A PROJECT REPORT

ON
BOOKS OF ACCOUNT AND THE COMPANIES ACT, 2013
(COMPANY LAW II)
SUBMITTED IN PARTIAL FULFILLMENT FOR

B.Sc.LLB (Hons)

Programme of

SCHOOL OF LAW AND GOVERNANCE

CENTRAL UNIVERSITY OF SOUTH BIHAR
Session- 2014-2019

SUBMITTED BY; SUBMITTED TO;

BINNY KUMARI Dr. Pradip Kumar Das

CUB1413115009 Assistant Professor of Law

Session- 2014-2019 School of Law and Governance

Semester- 8th CUSB

CENTRAL UNIVERSITY OF SOUTH BIHAR

Gaya Campus Gaya

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 ACKNOWLEDGEMENT

With regard to my project on I would like to thank each and every one who offered me their
help, guideline and support whenever required. First and foremost I would like to express
gratitude to Dr. Pradip Kumar Das, Assistant Professor of Law, School of Law and
Governance, Central University of South Bihar, Gaya Campus, Gaya and my friends for
their support and guidance in the Project work.

I am extremely grateful to my guide for her valuable guidance and timely suggestions. I would
also like to extend my thanks to my family members and friends for their support specially. And
lastly, I would like to express my gratefulness to my parents for seeing me through it all.

BINNY KUMARI

CUB1413115009

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 CERTIFICATE

This is to certify that Ms Binny Kumari a student of School of Law and Governance, Central
University of South Bihar has completed project work on under my guidence and supervision

I certify that this is her original work and has not been copied from any source.

Signature of the Guide………

Name of the Guide- Dr Pradip Kumar Das

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 TABLE OF CONTENTS

NAME PAGE NO

INTRODUCTION 7

BOOKS OF ACCOUNT 8

PLACE OF KEEPING BOOKS OF ACCOUNT 10

INSPECTION OF BOOKS OF ACCOUNTS 12

MAINTENANCE OF BOOKS OF ACCOUNT 13

RULES APPLICABLE TO THE BOOKS OF ACCOUNT 14

CASE LAWS ON BOOKS OF ACCOUNT 16

CONCLUSION 18

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 CHAPTERIZATION

1. BOOKS OF ACCOUNT
1.1 BOOKS OF ACCOUNT TO BE KEPT BY THE COMPANY UNDER
COMPANIES ACT, 1956

1.2 REQUIREMENT OF KEEPING BOOKS OF ACCOUNT UNDER COMPANIES

ACT, 2013 (SECTION. 128)

1.3 CONSTITUTION OF BOOKS OF ACCOUNT

2. PLACE OF KEEPING BOOKS OF ACCOUNT

1.1 MAINTENANCE OF BOOKS OF ACCOUNT IN ELECTRONIC FORM

1.2BOOKS OF ACCOUNT IN RESPECT OF BRANCH OFFICE

3. INSPECTION OF BOOKS OF ACCOUNTS

3.1 INSPECTION BY THE DIRECTORS

3.2 DURATION FOR WHICH BOOK IS TO BE PRESERVED

4. MAINTENANCE OF BOOKS OF ACCOUNT

4.1 PERSONS RESPONSIBLE TO MAINTAIN BOOKS

4.2 PENALTY

5. RULES APPLICABLE TO THE BOOKS OF ACCOUNT

6. CASE LAWS ON BOOKS OF ACCOUNT

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 Title of the proposed study
Books of Account And the Company Act,2013, its maintainence, enquiry
and penalty of non- compliance

 Literature Survey/Review

The following Primary and Secondary sources have been referred to ;

1. Primary Sources- Several Books and statutes are referred

2. Secondary Sources- it includes several Journals and websites

 Hypotheses

The following hypotheses would be taken account of in this study and they have been
examined in the course of discussion. A conclusion has been drawn to assess whether the
hypotheses proposed were true to their extent of statement.

1. What are the requirements of maintaining Books of Account under Companies Act,
2013
2. Whether it can be maintained in the electronic form or not?

