Section 128 of the Companies Act, 2013, lays down the provisions regarding the maintenance of proper books of account by every company registered in India. Proper maintenance of accounts is essential to ensure accountability, transparency, statutory compliance, and prevention of fraud.

Objective of Section 128

• To ensure true and fair recording of financial transactions.
• To maintain accountability and transparency in company operations.
• To provide reliable financial information for decision-making, auditing, and regulatory purposes.
• To prevent tax evasion, misreporting, or fraudulent practices.
• To align Indian corporate accounting practices with international standards.

Meaning of Books of Account

As per Section 2(13) of the Companies Act, 2013:
“Books of account” includes records maintained in respect of:

1. All sums of money received and expended by the company.
2. All sales and purchases of goods and services by the company.
3. All assets and liabilities of the company.
4. Cost records, where applicable under Section 148.

Manner and System of Maintenance

• Accrual Basis: Transactions must be recorded when they occur, not when cash is exchanged.
• Double Entry System: Every transaction affects at least two accounts, maintaining mathematical accuracy.
• Records must give a “true and fair view” of the company’s state of affairs.

Place and System for Keeping Books

• Registered Office: By default, all books and papers must be kept at the company’s registered office, where regulatory authorities and auditors can have access.
• Other Place in India: The Board of Directors can unanimously decide to keep records at another location within India. This decision must be notified to the Registrar of Companies within seven days (using Form AOC-5), facilitating transparency and regulatory oversight.
• Electronic Form: Books can be maintained in electronic mode, following requirements for authenticity, security, accessibility, and unchanged retention as per Companies (Accounts) Rules, 2014.

Books at Branch Offices (Domestic and International)

• If a company operates branches in India or abroad, each branch must maintain its own complete and proper books, detailing all local transactions.
• Branches must periodically send summarized returns and statements to the main registered office or the alternate notified location so that consolidated accounts are possible. This enables comprehensive group reporting and internal controls, especially for companies with multiple business units or foreign operations.

Retention and Preservation of Records

• All books of account and relevant papers must be preserved for at least eight financial years preceding the current financial year. If the company is less than eight years old, all available books must be kept.
• During a government investigation or specific legal circumstances, the Central Government may direct a longer preservation period, thus securing records for ongoing or retrospective inquiries.

Responsibility for Maintenance

• Personal responsibility rests with:
  • Managing Director
  • Whole-time Director (Finance)
  • Chief Financial Officer
  • Other persons as authorized by the Board

These officers are directly accountable for correct maintenance and safeguarding of records. If responsibilities are not clearly allocated, any “officer in default” is liable, reinforcing management accountability and diligence.

Right of Inspection

• Directors’ Right: Every company director has the right to inspect books and papers during business hours, except in the case of subsidiary companies, where the board must provide express authorization to any person inspecting on their behalf.
• Electronic Access: Directors may also inspect electronic records, reflecting modern record-keeping trends.
• Members’ Rights: Ordinary shareholders or members do not have this right, unless specifically provided under the law, maintaining confidentiality and operational integrity.

Applicability to Foreign Companies

Section 128 applies to foreign companies doing business in India to the extent of requiring them to maintain proper books relating to their Indian business at their principal place of business in India. This includes money received and spent, sales and purchases, assets, and liabilities concerning their Indian operations.

Penalty for Non-Compliance

Officers in default (MD, CFO, WTD, or responsible person):

• • Imprisonment: up to 1 year; or
  • Fine: ₹50,000 – ₹5,00,000; or
  • Both.

Company itself is not penalized, but its officers are personally liable.
This makes it a personal compliance responsibility.

Conclusion

Section 128 of the Companies Act, 2013 forms the foundation of corporate accounting discipline in India. It mandates companies to maintain books of account in a systematic and transparent manner, ensures accountability of key officers, and provides regulators and stakeholders with authentic financial information.

Proper compliance not only safeguards against legal consequences but also builds credibility and trust in the company’s financial management.