Maintenance of Registers & Record – Setting Up of Business Entities and Closure Important Questions

Maintenance of Registers & Record – Setting Up of Business Entities and Closure Important Questions

Question 1.
What are the statutory books prescribed under the Companies Act, 2013? [June 2004 (4 Marks)], [June 2009 (8 Marks)]
Answer:
The Companies Act, 2013 lays down that every company must maintain and keep at its registered office certain books, registers, and copies of certain returns, documents, etc. and to give certain notices, file certain returns, forms, reports, documents, etc. with the Registrar of Companies within certain specified time limits and with the prescribed filing fees. These books are known as Statutory Books.

Every company incorporated under the Act is required to keep at its registered office, inter alia, the following statutory books, and registers:

  • Register of renewed and duplicate share certificate
  • Register of sweat equity shares
  • Register of employee stock option
  • Register of shares/other securities bought back
  • Register of deposits
  • Register, of charges
  • Register of Members
  • Register of debenture holders and other securities holders
  • Foreign register of members, debenture holders, other security holders, or beneficial owners residing outside India
  • Register of Renewed & Duplicate Share Certificate
  • Annual Return
  • Register of postal ballot
  • Minutes of proceedings of general meeting, meeting of the board of directors, and other meeting & resolutions passed by postal ballot.
  • Books of account
  • Register of directors and key managerial personnel and their shareholding
  • Register of loans, guarantee, security & acquisition made by the company
  • Register of investment not held in its own name by the company.

Question 2.
Who is responsible for keeping the books of account a company? What are the liabilities imposed on them for their failure in this regard? [Dec. 2004 (6 Marks)}
Answer:
Place of Books: 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

The person responsible for keeping books of the account [Section 128(6)]: Following persons are responsible for maintaining the books of account:

  • Managing director,
  • Whole-time director in charge of finance
  • Chief Financial Officer or
  • Any other person charged by the Board with the duty of complying with the provisions of Section 128.

Inspection: 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. Penalty: If a person responsible for keeping and maintains books of an account fails to comply with the provisions of Section 128 he shall be punishable

  • with imprisonment for a term which may extend to 1 year or
  • with fine which shall not be less than ₹ 50,000 but which may extend to ₹ 5,00,000 or
  • with both.

Question 3.
Distinguish between: Statutory Books & Statistical Books [June 2011 (3 Marks)], [June 2012 (4 Marks)]
Answer:
Following are the main points of distinction between statutory books & statistical books:

Points Statutory Books Statistical Books
Meaning As per the provisions of different sections of the Companies Act, 2013 the certain books must be maintained by the companies which are known as statutory books. In addition to books of account and statutory books, companies usually maintain certain books which are known as Statistical books.
Place Statutory books must be kept at the registered office of the company. Statistical books may be kept at any place other than the registered office of the company.
Compulsion Keeping statutory books is compulsory.
Examples

  • Register of charges
  • Register & index of members, debenture holders
  • Minutes of proceedings of general meeting, meeting of Board of Directors
  • Register of investments not held in the company name
  • Register of contracts or arrangements in which directors are interested
  • Register of directors and key managerial personnel and their shareholding.
  • Register of loans and investment made other body corporates
Keeping of Statistical books is optional

  • Share application & allotment book
  • Share callbook
  • Debenture callbook
  • Register of share transfers
  • Shareholders dividend book
  • Debenture interest book
  • Debenture transfer register
  • Register of share certificates
  • Register of probates
  • Register of share warrants
  • Register of dividend mandates
  • Agenda book
  • Register of sealed documents
  • Register of powers of attorney

Question 4.
A company having its registered office in New Delhi wants to maintain its books of account at its factory in Kolkata. Comment. [June 2001 (4 Marks)]
Answer:
Keeping of books of account & financial statement [Section 128(1)]:
Every company shall prepare and keep books of account and other relevant books and papers and financial statements for every financial year.

Such books of account should give a true and fair view of the state of the affairs of the company.

Books of account shall be kept on an accrual basis and according to the double-entry system of accounting.

Every company shall also keep books of account of its branch office which should explain the transactions effected both at the registered office and its branches.

The company may keep books of account or other relevant papers in electronic mode in the prescribed manner.

