SECTION 130: REOPENING OF ACCOUNTS ON COURT’S OR TRIBUNAL’S ORDER

This section seeks to provide for the re-opening of books of accounts and recasting of accounting records on an order by the competent court or Tribunal if it is discovered that earlier accounts were prepared fraudulently, or financial statements are not accurate due to mismanagement of the company’s affairs.

REOPENING OF ACCOUNTS ON ORDERS OF TRIBUNAL/ COMPETENT COURT:

Subsection (1) of Section 130 of the Companies Act,2013 stipulates that a firm may reopen its books of accounts or amend its accounting records only under the instruction of a court of competent jurisdiction or the Tribunal made on the application of specified persons. The terms reopen and recast denote the type of treatment necessary for books of accounts and financial records, respectively. The core meaning remains the same. The facts of each case will determine whether a reopening order will include recasting or vice versa. Furthermore, clauses (90), (13), and (40) of section 2 shall be resorted to for the definitions of Tribunal, Books of Account, and Financial Statements.

AUTHORITY TO MAKE APPLICATION:

The following individuals may file an application with a court of competent jurisdiction or the Tribunal for reopening of books of account or reformulating of accounting records:

• The Central Government
• The Securities and Exchange Commission
• The Income Tax authorities
• Any other statutory regulatory body or authority
• Any person concerned

GROUNDS FOR MAKING AN APPLICATION:

A court of competent jurisdiction or the Tribunal may issue an order based on one of two grounds:

• The previous accounts were created dishonestly; or
• The company’s activities were mishandled over the relevant period, raising doubts about the accuracy of the financial accounts.

PRIOR NOTICE AND REPRESENTATION BY CERTAIN AUTHORITIES:

According to the sub-section (1) of section 130, the court or the Tribunal, as the situation may be, shall give notice of the application made under this section to the Central Government, the Income-tax authorities (as defined in section 116 of the Income Tax Act, 1961), SEBI, or any other statutory regulatory body or authority Concerned.

Furthermore, before imposing any order under this section, the court or Tribunal must examine any recommendations made by the government or the authorities specified above.

The Companies (Amendment) Bill, 2016, intends to include the phrase “any other person concerned” in the process of giving notice to and considering a court or Tribunal’s recommendation. The proposed insertion greatly expands the section’s scope.

PUNISHMENT:

This section 130 contains no explicit punitive provisions. As a result, if this section is violated, the criminal penalties of Section 450 will apply. As a result, for contravention, the firm and each official of the company in default are liable for a punishment of up to Rs.10,000, and if the contravention continues, the fine is Rs.1,000 per day. Provision 441 of the Act makes the offences under this section compoundable.