Section 128 Companies Act: Books of account, etc., to be kept by company

Section 128 of Companies Act: Corporate Governance & Statutory Compliance

Official Bare Act Text

Override / Mandate Mens Rea (Intent) Actus Reus (Conduct) Punishment Limitation Monetary

Accounts of Companies

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.

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 ).

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 authorised in this behalf by a resolution of the Board of Directors.

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.

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.

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.

Statutory Defined Terms in this Section: (Click any term for official legal definition)

Company Sec 2(20) Director Sec 2(34) Tribunal Sec 2(90)

Legal Commentary & Landmark Judgments: Section 128

Section 128 of the Companies Act, 2013 establishes the mandatory statutory regime for maintaining books of account and financial records on an accrual basis and double-entry system, guaranteeing directors an unfettered right of inspection and imposing server localization and retention mandates.

Accrual Basis and Double-Entry Mandate: Every company must prepare and keep at its registered office books of account, papers, and financial statements for every financial year that present a true and fair view of the state of affairs on an accrual basis and according to the double-entry accounting system.
Server Localization and Electronic Books: Where books are kept in electronic form, they must remain accessible in India, with daily/periodic backups stored on servers physically located in India under Rule 3 of the Companies (Accounts) Rules, 2014; shifting physical books outside the registered office requires a Board resolution and filing Form AOC-5 within seven days.
Preservation Period and Absolute Director Inspection: Books must be preserved in good order for not less than eight financial years immediately preceding the current year; any director possesses an absolute statutory right to inspect books of account during business hours without assigning reasons.

Key Landmark Precedents:

State of Bombay v. Bandhan Ram Bhandani, AIR 1961 SC 186: The Supreme Court held that the statutory obligation of corporate management to maintain true, accurate, and fair books of account is absolute and non-delegable; directors cannot take refuge behind internal accounting staff or external auditors.
D.L.S. Murthy v. B. Rama Rao, (2001) 106 Comp Cas 405 (AP): The Andhra Pradesh High Court held that a director's right to inspect the company's books of account under Section 209 (now Section 128) is an absolute, fiduciary entitlement that cannot be restricted or denied by fellow directors on grounds of corporate hostility.
V.G. Balasundaram v. New Theatres Carnatic Talkies Pvt. Ltd., (1993) 77 Comp Cas 324 (Mad): Held that keeping books of account at any place other than the registered office without passing a board resolution and giving statutory notice to the Registrar within seven days is illegal and vitiates the custody of records.

Courtroom Practice & Strategic Litigation Guidance:

When representing an oppressed director wrongfully locked out of corporate management, file an urgent application under Section 128(3) before the NCLT for an immediate order permitting physical or digital inspection of the books of account with an independent forensic expert. If the company maintains electronic books abroad without Indian server backups, plead non-compliance with Rule 3 to initiate RoC inspection under Section 206.

Section 128: Books of account, etc., to be kept by company

Section 128 of Companies Act: Corporate Governance & Statutory Compliance

Legal Commentary & Landmark Judgments: Section 128