Books of Account Under Section 128

Books of account section 128 of the Companies Act, 2013 requires are the records underneath every number a company later reports. Section 128(1) says where they are kept, what they must show, and how they must be written up. It opens Chapter IX, which is the chapter that then runs through the financial statement in section 129, the Board's report in section 134, and the filing with the Registrar in section 137.

What section 128 requires of the books of account

Sub-section (1) packs five requirements into one sentence. Separating them out:

• What: books of account, other relevant books and papers, and the financial statement
• For: every financial year
• Where: at the registered office of the company
• What they must show: a true and fair view of the state of the affairs of the company, including that of its branch office or offices if any, and an explanation of the transactions effected both at the registered office and at the branches
• How: on an accrual basis and according to the double entry system of accounting

The words "including that of its branch office or offices" are doing real work. A company's books have to reach its branches, and sub-section (2) then sets out what counts as compliance when a branch keeps its own.

Keeping them somewhere else, and keeping them electronically

The two provisos to section 128(1) each relax the "registered office" rule, in different directions.

The first proviso lets all or any of the books and other relevant papers be kept at such other place in India as the Board of Directors may decide. It attaches a filing to that decision: where the Board so decides, the company shall, within seven days, file with the Registrar a notice in writing giving the full address of that other place. So the location of a company's books is itself a matter of public record whenever it moves off the registered office.

The second proviso permits the books of account or other relevant papers to be kept in electronic mode in such manner as may be prescribed. The manner comes from rules made under the Act rather than from the section.

Section 128(2) then handles branches. Where a company has a branch office in India or outside India, it is deemed to have complied with sub-section (1) if proper books of account relating to the transactions effected at that branch are kept at that office, and proper summarised returns are sent periodically by the branch to the registered office or to the other place referred to in sub-section (1).

Who can inspect the books, and who cannot

Section 128(3) is narrower than most people expect. The books of account and other books and papers maintained within India are open for inspection by any director, at the registered office or at the other place in India, during business hours. Where financial information is maintained outside the country, copies of that information must be maintained and produced for inspection by any director, subject to such conditions as may be prescribed.

The proviso to section 128(3) adds a gate on group inspection: inspection in respect of any subsidiary of the company shall be done only by the person authorised in this behalf by a resolution of the Board of Directors. A director's individual right stops at the company's own books; reaching into a subsidiary's takes a Board resolution.

Section 128(4) backs the right up. Where an inspection is made under sub-section (3), the officers and other employees of the company shall give the person making the inspection all assistance in connection with it which the company may reasonably be expected to give.

There is no members' inspection right in section 128. A shareholder's route to the numbers runs through section 136, which gives copies of the audited financial statement rather than access to the underlying books.

Section 128(5) states that period as "not less than eight financial years immediately preceding a financial year", and where the company has been in existence for less than eight years, in respect of all the preceding years, together with the vouchers relevant to any entry in those books. The proviso extends it: where an investigation has been ordered in respect of the company under Chapter XIV, the Central Government may direct that the books be kept for such longer period as it may deem fit.

That eight-year figure is not local to section 128. Section 130(3) bars a re-opening order in respect of books relating to a period earlier than eight financial years preceding the current one, and its proviso lifts that bar exactly where a Central Government direction under the proviso to section 128(5) has extended the retention period. The retention rule and the re-opening window are the same window.

What a contravention costs, and what it used to cost

Section 128(6) names four possible respondents: the managing director, the whole-time director in charge of finance, the Chief Financial Officer, or any other person of the company charged by the Board with the duty of complying with the section. Where such a person contravenes the provisions, the punishment is a fine of not less than fifty thousand rupees which may extend to five lakh rupees.

It was heavier until recently. The Companies (Amendment) Act, 2020, being Act 29 of 2020, section 24, omitted both the opening imprisonment limb, "with imprisonment for a term which may extend to one year or", and the closing words "or with both". The India Code text prints the effective date of the second omission as 21 December 2020, and prints an impossible date, 21-21-2020, in the footnote to the first. Both omissions are made by the same section of the same amending Act.

• Which provisions apply to a foreign company covers section 384(3), which applies this section to a foreign company's Indian business only.
• Section 129 financial statements is the statement these books have to support.
• Re-opening of accounts under section 130 shares the eight-year window set by section 128(5).
• Section 136 right to financial statements is the members' route to the numbers, since section 128 gives them no inspection right.
• Auditor fraud reporting under section 143 is what happens when an auditor working through these books finds a fraud.
• What is the register of members is the other core company record, and the one that does carry a member inspection right.

Flock reports the filings themselves, each stamped with its date and linked back to the exchange or regulator that published it. What any of it means for you is your call to make.