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Setting Up of Business, Industrial and Labour Laws · Setting up of Branch Office, Liaison Office and Wholly Owned Subsidiary by Foreign Company

Section 128 Books of Account under Companies Act, 2013

Updated 11 October 2026 · Fact-checked

Section 128 requires every company to keep books of account and financial statements at its registered office. They must give a true and fair view, be kept on accrual basis and by double entry. Branch records, electronic mode, director inspection and eight-year retention are covered. Default attracts a fine of ₹50,000 to ₹5 lakh.

Understand Books of Account and Financial Records of Indian Presence

Every company, including an Indian subsidiary of a foreign company, must keep proper accounts. Section 128 of the Companies Act, 2013 lays down how. Without reliable books, the Board cannot prepare financial statements, auditors cannot audit, and regulators cannot check compliance.

The core rule is in sub-section (1). The company must prepare and keep, at its registered office, books of account and other relevant books and papers and financial statement for every financial year. They must give a true and fair view of the company's affairs, including its branch offices, and explain transactions at the registered office and branches. The books must be on accrual basis and by the double entry system.

There is flexibility. The Board may decide to keep books at another place in India. If it does, the company must file a written notice with the Registrar within seven days of the decision, giving the full address of that place. The company may also keep books and papers in electronic mode, in the manner prescribed.

Branches get a relaxation under sub-section (2). If a company has a branch in India or outside India, it is deemed to comply if proper books for the branch's transactions are kept at the branch and proper summarised returns are sent periodically to the registered office (or the other place chosen by the Board).

The rest of the section deals with control. Any director can inspect the books during business hours. Books must be preserved for at least eight financial years. Officers named in sub-section (6) are punishable with fine if the section is breached. Note for foreign entry: an Indian wholly owned subsidiary is a company and follows this section directly. A foreign company's branch or liaison office is not itself a company under this Act, so treat the section as applying to the Indian company and its branches; for a foreign company's place of business, rely on the rules for foreign companies and state them separately.

Key rules to remember

Core duty (S.128(1))
Books at registered office + true and fair view + accrual basis + double entry
Applies for every financial year and includes branch transactions.
Other place in India
Board decision → notice to Registrar within 7 days with full address
The place must be in India. Book the 7 days from the date of the decision.
Electronic mode
Books and papers may be kept in electronic mode in the prescribed manner
Stated in the second proviso to S.128(1).
Branch relaxation (S.128(2))
Branch books at branch + periodic summarised returns to registered office
Applies to branches in India or outside India.
Director inspection (S.128(3))
Any director may inspect during business hours
For a subsidiary's books, only a person authorised by Board resolution of the company may inspect.
Foreign-held financial information
Copies kept and produced for inspection by any director, on prescribed conditions
Applies to financial information maintained outside India.
Retention (S.128(5))
Not less than 8 financial years immediately preceding, with vouchers
If company is younger than 8 years, keep all preceding years. Central Government may direct a longer period if an investigation is ordered under Chapter XIV.
Penalty (S.128(6))
Fine ₹50,000 minimum to ₹5,00,000 maximum
Imprisonment and the 'or with both' words were omitted w.e.f. 21 December 2020. Falls on MD, whole-time director in charge of finance, CFO or other person charged by the Board.

How to solve Books of Account and Financial Records of Indian Presence questions

Use this method for any question on books of account, whether it is a short note, a case study or a compliance query.

  1. 1Identify the entity: an Indian company (including a wholly owned subsidiary) or a branch of that company. Section 128 applies to the company.
  2. 2State the core rule in S.128(1): books at registered office, true and fair view, accrual basis, double entry, every financial year.
  3. 3Check the facts for where books are kept. If elsewhere in India, test for a Board decision and a notice to the Registrar within seven days.
  4. 4Check the mode. Electronic records are allowed if kept in the prescribed manner.
  5. 5Check branches. If the facts show branch books at the branch plus periodic summarised returns, S.128(2) deems compliance.
  6. 6Check inspection and retention: director access in business hours, subsidiary inspection only by a Board-authorised person, and eight-year preservation with vouchers.
  7. 7Apply the penalty to the right persons: MD, whole-time director in charge of finance, CFO or other person charged by the Board. Fine only, ₹50,000 to ₹5 lakh.
  8. 8Write a clear conclusion in one sentence tied to the facts.

Quickest way: Five-point recall: PLACE, MODE, BRANCH, ACCESS, KEEP

When to use it: Use for short notes or 4 to 5 mark questions when time is tight.

  1. PLACE: registered office, or another place in India with notice to the Registrar in 7 days.
  2. MODE: accrual basis, double entry, electronic form allowed in the prescribed manner.
  3. BRANCH: books at branch plus periodic summarised returns to registered office.
  4. ACCESS: any director may inspect in business hours; a subsidiary's books only through a person authorised by Board resolution.
  5. KEEP: eight financial years with vouchers; penalty fine ₹50,000 to ₹5 lakh on the responsible officers.

Common mistakes in Books of Account and Financial Records of Indian Presence

  • Saying books can be kept at any place, including outside India, by Board decision.

    Students remember the 'other place' proviso but forget the words 'in India'.

