Sec. 209 & 211

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Huzefa Tinwala (Querist)
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08 March 2012 What is the requirement of 209 & 2011 of Companies Act 1956. I want to know the contents of the said sections.

Ajay Mishra

Ajay Mishra (Expert)
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10 March 2012 Hi

Please read the details of Section 209:

1. Books of account required to be kept by a company Every company shall keep at its registered office proper books of account with respect to:—
(a) all sums of money received and expended by the company and the matters in respect of which the receipt and expenditure take place;
(b) all sales and purchases of goods by the company;
(c) the assets and liabilities of the company; and
(d) where, in the case of a company engaged in production, processing, manufacturing or mining activities, the Central Government has by notification required any class of companies to include in its books of account certain particulars relating to utilisation of material or labour or to other items of cost as may be prescribed.
2. Meaning of 'Proper Books of Account'
The expression 'proper books of account' has not been defined in the Companies Act, 1956. Section 2(8) defines that the "books or paper" include accounts, deeds, vouchers, writings and documents.
Keeping the accounts of a company on cash or receipt basis would not amount to keeping "proper books of account" in terms of the provisions of sub-sections (1), (2) and (3) of section 209.
The books of account required to be maintained under section 209 shall be prepared and maintained in indelible ink for giving a proper and adequate meaning to the words "proper books of account".
Further, section 209(3) details the cases when proper books of account shall not be deemed to have been kept with respect to the matters specified therein by a company.
In terms of the provisions of section 209(3) proper books of account shall be considered have been kept with respect to the matters specified therein, if following two cumulative conditions are satisfied:—
(a) Books which are necessary to give a true and fair view of the state of the affairs of the company or branch office, as the case may be, and to explain its transactions are kept.
(b) Books are kept on accrual basis and according to the double entry system of accounting.
In determining whether, the proper books of account have been kept by a company, it will be ascertained that there is no suppression of any transaction and no fictitious transactions have been entered
in the books. It has been clarified by the Department that writing of books of account by pencil is not advisable, in as much as books of account should be prepared and maintained in indelible ink for giving a
proper and adequate meaning to the "proper books of account" in section 209.
3. All or any of the books may be kept at any place in India All or any of the books of account aforesaid may be kept at any place in India other than the registered
office, as the Board of directors of the company may decide. When the Board so decides, the company shall, within seven days of the decision, file a notice in e-Form 23AA (Appendix 1) electronically with the Registrar of Companies giving the full address of that other place.
The Department has clarified that proper books of account can be kept at a place other than the Registered office of the company if there are compelling reasons for keeping books at such other place.
Shortage of place at registered office of a company may constitute a compelling reason for maintenance of books of account at other place.
4. Books of accounts shall be kept on accrual accounting system Section 209(3)(b) of the Act provides that "proper books of account shall not be deemed to be kept
with respect to matters specified therein if such books are not kept on accrual basis and according to double entry system of accounting". The matter has been re-examined by the Department and it has clarified that it is mandatory for
companies to provide for gratuity liability in their books of account in accordance with the provisions of section 209(3)(b) of the Companies Act, 1956 taking into account the "Accounting Standard 15 Accounting
for Retirement Benefits in the Financial Statements of Employers) of the ICAI".
The provisions of clause (b) of sub-section (3) of section 209 shall not apply to a Government company engaged in the business of financing industrial projects and approved by the Central Government
under section 36(1)(viii) of the Income-tax Act, 1961, to the extent it relates to income from interest on loans and advances, provided that such accrued income, which is not accounted for in the books of account,
is disclosed by way of note in the annual accounts.
5. Section 209 applies to all companies
