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CA Intermediate · Corporate and Other Laws · Accounts of Companies

Sagar Foods Ltd, an unlisted public company, has total assets of Rs 900 crore and a board of directors. Its board reports that the auditor has not been given access to certain books maintained electronically on a server located outside India. Mr Iyer, a director, asks about the legal position on books of account kept in electronic mode. Which statement is correct under the Companies Act, 2013 and the Accounts Rules?

Books of account may be maintained in electronic mode, but the company must follow the prescribed conditions, including keeping periodic backups, even of books held on servers outside India, on servers physically located in India. Electronic maintenance is not prohibited, not limited to listed companies, and not freed from conditions by board approval.

  1. AElectronic books are not permitted; they must be kept in physical form at the registered office
  2. BBooks may be kept in electronic mode, but backups of books and other relevant papers kept in electronic mode, including those on servers outside India, must be kept in servers physically located in India on a periodic basis, and the company must follow the prescribed conditionsCorrect
  3. CBooks of account can be kept abroad without any restriction if the board approves
  4. DElectronic books are allowed only for listed companies

Explanation

The Accounts Rules permit books of account to be kept in electronic mode, with conditions: they must be accessible in India for later reference, and backups, including those of books kept on servers outside India, must be kept in servers physically located in India on a periodic basis (now at least daily under the amended rules). Electronic books are not barred and are not limited to listed companies; board approval alone does not remove the Indian backup requirement.

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