The Companies Amendment Act, 2017 read with notification dated 9th February 2018 amended law related to re-opening of books of accounts under the Companies Act, 2013. Re-opening of accounts is one special feature under the Act. Section 130 deals with the law relating to re-opening of books of account. Section 130, in its original form, as applicable from 1st June 2016 till 8th February 2018. We shall discuss amended section 130 here.
A company ordinarily cannot re-open its books of account. This is confirmed by the opening words of Section 130(1). It can also not recast its financial statements without following provision of Section 130.
Purpose
Section 130 applies to:
- Re-open books of account; and
- Re-cast financial statements.
Applicant
Application for re-opening of books or recasting of financial statements should be made by:
- by the Central Government;
- the Income-tax authorities;
- the Securities and Exchange Board;
- any other statutory regulatory body or authority; or
- any person concerned.
The list of possible applicants is quite rich for the purpose.
Judicial Forum
The Application can be made before:
- a Court of competent jurisdiction; or
- National Company Law Tribunal.
Section 130 does not talk about which is the court with competent jurisdiction. This will be decided on the case by case basis. Unless there is a strong reason, the jurisdiction under this section by default vast with the National Company Law Tribunal.
Ground
There may be only the following ground to order re-opening of books of account and recasting of financial statement:
- Accounts were prepared in a fraudulent manner; or
- Affairs of company mismanaged.
Notice
The court or the Tribunal, as the case may be, shall give notice to:
- the Central Government,
- the Income-tax authorities,
- the Securities and Exchange Board or
- any other statutory regulatory body or authority concerned or
- any other person concerned[1].
The Court or the Tribunal before passing any order under this section shall take into consideration the representations, if any, made by them.
Order
A court of competent jurisdiction or the Tribunal to the effect that—
- the relevant earlier accounts were prepared in a fraudulent manner; or
- the affairs of the company were mismanaged during the relevant period, casting a doubt on the reliability of financial statements.
Finality
The accounts so revised or re-cast under sub-section (1) of Section 130 shall be final.
Limitation
No order shall be made under sub-section (1) in respect of re-opening of books of account relating to a period earlier than eight financial years immediately preceding the current financial year. [2]
Longer Limitation
Where a direction has been issued by the Central Government under the proviso to sub-section (5) of section 128 for keeping of books of account for a period longer than eight years, the books of account may be ordered to be re-opened within such longer period. [3]
Difference between Recasting or Voluntary Revision of Financial Statements
Section 130 deals with the recasting of financial Statements while Section 131 deals with the voluntary revision of financial statements.
Recasting can be possible for financial statements within a limitation period mentioned in subsection (3) of section 130. Voluntary revision is possible for any of the three preceding financial years.
Application for voluntary revision shall be made by the company only whereas for there is a rich list of possible applicants for the recasting of financial statements.
Fraud or mismanagement is ground for recasting while non-compliance with section 129 is ground for voluntary revision.
[1] Inserted by the Companies Amendment Act, 2017 with effect from 9th February 2018
[2] Inserted by the Companies Amendment Act, 2017 with effect from 9th February 2018
[3] Inserted by the Companies Amendment Act, 2017 with effect from 9th February 2018
AishMGhrana 