 Research design/methodology

In accordance with the objectives of the present study, doctrinal research design has been
adopted. The doctrinal design has been used to study the provisions related to Secondary
market-meaning, significance, functions, and intermediaries. Doctrinal Research is a
research, as we all know, based on the principles or the propositions made earlier. It is
more based on the sources like books of the library, and through resources collected
through access to various websites. For the purpose of the Research Project, the
Researcher has collected relevant materials from books on investment law and also from
various websites. The Research has been done primarily with the help of case laws and
leading judgements of various courts as well as legislative provisions. Various articles
from the internet sources have also been referred.

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INTRODUCTION

The 2013 Act has introduced certain significant amendments in this chapter. It has also
introduced several additional requirements such as preparation of consolidated financial
statements, additional reporting requirements for the directors in their report such as the
development and implementation of the risk management policy, disclosures in respect of voting
rights not exercised directly by the employees in respect of shares to which the scheme relates,
etc., in comparison with the requirements of the 1956 Act. All companies incorporated in India
are required to mandatorily maintain book of accounts under the Companies Act, 2013. In
addition, the Companies Act, a company registered in India will also be mandated by the Income
Tax Act to maintain records. In this article, we look at maintaining book of accounts for a
company, as per Companies Act, 2013.

The shareholders provide capital to the company for running the business. They are in a way, the
owners of the company. But, all of them cannot take part in managing the affairs of the company
as their number is usually much more. But they have every right to know as to how their money
has been dealt with by the directors in a particular period. This is why perhaps compulsory
disclosure through annual information to the shareholders by the directors about the working and
financial position of the company enables them to exercise a more intelligent and purposeful
control over the affairs of the company. For preparation of annual accounts the maintenance of
proper books of account is a must. Section 128 of the Companies Act, 2013 contains the
provisions for books of account etc. to be kept by company.

Section 128 of the Companies Act deals with the books of accounts to be kept by the company.
As per this section every company shall prepare and keep at its registered office books of
account and other relevant books and papers and financial statement for every financial year
which gives a true and fair view of the state of affairs of the company, including that of its
branch office or offices if any.

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CHAPTER 1

BOOKS OF ACCOUNT

The shareholders provide capital to the company for running the business. They are in a way, the
owners of the company. But, all of them cannot take part in managing the affairs of the company
as their number is usually much more. But they have every right to know as to how their money
has been dealt with by the directors in a particular period. This is why perhaps compulsory
disclosure through annual information to the shareholders by the directors about the working and
financial position of the company enables them to exercise a more intelligent and purposeful
control over the affairs of the company.1

1.1 BOOKS OF ACCOUNT TO BE KEPT BY THE COMPANY UNDER COMPANIES

ACT, 1956

As per section 209 of The Companies Act, 1956;

(1) 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) in the case of a company pertaining to any class of companies engaged in production,
processing, manufacturing or mining activities, such particulars relating to utilization of material
or labor or to other items of cost as may be prescribed, if such class of companies is required by
the Central Government to include such particulars in the books of account :

Provided that all or any of the books of account aforesaid may be kept at such other place in
India as the Board of directors may decide and when the Board of directors so decides, the

1
ACCOUNTS CCOUNTS OF COMPANIES, available at
http://www.icsi.edu/portals/0/ACCOUNTS%20OF%20COMPANIES.pdf ( Last accessed on 28th march, 2018)

8
company shall, within seven days of the decision, file with the Registrar a notice in writing
giving the full address of that other place.2

1.2 REQUIREMENT OF KEEPING BOOKS OF ACCOUNT UNDER COMPANIES

ACT, 2013 (SECTION. 128)

Maintenance of books of account would mean records maintained by the company to record the
specified financial transaction. It has been specifically provided that every company shall keep
proper books of account. This section specifies the main features of proper books of account as
under –

(i) The company must keep the books of account with respect to items specified in clauses (i) to
(iv) of sub-section 2(13) of the Companies Act, 2013 hereinafter referred as Act, which defines
“books of account”.

(ii) The books of account must show all money received and expended, sales and purchases of
goods and the assets and liabilities of the company.

(iii) The books of account must be kept on accrual basis and according to the double entry
system of accounting.

(iv) The books of account must give a true and fair view of the state of the affairs of the company
or its branches.

