inspection can be done at the registered office + such other place in India
2. By any Director
3. During business hours

If financial information maintained outside India-

Copies to be maintained and produced for inspection by director as per the conditions prescribed in Rule 4 of Companies (Accounts) Rules, 2014

Proviso to Sub-section 3 states –

Inspection of Books of account of subsidiary

1. Inspection can be done only by the authorized person
2. Authorization to be done by the Board of Directors vide a Board Resolution

Sub-section 4 states –

Assistance in inspection
Officers + other employees of Company to give reasonable assistance to person making such inspection

Sub-section 5 states –

Maintenance of Books of Account

1. If Company in Existence for more than 8 years-Books of account should be maintained and preserved in good order for a period of eight years immediately preceding the previous financial year

2. If Company in Existence for less than 8 years- Books of account should be maintained and preserved in good order for all the preceding years along with the vouchers to understand the transactions

Proviso to Sub-section 5 states

Maintenance of Books of Account in case of Investigation

Central Government may order to preserve the books of account for more than eight years in case any investigation is ordered against the Company under Chapter XIV [Inspection, Inquiry and Investigation]

Sub-section 6 states –

Who will be liable in case of contravention?

1. Managing Director
2. Whole Time Director in charge of finance
3. Chief Financial Officer
4. Or any other person made so liable by the Board to comply with provisions of section 128

What will be the penalty?

1. Imprisonment up to 1 year Or
2. Penalty ranging from INR 50,000/- to INR 5,00,000/- Or
3. Both

Rule 3 of Companies (Accounts) Rules, 2014– Manner of books of account to be kept in electronic mode

1. To be accessible in India and usable for subsequent reference
2.  To be retained completely in the format in which they were originally generated, sent or received
3. Or in the  format  capable of presenting accurately the information generated, sent or received
4. Information to be complete and unaltered
5. Information received from branch offices not to be altered and should depict the true picture as originally received from the branches
6. Be capable of being displayed in legible form
7. Proper system for storage, retrieval, display or printout of electronic records as Audit Committee, if any, or Board deems appropriate
8.  Such electronic information should not be disposed of / rendered unusable except as permitted by Law

Backup of Books maintained electronically

1.  Backup of books of account + other books and papers maintained electronically [including at a place outside India] to be kept in servers physically located in India
2.  Periodic basis

Intimation to Registrar

At the time of filing financial statement, Company should intimate to the Registrar on an annual basis-

1.  Name of service provider
2.  Internet protocol address of service provider
3.  Location [wherever applicable]
4.  When books maintained on cloud, such address as provided by the service provider

Rule 4 of Companies (Accounts) Rules, 2014– Conditions regarding maintenance and inspection of certain financial information by directors

1. Summarized returns of books maintained outside India to be sent to registered office
2. On quarterly intervals
3. If financial information maintained outside India required by Director-Director to make a request to Company stating details sought and period for which details sought
4. Company to provide the details to the Director within 15 days of receipt of request for information
5. Financial information required to be sought by Director himself and not by/through a power of attorney holder or agentor representative

Note -Definitions for reference

Section 2 (13) of Companies Act, 2013

“books of account” includes records maintained in respect of—

(i) all sums of money received and expended by a company and matters in relation to which the receipts and expenditure take place;

(ii) all sales and purchases of goods and services by the company;

(iii) the assets and liabilities of the company; and

(iv) the items of cost as may be prescribed under section 148 in the case of a company which belongs to any class of companies specified under that section

Section 2 (40) of Companies Act, 2013

“financial statement” in relation to a company, includes—

(i) a balance sheet as at the end of the financial year;

(ii) a profit and loss account, or in the case of a company carrying on any activity not for profit, an income and expenditure account for the financial year;

(iii) cash flow statement for the financial year;

(iv) a statement of changes in equity, if applicable; and

(v) any explanatory note annexed to, or forming part of, any document referred to in sub-clause (i) to sub-clause (iv):

Provided that the financial statement, with respect to One Person Company, small company and dormant company, may not include the cash flow statement

Draft of resolution for change in place for maintenance of books of account and other records of the Company other than the registered office of the Company

“RESOLVED THAT pursuant to the provisions of section 128 of the Companies Act, 2013 and the other applicable rules made there under (including any statutory modifications or enactments or re-enactments thereof), consent of the Board of Directors of the Company be and is hereby accorded for change in place for maintenance of books of account and other records of the Company other than registered office of the Company at below mentioned address:

Address: ____________________________________________________________________________.”

“RESOLVED FURTHER THAT any director of the Company be and is hereby authorized to do all such acts, deeds and things as may be deemed necessary to give effect to the above resolution.”

The author is a Company Secretary who has great interest in writing and can also be reached at jayaranga51@gmail.com