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CS Executive · Company Law and Practice · Introduction to Company Law

Meridian Textiles Ltd's books for an earlier year are suspected of having been prepared fraudulently. Under the Companies Act, 2013, when can the company re-open its books of account and recast its financial statements?

A company may re-open its books and recast its financial statements only after an application by an authorised applicant and an order of a competent court or the Tribunal, which must find fraudulent preparation or mismanagement casting doubt on the accounts. Its own board resolution is not enough.

  1. AWhen its board passes a resolution to that effect
  2. BWhen its statutory auditor recommends it in a report
  3. CWhen an authorised applicant applies and a court of competent jurisdiction or the Tribunal orders it on grounds of fraud or mismanagementCorrect
  4. DWhen the Registrar of Companies writes to the company informally

Explanation

Section 130(1) bars a company from re-opening its books or recasting its financial statements unless an application is made by the Central Government, Income-tax authorities, SEBI, another statutory regulatory body or a person concerned, and a court or the Tribunal orders it. The order must find that the earlier accounts were fraudulently prepared or that the affairs were mismanaged, casting doubt on the reliability of the financial statements. A board resolution or an auditor's recommendation does not suffice.

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