Though the section 128 of Companies Act 2013, seems very small in nature but it plays an important role in compliance of a company. And many of our professionals have dilemma on this section, therefore I am writing this interpretation of Section 128 to make you aware that, a company may have 10 or 20 plants or branch offices or sales offices in India or abroad and as per this section you do not need to file the all places of business or places where you maintain books of accounts (i.e. in all branches separately) with MCA.
You all need to give an information about the only place/address where you keep summarized books of accounts and other relevant books other than Registered office of a company.
Hereby, I have given my interpretation after each sub-section for your kind understanding with Conclusion at end.
Section 128 (1)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:
Provided that all or any of the books of account aforesaid and other relevant papers may be kept at such other place in India as the Board of Directors may decide and where such a decision is taken, the company shall, within seven days thereof, file with the Registrar a notice in writing giving the full address of that other place:
Provided further that the company may keep such books of account or other relevant papers in electronic mode in such manner as may be prescribed.
Interpretation of Section 128(1):
Every company must maintain and keep its books of accounts and other relevant books including financials and other relevant papers at its registered office. However, the same can be kept and the registered office as well as some other place in India as approved by the Board of Directors at the Board Meeting. This sub section explicitly provides that the Company has a liberty to maintain books of accounts at two places i.e. registered office and some other place other than registered office at a time. Further, the said sub section includes words “Branch office” or “Offices” which means that even if the company has several branch offices, it should be centralized and kept at the registered office or such other place reported to Registrar of Companies (“ROC”) in
AOC-5 (Notice of address at which books of accounts are to be maintained). Having said this, the form provides only one filed to incorporate the address of such other place. While understanding the intent of law, one should also consider the rational for providing only one filed for incorporating address.
If we consider “Place” as multiple locations then the e-form should have been given multiple fields for entering the addresses of such other place.
Section 128 (2) Where a company has a branch office in India or outside India, it shall be deemed to have complied with the provisions of sub-section (1), if proper books of account relating to the transactions effected at the branch office are kept at that office and proper summarized returns periodically are sent by the branch office to the company at its registered office or the other place referred to in sub-section (1).
Interpretation of Section 128(2):
If the company has multiple offices or place of business i.e. branch offices or plants where the books of accounts are being maintained and proper summarized details are being sent by these branch offices to the Registered office of a company or a place referred in sub-section (1) then there the Board is not required to pass a board resolution stating the address of all such places and reporting the same in e-formAOC-5 as the aforesaid form does not allow to enter more than 1 place as provided under section 128(1) of the Act. The only pre-condition is that such branch offices should send summarized returns periodically to its registered office or the other place referred to in sub-section (1).
Section 128 (3) The books of account and other books and papers maintained by the company within India shall be open for inspection at the registered office of the company or at such other place in India by any director during business hours, and in the case of financial information, if any, maintained outside the country, copies of such financial information shall be maintained and produced for inspection by any director subject to such conditions as may be prescribed:
Provided that the inspection in respect of any subsidiary of the company shall be done only by the person authorized in this behalf by a resolution of the Board of Directors.
Interpretation of Section 128 (3):
This subsection provides that the books of accounts and other relevant papers of the company shall be open for the inspection at its registered office or only at the place as mentioned in e-form AOC-5 (means only one place other than registered office) during the business hours. Also, the summarized reports have to be obtained in the manner prescribed in Rule 4 of Companies (Accounts) Rules, 2014 as amended from time to time.
Section 128 (4) Where an inspection is made under sub-section (3), the officers and other employees of the company shall give to the person making such inspection all assistance in connection with the inspection which the company may reasonably be expected to give.
Interpretation of Section 128(4):
If any inspection is being initiated as defined in this sub section, the company has to allow its officers and employees to provide proper assistance in the inspection.
Section 128 (5) The books of account of every company relating to a period of not less than eight financial years immediately preceding a financial year, or where the company had been in existence for a period less than eight years, in respect of all the preceding years together with the vouchers relevant to any entry in such books of account shall be kept in good order: Provided that where an investigation has been ordered in respect of the company under Chapter XIV, the Central Government may direct that the books of account may be kept for such longer period as it may deem fit.
Interpretation of Section 128 (5):
This subsection states that the time limit for which a company has to keep/preserve its books of account including relevant vouchers.
As per this sub section, The books of accounts of every company are required to be preserved and maintained for not less than 8 financial year and If the company is in existence for less than 8 years then in this case the company has to maintain all books of account in respect of the period since its incorporation.
If an investigation has been ordered in respect of the company under chapter XIV, the central government may direct that the books of account may be kept for such longer period as it may deem fit.
Section 128(6):If the managing director, the whole-time director in charge of finance, the Chief Financial Officer or any other person of a company charged by the Board with the duty of complying with the provisions of this section, contravenes such provisions, such managing director, whole-time director in charge of finance, Chief Financial officer or such other person of the company shall 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 with both.
Interpretation of Section (6):
If there is a contravenes of any provision provided under this section by the officials mentioned above shall 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 with both.
One should understand the purpose or object of formulating this section for keeping books of account at such other place other the registered office of the Company. As per my view, the rule of Literal Interpretation should be applied while reading section 128 of the Act as the language of this section is plain and words are pretty much clear.
The company does not require to file or provide details of all the plants or branch offices or other place of business to the ROC under section 128 of Act. Under this section, the place of keeping books of accounts shall be ONE PLACE only other than Registered office.
Therefore, e-form AOC-5 contains only one field for providing address details at which the books of accounts are to be maintained. While reading this section, one should focus on finding out the true sense of a formulating this section and ascertain the true meaning of the words used in this section.
This is my interpretation of section 128 of the Act and your comments on the same are solicited.
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