Under the Companies Act, 1956 maintenance of books of accounts is mandatory for every class of companies. Section 209 of the Companies Act talks about maintaining books of accounts and penalties for non – compliance therein. Books of accounts are a prime source of information through which information can be extracted about a Company. So every company is required to maintain and preserve proper books of accounts.

A detailed view regarding Books of Accounts has been summarized below by Taxamantra.com –

Which books to maintain?

Sec 209 (1) of the Companies Act provides that every Company is required to maintain necessary books of accounts reflecting true and fair view of the transactions in relation to –

• All sales & purchases made by the Company.
• All assets & liabilities of the Company.
• All sums of money received & spent by the Company together with details of receipts & expenditure made.
• If Company is engaged in manufacturing, production or mining activities then all details relating to utilization of labour, material and other costs must also be described.

Where to keep the books of accounts?

The books of accounts are required to be kept at the Registered Office of the Company.

Exceptions:

If Board of directors permits books to be kept at a place other than registered office then the following conditions are required to be fulfilled –

1.  A resolution must be passed by the Board that books will be maintained at some other place.

2.  A notice in writing within 7 days is required to be given to the Registrar of Companies by filing Form 23AA. The form must disclose the full address of the location of the branch.

3.  Summarized returns of branch transactions are sent to Registered Office at regular intervals for a period not exceeding 3 months.

Who can inspect books of accounts?

The books of accounts maintained by the Company are kept open for inspection during business hours by any of the Director of the Company.

Also sub section (1) of sec 209A provides that books of accounts can be inspected by the Registrar of Companies or officers authorized by the Central Government or SEBI during business hours.

Time limit for preservation of books –

The books of accounts in this relation are required to be maintained for at least 8 years in case of existing companies. For income tax purposes books for earlier years should also be kept & preserved as it may lead to problem when records are to be opened by the IT department.

Who are responsible for maintenance of books of accounts?

The books of accounts are required to be properly and this responsibility vests on Managing Director or Manger, or other officers and the employees who have been allotted this responsibility. If Company does not have a Managing Director or Manager then by all the directors are responsible for proper maintenance of books of accounts.

Penalty for Non- Compliance

The Managing Director, Manager or other Officers and employees who have violated sec 209 of the Companies Act, 1956 shall be liable to imprisonment for a term which may extend to 6 months or a fine of Rs. 10000 or with both.

Conclusion

Section 209 has links with sec 209A and sec 627. Any person who has convicted an offence under sec 209A shall be disqualified from holding such office for a period of 5 years from the date of conviction. So, directors should ensure that the responsibilities being given to the officers are fulfilled and they comply with the requirements of both sec 209 and sec 209 A of the Companies Act, 1956.