Ozg Sarfaesi / DRT Lawyer
Ahmedabad | Pune |
Kolkata | Bangalore | Delhi | Mumbai
VoIP Text / Phone
# 09811415837-61-72-84-92-94
Website: http://sarfaesi.ozg.in
Email: debt@liaisoning.com
The provisions of Companies Act,
1956 makes it very clear that every company should maintain proper books of
accounts and should record all the transactions of the Company pertaining to
sales, purchases, expenses, receipts, liabilities and Assets. Not only
recording the transactions, every Company is also supposed to maintain the
documentary proof in support of the transactions as per law. Based on the
records maintained by the Company and as per the requirement of the Companies
Act, 1956, every Company presents its Annual Accounts before the Shareholders
in the AGM and thereafter the Annual Accounts are filed with the Registrar of
Companies. The principles, filing and disclosure requirements of a Company
while maintaining, presenting and filing its Accounts depend upon the kind of
the Company. The Institute of Chartered Accountants of India (ICAI) is a
statutory body discharging various important functions for the benefit of the
public at large and the industry. The ICAI prescribes various standards and
when these standards prescribed by the ICAI are made mandatory, then, the
companies should follow the standards while presenting its Accounts. Now, the
standards prescribed by the ICAI have the statutory force and every company
should follow the standards. The important standard being the Accounting
Standards (AS). The Accounting Standards (AS) prescribed by the ICAI deals with
the principles to be followed and the disclosure requirements for various
business organizations and companies. While there is no exception per se when
it comes to following the principles, the disclosure requirements are mandatory
only to certain companies like listed public companies or the companies
exceeding prescribed turnover etc. The disclosure requirement is mandatory as
prescribed by the ICAI in its Standard itself.
Theoretically, it may all appear
to be very simple, but, when an Auditor takes the responsibility of auditing
the books of accounts, there tend to be many difficulties in the course and the
complications in the auditing process were exposed in 'Satyam case'. It is also
true that many companies neglect the accounting requirements, recording the
transactions and maintaining the books of Accounts. In many cases, there may
not be any proof in support of a transaction recorded by the Company and shown
in the Annual Accounts.
Many closely held companies,
private companies and small concerns do not strictly follow the accounting
requirements and as such it is very easy to allege some irregularity in these
companies. When there are differences between or among the groups in a Company,
one group will try to trouble the other by seeking various reliefs before the
Company Law Board under section 397/398 of the Companies Act, 1956 alleging
oppression and mismanagement. It is very easy for a minority group or the
shareholder who has the knowledge of all internal affairs of the Company to
allege mismanagement in the Company. Not only pleading mismanagement in the
Company, the Petitioner, at times, may press for perusal of all the Books of
Accounts maintained by the Company and also may insist for appointment of
Independent Auditor.
The evidentiary value of Books of
Accounts in a proceeding under section 397/398 of the Companies Act, 1956 is a
complicated issue to deal with. At times, the Books of Accounts can be taken as
an evidence under section 397/398 of the Companies Act, 1956 and at times,
despite the irregularities in the Books of Accounts maintained by the Company,
the Petitioners under section 397/398 of the Companies Act, 1956 may not
qualify to get the relief as prayed for taking other evidence, circumstances
and law into consideration. It is true that establishing a case for
mismanagement is very easy for a minority group in a private company or a
closely held company if he or they have the knowledge of internal affairs. It
is really a complicated issue to deal with.
While the Company Law Board has
the powers to direct the parties before it to produce the Books of Accounts and
other evidence in their custody, in my opinion, it may not be correct to
completely depend upon the Books of Accounts maintained by the Company while
deciding a petition under section 397/398 of the Companies Act, 1956. It is not
the law that a Company to be wound-up if they failed to maintain the Books of
Accounts as per the requirement and only consequences will follow. While it is
true that there should not be any lenience towards the companies if they do not
maintain the proper accounts, it is also not correct to allow a group to take
advantage of the knowledge of the internal affairs of the Company and seek
drastic measures from the Company Law Board under section 397/398 of the
Companies Act, 1956.
To conclude, in my opinion, based
on the law laid-down by the constitutional courts form time to time, an
irregularity in maintaining books of accounts will not ipso facto lead to a
conclusion that there exist a case of mismanagement under section 397 of the
Companies Act, 1956 unless other events and circumstances prove to be so.
Ozg Sarfaesi / DRT Lawyer
Ahmedabad | Pune |
Kolkata | Bangalore | Delhi | Mumbai
VoIP Text / Phone
# 09811415837-61-72-84-92-94
Website: http://sarfaesi.ozg.in
Email: debt@liaisoning.com