1.3 CONSTITUTION OF BOOKS OF ACCOUNT

“Books of account” as defined in Section 2(13) 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

2
The Companies Act, 1956, s. 209

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(iv) 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.

CHAPTER 2

PLACE OF KEEPING BOOKS OF ACCOUNT

Section 128(1) requires every company to prepare and keep the books of account and other
relevant books and papers and financial statements at its registered office. However, all or any of
the books of accounts may be kept at such other place in India as the Board of directors may
decide. When the Board so decides the company is required within seven days of such decision
to file with the Registrar a notice in writing giving full address of that other place.

2.1 MAINTENANCE OF BOOKS OF ACCOUNT IN ELECTRONIC FORM

The maintenance of books of account and other books and papers in electronic mode is permitted
and is optional. Such books of accounts or other relevant books or papers maintained in
electronic mode shall remain accessible in India so as to be usable for subsequent use.3T he
information contained in the records shall be retained completely in the format in which they
were originally generated, sent or received, or in a format which shall present accurately the
information generated, sent or received and the information contained in the electronic records
shall remain complete and unaltered.4

The information received from branch offices shall not be altered and shall be kept in a manner
where it shall depict what was originally received from the branches.5

The information in the electronic record of the document shall be capable of being displayed in a
legible form.6

There shall be a proper system for storage, retrieval, display or printout of the electronic records
as the Audit Committee, if any, or the Board may deem appropriate and such records shall not be
disposed of or rendered unusable, unless permitted by law:

3
The Companies (Accounts) Rules, 2014 , (Rule 3(1)
4
(the Companies (Accounts) Rules, 2014 , (Rule 3(2)
5
(the Companies (Accounts) Rules, 2014 , (Rule 3(3)
6
(the Companies (Accounts) Rules, 2014 , (Rule 3(4)
10
Provided that the back-up of the books of account and other books and papers of the company
maintained in electronic mode, including at a place outside India, if any, shall be kept in servers
physically located in India on a periodic basis.7

The company shall intimate to the Registrar on an annual basis at the time of filing of financial
statement -

(a) the name of the service provider;

(b) the internet protocol address of service provider;

(c) the location of the service provider;

(d) where the books of account and other books and papers are maintained on cloud, such
address as provided by the service provider. (Rule 3(6)).

2.2 BOOKS OF ACCOUNT IN RESPECT OF BRANCH OFFICE

The branches of the company, if any, in India or outside India shall also keep the books of
account in the same manner as specified in subsection (1), for the transaction effected at the
branch office. Further the branch offices are required to send the proper summarized return at
quarterly intervals to the company at its registered office and kept open to directors for
inspection.8

7
The Companies (Accounts) Rules, 2014 , (Rule 3(5)
8
The Companies Act, s. 108(1)

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CHAPTER 3

INSPECTION OF BOOKS OF ACCOUNTS

Accounting for Half-Truths Inspection by directors As provided in sub-section (3), any director
can inspect the books of accounts and other books and papers of the company during business
hours. The expression "Books and Papers" includes accounts, deeds, vouchers, writings and
documents.9 The company is, therefore, required to make available the aforesaid books and
papers for inspection by any directors. Such inspection may be done by any type of director-
nominee, independent, promoter or whole time.

3.1 INSPECTION BY THE DIRECTORS

The proviso to sub-section 3 provides that a director of the Company can inspect the books of
accounts of the subsidiary, only on authorisation by way of the resolution of Board of Directors.
Where any other financial information maintained outside the country is required by a director,
the director shall furnish a request to the company setting out the full details of the financial
information sought and the period for which such information is sought.10 The said information
shall be provided to director within 15 days of receipt of request.11T he director can seek the
information only individually and not by or through his attorney holder or agent or
representative. The right to inspect books of accounts and other books and papers under this
section has been provided to the directors only.

