Any member or debentureholder of a company, and any person from whom the company has accepted a deposit shall, on demand, be entitled to be furnished, free of cost, with a copy of the last balance sheet of the company and of every document required to be annexed or attached thereto, including the profit and loss account and the Auditors’ report [Sec. 219 (2)]. H default is made in complying with the demand within 7 days of its making, the company and every officer of the company who is in default shall be punishable with fine which may extend to Rs. 5,000. The Company Law Board may also direct that the copy demanded be furnished forthwith [Sec. 219 (4)].
If default is made in complying with sub-section (1) of Section 219, the company and every officer of the company, who is in default, shall be punishable with fine which may extend to Rs. 5,000 [Sec. 219 (3)].
Adoption of Accounts
One of the businesses to be transacted at a annual general meeting is adoption of the accounts including the balance sheet, profit and loss account and the Directors’ report thereon.
If the annual general meeting of a company does not adopt the balance sheet or is adjourned without adopting the balance sheet or if the annual general meeting of a
Tuesday, January 8, 2008
Adoption of Accounts
Adoption of Accounts
One of the businesses to be transacted at a annual general meeting is adoption of the accounts including the balance sheet, profit and loss account and the Directors’ report thereon.
If the annual general meeting of a company does not adopt the balance sheet or is adjourned without adopting the balance sheet or if the annual general meeting of a
Can Approval of Annual Accounts be delegated? The Department of Company Affairs [vide its letter dt. 27.10.76] has clarified that in the absence of any specific provision in Section 215, the power of the Directors to approve the annual accounts cannot be delegated to a Committee of Directors or some of the Directors. It, inter alia, states that the approval of annual accounts which are to be ultimately placed before the shareholders of the company is not to be treated as a routine or part of day-to-day work. Hence, the Board of Directors must consider the annual accounts and approve them before the accounts are handed over to the Statutory Auditor of the company.
Circulation of Annual Accounts
Section 219 (1) requires that a copy of every balance sheet (including the profit and loss account, Auditors’ report, Directors’ report and every other document required to be annexed or attached thereto) which is to be laid before the annual general meeting of the company shall be sent, not less than 21 days before the meeting, to every member of the company. Besides, a copy each must be sent to every trustee for the debentureholders of the company and to all other persons so entitled.
However, a copy of the annual account, as aforesaid, need not be sent in the
following cases:
(i) To a member, or holder of debentures, of the company, who is not entitled to
have notices of general meetings of the company sent to him.
(ii) To a member or debentureholder whose address the company is not aware
In the case of a company whose shares are listed on a recognised stock exchange, the aforesaid documents need not be sent to members and trustees for debentureholders if the copies of the documents are made available for inspection at its registered office during working hours for 21 days before the date of the meeting and a statement containing salient features of the said documents in the prescribed form, are sent to the members and trustees for debentureholders at least 21 days before the date of the meeting.
One of the businesses to be transacted at a annual general meeting is adoption of the accounts including the balance sheet, profit and loss account and the Directors’ report thereon.
If the annual general meeting of a company does not adopt the balance sheet or is adjourned without adopting the balance sheet or if the annual general meeting of a
Can Approval of Annual Accounts be delegated? The Department of Company Affairs [vide its letter dt. 27.10.76] has clarified that in the absence of any specific provision in Section 215, the power of the Directors to approve the annual accounts cannot be delegated to a Committee of Directors or some of the Directors. It, inter alia, states that the approval of annual accounts which are to be ultimately placed before the shareholders of the company is not to be treated as a routine or part of day-to-day work. Hence, the Board of Directors must consider the annual accounts and approve them before the accounts are handed over to the Statutory Auditor of the company.
Circulation of Annual Accounts
Section 219 (1) requires that a copy of every balance sheet (including the profit and loss account, Auditors’ report, Directors’ report and every other document required to be annexed or attached thereto) which is to be laid before the annual general meeting of the company shall be sent, not less than 21 days before the meeting, to every member of the company. Besides, a copy each must be sent to every trustee for the debentureholders of the company and to all other persons so entitled.
