Books of accounts means the records maintained in order to ascertain the financial position of the companies. It is mandatory to maintain books of accounts as it helps in the disclosure of the working as well as financial position of the companies to the shareholders so that they can have a more purposeful control over the affairs of the company.
According to Section 2(13) of the companies act, 2013 ; the books of accounts include records which are kept in respect of:
- All sums of money received and expended by a company and matters in relation to which the receipts and expenditure takes place.
- All sales and purchases of goods and services by the company;
- The assets and liabilities of the company; and
- The 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.
The proper books of accounts must be maintained at the registered office of the company for every financial years.
Winding up of a company is a process of ending the operation of a business and distributing the assets of the company to its creditors and members. In other words, it is the procedure by which the life of a company is bought to an end and its property is discharged for the benefit of members and creditors. According to the companies act, 2013; winding up of the company can be done in two ways;
- Winding up by Tribunal
- Voluntary winding up
LIABILITY WHERE PROPER ACCOUNTS ARE NOT KEPT: SECTION 338:
When proper books of accounts are not maintained by the company; then the company becomes liable during the period of winding up under the Companies Act, 2013. Under Section 338 of the Companies Act, 2013 the liability of the company arises when proper accounts are not kept. Section 338 states that :
(1) Where a company is being wound up, if it is shown that proper books of account were not kept by the company throughout the period of two years immediately preceding the commencement of the winding up, or the period between the incorporation of the company and the commencement of the winding up, whichever is shorter, every officer of the company who is in default shall, unless he shows that he acted honestly and that in the circumstances in which the business of the company was carried on, the default was excusable, be punishable with imprisonment for a term which shall not be less than one year but which may extend to three years and with fine which shall not be less than one lakh rupees but which may extend to three lakh rupees.
(2) For the purposes of sub-section (1), it shall be deemed that proper books of account have not been kept in the case of any company,—
(a) if such books of account as are necessary to exhibit and explain the transactions and financial position of the business of the company, including books containing entries made from day-to-day in sufficient detail of all cash received and all cash paid, have not been kept; and
(b) where the business of the company has involved dealings in goods, statements of the annual stock takings and, except in the case of goods sold by way of ordinary retail trade, of all goods sold and purchased, showing the goods and the buyers and the sellers thereof in sufficient detail to enable those goods and those buyers and sellers to be identified, have not been kept.
So from this we can say that the officer who is in default for not keeping the books of accounts for a period of two years prior to the commencement of winding up will be liable for imprisonment of one to three years as well as fine of Rs. One lakh to three lakh unless he proves that he was acting honestly or the default can be excusable. The proper books of accounts for the purpose of this section are those accounts which includes the details of cash inflow as well as cash outflow by the company along with those transactions which exhibit about the financial position of the business and it also states about those books which includes about the companies dealings in goods and their statement of annual stock takings so that the buyers and sellers can easily deal with those goods accordingly.
- Vinay sureka vs Unknown on 8th October, 2021: In this case the learned counsel for the complainant stated that the petitioner need to keep and maintain relevant documents and records in its registered office under Section 128 of Companies Act, 2013 was unable to obtain the injunction order from the National Company Law Tribunal. So it was stated that there was a clear case of contravention of Section 128 by the petitioner and he will be liable for the punishment.
- Dr. Rajesh Kumar Yaduvanshi vs Serious Fraud Investigation on 21st September, 2020: The learned trial court stated that the BSL did not maintain proper books of accounts and was unable to show the fair view and dealings of the company. Therefore, it has contravened the provision of Section 128 of Companies Act, 2013 and is liable for punishment under Section 128 of Companies Act, 2013.
- Prem Kumar Aggarwal vs. Serious Fraud Investigation on 23rd October, 2019: The learned counsel for the state contended that the petitioner should not be granted anticipatory bail as a case has been filed against him for violation of Section 128 as well under Section 129, 447, 448 of Companies Act, 2013. The learned special Judge has recognized these offences and has issued summons under Section 128, 129, 447, 448 of Companies Act, 2013.
Under Section 128 of the Companies Act, 2013; it is important to maintain books of accounts, papers and financial statements by a company as it helps in reflecting true and fair view of the affairs of the company. It also helps shareholders to know about the company so that they can have a purposeful control over the company and accordingly they can decide whether they want to invest in the company or not. If the company does not maintain proper accounts then the liability arises for the company under Section 338 of the Companies Act, 2013 during the period of winding up of the company where it will be liable for fine and the officer in default will be liable for fine as well as imprisonment. During winding up , the company needs to distribute its assets to the creditors as well as members, therefore it is important to maintain books of accounts for atleast two years immediately preceding the commencement of the winding up or the period between incorporation and commencement of winding up. Hence, it is a mandatory and obligatory provision to maintain proper books of accounts by the companies.
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