3.2 DURATION FOR WHICH BOOK IS TO BE PRESERVED

The books of accounts, together with vouchers relevant to any entry in such books, are required
to be preserved in good order by the company for a period of not less than eight years
immediately preceding the relevant financial year. In case of a company incorporated less than
eight years before the financial year, the books of accounts for the entire period preceding the
financial year together with the vouchers shall be so preserved. The provisions of Income Tax
Act shall also be complied with in this regard. As per proviso to sub-section 5, where an
investigation has been ordered in respect of a company under Chapter XIV of the Act related to

9
The Companies Act, s. 2(12)
10
Id. at 5
11
Id. at 5

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inspection, inquiry or investigation, the Central Government may direct that the books of account
may be kept for such period longer than 8 years, as it may deem fit and give directions to that
effect.12

CHAPTER 4

MAINTENANCE OF BOOKS OF ACCOUNT

Certain responsibilities are casted upon several persons to maintain the books of account. And in
case of failure by them, they are also subjected to penalties.

4.1 PERSONS RESPONSIBLE TO MAINTAIN BOOKS

The person responsible to take all reasonable steps to secure compliance by the company with
the requirement of maintenance of books of accounts etc. shall be: (sub-section 6)

i) Managing Director,

ii) Whole-Time Director, in charge of finance

iii) Chief Financial Officer

iv) Any other person of a company charged by the Board with duty of complying with provisions
of section 128.

4.2 PENALTY

In case the aforementioned persons (i.e. MD, WTD, CFO etc.)13 fail to take reasonable steps to
secure compliance of this section and thus, contravene such provisions, they shall in respect of
each offence, be punishable with imprisonment for a term which may extend to one year or with
fine which shall not be less than fifty thousand rupees but which may extend to five lakh rupees
or both.

12
ACCOUNTS CCOUNTS OF COMPANIES, available at
http://www.icsi.edu/portals/0/ACCOUNTS%20OF%20COMPANIES.pdf ( Last accessed on 28th march, 2018)
13
The Companies Act, 2013, s. 128(6)

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CHAPTER 5

RULES APPLICABLE TO THE BOOKS OF ACCOUNT

Besides the provisions of Section. 128 of the Companies Act, 2013, there are certin rules also
which are applicable to the books of account. Some of them are;

1. Companies (Accounts) Amendment Rules, 2015

“2A. Notice of address at which books of account are to be maintained.—For the purposes of
the first proviso to sub-section (1) of Section 128, the notice regarding address at which books of
account may be kept shall be in Form AOC-5.”
2. Companies (Accounts) Rules, 2014

RULE. 3 . Manner of books of account to be kept in electronic mode

(1) The books of account and other relevant books and papers maintained in electronic mode
shall remain accessible in India so as to be usable for subsequent reference.

(2) The books of account and other relevant books and papers referred to in sub-rule (1) shall be
retained completely in the format in which they were originally generated, sent or received, or in
a format which shall present accurately the information generated, sent or received and the
information contained in the electronic records shall remain complete and unaltered.

(3) The information received from branch offices shall not be altered and shall be kept in a
manner where it shall depict what was originally received from the branches.

(4) The information in the electronic record of the document shall be capable of being displayed
in a legible form.

(5) There shall be a proper system for storage, retrieval, display or printout of the electronic
records as the Audit Committee, if any, or the Board may deem appropriate and such records
shall not be disposed of orrendered unusable, unless permitted by law:

Provided that the back-up of the books of account and other books and papers of the company
maintained in electronic mode, including at a place outside India, if any, shall be kept in servers
physically located in India on a periodic basis.

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(6) The company shall intimate to the Registrar on an annual basis at the time of filing of
financial statement

(a) the name of the service provider;

(b) the internet protocol address of service provider;

(c) the location of the service provider (wherever applicable);

(d) where the books of account and other books and papers are maintained on cloud, such
address as provided by the service.

Explanation.- For the purposes of this rule, the expression "electronic mode" includes “electronic
form” as defined in clause (r) of sub-section (1) of section 2 of Information Technology Act,
2000 (21 of 2000) and also includes an electronic record as defined in clause (t) of sub-section
(1) of section 2 of the Information Technology Act, 2000 (21 of 2000) and “books of account ”
shall have the meaning assigned to it under the Act.

RULE.4. Conditions regarding maintenance and inspection of certain financial information

by directors.

(1) The summarised returns of the books of account of the company kept and maintained
outside India shall be sent to the registered office at quarterly intervals, which shall be
kept and maintained at
(2) the registered office of the company and kept open to directors for inspection.

