Liability where proper accounts are not kept.
Updated: Oct 17, 2022
This article talks about the liability involved for those officers, for not keeping proper records of those accounts of the business which play a crucial part in the profitability and the day-to-day working of the organization. Not keeping such records make them liable and hence guilty of such acts.
Maintaining regular books of accounts gives you your financial status at a glance. This helps in making important financial decisions. Loans, credit card dues, and various other liabilities make it pertinent for everyone to have a check on their finances. You cannot make sound decisions without data. The purpose of accounting is to accumulate and report on financial information about the performance, financial position, and cash flows of a business. This information is then used to reach decisions about how to manage the business, invest in it, or lend money to it.
Section 338 of the Companies Act 2013, lays down the liability in those situations where proper accounts are not kept.
Section 338(1) of the Act revolves around the fact that where an organization is being wound up, on the off chance that it is shown that legitimate books of record were not stayed with by the all through the time of two years promptly going before the initiation of the winding-up, or the period between the consolidation of the organization and the beginning of the wrapping up, whichever is shorter, each official of the organization who is in default will, except if he shows that he acted sincerely and that in the conditions where the matter of the organization was continued, the default was reasonable, be culpable with detainment for a term which will not be short of what one year however which might reach out to three years and with fine which will not be short of what one lakh rupees yet which might stretch out to three lakh rupees.
Under sub-section (1), it shall be deemed that proper books of account have not been kept in the case of any company,—
(a) if such books of account as are necessary to exhibit and explain the transactions and financial position of the business of the company, including books containing entries made from day-to-day in sufficient detail of all cash received and all cash paid, have not been kept; and
(b) where the business of the company has involved dealings in goods, statements of the annual stock takings, and, except in the case of goods sold by way of ordinary retail trade, of all goods sold and purchased, showing the goods and the buyers and the sellers thereof in sufficient detail to enable those goods and those buyers and sellers to be identified, have not been kept.
It is important to keep a proper book of accounts as the businessman will be unable to decide at what output his profit will be maximized; he will overshoot his mark, or undershoot it, consistently make losses, and finally fail. Thus keeping proper books will help the business run smoothly and also understand if any hindrance is within the organization and will be able to solve it in a quick period.