However, a copy of the annual account, as aforesaid, need not be sent in the
following cases:
(i) To a member, or holder of debentures, of the company, who is not entitled to
have notices of general meetings of the company sent to him.
(ii) To a member or debentureholder whose address the company is not aware
In the case of a company whose shares are listed on a recognised stock exchange, the aforesaid documents need not be sent to members and trustees for debentureholders if the copies of the documents are made available for inspection at its registered office during working hours for 21 days before the date of the meeting and a statement containing salient features of the said documents in the prescribed form, are sent to the members and trustees for debentureholders at least 21 days before the date of the meeting.
Secure compliance by the company
If any person who is responsible for keeping proper books of account fails to take all reasonable steps to secure compliance by the company with the requirement of law relating to the form and contents of the balance sheet, he is liable for each offence to imprisonment for a term extending upto six months or to a fine up to Rs. 10,000 or to both. However, no person shall be sentenced to imprisonment for any such offence, unless it was committed wilfully.
Prosecution against Directors cannot be maintained in absence of specific averment regarding non-existence of other persons mentioned in Section 209 (6) of the Companies
Act [Registrar of Companies Vs. S. Prashad (989) 59 Camp. Cas. 780 (Cal.)].
Can Approval of Annual Accounts be delegated? The Department of Company Affairs [vide its letter dt. 27.10.76] has clarified that in the absence of any specific provision in Section 215, the power of the Directors to approve the annual accounts cannot be delegated to a Committee of Directors or some of the Directors. It, inter alia, states that the approval of annual accounts which are to be ultimately placed before the shareholders of the company is not to be treated as a routine or part of day-to-day work. Hence, the Board of Directors must consider the annual accounts and approve them before the accounts are handed over to the Statutory Auditor of the company.
Circulation of Annual Accounts
Section 219 (1) requires that a copy of every balance sheet (including the profit and loss account, Auditors’ report, Directors’ report and every other document required to be annexed or attached thereto) which is to be laid before the annual general meeting of the company shall be sent, not less than 21 days before the meeting, to every member of the company. Besides, a copy each must be sent to every trustee for the debentureholders of the company and to all other persons so entitled.
However, a copy of the annual account, as aforesaid, need not be sent in the
following cases:
(i) To a member, or holder of debentures, of the company, who is not entitled to
have notices of general meetings of the company sent to him.
(ii) To a member or debentureholder whose address the company is not aware
In the case of a company whose shares are listed on a recognised stock exchange, the aforesaid documents need not be sent to members and trustees for debentureholders if the copies of the documents are made available for inspection at its registered office during working hours for 21 days before the date of the meeting and a statement containing salient features of the said documents in the prescribed form, are sent to the members and trustees for debentureholders at least 21 days before the date of the meeting.
Any member or debentureholder of a company, and any person from whom the company has accepted a deposit shall, on demand, be entitled to be furnished, free of cost, with a copy of the last balance sheet of the company and of every document required to be annexed or attached thereto, including the profit and loss account and the Auditors’ report [Sec. 219 (2)]. H default is made in complying with the demand within 7 days of its making, the company and every officer of the company who is in default shall be punishable with fine which may extend to Rs. 5,000. The Company Law Board may also direct that the copy demanded be furnished forthwith [Sec. 219 (4)].If default is made in complying with sub-section (1) of Section 219, the company and every officer of the company, who is in default, shall be punishable with fine which may extend to Rs. 5,000 [Sec. 219 (3)].
Prosecution against Directors cannot be maintained in absence of specific averment regarding non-existence of other persons mentioned in Section 209 (6) of the Companies
Act [Registrar of Companies Vs. S. Prashad (989) 59 Camp. Cas. 780 (Cal.)].
Can Approval of Annual Accounts be delegated? The Department of Company Affairs [vide its letter dt. 27.10.76] has clarified that in the absence of any specific provision in Section 215, the power of the Directors to approve the annual accounts cannot be delegated to a Committee of Directors or some of the Directors. It, inter alia, states that the approval of annual accounts which are to be ultimately placed before the shareholders of the company is not to be treated as a routine or part of day-to-day work. Hence, the Board of Directors must consider the annual accounts and approve them before the accounts are handed over to the Statutory Auditor of the company.
