Books of Account: Section 128
Chapter Thirty-Nine
Syllabus topic 1, "Meaning of Company, Types of Company, Maintenance of Books of Accounts"
Pages 117 to 119 of 168
In one line
Every company must keep, at its registered office, books of account on the accrual basis and by double entry that give a true and fair view, and must keep them for eight financial years.
What must be kept: sub-section (1)
The words of the section are worth having exactly, because each phrase is a mark.
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 give 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 explain the transactions effected both at the registered office and its branches, and such books shall be kept on accrual basis and according to the double entry system of accounting.
Six requirements are packed into that sentence.
| Requirement | What it rules out | |
|---|---|---|
| 1 | Books of account and other relevant books and papers and financial statement | Keeping a ledger but not the vouchers behind it |
| 2 | For every financial year | A running record with no annual cut-off |
| 3 | Giving a true and fair view | Books that are complete but misleading |
| 4 | Covering branch offices too | Treating a branch as somebody else's problem |
| 5 | Explaining the transactions | Figures with no narration or trail |
| 6 | Accrual basis and double entry | Cash-basis or single-entry accounts |
The accrual and double-entry requirement is statutory, not a convention. A company that keeps its accounts on a cash basis has broken section 128(1), whatever the accounts show.
Where: the registered office, and the two provisos
The rule is the registered office. Two provisos qualify it.
First proviso: another place in India. The books may be kept at such other place in India as the Board of Directors may decide, and where the Board so decides the company must, within seven days, file with the Registrar a notice in writing giving the full address of that other place.
Second proviso: electronic mode. The company may keep the books in electronic mode in such manner as may be prescribed.
| Permitted | Condition | |
|---|---|---|
| Registered office | Always | The default |
| Another place in India | Yes | Board decision plus notice to the Registrar within seven days |
| Outside India | No | The proviso says in India |
| Electronic mode | Yes | In the prescribed manner |
The seven days is the examinable number here, and the qualification "in India" is the trap. A Board resolution alone does not do it; the notice must go to the Registrar.
Branches: sub-section (2)
A company with a branch in India or outside India is deemed to have complied with sub-section (1) if:
- proper books relating to the branch's transactions are kept at that office; and
- proper summarised returns are sent periodically by the branch to the company at its registered office or the other place under sub-section (1).
The rest of this chapter
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