Therefore, a company having its registered office if keeping at Kolkata also need to be maintained at registered office ie., New Delhi

Question 5.
Chatur is a director of Hopes Ltd., a public limited company, registered under the Companies Act, 2013. He wants to inspect the books of account and other books and papers of the company. Can he do so? Will your answer be different, if the director wants to inspect the books of account through an agent? [June 2011 (4 Marks)]
Answer:
Facts of Case: Chatur is a director of Hopes Ltd., a public limited company, registered under the Companies Act, 2013. He wants to inspect the books of account and other books and papers of the company Provision: As per Section 128(3), the books of account and other books and papers 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.

In Vakharia v. Supreme General Film Exchange Co. Ltd., it was held that a director is entitled to take inspection of accounts personally or through an agent provided that there is no reasonable objection to the person chosen and the agent undertakes not to utilize the information obtained by him for any purpose other than the purpose of his principal.

Conclusion: Thus, Chatur will be allowed to inspect the books of account. He can also inspect the books of account through an agent provided that there is no reasonable objection to the person chosen and the agent undertakes not to utilize the information obtained by him for any purpose other than the purpose of his principal ie. Chatur.

Question 6.
Write a short note on true and fair view [Dec. 2011 (4 Marks)]
Answer:
According to 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 gives a true and fair view of the state of the affairs of the company.

The books and papers and financial statement are said to give a true and fair view:

  • If proper books of account as required by law, have been kept by the company.
  • If books of account are kept on an accrual basis and according to the double-entry system of accounting.
  • If the accounts of the company give the information required by the Act in the manner so required.
  • If the balance sheet and profit and loss accounts are drawn up in a format and in accordance with the provisions of the Act and in the form provided in Schedule III.
  • If the financial position and working results of the company are stated clearly.
  • If any material change in the method of accounting and the effect thereof on the financial position of the company is clearly indicated.
  • If there is proper and full disclosure of the financial position of the company.
  • If the financial statements comply with the accounting standards notified under Section 133.
  • If books of account are not suppressing any transaction nor contain any fictitious transaction.

Question 7.
It is not obligatory for every company to preserve its books of account. Comment. [June 2012 (5 Marks)]
Answer:
Registered Office: 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.

Preservation of books of the account [Section 128(5)]: Every company is required to preserve books of account along with vouchers for the last 8 financial years.

  • Good Manner: Books of account and voucher shall be maintained in a good manner.
  • Investigation: However, if an investigation has been ordered in respect of the company, the Central Government may direct to keep the books of account for a longer period.

Question 8.
The power of directors to approve the financial statement can be delegated to a committee of directors or some of the directors. Comment, [June 2012 (5 Marks)]
Answer:
As per Section 134( 1) of the Companies Act, 2013, the financial statement, including consolidated financial statement, if any, shall be approved by the Board of Directors before signing.

Thus, the approval of the financial statement cannot be delegated to a committee of directors or some of the directors.

Question 9.
The Board of directors of Grow More Ltd., a public company, has duly delegated its power to approve the financial statement of the company for the year 2019-2020 to a committee of directors. The said committee considered the financial statement and approved the same before the financial statement was handed over to the statutory auditor of the company. Will you accept such approval of the financial statement? [June 2012 (5 Marks)]
Answer:
Facts of the case: The Board of directors of Grow More Ltd., a public company, has duly delegated its power to approve the financial statement of the company for the year 2019-2020 to a committee of directors. The said committee considered the financial statement and approved the same before the financial statement was handed over to the statutory auditor of the company.

Provision: The financial statements are required to be placed only at an AGM and not at any other meeting. The board of directors cannot delegate power to approve the financial statements to a committee of directors. In case the financial statements are not ready for laying at the AGM, the company may adjourn the said AGM to a subsequent date when the financial statements are expected to be ready for laying. This may be done by adopting a suitable resolution adjourning the said AGM to a specified date. However, the adjourned AGM should be held within the statutory time limit.

Conclusion: By referring to the above facts and provision we will not accept the approval of the financial statement.