Circulation of Annual Accounts
Section 219 (1) requires that a copy of every balance sheet (including the profit and loss account, Auditors’ report, Directors’ report and every other document required to be annexed or attached thereto) which is to be laid before the annual general meeting of the company shall be sent, not less than 21 days before the meeting, to every member of the company. Besides, a copy each must be sent to every trustee for the debentureholders of the company and to all other persons so entitled.
However, a copy of the annual account, as aforesaid, need not be sent in the
following cases:
(i) To a member, or holder of debentures, of the company, who is not entitled to
have notices of general meetings of the company sent to him.
(ii) To a member or debentureholder whose address the company is not aware
In the case of a company whose shares are listed on a recognised stock exchange, the aforesaid documents need not be sent to members and trustees for debentureholders if the copies of the documents are made available for inspection at its registered office during working hours for 21 days before the date of the meeting and a statement containing salient features of the said documents in the prescribed form, are sent to the members and trustees for debentureholders at least 21 days before the date of the meeting.
Any member or debentureholder of a company, and any person from whom the company has accepted a deposit shall, on demand, be entitled to be furnished, free of cost, with a copy of the last balance sheet of the company and of every document required to be annexed or attached thereto, including the profit and loss account and the Auditors’ report [Sec. 219 (2)]. H default is made in complying with the demand within 7 days of its making, the company and every officer of the company who is in default shall be punishable with fine which may extend to Rs. 5,000. The Company Law Board may also direct that the copy demanded be furnished forthwith [Sec. 219 (4)].If default is made in complying with sub-section (1) of Section 219, the company and every officer of the company, who is in default, shall be punishable with fine which may extend to Rs. 5,000 [Sec. 219 (3)].
Institute of Chartered Accountants of India
The standards of accounting recommended by the Institute of Chartered Accountants of India constituted under the Chartered Accountants Act, 1949, as may be prescribed by the Central Government in consultation with the National Advisory Committee on Accounting Standards established under sub-section (1) of Section 210A.
However, the standard of accounting specified by the Institute of Chartered Accountants of India shall be deemed to be the Accounting Standards until the accounting standards are prescribed by the Central Government under sub-section (1) of Section 210A.
The above provisions are not applicable to insurance or banking company or any
company engaged in the generation or supply of electricity or any other class of companies for which a form of balance sheet has been specified in or under the Act governing such company. The Central Government may, by notification in the Official Gazette, exempt, in public interest, any class of companies from compliance with any of the requirements in Schedule VI. Any such exemption may be granted either unconditionally subject to such conditions as may be specified in the notification
[Section 211(3)].
Sub-section (4) of Section 211 provides that the Central Government may, on the application or with the consent of the Board of Directors of the company, by order, modify in relation to that company any of the requirements of this Act as to the matters
to be stated in the company’s balance sheet or profit and loss account for the purpose of adapting them to the circumstances of the company. However, it is necessary that any company which seeks exemption under Section 211(4) should indicate in the application whether the same has been made with the approval of the Board of Directors and forward a copy of the Board’s resolution in this regard alongwith the application [Vide Circular No. 1/84 0/1/84-CL- V and 3/83-CL- V), dated 19.4.1984].For the purposes of this Section, except where the context otherwise requires, any reference to a balance sheet or profit and loss account shall include any notes thereon or documents annexed thereto, giving information required by this Act, and allowed by this Act to be given in the form of such notes or documents.
However, the standard of accounting specified by the Institute of Chartered Accountants of India shall be deemed to be the Accounting Standards until the accounting standards are prescribed by the Central Government under sub-section (1) of Section 210A.
The above provisions are not applicable to insurance or banking company or any
company engaged in the generation or supply of electricity or any other class of companies for which a form of balance sheet has been specified in or under the Act governing such company. The Central Government may, by notification in the Official Gazette, exempt, in public interest, any class of companies from compliance with any of the requirements in Schedule VI. Any such exemption may be granted either unconditionally subject to such conditions as may be specified in the notification
[Section 211(3)].
