Managing Books of Account for Branch Offices

Picture a retail company with its head office in Mumbai and branch outlets in Pune, Bengaluru, and Kolkata. Each branch bills customers, pays vendors, and manages its own cash flow. If the Mumbai office had no clue what was happening at these branches, its financial statements would be incomplete, and possibly misleading. This is exactly the gap that company law closes by making it mandatory for companies to maintain books of account at every branch and route summarised information back to the registered office.

Why branch offices need their own books of account 🔗

A company is a single legal entity, even when it operates through multiple branches. This means the financial statements it files with regulators must reflect the company as a whole, not just the transactions happening at the head office. If branch-level income, expenses, assets, and liabilities are left out, the company’s balance sheet and profit and loss account would fail to give a true picture of its financial position.

This is why the law requires proper daily record-keeping at each branch and a system to feed that data back to the registered office. Without this, directors, auditors, and shareholders would have no reliable way to assess how each branch, and the company overall, is performing.

The legal foundation: Section 128 of the Companies Act, 2013 🔗

Section 128 of the Companies Act, 2013 is the primary provision governing this area. It replaced Section 209 of the older 1956 Act and applies to private companies, public companies, one person companies, and producer companies alike.

Books at the registered office 🔗

Under Section 128(1), every company must prepare and keep, at its registered office, books of account and other relevant papers and financial statements for each financial year. These records must give a true and fair view of the company’s affairs, including its branch offices, and must be maintained on an accrual basis using the double entry system of accounting. Companies are also allowed to keep these books in electronic form, subject to conditions prescribed under the Companies (Accounts) Rules, 2014.

If the board decides to keep the books at a location other than the registered office, it must notify the Registrar of Companies within seven days, giving the full address of that place, typically done through Form AOC-5.

Deemed compliance for branches: Section 128(2) 🔗

This is where branch accounting comes in directly. Section 128(2) states that where a company has a branch office, whether in India or outside India, it is treated as having complied with the law if two conditions are met. First, proper books of account relating to the transactions of that branch are kept at the branch itself. Second, the branch sends proper summarised returns periodically to the company’s registered office, or to whichever other place the books are officially kept.

In other words, the law does not force every rupee of a branch’s transaction to be physically recorded at the head office. Instead, it allows decentralised bookkeeping at the branch, as long as consolidated, summarised data regularly reaches the centre.

What counts as “books of account” 🔗

The term is broader than just ledgers. It typically includes records of all money received and spent along with the reasons for it, records of sales and purchases, records of assets and liabilities, and, where the company deals in goods, records that track stock at the beginning and end of the year along with related cost items. At the branch level, this means cash books, sales and purchase registers, stock records, and vouchers for every transaction that happens there.

Sending summarised returns: how it works 🔗

Domestic branches 🔗

For branches operating within India, the Act does not fix an exact frequency for sending returns; it simply requires that returns be sent periodically and be “proper,” meaning accurate and complete enough for the registered office to consolidate them meaningfully. In practice, most companies choose monthly or quarterly reporting cycles to align with internal MIS and statutory filing timelines.

Overseas branches: the quarterly rule 🔗

Where the branch is located outside India, the rules are more specific. Under Rule 4 of the Companies (Accounts) Rules, 2014, summarised returns of books of account maintained outside India must be sent to the registered office at quarterly intervals. These returns are then kept at the registered office and made available for director inspection. If a director wants more detailed financial information beyond the summarised return, they can make a written request specifying the details and period required, and the company must furnish that information within fifteen days.

Inspection rights: keeping directors in the loop 🔗

Section 128(3) gives every director the right to inspect the books of account and other papers of the company during business hours, at the registered office or wherever else they are kept. This right exists precisely because branch-level operations can otherwise become a blind spot for board members who are not physically present at every location. Combined with the quarterly reporting rule for overseas branches, this inspection right is what makes decentralised bookkeeping workable without compromising oversight.

How long should these records be preserved 🔗

Under Section 128(5), a company must preserve its books of account, along with the vouchers supporting each entry, for a minimum of eight financial years immediately preceding the current one. If the company has existed for less than eight years, records for all the years since incorporation must be preserved. If an investigation has been ordered against the company under Chapter XIV of the Act, the Central Government can direct that records be retained for a longer period than eight years. This retention requirement applies equally to branch-level records, since they form part of the company’s overall books of account.

Who is responsible, and what happens on non-compliance 🔗

Section 128(6) fixes responsibility for compliance on specific individuals: the managing director, the whole-time director in charge of finance, the chief financial officer, or any other person the board specifically charges with this duty. If any of these persons contravenes the provisions of Section 128, they are liable to a fine that can range from fifty thousand rupees up to five lakh rupees. Note that an earlier provision for imprisonment was removed by the Companies (Amendment) Act, 2020, making this now a purely monetary penalty for most defaults, which reflects the government’s broader push toward decriminalising minor corporate lapses.

A practical example 🔗

Consider a retail company, “Nationwide Retail Ltd,” headquartered in Delhi with branch stores in Jaipur, Ahmedabad, and Chennai. Each store maintains its own cash book, sales register, and inventory records because customers walk in and transactions happen locally every day. At the end of each month, every branch manager sends a summarised financial return, covering sales, purchases, expenses, and closing stock, to the finance team at the Delhi head office. This data feeds into the company’s consolidated financial statements. If Nationwide Retail also had a branch in Dubai, that branch’s summarised return would need to reach Delhi at least once every quarter, and any director could formally request more detailed data on that branch’s financials if needed for board decisions.

This structure lets the Chennai store manager focus on daily retail operations without worrying about statutory filings, while still ensuring the company’s board and auditors get a complete, timely, and legally compliant view of the business.

Quick reference: branch accounting requirements under Section 128 🔗

Why this matters beyond the exam 🔗

For a commerce student, Section 128 might look like just another provision to memorise. But it reflects a genuinely practical business problem: how do you keep control and visibility over a company’s finances when operations are spread across cities or countries? The answer the law lands on, decentralised record-keeping paired with mandatory, periodic consolidation, is the same logic that modern ERP systems and centralised accounting software are built around today. Understanding the statutory backbone helps you appreciate why companies invest so heavily in systems that automate this exact flow of information from branch to head office.

What do you think? If a retail chain has branches in twelve different cities, what kind of internal controls would you put in place to make sure the summarised returns reaching the head office are actually accurate and not just convenient numbers? And do you think the eight-year preservation rule is long enough given how digital records can be lost or corrupted over time?

References

1. https://indiankanoon.org/doc/152820709/
2. https://corporatelawreporter.com/companies_act/section-128-of-companies-act-2013-books-of-account-etc-to-be-kept-by-company/
3. https://taxguru.in/company-law/maintenance-books-accounts-section-128-companies-act-2013.html
4. https://www.mondaq.com/india/corporate-and-company-law/1292014/thrust-towards-data-localization-analysis-of-the-companies-4th-amendment-rules-2022
5. https://ibclaw.in/section-128-of-the-companies-act-2013-books-of-account-etc-to-be-kept-by-company/