Question 10.
What are the provisions relating to the laying and adoption of financial statements? Explain the law relating to the authentication of financial statements. [Dec. 2012 (5 Marks)]
Answer:
Requirements as to financial statements [Section 129(1)]: The financial statements
(a) shall give a true and fair view of the state of affairs of the company,
(b) shall comply with the accounting standards notified under Section 133
(c) shall be in the form provided in Schedule III.

The items contained in financial statements shall be in accordance with the applicable accounting standards.
Nothing contained in Section 133(1) shall apply to:

  • Insurance companies
  • Banking companies
  • Electricity companies
  • Other classes of companies, accounts of which are governed by Special Acts.

Laying of financial statements at AGM [Section 129(2)]: At every annual general meeting of a company, the Board of Directors of the company shall lay before such meeting financial statements for the financial year.

Question 11.
An auditor of a company signed the balance sheet, profit & loss account, and schedules/notes and furnished the auditor’s report on the same date on which the reports were signed by the directors on behalf of the board. The director raised an objection stating that the audit cannot be completed and certified in a day. Do you agree with directors and if not, why? [Dec. 2012 (5 Marks)]
Answer:
Facts of Case: An auditor of a company signed the balance sheet, profit & loss account, and schedules/notes and furnished the auditor’s report on the same date on which the reports were signed by the directors on behalf of the board. The director raised an objection stating that the audit cannot be completed and certified in a day.

Provision: Section 143 gives the auditors access at all times to the books of account and vouchers of the company, which amply suggests that they do not have to remain idle at any time after their appointment as auditors. Subject to the convenience of the company, he may actually commence the checking up of vouchers, etc, and the company may prepare Trial balances, balance sheets, etc, which will save time for the auditors in the preparation of their report in due course.

Conclusion: Thus, if the auditor signs the balance sheet on the same date on which the directors have approved it, it may not be inferred from the circumstances that the auditor has not performed the audit efficiently. There is no violation of Section 134 where the audit is completed before approval of the balance sheet by the Board of directors.

Question 12.
Where a company has a branch office, whether, in India or abroad, the original books of account, records, etc. of the branch office will have to be maintained in the registered office of the company. [June 2013 (5 Marks)]
Answer:
Registered Office: As per Section 128(1) of the Companies Act, 2013, every company shall prepare and keep at its registered office books of account and other relevant books and papers and financial statements for every financial year.

Electronic Mode: Company may keep such books of account or other relevant papers in electronic mode in such manner as may be prescribed.

Branch: In the case of a branch, books of account can be kept at the branch. However, proper summarized returns are required to be sent periodically by the branch office to the company at its registered office or the other place where books of account are kept.

Conclusion: Thus, it is incorrect to say that the original books of account, records, etc. of the branch office will have to be maintained in the registered office of the company.

Question 13.
A director has the absolute right to inspecting books of account. Comment. [Dec.2013(4Marl$)]
Answer:
Inspection of books of the account [Section 128(3)]: The books of account and other books and papers 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.

In the case of financial information maintained outside the country, copies of such financial information shall be maintained and produced for inspection by any director subject to prescribed conditions.

The inspection in respect of any subsidiary of the company shall be done only by the person authorized on this behalf by a resolution of the Board of Directors of the holding company.

The officers and other employees of the company shall give to the person making inspection all assistance in connection with the inspection which the company may reasonably be expected to give.

Inspection of financial information maintained outside India [Rule 4 of the Companies (Accounts) Rules, 2014]:
1. The summarized returns of the books of account of the company kept and maintained outside India shall be sent to the registered office at quarterly intervals, which shall be kept and maintained at the registered office of the company and kept open to directors for inspection.

2. Where any other financial information maintained outside the country is required by a director, the director shall furnish a request to the company setting out the full details of the financial information sought, the period for which such information is sought.

3. The company shall produce such financial information to the director within 15 days of the date of receipt of the written request.

4. The financial information shall be sought for by the director himself and not by or through his power of attorney holder or agent or representative.