The provisions of section 209 apply to both private limited and public limited companies.
6. Books of account in respect of branch office and compliance of requirement to keep books of accounts According to section 2(9), the expression 'branch office' means—
(a) any establishment described as a branch by the company; or
(b) any establishment carrying on either the same or substantially the same activity as that carried on by the head office of the company; or
(c) any establishment engaged in any production, processing or manufacture, but does not include any establishment specified in any order made by the Central Government under section 8 of the Companies Act, 1956.
A company shall be deemed to have kept proper books of account in relation to its branch office, whether in or outside India, if proper books of account relating to the transactions effected at the branch
office are kept at the branch office. Further, proper summarised returns made up to date at intervals of not more than three months must be sent by the branch office to the company at its registered office or the
other place where books of account of the company are kept. [Section 209(2)]
7. Books of account required to be preserved for a period of at least 8 years
Section 209(4A) casts an obligation upon a company to preserve in good order the books of account together with the vouchers relevant to any entry in such books relating to a period of not less than eight
years immediately preceding the current year. (Appendix 2 for resolution)
In the case of a company incorporated less than eight years before the current year, the books of account for the entire period preceding the current year together with the vouchers relevant to any entry in
such books of account shall be preserved in good order.
However, section 25 companies are required to preserve their books of account for a period of not less than four years.
A company shall be required to preserve books of account, etc., for a longer period if some other Act makes such a stipulation.
8. Inspection of books of account by director Section 209(4) provides that the books of account and other books and papers shall be open to inspection by any director during business hours. The right of inspection given to a director is a statutory right and it can be enforced through Court in case of refusal. A director may inspect the books of account either personally or through some agent. However, the inspection through agent will not be permitted if there is either some reasonable objection as to his selection or agent intends to use the information obtained from inspection for any purpose other than that of his principal.
It has been decided in the case of D. Ross Porter v Pioneer Steel Co. Ltd. (1990) 68 Comp Cas 145 (Del), that the concerned director should be allowed inspection of the following books only, Bank
statements, Accounts with Banks, Financial institutions and private parties from whom loan had been taken by the company, and Register of movable assets.
9. Responsibility for compliance with section 209 Section 209(6) state that responsibility to take all reasonable steps to secure compliance by the company of the provisions of section 209 shall be on the following persons as specified in section
209(6):—
(a) where the company has a managing director or manager, such managing director or manager and
all officers and other employees of the company; and
(b) where the company has neither a managing director nor manager, every director of the company.
The expression 'officers' in relation to any company or body corporate, includes any trustee for the debentureholders of such company or body corporate and the expression 'agent' includes, body corporate or person means any one acting or purporting to act for or on behalf of such company, body corporate or person, and includes the bankers and legal advisers of, and persons employed as auditors by, such
company, body corporate or person.
10. Penalty
If any of the above said persons fails to take all reasonable steps to secure compliance by the company with the requirements of this section, or has, by his own willful act, been the cause of any default by the company thereunder he shall, in respect of each offence, be punishable with imprisonment for a term which
may extend to six months, or with fine which may extend to ten thousand rupees or with both. [Section 209(5)]
Provided that in any proceedings against him for offence under section 209, it shall be a defence to prove that a competent and reliable person was charged with the duty of seeing that those requirements were complied with and was in a position to discharge that duty. Provided that no person shall be sentenced to imprisonment for any such offence, unless it was committed willfully. [Second proviso to section 209(5)].

