Section 129: Financial Statements, True and Fair View

Section 129 financial statement true and fair view is the phrase that anchors the whole of Chapter IX of the Companies Act, 2013. Section 129(1) requires a company's financial statements to give a true and fair view of the state of affairs, to comply with the accounting standards notified under section 133, and to be in the form provided for its class of company in Schedule III. Everything else in the chapter, the audit, the Board's report, the filing with the Registrar, hangs off that one requirement.

What does section 129 require of a financial statement?

Three things at once, and the true and fair view requirement is the first of them. Section 129(1) reads that the financial statements "shall give a true and fair view of the state of affairs of the company or companies, comply with the accounting standards notified under section133 and shall be in the form or forms as may be provided for different class or classes of companies in Schedule III". The section prints the cross-reference as "section133" without a space.

The first proviso to section 129(1) adds that the items contained in such financial statements shall be in accordance with the accounting standards. So the standards bind twice: once at the level of the statement, once at the level of its individual items.

Which companies does section 129(1) not reach?

The second proviso to section 129(1) takes four populations outside the sub-section. In its own words, "nothing contained in this sub-section shall apply to" the following:

The first three are named populations and the proviso offers no reason for naming them. The fourth is the only limb with a stated test: a form of financial statement specified in or under the Act governing that class.

The third proviso, and the double negative worth reading twice

The third proviso to section 129(1) is drafted as a negative about a negative. It says the financial statements "shall not be treated as not disclosing a true and fair view of the state of affairs of the company, merely by reason of the fact that they do not disclose" four categories of matter:

• (a) for an insurance company, matters not required to be disclosed by the Insurance Act, 1938 or the Insurance Regulatory and Development Authority Act, 1999
• (b) for a banking company, matters not required to be disclosed by the Banking Regulation Act, 1949
• (c) for a company generating or supplying electricity, matters not required to be disclosed by the Electricity Act, 2003
• (d) for a company governed by any other law in force, matters not required to be disclosed by that law

Read plainly: a sector-regulated company does not fail the true and fair view test just because it left out something its own regulator does not ask for.

Laying, consolidation and the subsidiary statement

Section 129(2) is one sentence and it is the one that puts the numbers in front of shareholders. At every annual general meeting, the Board of Directors shall lay before the meeting financial statements for the financial year.

Section 129(3) adds the consolidated statement. Where a company has one or more subsidiaries or associate companies, it must prepare a consolidated financial statement of itself and of all the subsidiaries and associate companies, in the same form and manner as its own and in accordance with applicable accounting standards, and lay that before the AGM too. The first proviso to section 129(3) requires a separate statement of the salient features of each subsidiary's and associate's financial statement to be attached in the prescribed form. The second proviso lets the Central Government prescribe the manner of consolidation.

Sub-section (3) in its present form was substituted by the Companies (Amendment) Act, 2017, being Act 1 of 2018, section 33, with effect from 7 May 2018. The word "associate companies" sitting alongside "subsidiaries" is what makes a group's reported numbers wider than its ownership chain.

Section 129(4) then applies the Act's preparation, adoption and audit provisions to the consolidated statement, mutatis mutandis, as they apply to a holding company's own statement.

What happens when the accounting standards are not followed

Section 129(5) does not treat a deviation as fatal. Where the financial statements do not comply with the accounting standards referred to in sub-section (1), the company must disclose in the financial statements themselves: the deviation, the reasons for it, and the financial effects, if any, arising out of it. That is a disclosure duty, not a cure, and it sits without prejudice to sub-section (1).

Section 129(6) is the escape valve in the other direction. The Central Government may, on its own or on an application by a class or classes of companies, exempt any class from any requirement of the section or its rules by notification, if it is considered necessary in the public interest, and the exemption may be unconditional or conditional.

Section 129(7) names who carries that liability, in order: the managing director, the whole-time director in charge of finance, the Chief Financial Officer, or any other person charged by the Board with the duty of complying with the section. In the absence of any of those officers, all the directors. The punishment is imprisonment for a term which may extend to one year, or the fine above, or both. Unlike several neighbouring sections, section 129(7) was not decriminalised by the 2019 and 2020 amendment Acts.

The Explanation to section 129 closes a gap that would otherwise be argued: except where the context otherwise requires, any reference to the financial statement in the section includes any notes annexed to or forming part of it.

Where section 129 sits in the filing chain

• Section 129A periodical financial results is the interim layer the Central Government may add for prescribed unlisted companies.
• What is the Directors' Responsibility Statement covers the section 134(5) statement in which the Board says the standards were followed.
• Re-opening of accounts under section 130 is the route by which a court or Tribunal orders a completed statement to be recast.
• Voluntary revision of financial statements is section 131, the directors' own route to correcting a statement that does not comply with section 129.
• What is a Form AOC-4 is the filing that puts the finished statement on the Registrar's record.

A statement prepared under section 129 is the baseline every later disclosure is measured against, which is why that standard matters to a reader of filings and not only to the people preparing them. 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.