Identifying Those Responsible for Maintaining Proper Books of Account

Every rupee a company earns or spends has to show up somewhere on paper – or in a server, these days. But someone has to actually make sure that record exists, is accurate, and doesn’t quietly go missing. Company law doesn’t leave this to chance. It names specific individuals who are personally on the hook if a company’s books of account are incomplete, incorrect, or missing altogether. Understanding who these people are, and what they risk, is a core idea in company accounts and one you’ll see repeatedly in exams and in real corporate practice.

Why someone has to “own” the books of account 🔗

A company is a separate legal entity, but it can’t pick up a pen or open a laptop to record a transaction. People do that on its behalf. If something goes wrong with the financial records – say, a fraud is hidden, or a transaction is never entered – the law needs a name to point to, not just a signature block that says “the company.”

This is exactly the gap that Section 128 of the Companies Act, 2013 fills. It doesn’t just say “the company shall maintain books of account.” It goes a step further and names the specific officers who are personally responsible for making that happen.

What exactly are “books of account”? 🔗

Before identifying who’s responsible, it helps to know what they’re responsible for. Under the Act, books of account cover money received and spent (and what it relates to), sales and purchases of goods and services, and the assets and liabilities of the company. These records must be kept on an accrual basis using the double-entry system, and they need to give a true and fair view of the company’s financial position, including that of any branch offices.

Companies can maintain these books at their registered office, or at another place in India if the Board decides so – provided the Registrar of Companies is informed in writing within seven days. Electronic maintenance is also allowed, subject to conditions prescribed under the accounting rules.

Who is responsible under section 128 🔗

Section 128(6) names four categories of people who can be held accountable if a company’s books of account aren’t maintained properly. This isn’t a vague reference to “management” – it’s a specific, closed list.

The managing director 🔗

As the officer typically running day-to-day operations, the managing director carries overall responsibility for ensuring the company’s financial records are in order, even if they aren’t personally entering journal vouchers.

The whole-time director in charge of finance 🔗

Many companies have a director specifically designated to oversee finance functions. Where such a role exists, that director is directly named as responsible under the section, precisely because finance falls within their formal remit.

The Chief Financial Officer 🔗

The CFO is the professional most obviously linked to accounts in practice. As the officer who typically signs off on financial statements and reports to the Board, the CFO’s inclusion reflects how real companies actually assign financial accountability.

Any other person charged by the Board 🔗

This is a deliberately open category. If none of the above roles exist, or if the Board formally assigns the duty of compliance to someone else – say, a finance controller in a smaller company – that person steps into the same level of responsibility. This flexibility matters for smaller and mid-sized companies that may not have a managing director or a whole-time finance director on the Board.

What happens if these persons fail to comply 🔗

If any of the persons above contravene the requirements of section 128, they are personally liable for a fine. Currently, the fine ranges from a minimum of fifty thousand rupees up to five lakh rupees.

It’s worth noting that this wasn’t always a fine-only provision. Until late 2020, section 128(6) also allowed for imprisonment of up to one year, in addition to the fine. As part of a broader push to ease the compliance burden on companies and decriminalise minor lapses, the Companies (Amendment) Act, 2020 removed the imprisonment clause from this particular offence, effective 21 December 2020. So today, a lapse under section 128 attracts only a monetary fine, not jail time – though the underlying accountability on named individuals remains just as real.

This distinction matters for exam answers. Older study material sometimes still lists “imprisonment or fine” for section 128(6), but the current, amended text of the provision reflects fine alone. It’s a good example of how company law evolves, and why it pays to check whether a provision has been amended before assuming a textbook edition is current.

Why the law is this specific 🔗

Naming individuals rather than just “the company” changes incentives. A company can’t go to jail or feel the pinch of a personal fine – a person can. By pinning responsibility on the managing director, the finance director, the CFO, or a specifically designated officer, the law makes sure someone with real authority over financial decisions has a direct personal stake in getting the books right.

This also connects to how books of account must be preserved. Companies are required to keep relevant books and vouchers for a minimum of eight financial years immediately preceding the current one. If an investigation is ordered under the Act, the Central Government can direct that records be preserved for a longer period. Retention isn’t optional, and the same officers named above remain answerable for ensuring records survive that period intact.

How this plays out for a real company 🔗

Consider a mid-sized private limited company where the CFO delegates day-to-day bookkeeping to a finance team but never reviews reconciliations or sign-offs. If discrepancies later surface – say, unrecorded expenses or missing vouchers – the CFO can’t point to the junior team and walk away. The law holds the CFO personally accountable because the Board charged that role, not the junior staff, with ensuring compliance. This is precisely why finance heads in Indian companies treat internal controls and periodic audits so seriously; the personal fine isn’t abstract.

How this fits into the broader accounts framework 🔗

Section 128 doesn’t operate alone. It works alongside other provisions on financial statements, audits, and inspection rights. For instance, directors have the right to inspect books of account during business hours, and where financial information relating to a subsidiary is involved, only a person specifically authorised by a Board resolution can inspect it. This reinforces the same underlying principle running through the accounts chapter of company law: accountability has to trace back to a specific, identifiable person, not a diffuse “the company did it.”

For students, this topic is a useful bridge between the mechanics of bookkeeping and the governance side of company law. It shows that accounting isn’t just a technical exercise of debits and credits – it’s backed by a legal structure that assigns personal responsibility to specific officers, with real financial consequences for failure.

What do you think? If a company has no whole-time director for finance and no CFO, how do you think the Board should go about formally designating the “any other person” responsible under section 128? And does removing imprisonment from section 128(6) weaken the deterrent effect on company officers, or does a substantial monetary fine achieve much the same result?

References

1. https://www.mca.gov.in/content/dam/mca/pdf/CompaniesAct2013.pdf
2. https://www.aubsp.com/section-128-books-of-accounts-kept-by-company/
3. https://www.scconline.com/blog/post/2021/07/01/companies-amendment-act-2020-a-refreshing-change/
4. https://ibclaw.in/section-128-of-the-companies-act-2013-books-of-account-etc-to-be-kept-by-company/
5. https://ca2013.com/128-books-of-account-etc-to-be-kept-by-company/