Re-opening of Accounts Under Section 130
Reopening of accounts section 130 of the Companies Act, 2013 provides for is the one route by which a company's already published accounts can be pulled back and rewritten on somebody else's application. It is not a management decision. Section 130(1) is drafted as a bar, and the only way past it is an application by a named applicant followed by an order of a court of competent jurisdiction or the Tribunal.
Definition
Re-opening of accounts
under section 130 of the Companies Act, 2013 is the recasting of a company's earlier books and financial statements, permitted only where a named applicant moves a court of competent jurisdiction or the Tribunal and an order is made on one of two grounds: that the earlier accounts were prepared fraudulently, or that mismanagement cast doubt on their reliability. Source: Companies Act, 2013, section 130(1).
Who can apply for a reopening of accounts under section 130
Section 130(1) names five categories of applicant, and a company is not one of them:
| Applicant | Section 130(1) |
|---|---|
| The Central Government | Named |
| The Income-tax authorities | Named |
| The Securities and Exchange Board | Named |
| Any other statutory regulatory body or authority | Named |
| Any person concerned | Named |
The last row is the open limb. It is what lets a shareholder, a creditor or any other affected person move the application, rather than confining the section to regulators.
The company itself is not on that list. A company's own route to correcting its accounts is section 131, voluntary revision, which is a different procedure with a different approval and a different scope.
The two grounds an order must be made on
An application alone does not re-open anything. Section 130(1) requires an order by a court of competent jurisdiction or the Tribunal to the effect that one of exactly two things is true:
- (i) the relevant earlier accounts were prepared in a fraudulent manner, or
- (ii) the affairs of the company were mismanaged during the relevant period, casting a doubt on the reliability of financial statements
Ground (ii) is the wider of the two. It does not require fraud in the preparation of the accounts at all. It requires mismanagement of the company's affairs during the relevant period, and a resulting doubt about whether the statements can be relied on.
Who gets heard before the order is made
The proviso to section 130(1) makes the procedure adversarial before it is final. The court or the Tribunal shall give notice to the Central Government, the Income-tax authorities, the Securities and Exchange Board, any other statutory regulatory body or authority concerned, or any other person concerned, and shall take into consideration the representations, if any, made by them before passing any order under the section.
The words "or any other person concerned" appear twice in that proviso, and both were inserted by the Companies (Amendment) Act, 2017, being Act 1 of 2018, section 34, with effect from 9 February 2018. The notice list before that amendment reached regulators only. It now reaches the affected person as well, which mirrors the applicant list in the sub-section itself.
Section 130(2) then settles the status of the result. Without prejudice to the provisions contained in the Act, the accounts so revised or re-cast under sub-section (1) shall be final.
8 financial years
The period before the current financial year beyond which section 130(3) bars an order re-opening a company's books of account
Source: Companies Act, 2013, section 130(3), as inserted by Act 1 of 2018, s. 34
Sub-section (3) was inserted by Act 1 of 2018, section 34, with effect from 9 February 2018. Before that, the section carried no outer limit at all.
Its proviso ties the limit to the retention rule rather than fixing it absolutely. Where a direction has been issued by the Central Government under the proviso to section 128(5) for keeping books of account for a period longer than eight years, the books may be ordered to be re-opened within that longer period. So the re-opening window and the retention window move together: a company under a Chapter XIV investigation that has been directed to keep its books longer is also exposed to re-opening for longer.
Section 130 against section 131
The two sections sit next to each other and are routinely confused. They differ on who starts, who approves, how far back it reaches, and how often it can be done.
| Section 130, re-opening | Section 131, voluntary revision | |
|---|---|---|
| Who initiates | The Central Government, Income-tax authorities, SEBI, another statutory body, or any person concerned | The directors of the company |
| Trigger | An order on fraud or mismanagement grounds | It appears to the directors that the financial statement or the Board's report does not comply with section 129 or section 134 |
| Approving authority | A court of competent jurisdiction or the Tribunal | The Tribunal, on an application by the company |
| Reach back | Up to eight financial years, or longer under the proviso to section 130(3) | Any of the three preceding financial years |
| Frequency | Not limited by the section | Not more than once in a financial year, under the second proviso to section 131(1) |
| Status of the result | Final, under section 130(2) | Confined to the correction and consequential alterations, under section 131(2) |
Read together, section 130 is the involuntary route and section 131 is the voluntary one, and the involuntary route reaches almost three times as far back.
- Voluntary revision of financial statements covers section 131 in full.
- Books of account under section 128 sets the eight-year retention rule that section 130(3) borrows.
- Section 129 financial statements is the standard the re-cast accounts have to meet.
- Auditor fraud reporting under section 143 is one route by which a fraud in the accounts reaches the Central Government.
- What is the National Company Law Tribunal is the forum most of these applications are made to.
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Frequently asked questions
What is re-opening of accounts under section 130?
The recasting of a company's earlier books of account and financial statements. Section 130(1) bars a company from doing it unless a named applicant makes an application and a court of competent jurisdiction or the Tribunal makes an order that the earlier accounts were prepared fraudulently, or that mismanagement cast doubt on the reliability of the statements. Source: Companies Act, 2013, section 130(1).
Who can apply to re-open a company's accounts?
Five categories under section 130(1): the Central Government, the Income-tax authorities, the Securities and Exchange Board, any other statutory regulatory body or authority, and any person concerned. The company itself is not among them; its own route to correcting accounts is the voluntary revision procedure in section 131. Source: Companies Act, 2013, sections 130(1) and 131(1).
How far back can accounts be re-opened?
Eight financial years. Section 130(3) bars an order re-opening books relating to a period earlier than eight financial years immediately preceding the current financial year. Its proviso extends that where the Central Government has directed longer retention under the proviso to section 128(5). Source: Companies Act, 2013, section 130(3), inserted by Act 1 of 2018, s. 34, with effect from 9 February 2018.
Who gets notice before a re-opening order is made?
The proviso to section 130(1) requires the court or Tribunal to give notice to the Central Government, the Income-tax authorities, the Securities and Exchange Board, any other statutory regulatory body or authority concerned, or any other person concerned, and to consider their representations before passing any order. Source: Companies Act, 2013, proviso to section 130(1).
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