Sub-section (4) of Section 211 provides that the Central Government may, on the application or with the consent of the Board of Directors of the company, by order, modify in relation to that company any of the requirements of this Act as to the matters
to be stated in the company’s balance sheet or profit and loss account for the purpose of adapting them to the circumstances of the company. However, it is necessary that any company which seeks exemption under Section 211(4) should indicate in the application whether the same has been made with the approval of the Board of Directors and forward a copy of the Board’s resolution in this regard alongwith the application [Vide Circular No. 1/84 0/1/84-CL- V and 3/83-CL- V), dated 19.4.1984].For the purposes of this Section, except where the context otherwise requires, any reference to a balance sheet or profit and loss account shall include any notes thereon or documents annexed thereto, giving information required by this Act, and allowed by this Act to be given in the form of such notes or documents.
“accounting standards"
Explain the provisions of the Companies Act, 1956 as regards keeping the books of
account. Who are responsible for this? What are the legal provisions for default in this respect.
(a) Books of Acc,ounts Required to be Kept
(b) Persons Responsible for Keeping Books of Account
The following persons shall be held responsible for the failure to take all reasonable steps to keep proper books of account, or if they have been the cause of any default by the company in this regard by their own wilful act, namely,
(i) where the company has a Managing Director or Manager, such Managing
Director or Manager
(ii) where the company has neither a Managing Director nor Manager, every
Director of the company
(iii) every officer and other employee and agent, as defined in Section 240(6) of the
Act excluding Bankers, Auditors and Legal Advisers of the company [Section
209(6)].
Sub-section (7) of Section 209 empowers a Managing Director, Manager or Board of Directors to make any person other than the persons referred to above responsible to ensure that the requirements of this Section are complied with.
Penalty. In case of default, any of the persons as aforesaid shall be punishable with imprisonment for a term which may extend to six months, or with fine upto Rs. 10,000 or both.
It is further provided that no such person shall be sentenced to imprisonment for such offence unless it was committed wilfully.
Defence Available. In any proceedings for failure to comply with the requirements of Section 209 of the Act by persons under this Section, it is open to the persons who are responsible for such compliance to prove that a competent and reliable person was charged with the duty of seeing that the requirements as to the maintenance of proper books of accounts were complied with and that such a person was in a position to discharge that duty [Sec. 209(5)].
Q. 3. State the law relating to the preparation and presentation of balance sheet and profit and loss account of a company.. Section 211 alongwith Schedule VI ‘Of the Companies Act deals with the preparation and presentation of balance sheet and profit and loss account of a company. This Section requires that every balance sheet of a company shall give a true and fair view of the state of affairs of the company as at the end of the financial year. The balance sheet should be in the form set out in Part I of Schedule VI, or as near thereto as circumstances permit, or in such other form as approved by the Central Government.
Schedule VI, Part I prescribes two forms in which balance sheet should be prepared, one horizontal and other vertical. It must contain all the information as specified in Schedule VI. In preparing the balance sheet, as far as possible, the general instructions given in ‘notes’ at the end of the part may be followed.
Schedule VI does not prescribe any form in which profit and loss account should be prepared. However, the profit and loss account should give a true and fair view of the profit and loss of the company for the financial year and should comply with the requirements of Part IT of Schedule VI so far as they are applicable.
It may be noted that the Companies (Amendment) Act, 1999 has amended Section 211 by including sub-sections (3A), (3B) and (3C). Sub-section (3A) provides that every profit and loss account and the balance sheet of the company shall comply with the accounting standards.
Where the profit and loss account and the balance sheet of the company do not comply with the accounting standards, such companies shall disclose in its profit and loss account and balance sheet, the following namely:
(a) the deviation from the accounting standards;
(b) the reasons for such deviation; and
© the financial effect, if any, arising due to such deviation [sub-section (3B)].
For the purposes of Section 211, the expression “accounting standards"
account. Who are responsible for this? What are the legal provisions for default in this respect.
(a) Books of Acc,ounts Required to be Kept
(b) Persons Responsible for Keeping Books of Account
The following persons shall be held responsible for the failure to take all reasonable steps to keep proper books of account, or if they have been the cause of any default by the company in this regard by their own wilful act, namely,
(i) where the company has a Managing Director or Manager, such Managing
Director or Manager
(ii) where the company has neither a Managing Director nor Manager, every
Director of the company
(iii) every officer and other employee and agent, as defined in Section 240(6) of the
Act excluding Bankers, Auditors and Legal Advisers of the company [Section
209(6)].