Inspection by other persons: Apart from directors of the company, the following person can also inspect the books of account of the company:

  • Registrar of Company [Section 206]
  • An authorized officer of the Central Government [Section 206]
  • Officers of Serious Fraud Investigation Office (SFIO) [Section 212]

Question 14.
Vir is a director in DJA Ltd. The company holds 75% shares of MRN Ltd. Vir wants to inspect the books of MRN Ltd. Examining the provisions of the Companies Act, 2013 advise whether Vir, the director of DJA Ltd. g can be allowed to inspect the books of MRN Ltd. [Den 2015 (4 Marks)]
Answer:
Facts of the case: Vir is a director in DJA Ltd. The company holds 75% shares of MRN Ltd. Vir wants to inspect the books of MRN Ltd.

Provision: As per Section 128(3) of the Companies Act, 2013, the inspection in respect of any subsidiary of the company shall be done only by the person authorized on this behalf by a resolution of the Board of Directors of the holding company.

Conclusion: Thus, Vir can inspect the books of account of MRN Ltd. (a subsidiary of DJA Ltd.) if he is authorized by the resolution of the Board of Directors of DJA Ltd.

Question 15.
Financial statements shall be signed only by the Chairperson of the company. Explain. [June 2015 (4 Marks)]
Answer:
Approval and signing of financial statement [Section 134(1)]: The financial statement, including consolidated financial statement, if any, shall be approved by the Board of Directors before signing.

The financial statements are signed on behalf of the Board by the following persons:

  • The Chairperson (where he is authorized by the Board)
  • Two directors out of which one shall be Managing Director and the CEO
  • The CFO and the Company Secretary (if they are appointed)

In the case of OPC, the financial statements are signed by only one director, for submission to the auditor for his report.

Question 16.
Adorable Ltd., incorporated under the Companies Act, 2013 has on its Board, 5 directors and a Managing Director. The company has also appointed a Company Secretary. The financial statements of the company, viz-, balance sheet and statement of profit and loss for the year ended 31st March 2015, were authenticated under the signatures of one director and the Company Secretary.
Referring to the provisions of the Companies Act, 2013, examine the validity of authentication. What shall be your answer in case the company in question is a ‘one-person company? [CS (Executive) – Dec. 2015 (4 Marks)]
Answer:
As per Section 134(1), the financial statements are signed on behalf of the Board by the following persons:

  • The Chairperson (where he is authorized by the Board)
  • Two directors out of which one shall be Managing Director and the CEO
  • The CFO and the Company Secretary (if they are appointed)

As per the facts given in the financial statements are signed by only one director and Company Secretary and it amounts to a contravention of Section 134(1).

The financial statement should have been signed by:

  1. Managing Director
  2. One director other than Managing Director
  3. Whole-time Company Secretary

In the case of OPC, the financial statements are signed by only one director, for submission to the auditor for his report.

Question 17.
Prudent General Insurance Company Ltd. is engaged in the general insurance business. The company is not listed in any stock exchange in India but is a subsidiary of Reliable General Insurance Company Ltd., listed on the Bombay Stock Exchange. The turnover of Prudent General Insurance Company Ltd. is ₹ 330 Crore. Examining the provisions of the Companies Act, 2013, stale whether the company is required to file XBRL enabled balance sheet. [June 2016 (4 Marks)]
Answer:
Facts of Case: Prudent General Insurance Company Ltd. is engaged in the general insurance business. The company is not listed in any stock | exchange in India but is a subsidiary of Reliable General Insurance Company Ltd., listed on the Bombay Stock Exchange. The turnover of Prudent General Insurance Company Ltd. is ₹ 330 Crore.

Conclusion: Filing of financial statements with Registrar in XBRL Format

[Rule 3 of the Companies (Filing of Documents and Forms in Extensible Business Reporting Language) Rules, 2015]: Following class of companies has to file their Balance Sheet, Profit & Loss A/c, and other documents with the Registrar using the Extensible Business Reporting Language (XBRL) namely:

  1. All Companies listed with any Stock Exchange in India and their Indian subsidiaries.
  2. All Companies having paid-up capital of ₹ 5 Crore or above.
  3. All companies having a turnover of ₹ 100 Crore or above.
  4. All companies are required to prepare their financial statements in accordance with the Companies (Indian Accounting Standards) Rules, 2015.

The companies which have filed their financial statements shall continue g to file their financial statements and other documents though they may 2 not fall under the class of companies specified therein in succeeding years, Companies in Banking, Insurance and Non-Banking Financial companies are exempted for Extensible Business Reporting Language (XBRL) filing.

