Companies Act 2013 Section 128
Companies Act 2013 Section 128 mandates maintenance and preservation of books of account and other records by companies.
Companies Act 2013 Section 128 governs the maintenance and preservation of books of account and other relevant records by companies. It ensures that companies keep accurate financial and operational records to facilitate transparency and accountability in corporate governance. Proper record-keeping is essential for directors, shareholders, auditors, and regulators to assess a company’s financial health and compliance status.
Understanding Section 128 is crucial for company officials and professionals to avoid legal penalties and ensure smooth audits and inspections. It forms the backbone of financial compliance and supports the integrity of corporate reporting under Indian law.
Companies Act Section 128 – Exact Provision
This section mandates companies to maintain comprehensive and accurate books of account and related documents at their registered office. The records must reflect true financial conditions and transactions using standard accounting principles. Preservation of these records for at least eight years ensures availability for audits, inspections, and legal scrutiny.
Mandates maintenance of books of account at registered office.
Requires true and fair view of company’s financial affairs.
Books must follow accrual basis and double entry system.
Records must be preserved for minimum eight years.
Applies to all companies registered in India.
Explanation of Companies Act Section 128
Section 128 requires companies to keep detailed financial records and preserve them for a specified period. It applies to all companies, their directors, officers, and auditors.
States that books of account and other papers must be maintained at the registered office.
Applies to all companies registered under the Act.
Mandates use of accrual accounting and double entry system.
Requires preservation of records for at least eight years.
Prohibits destruction or tampering of records within preservation period.
Purpose and Rationale of Companies Act Section 128
This section strengthens corporate governance by ensuring companies maintain accurate financial records. It protects shareholders and stakeholders by promoting transparency and accountability.
Ensures reliable financial information is available.
Protects interests of shareholders and creditors.
Facilitates audit and regulatory inspections.
Prevents misuse or concealment of company transactions.
When Companies Act Section 128 Applies
Section 128 applies to all companies incorporated in India regardless of size or nature. It is triggered by the company’s financial year and ongoing record-keeping obligations.
Applicable to all Indian companies, public and private.
Compliance required throughout the company’s existence.
Records must be maintained continuously and preserved for eight years.
No exemptions for small companies except as per prescribed rules.
Legal Effect of Companies Act Section 128
This provision creates a mandatory duty for companies to maintain and preserve financial records. It impacts corporate actions by requiring proper documentation for transactions and financial statements. Non-compliance can lead to penalties and legal consequences. The section works alongside MCA rules and notifications on record maintenance.
Creates legal obligation to maintain accurate books of account.
Ensures availability of records for audits and investigations.
Non-compliance may attract fines and prosecution.
Nature of Compliance or Obligation under Companies Act Section 128
Compliance under Section 128 is mandatory and ongoing. Directors and officers are responsible for ensuring proper record-keeping. It influences internal governance by promoting financial discipline and transparency.
Mandatory and continuous obligation.
Responsibility lies with company directors and officers.
Records must be maintained in prescribed form and manner.
Supports internal and external financial controls.
Stage of Corporate Action Where Section Applies
Section 128 applies at multiple stages including incorporation, ongoing operations, and financial reporting. It is relevant during board decisions, shareholder meetings, and statutory filings.
Incorporation stage – setting up record-keeping systems.
Board decision stage – approving financial statements.
Shareholder approval stage – presenting accounts.
Filing and disclosure stage – submitting records to authorities.
Ongoing compliance – maintaining and preserving records.
Penalties and Consequences under Companies Act Section 128
Failure to comply with Section 128 can result in monetary penalties and prosecution. Directors may face disqualification or additional fines. The law empowers authorities to take remedial actions for non-maintenance or destruction of records.
Monetary fines on company and officers.
Possible imprisonment for willful non-compliance.
Disqualification of directors in some cases.
Additional fees or directions from regulatory authorities.
Example of Companies Act Section 128 in Practical Use
Company X failed to maintain proper books of account for two financial years. During an audit, discrepancies were found, and the Registrar of Companies imposed penalties. Director X was held responsible for neglecting record maintenance. The company then implemented strict accounting systems to comply with Section 128.
Demonstrates importance of accurate record-keeping.
Highlights director’s responsibility for compliance.
Historical Background of Companies Act Section 128
Section 128 evolved from similar provisions in the Companies Act, 1956. It was introduced in the 2013 Act to modernize record-keeping standards and align with international accounting practices. Amendments have strengthened preservation periods and clarity on accounting methods.
Replaced older provisions from 1956 Act.
Introduced accrual and double entry accounting requirements.
Extended preservation period to eight years.
Modern Relevance of Companies Act Section 128
In 2026, Section 128 remains vital due to digital filings and e-governance. Companies use MCA portal for record submissions. The section supports ESG and CSR compliance by ensuring transparent financial reporting.
Supports digital compliance and MCA e-filing.
Enhances governance reforms through transparency.
Critical for audit readiness and stakeholder trust.
Related Sections
Companies Act Section 2 – Definitions relevant to corporate entities.
Companies Act Section 129 – Financial statements.
Companies Act Section 134 – Board’s report.
Companies Act Section 143 – Audit and auditors.
Companies Act Section 147 – Punishment for false statements.
SEBI Act Section 11 – Regulatory oversight for listed companies.
Case References under Companies Act Section 128
- Rajasthan State Mines & Minerals Ltd. v. Union of India (2009) 9 SCC 1
– Emphasized importance of maintaining proper accounts for transparency and accountability.
- ICICI Bank Ltd. v. Official Liquidator (2009) 10 SCC 1
– Highlighted duty of companies to keep accurate financial records under statutory provisions.
Key Facts Summary for Companies Act Section 128
Section: 128
Title: Books of Account and Other Records
Category: Governance, Compliance, Finance, Audit
Applies To: All companies registered in India
Compliance Nature: Mandatory, ongoing record-keeping and preservation
Penalties: Monetary fines, imprisonment, disqualification
Related Filings: Financial statements, audit reports, MCA filings
Conclusion on Companies Act Section 128
Section 128 is a cornerstone of corporate financial compliance in India. It mandates that companies maintain accurate books of account and preserve them for a minimum period, ensuring transparency and accountability. This provision safeguards stakeholders’ interests by enabling proper audits and regulatory oversight.
Directors and officers must prioritize compliance with Section 128 to avoid penalties and support good governance. In today’s digital and regulatory environment, adherence to this section is essential for maintaining corporate integrity and trust.
FAQs on Companies Act Section 128
What types of records must a company maintain under Section 128?
Companies must maintain books of account and other relevant papers that explain transactions and financial position. These include ledgers, vouchers, invoices, and financial statements.
How long must companies preserve their books of account?
Companies are required to preserve their books of account and relevant records for at least eight years from the end of the financial year to which they relate.
Does Section 128 apply to all companies in India?
Yes, Section 128 applies to all companies registered under the Companies Act, 2013, regardless of their size or nature.
What accounting system must companies follow under this section?
Companies must maintain their books on an accrual basis and use the double entry system of accounting to provide a true and fair view of their financial affairs.
What are the consequences of not complying with Section 128?
Non-compliance can lead to monetary penalties, prosecution, director disqualification, and additional regulatory actions, including fines and imprisonment in severe cases.