Sub-section (7) of Section 209 empowers a Managing Director, Manager or Board of Directors to make any person other than the persons referred to above responsible to ensure that the requirements of this Section are complied with.
Penalty. In case of default, any of the persons as aforesaid shall be punishable with imprisonment for a term which may extend to six months, or with fine upto Rs. 10,000 or both.
It is further provided that no such person shall be sentenced to imprisonment for such offence unless it was committed wilfully.
Defence Available. In any proceedings for failure to comply with the requirements of Section 209 of the Act by persons under this Section, it is open to the persons who are responsible for such compliance to prove that a competent and reliable person was charged with the duty of seeing that the requirements as to the maintenance of proper books of accounts were complied with and that such a person was in a position to discharge that duty [Sec. 209(5)].
Q. 3. State the law relating to the preparation and presentation of balance sheet and profit and loss account of a company.. Section 211 alongwith Schedule VI ‘Of the Companies Act deals with the preparation and presentation of balance sheet and profit and loss account of a company. This Section requires that every balance sheet of a company shall give a true and fair view of the state of affairs of the company as at the end of the financial year. The balance sheet should be in the form set out in Part I of Schedule VI, or as near thereto as circumstances permit, or in such other form as approved by the Central Government.
Schedule VI, Part I prescribes two forms in which balance sheet should be prepared, one horizontal and other vertical. It must contain all the information as specified in Schedule VI. In preparing the balance sheet, as far as possible, the general instructions given in ‘notes’ at the end of the part may be followed.
Schedule VI does not prescribe any form in which profit and loss account should be prepared. However, the profit and loss account should give a true and fair view of the profit and loss of the company for the financial year and should comply with the requirements of Part IT of Schedule VI so far as they are applicable.
It may be noted that the Companies (Amendment) Act, 1999 has amended Section 211 by including sub-sections (3A), (3B) and (3C). Sub-section (3A) provides that every profit and loss account and the balance sheet of the company shall comply with the accounting standards.
Where the profit and loss account and the balance sheet of the company do not comply with the accounting standards, such companies shall disclose in its profit and loss account and balance sheet, the following namely:
(a) the deviation from the accounting standards;
(b) the reasons for such deviation; and
© the financial effect, if any, arising due to such deviation [sub-section (3B)].
For the purposes of Section 211, the expression “accounting standards"
Effective enforceable acknowledgement
State the procedure for the following, explaining the relevant provisions of the
Companies Act:
(i) Appointment of First Auditor when the Board of Directors did not appoint
the First Auditor within one month of the date of registration of the
.company.
(ii) Removal of First-Auditor before the expiry of his term12. How far is Balance Sheet an acknowledgement of a debt of a company? Board of Directors of Halint Abdul & Sultan Company Limited passed a resolution for payment of sitting fees to Directors and the same was shown as fees due to Directors in the Balance Sheet of the Company. Examine whether this provision of fees due to Directors in the Balance Sheet can be considered as an effective enforceable acknowledgement of debt by the company
(a) What books of accounts are required to be kept by a company?
(b) Who are the persons who can inspect books of accounts?
© Can a Director make inspection of the books of accounts through an agent? (d) Can a shareholder inspect books of accounts?
Jlns.
(a) Books of Accounts Required to be Kept
Section 209 of the Companies Act requires every company to maintain at its registered
office proper books of accounts with respect to :
(a) All sums of money received and expended by the company and the matters
in respect of which receipts and expenditure take place,
(b) all sales and purchases of goods by the company,
© the assets and liabilities of the company, and
(d) in the case of a company pertaining to any class of companies engaged in
production, processing, manufacturing, or mining activities, such particulars relating to utilisation of material or labour or to other items of cost as may be prescribed, if such class of companies is required by the Central Government to include such particulars in the books of account.