Conclusion: Thus, Prudent General Insurance Company Ltd. being an insurance company is not required to file their Balance Sheet and Profit & Loss A/c in XBRL.

Question 18.
Referring to the provisions of the Companies Act, 2013, explain whether the Company Secretary is a Chief Financial Officer of the company can be held liable for the maintenance of books of account of the company. [June 2016 (4 Marks)]
Answer:
As per Section 128(6) of the Companies Act, 2013, the following persons are responsible for maintaining the books of account:

  • Managing director,
  • Whole-time director in charge of finance
  • Chief Financial Officer
  • Any other person charged by the Board with the duty of complying with the provisions of Section 128

As per Section 134(1), the financial statement, including consolidated financial statement, if any, shall be approved by the Board of Directors before signing.

The financial statements are signed on behalf of the Board by the following persons:

  • The Chairperson (where he is authorized by the Board)
  • Two directors out of which one shall be Managing Director and the CEO
  • The CFO and the Company Secretary (if they are appointed)

Thus, if a Company Secretary is also appointed as Chief Financial Officer he is responsible for the maintenance of books of account.

Question 19.
Pioneer Fisheries Ltd. has borrowed an amount of ₹ 50 Crore from a financial institution. The annual general meeting of the company was held on 1st September 2015. Examining the provisions of the Companies Act, 2013, state as to who will sign and certify the annual return while filing the same with the Registrar of Companies after the annual general meeting. [June 2016 (4 Marks)]
Answer:
Facts of the case: Pioneer Fisheries Ltd. has borrowed an amount x of ₹ 50 Crore from a financial institution. The annual general meeting of the company was held on 1st September 2015.

Provision: Signing of Annual Return: Annual Return has to be and signed by a director and the Company Secretary, or where there is no Company j Secretary, by Practicing Company Secretary. Annual return is filed in Form MGT-7.

The annual return, filed by a listed company or, by a company having paid-up capital of ten crores or more or turnover of fifty crores or more, shall be certified by a Practicing Company Secretary [PCS] in the Form MGT-8, stating that the annual return discloses the facts correctly and adequately and that the company has complied with all the provisions of the Companies Act, 2013.

Filing of Annual Return [Section 92(4)]: Every company shall file with the Registrar a copy of the annual return, within 60 days from the date on which the AGM is held or where no AGM is held in any year within 60 days from the date on which the AGM should have been held together with the statement specifying the reasons for not holding the AGM.

Here, it may be noted that borrowed amount is not any criteria for deciding about the authority/eligibility of the person to sign and certify the annual return.

Conclusion: Thus, in the absence of information about whether the company falls under the listing or paid-up share capital or Turnover category discussed above, it would not be wise to pronounce whether its annual re-turn shall be signed and certified by a practicing company secretary or not.

Question 20.
Suresh, a member of Ruchi Ltd., wants to inspect the register of deposits maintained by the company as required under the provisions of the Companies Act, 2013. The company refused to provide the register for inspection without assigning any reason. Referring to the provisions of the Act, examine the validity of the company’s refusal. What shall be your answer if the same Register is demanded by the statutory auditors of the company for inspection and for their audit? [Dec. 2016 (4 Marks)]
Answer:
A member of the company is not entitled to inspect the books of account of the company.

Register of deposits is part of the books of account and hence are not normally open for inspection by members of the company. Hence, Suresh a member of the company cannot inspect the Register of deposit and the company can refuse to inspection the register without giving any reason.

The auditor enjoys the right of accessibility to books and records because he has to mention in his report whether proper books and records are maintained. Thus, the company cannot refuse inspection of the Register of deposit to the statutory auditor.

Question 21.
The Board of Directors of Anil Limited has decided not to preserve the books of account and other related records of account, for more than five years immediately preceding the relevant financial year of 2016-2017 due to shortage of space in the office premises.
Referring to the provisions of the Companies Act, 2013, examine the validity of the Board’s decision. [June 2017 (4 Marks)]
Answer:
Preservation of books of the account [Section 128(5)]: Every company is required to preserve books of account along with vouchers for the last 8 financial years.