(2) Where any other financial information maintained outside the country is required by a
director, the director shall furnish a request to the company setting out the full details of the
financial information sought, the period for which such information is sought.

(3) The company shall produce such financial information to the director within fifteen days of
the date of receipt of the written request.

(4) The financial information required under sub-rules (2) and (3) shall be sought for by the
director himself and not by or through his power of attorney holder or agent or representative.

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CHAPTER 6

CASE LAWS ON BOOKS OF ACCOUNTS

Some of the Important cases on Books of Accounts are;

1. Vakharia v. Supreme General Films Exchange Co. Ltd14

The judge stated that “I do not think, therefore, that the argument that a person can exercise his
right of inspection through his agent only if he is unable effectively to take inspection has any
substance in it. Of course it may be that in a proper case it is open to the party opposing
inspection to show that the person seeking inspection is guided by improper motives, and if he
succeeded in doing so the Court may refuse inspection through an agent. The principles that
apply to the right of inspection of a partner arc to my mind equally applicable to the right of
inspection conferred on a director under Section 130(2) of the Indian Companies Act. Steeble in
his Company Law and Precedents, 3rd edn. Vol. II, at p. 909 states, “a person entitled to inspect
is prima facie entitled to employ an agent or expert to inspect at his instance.” 15

2. Beavan v. Webb16

The brstio of this case is applicable to the right of a director to inspect accounts, and , therefore,

hold that under Section 130. a director is entitled to take inspection of accounts not only
personally but through an agent, provided there is no reasonable objection to the person chosen
as agent and the agent undertakes not to utilise the information obtained by him for any purpose
other than the purpose of his principal.” Hence, the inspection may be done by a properly
authorized agent. In the same case, it was also held that the right of inspection is a statutory right
and the restrictions placed through the articles are ultra vires.

14
[(1948) 50 BOMLR 140]
15
Books of Accounts etc. to be kept by the Company (Sec 128) (Part-3) , available at
https://www.icsi.edu/Portals/86/Geeta_Saar_77_Books_of_Accounts_etc%20_Part-3.pdf( last
accessed on feb 22, 2018)
16
[1901] 2 Ch. 59
16
 3. Kanagasabapathy vs. T.M. Shanmugham17

Honourable Madras High Court held that ‘other books and papers’ will not include all books and
papers. It was held that “Section 209(4)(a) of the Companies Act 1956 directs that the books of
accounts and other books and papers shall be open to inspection by any director during business
hours.

17
[(1972) 42 Comp. Cas. 596 (Mad.)]
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 CONCLUSION

As per Section 128(1), Every company, similar to the requirement of the existing 1956 Act, is
required to maintain books of accounts at its registered office. ‘Books of accounts’ are required
to show all money received and spent and details thereof, sales and purchases of goods, assets
and liabilities and items of cost as may be prescribed. The books of accounts of a company
essentially provide the complete financial information of a company.

Further, with respect to branches, while the existing 1956 Act provides that where company has
a branch office(s) proper summarized returns, made up to date at interval of not more than three
months was supposed to be sent by branch to the company at its registered office or another
place etc., such a requirement has now been done away with and only returns are to be
periodically sent by the branch to the registered office Also, in keeping with the times, books of
accounts and relevant papers can now be maintained in electronic mode.

NFRA has been given power to regulate the maintinence of books and in case of failure penalty
has also been imposed.

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 REFERENCES

LINKS REFERRED

 http://www.icsi.edu/portals/0/ACCOUNTS%20OF%20COMPANIES.pdf

 https://www.icsi.edu/Portals/86/Geeta_Saar_77_Books_of_Accounts_etc%20_Part-3.pdf

 https://aishmghrana.me/2015/04/10/maintenance-of-books-of-account/

 http://corporatelawreporter.com/companies_act/section-128-of-companies-act-2013-

books-of-account-etc-to-be-kept-by-company/

 https://www.caclubindia.com/articles/books-of-account--26795.asp

 https://www.caclubindia.com/articles/companies-act-2013-sec-128-books-of-accounts-

23127.asp

 https://www.indiafilings.com/learn/maintaining-book-accounts-company-companies-act/

 https://www.indiafilings.com/learn/maintaining-company-accounts/

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