As noted in the preceding paragraph, Section 209 requires books of accounts to be kept at the registered office of the company. However, the proviso to Sec. 209 allows the company to keep its books of accounts at any other place in India as the Board of Directors may decide and when the Board of Directors so decides, the company shall, within 7 days of the decision, file with the Registrar a notice in writing giving the full address of that other place.
Further, sub-section (3) of Sec. 209 provides that proper books of accounts shall
not be deemed to be kept with respect to the matters specified therein :
(j) if there are not kept such books as are necessary to give a true and fair view
of the state of affairs of the company or branch office, as the case may be, and
to explain its transactions; and
(ii) if such books are not kept on accrual basis and according to the double entry
system of accounting.
Section 541(2) provides that proper books of accounts constitute such books of accounts as are necessary to exhibit and explain the transactions and financial position of the business of the company, including books containing sufficiently detailed entries of daily cash receipts and payments. Also, where the business of the company has involved dealings in goods, statements of the annual stock takings and (except in the case of goods sold by way of ordinary retail trade) of all goods sold and purchased, showing the goods and the buyers and sellers thereof in sufficient detail to enable those goods and those buyers and sellers to be identified should also be maintained.
Companies Act:
(i) Appointment of First Auditor when the Board of Directors did not appoint
the First Auditor within one month of the date of registration of the
.company.
(ii) Removal of First-Auditor before the expiry of his term12. How far is Balance Sheet an acknowledgement of a debt of a company? Board of Directors of Halint Abdul & Sultan Company Limited passed a resolution for payment of sitting fees to Directors and the same was shown as fees due to Directors in the Balance Sheet of the Company. Examine whether this provision of fees due to Directors in the Balance Sheet can be considered as an effective enforceable acknowledgement of debt by the company
(a) What books of accounts are required to be kept by a company?
(b) Who are the persons who can inspect books of accounts?
© Can a Director make inspection of the books of accounts through an agent? (d) Can a shareholder inspect books of accounts?
Jlns.
(a) Books of Accounts Required to be Kept
Section 209 of the Companies Act requires every company to maintain at its registered
office proper books of accounts with respect to :
(a) All sums of money received and expended by the company and the matters
in respect of which receipts and expenditure take place,
(b) all sales and purchases of goods by the company,
© the assets and liabilities of the company, and
(d) in the case of a company pertaining to any class of companies engaged in
production, processing, manufacturing, or mining activities, such particulars relating to utilisation of material or labour or to other items of cost as may be prescribed, if such class of companies is required by the Central Government to include such particulars in the books of account.
As noted in the preceding paragraph, Section 209 requires books of accounts to be kept at the registered office of the company. However, the proviso to Sec. 209 allows the company to keep its books of accounts at any other place in India as the Board of Directors may decide and when the Board of Directors so decides, the company shall, within 7 days of the decision, file with the Registrar a notice in writing giving the full address of that other place.
Further, sub-section (3) of Sec. 209 provides that proper books of accounts shall
not be deemed to be kept with respect to the matters specified therein :
(j) if there are not kept such books as are necessary to give a true and fair view
of the state of affairs of the company or branch office, as the case may be, and
to explain its transactions; and
(ii) if such books are not kept on accrual basis and according to the double entry
system of accounting.
Section 541(2) provides that proper books of accounts constitute such books of accounts as are necessary to exhibit and explain the transactions and financial position of the business of the company, including books containing sufficiently detailed entries of daily cash receipts and payments. Also, where the business of the company has involved dealings in goods, statements of the annual stock takings and (except in the case of goods sold by way of ordinary retail trade) of all goods sold and purchased, showing the goods and the buyers and sellers thereof in sufficient detail to enable those goods and those buyers and sellers to be identified should also be maintained.
Inspection of Books of Accounts
Inspection of Books of Accounts
Section 209(4) provides that books of account shall be open to inspection by any
Director during business hours.
Further, Sec. 209-A’ provides that books of account shall be open to inspecti,)n by:
(i) the Registrar; or
(ii) such officer of Government as may be au thorised by the Central Government
in this behalf.
(iii) by such officers of the Securities and Exchange Board of India as may be
authorised by it.
Further, Section 209A provides that such inspection may be made without giving
any prior notice to the company or any officer thereof.