However, if an investigation has been ordered in respect of the company, the Central Government may direct to keep the books of account for a longer period.

Thus, the board of directors of Anil Ltd. has to preserve its books of account for 8 years even if there is a shortage of space in its office premises.

However, all or any of the books of account and other relevant papers may be kept at such other place in India as the Board of Directors may decide. As per Rule 2A of the Companies (Accounts) Rules, 2014, the company shall, within 7 days file with the Registrar a notice giving the full address of that other place in Form No. AOC-5.

Provision: As per Section 92 of the Companies Act, 2013, Annual Return has to be and signed by a director and the Company Secretary, or where there is no Company Secretary, by Practicing Company Secretary.

In the case of OPC and Small Company, the annual return shall be signed by the Company Secretary, or where there is no Company Secretary, by the director of the company.

As per Section 2(85) of the Companies Act, 2013, a Small Company means a private company:

  1. Paid-up share capital of which does not exceed ₹ 50 lakh or such higher amount as may be prescribed which shall not be more than ₹ 10 Crore and
  2. Turnover of which as per profit and loss account for the immediately preceding financial year does not exceed ₹ 2 Crore or such higher amount as may be prescribed which shall not be more than ₹ 100 Crore.

As per facts given in the case, Pratham Food Trading Pvt. Ltd. is a Small Company and its annual return shall be signed by the Company Secretary, or where there is no Company Secretary, by the director of the company.

Conclusion: Thus, the signing of Annual Return by one director is in order, and provisions of the Companies Act, 2013 have not been violated as there is no Company Secretary in the company.

Question 24.
A private limited company in the process of dissolution stops maintaining statutory registers. The company argues that since they are in the process of dissolution, there is no need to maintain statutory registers. What is the validity of the argument? Explain the consequences of the non-maintenance of such registers. [Dec. 2018 (3 Marks)]
Answer:
Facts of Case: A private limited company in the process of dissolution stops maintaining statutory registers. The company argues that since they are in the process of dissolution, there is no need to maintain statutory registers

Provision: The Companies Act, 2013 lays down that every company incorporated under the Act must maintain and keep at its registered office certain books, registers, and copies of certain returns, documents, etc.

The Registers need to maintained and updated eventually and should be kept at the Registered Office of the Company. Failure of the company to maintain a statutory register could result in a fine of not less than ₹ 1 lakh, which may extend to ₹ 10 lakh. Further, the officers of the company may also be punishable with imprisonment for a term which may extend to 6 months or with a fine not less than ₹ 25,000 which may extend to ₹ 1 lakh.

Conclusion: Hence, it is important for all the private limited companies or limited companies or one-person companies incorporated in India to maintain a statutory register.

Keeping in view the above discussion it can be concluded that even a company in the process of dissolution has to maintain statutory records until it is completely wound-up as per the provisions of the Companies Act, 2013 otherwise the company can be penalized for non-maintenance of such registers and documents.

Question 25.
TPS Pvt. Ltd. incorporated on 1st August 2017 having its registered office at Saket, New Delhi. Management of the Company kept some of the statutory records in the other branch of the Company in Janakpuri, New Delhi. Explain whether Company is eligible to keep its statutory records at places other than its registered office under the Companies Act, 2013. [Dec. 2019 (3 Marks)]
Answer:
Facts of Case: TPS Pvt. Ltd. incorporated on 1st August 2017 having its registered office at Saket, New Delhi. Management of the Company kept some of the statutory records in the other branch of the Company in Janakpuri, New Delhi.

Provision: Unless otherwise notified, it is assumed that statutory records are kept at the registered office address of the company. If it is inconvenient to make certain records available for inspection at the registered office, you may keep some or all of them at the other nearby premises under the jurisdiction of the company. It must be notified if any statutory records are kept at any other place other than the registered office of the company.

Further, one must notify if they move any records, and the company is expected to confirm their location whenever you file an annual confirmation statement

Conclusion: Hence, in this case, TPS Pvt. Ltd. is eligible to keep its statutory record in their branch at Janakpuri, New Delhi.

Setting Up of Business Entities and Closure Questions and Answers

Leave a Comment

Your email address will not be published. Required fields are marked *