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Maintaining Account Books By Companies

Section 128 of the Companies Act, 2013 is the relevant section that necessitates preparing and keeping account books at its registered office. Account books includes other relevant books and papers and financial statements for every financial year. These can be in electronic mode. Refer Rule 3 of Companies (Accounts) Rules, 2014. Effective from 11 August 2022. Unfortunately, these changes DO NOT PROVIDE ANY TRANSITION TIME and is as sudden as its drastic.

The books of account in an electronic mode should remain accessible in India. There should be a proper system for storage, retrieval, display or printout of the electronic records and to maintain back-up of the books of account and other relevant books and papers in electronic mode in India.

Notification dated 5 August 2022 by The Ministry of Corporate Affairs (MCA), issued the Companies (Accounts) Fourth Amendment Rules, 2022. Rule 3 mentioned above is altered by via this notification. 

The key amendments are as following:

Accessibility of books of accounts in India at all times: Books and papers maintained in an electronic mode should remain accessible
in India, at all times so as to be usable for subsequent reference.

Maintaining of backups: Every company to maintain
proper system for storage, retrieval, display or printout of the electronic records as the Audit Committee, if any, or the Board of Directors may deem appropriate and such records should not be disposed of or rendered unusable, unless permitted by law.

Additionally, companies are required to maintain the back-up of the books of account and other relevant books and papers in an electronic mode on
servers physically located in India on a daily basis (earlier periodic basis) even in cases where such backups are maintained at a place outside India.

Service provider: In case a service provider is used to maintain account books in electronic form, Rule 3(6) requires disclosure by a company to the Registrar of Companies (ROC).

Disclosure of the name and address of the person in control of the books of account and other books and papers in India will be necessary, where the service provider is located outside India.

Disclosed to the ROC is necessary on an annual basis at the time of filing of financial statement as under:

  1. The name of the service provider
  2. The internet protocol address of service provider
  3. The location of the service provider (wherever applicable)
  4. Where the books of account and other books and papers are maintained on a cloud, such address as provided by the service provider

Details of where the service provider is located outside India, the name and address of the person in control of the books of account and other books and papers in India.

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