The inspection by SEBI shall be made in respect of matters covered under Sections referred to in Section 55A of the Companies Act, 1956 as amended by Companies (Amendment) Act, 2000. Section 55A, in this regard, provides as follows:
The provisions contained in Sections 55 to 58, 59 to 84,108,109, 110,112,113,116 117,118,119,120, 121, 122,206,206 A and 207, so far as they relate to issue and transfer of securities and non-payment of dividend shall:
(a) in case of listed public companies;
(b) in case of those public companies which intend to get their securities listed on
any recognised stock exchange in India, be administered by the Securities and
Exchange Board of India. .
Under Sec. 45-N of the Reserve Bank of India Act, books of account of non-banking companies may also be inspected by the Reserve Bank of India for the purpose of verifying the correctness or completeness of any statement, information or particulars furnished to the Bank or for the purpose of obtaining any information of particulars which the non-banking institution has failed to furnish on being called upon to do so.
© Can a Director make an Inspection through an Agent?
Generally, a Director should exercise right of inspection of books of accounts personally. However, in N.V. Vakharia Vs. Supreme General Film Exchange Co. Ltd. (1948) 18 Compo Cas. 34, it was held that a director is entitled to make 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 utilise the information obtained by him for any purpose other than the purpose of his principal.
In the aforesaid case, inspection through an agent was allowed because of the
physical inability of the Director to inspect books of accounts personally.
As the right of inspection is a statutory right given under Section 209, a Director
who is prevented from or is refused inspection, may enforce his right through Court.
The right of inspection, however, is not an absolute right. Where on the facts and circumstances it is clear in any case that there is reason to believe that the inspection is sought for supplying information to a rival in business of the company or for any purpose which is prejudicial or injurious to the interest of the company, the inspection may properly be refused.(d) Right of a Shareholder to Inspect Books of Account
Section 209(4) provides that books of account shall be open to inspection by any
Director during business hours.
Further, Sec. 209-A’ provides that books of account shall be open to inspecti,)n by:
(i) the Registrar; or
(ii) such officer of Government as may be au thorised by the Central Government
in this behalf.
(iii) by such officers of the Securities and Exchange Board of India as may be
authorised by it.
Further, Section 209A provides that such inspection may be made without giving
any prior notice to the company or any officer thereof.
The inspection by SEBI shall be made in respect of matters covered under Sections referred to in Section 55A of the Companies Act, 1956 as amended by Companies (Amendment) Act, 2000. Section 55A, in this regard, provides as follows:
The provisions contained in Sections 55 to 58, 59 to 84,108,109, 110,112,113,116 117,118,119,120, 121, 122,206,206 A and 207, so far as they relate to issue and transfer of securities and non-payment of dividend shall:
(a) in case of listed public companies;
(b) in case of those public companies which intend to get their securities listed on
any recognised stock exchange in India, be administered by the Securities and
Exchange Board of India. .
Under Sec. 45-N of the Reserve Bank of India Act, books of account of non-banking companies may also be inspected by the Reserve Bank of India for the purpose of verifying the correctness or completeness of any statement, information or particulars furnished to the Bank or for the purpose of obtaining any information of particulars which the non-banking institution has failed to furnish on being called upon to do so.
© Can a Director make an Inspection through an Agent?
Generally, a Director should exercise right of inspection of books of accounts personally. However, in N.V. Vakharia Vs. Supreme General Film Exchange Co. Ltd. (1948) 18 Compo Cas. 34, it was held that a director is entitled to make 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 utilise the information obtained by him for any purpose other than the purpose of his principal.
In the aforesaid case, inspection through an agent was allowed because of the
physical inability of the Director to inspect books of accounts personally.
As the right of inspection is a statutory right given under Section 209, a Director
who is prevented from or is refused inspection, may enforce his right through Court.
The right of inspection, however, is not an absolute right. Where on the facts and circumstances it is clear in any case that there is reason to believe that the inspection is sought for supplying information to a rival in business of the company or for any purpose which is prejudicial or injurious to the interest of the company, the inspection may properly be refused.(d) Right of a Shareholder to Inspect Books of Account
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