Regards

Ajay Mishra

Ajay Mishra (Expert)
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10 March 2012 Hi

Please read Section 211 of the Companies Act with details:

Form and contents of Balance sheet Section 211(1) provides that every balance sheet of a company shall give a true and fair view of the state of affairs of the company as at the end of every accounting period and shall be in the form set out in Part I of Schedule VI. In this connection, a form of columnar balance sheet has been prepared by the Department of Company Affairs and is intended to serve as a model, in case any company should like to make out its balance sheet in a form other than that set out in Schedule VI. The design and contents of the model form may be kept in view by every company when it seeks the approval of the Central Government under section 211(1) of the Act to the alternative form of balance sheet that it may desire to adopt. It is, however, not proposed to issue any general order in exercise of the powers rested in the Government under section 211(1) of Companies Act. [Vide Circular No. 12/6/60 PR (S), dated 18-7-1961]. Schedule VI, as amended vide File No. 3/24/94-CL-V(a), dated 15-5-1995, to the Companies Act,
1956 has four parts as stated below:—
(a) Part I: Form of balance sheet
(b) Part II: Requirements as to profit and loss account
(c) Part III: Interpretation, and
(d) Part IV: Balance sheet abstract and company's general business profile.
The Central Government has power to exempt any class of companies from compliance with any of the requirements in Schedule VI if, in its opinion, it is necessary to grant the exemption in the public interest.
The Central Government may grant such exemption by notification in the Official Gazette and any such exemption may be granted either unconditionally or subject to such conditions as may be specified in the notification. [Section 211(3)]
Further, the Central Government may, on the application made by the company in the prescribed e-Form 23AAA (See Appendix 4) introduced by the Ministry of Company Affairs vide Notification No. GSR 56(E) dated 10th Feb., 2006 (earlier no prescribed form was available for that purposes), by order, modify in relation to that company any of the requirements of the Companies Act as to the matters to be
stated in the company's balance-sheet or profit and loss account for the purpose of adapting them to the circumstances of the company. [Section 211(4)] Vide Circular No. 1/84, dated 19-4-1984, it is necessary that any company which seeks exemption under section 211(4) of the Companies Act should indicate in the application whether the same has been made with the approval of the Board of directors and forward copy of the Board's resolution in this regard
alongwith the application. (The guidelines for making application have been given in Appendix 5)
Mandatory disclosure under the Balance Sheet for the unclaimed amount of dividend and other amount payable to investors by a company The DCA vide Notification No. GSR 762(E), dated 13th November, 2002 has amended Schedule VI, which mandatorily provides that under heading "Liabilities", in sub-heading "Current Liabilities and
Provisions" the following amount shall be disclosed.
Investor Education and Protection Fund shall be credited by the following amounts namely:—
(a) Unpaid dividend;
(b) Unpaid application money received by the companies for allotment of securities and due for
refund;
(c) Unpaid Matured Deposits;
(d) Unpaid Matured Debentures;
(e) Interest accrued on (a) to (d) above.
20. Form and contents of Profit and Loss Account

Every profit and loss account of a company shall give a true and fair view of the profit or loss of the company for the financial year and shall comply with the requirements of Part II of Schedule VI, so far as they are applicable thereto [Section 211(2)]. This is, however, subject to the provisions of section 211. Proviso to section 211(2) provides that section 211(2) does not apply to any insurance or banking
company or any company engaged in the generation or supply of electricity, or to any other class of company for which a form of profit and loss account has been specified in or under the Act governing such class of companies.
If any information required to be disclosed in the balance sheet and profit and loss account and in the opinion of the Board of a company is not in the interest of the business or the special conditions of the
company, the Board may authorise to file an application in the prescribed e-Form 23AAA by the Notification No. GSR 56(E) dated 19th Feb., 2006 electronically to the Central Government (DCA) for permission to exempt the company from disclosing certain information as required in Schedule VI.
The necessary fee as per the Companies (Fees on Application) Rules, 1999 should accompany an application in Form 23AAA by way of on line or off line system of payment of fees to the Ministry of
Company Affairs. Section 211(3) empowers the Central Government to exempt any class of companies from compliance with any of the requirements in Schedule VI.
21. Whether default in compliance with the requirements of section 211(2) is a continuing offence? Offence under section 211(2) is committed once and for all as and when one commits the default. It gives rise to a single default and to a single punishment. The provision does not counterplate that the obligation to secure compliance continues from day to day until compliance is actually met nor does it
provide the continuance of business without securing compliance becomes a continuing offence. Hence an offence under section 211(2) is not a continuing offence. [Bachrenj Baid v State of West Bengal Case No. 809 (Kol) 92].

Regards

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