    Fix: Write 'other place in India' and add the seven-day notice to the Registrar.

  • Stating that imprisonment is still a punishment under S.128(6).

    Older notes carry the pre-2020 wording.

    Fix: Write that the penalty is fine only, ₹50,000 to ₹5 lakh. Imprisonment and 'or with both' were omitted by Act 29 of 2020.

  • Writing that the retention period is eight years from the date of the transaction.

    Students rely on loose memory of 'eight years'.

    Fix: State it as not less than eight financial years immediately preceding a financial year, with vouchers; for a younger company, all preceding years.

  • Forgetting that the cash or mercantile choice does not exist; writing that a company may use cash basis.

    Confusion with tax rules or small business practice.

    Fix: State that books must be on accrual basis and by double entry system.

  • Saying any director can inspect a subsidiary's books directly.

    The proviso to S.128(3) is overlooked.

    Fix: Add that inspection of a subsidiary's books is done only by a person authorised by a resolution of the Board of Directors.

  • Fixing the penalty only on the company or on all directors.

    Students assume the usual 'officer in default' language.

    Fix: Name the persons in S.128(6): managing director, whole-time director in charge of finance, CFO or other person charged by the Board.

Worked examples

Example 1

Bharat Tools Private Limited, a wholly owned subsidiary of a Japanese company, has its registered office in Pune. Its Board decides to keep the books of account at its factory in Nashik. Advise the company on the compliance required under the Companies Act, 2013.

Show the solution
  1. Provision: S.128(1) requires books at the registered office, but the first proviso allows the Board to decide that they be kept at another place in India.
  2. Facts: Nashik is in India and the decision is taken by the Board. This is permitted.
  3. Condition: the company must, within seven days of the decision, file with the Registrar a written notice giving the full address of the Nashik place.
  4. The books must still be kept on accrual basis and by double entry and give a true and fair view.

Answer: The company may keep the books at Nashik, provided the Board decides so and the company files a written notice with the Registrar with the full address within seven days of the decision. Failure to comply exposes the responsible officers to fine of ₹50,000 to ₹5 lakh under S.128(6).

Example 2

Sagar Exports Limited has a branch in Dubai. The branch keeps its own books and sends summarised returns every quarter to the registered office in Chennai. A director says this breaches S.128 because the Dubai transactions are not in the Chennai books. Is he right? Also state for how long the books must be kept.

Show the solution
  1. Provision: S.128(2) says that where a company has a branch in India or outside India, it is deemed to comply with S.128(1) if proper books for the branch's transactions are kept at that branch and proper summarised returns are sent periodically to the registered office or the other place chosen by the Board.
  2. Facts: the Dubai branch keeps its own books and sends summarised returns quarterly. Quarterly is a periodic basis.
  3. Conclusion on compliance: this meets S.128(2), so the director is not right.
  4. Retention: S.128(5) requires books relating to not less than eight financial years immediately preceding a financial year, with relevant vouchers, to be kept in good order. If the company is younger than eight years, all preceding years must be kept.
  5. Also, if an investigation is ordered under Chapter XIV, the Central Government may direct a longer period.

Answer: The director is wrong. Sagar Exports Limited is deemed to comply with S.128(1) under S.128(2) because the branch keeps proper books and sends periodic summarised returns. The books must be preserved for not less than eight financial years with vouchers, or longer if the Central Government so directs after an investigation under Chapter XIV.

Exam tips

  • Learn sub-section numbers: (1) core rule, (2) branch, (3) inspection, (5) eight years, (6) penalty. Cite them in answers.
  • In case studies, check first whether the place is in India and whether the seven-day notice was filed.
  • Always use the current penalty: fine only, ₹50,000 to ₹5 lakh. Mention who is liable.
  • For foreign-company questions, say the Indian subsidiary is a company bound by S.128, and do not extend the section to a foreign parent's overseas books.
  • Close each answer with a one-line conclusion, as ICSI answers expect the provision, analysis and conclusion.

Practice questions from Setting up of Branch Office, Liaison Office and Wholly Owned Subsidiary by Foreign Company

Books of Account and Financial Records of Indian Presence in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Books of Account and Financial Records of Indian Presence: frequently asked questions

Where must a company keep its books of account under Section 128?

At its registered office. The Board may decide to keep them at another place in India. If it does, the company must file a written notice with the Registrar within seven days giving the full address.

Can books of account be kept electronically?

Yes. The second proviso to S.128(1) allows books of account and other relevant papers to be kept in electronic mode in the manner prescribed.

How long must books of account be preserved?

For not less than eight financial years immediately preceding a financial year, with the vouchers relevant to entries. A company in existence for less than eight years keeps the records of all preceding years. The Central Government can direct a longer period if an investigation has been ordered.

What is the penalty for contravening Section 128?

The managing director, whole-time director in charge of finance, CFO or other person charged by the Board is punishable with fine of at least ₹50,000, extending to ₹5 lakh. The imprisonment limb was omitted with effect from 21 December 2020.

Who can inspect the books of account?

Any director can inspect them during business hours at the registered office or the other place in India. For a subsidiary's books, only a person authorised by a Board resolution can inspect. Officers must give reasonable assistance.