Financial Statements: Section 129
Chapter Forty-One
Syllabus topic 3, "Financial Statements of the Company (Sec 129 of the Companies Act, 2013)"
Pages 125 to 127 of 168
In one line
Section 129 requires the financial statements to give a true and fair view, to comply with the accounting standards notified under section 133, and to take the form prescribed by Schedule III, and requires the Board to lay them before the annual general meeting.
What a financial statement is
The definition is not in section 129; it is in section 2(40), and you should open the answer with it. A financial statement includes the balance sheet, the profit and loss account, the cash flow statement, the statement of changes in equity if applicable, and any explanatory note annexed to or forming part of them. A One Person Company, a small company and a dormant company may omit the cash flow statement.
And section 129 has its own Explanation to the same effect: any reference in the section to the financial statement includes any notes annexed to or forming part of it. So a requirement laid on the statement is laid on the notes.
Sub-section (1): the three requirements
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 section 133, and shall be in the form or forms as may be provided for different class or classes of companies in Schedule III.
| Requirement | Where it is spelt out | |
|---|---|---|
| 1 | True and fair view | Section 129(1), and section 128(1) for the books behind it |
| 2 | Compliance with the accounting standards | Section 133 and the rules under it |
| 3 | The form in Schedule III | Schedule III, Division I or II |
The first proviso adds that the items in the financial statements shall be in accordance with the accounting standards. So the standards govern not only the totals but the composition of every line.
Sub-section (1): who is outside it
The second proviso takes four classes out of the form requirement, because their own statutes prescribe a form.
- an insurance company;
- a banking company;
- a company engaged in the generation or supply of electricity; and
- any other class of company for which a form of financial statement has been specified in or under the Act governing that class.
The third proviso protects them further. The statements of such a company shall not be treated as failing to give a true and fair view merely because they do not disclose matters not required to be disclosed by:
| Company | Its own statute |
|---|---|
| Insurance | Insurance Act 1938, and the Insurance Regulatory and Development Authority Act 1999 |
| Banking | Banking Regulation Act 1949 |
| Electricity | Electricity Act 2003 |
| Any other | The law governing it |
Why this matters to a B.Com student: a bank's balance sheet looks nothing like Schedule III, and the reason is here, in the second and third provisos to section 129(1). It is a clean two-mark point.
Financial Statements: Section 129
Sub-section (2): laying them before the meeting
At every annual general meeting, the Board of Directors shall lay before the meeting financial statements for the financial year.
Short, and often the whole of a short-note answer. The duty is the Board's, the occasion is the annual general meeting, and the period is the financial year as defined in section 2(41).
Sub-section (3): consolidation
Where a company has one or more subsidiaries or associate companies, it shall, in addition to the statements under sub-section (2), prepare a consolidated financial statement of the company and of all the subsidiaries and associate companies, in the same form and manner as its own and in accordance with the applicable accounting standards, and lay it before the annual general meeting along with its own.
The first proviso requires the company to attach a separate statement of the salient features of the financial statement of each subsidiary and associate, in the prescribed form.
The second proviso lets the Central Government prescribe the manner of consolidation.
Sub-section (4) then says the provisions of the Act on the preparation, adoption and audit of a holding company's statements apply mutatis mutandis to the consolidated statements. So the consolidated statement is audited, adopted and laid exactly as the standalone one is.
Associates are included, which surprises students. Section 129(3) says subsidiaries and associate companies, so a twenty per cent holding under section 2(6) brings the investee into the consolidation.
Sub-section (5): when the standards are not followed
Non-compliance is not concealed; it is disclosed. Where the statements do not comply with the accounting standards, the company shall disclose in its financial statements:
- the deviation from the accounting standards;
- the reasons for the deviation; and
- the financial effects, if any, arising out of it.
And this is without prejudice to sub-section (1), meaning the disclosure does not make the deviation lawful. It makes it visible.
Sub-section (6): exemption
The Central Government may exempt any class or classes of companies from any of the requirements of this section or the rules under it, by notification, on its own or on an application, if it is necessary in the public interest. The exemption may be unconditional or subject to conditions.
Sub-section (7): default
The same people as under section 128(6), and one addition.
| Person liable | |
|---|---|
| The managing director | Named |
| The whole-time director in charge of finance | Named |
| The Chief Financial Officer | Named |
| Any other person charged by the Board with complying | Named |
| In the absence of any of the above, ALL the directors | The addition |
Financial Statements: Section 129
The punishment is imprisonment up to one year, or a fine of not less than fifty thousand rupees extending to five lakh rupees, or both.
Notice the difference from section 128(6). There the default is punishable with a fine only, and the liability stops at the named officers. Here there is imprisonment, and where no officer has been charged with the duty, every director is liable. A company cannot escape by charging nobody.
Section 129 against section 128
The examiner sets these as separate questions, and the distinction is the answer.
| Section 128 | Section 129 | |
|---|---|---|
| Subject | The books of account | The financial statements |
| Requires | Accrual basis, double entry, true and fair, branches covered | True and fair, accounting standards, Schedule III form |
| Where | Registered office, or another place in India on notice | Laid before the annual general meeting |
| Preservation | Eight financial years, with vouchers | Filed with the Registrar under section 137 |
| Inspection | By any director | By members, who get a copy under section 136 |
| Default | Fine, fifty thousand to five lakh | Imprisonment up to a year, or the same fine, or both, and all directors in the absence of a charged officer |
What to write in the exam
If the question is "Explain the provisions of section 129", take the sub-sections in order: (1) the three requirements with the two provisos on excluded classes, (2) laying before the annual general meeting, (3) and (4) consolidation, (5) disclosure of deviation, (6) exemption, (7) default. Seven sub-sections, seven short paragraphs, and the answer writes itself.
If the question is "What are the financial statements of a company?", start at section 2(40) for the five components and the small-company proviso, then section 129(1) for what they must be, then the Explanation for the notes.
Always name Schedule III when you name section 129. The section is the requirement; the Schedule is the form. The next chapters take the Schedule apart.
The line to remember
True and fair, compliant, and in the prescribed form. Section 129 asks three things of a set of accounts, and Schedule III answers only the third.
The rest of this subject
These notes are cut from the University's printed syllabus. Open the syllabus itself, or the past papers, for the same subject.