We have already discussed the provisions of section 128 of the Companies Act, 2013 which states that every company shall prepare and keep books of account and financial statement for every financial year. Financial Statement has been defined under section 2(40) whereas Section 129 contains the main provisions related to financial statement read with the Companies (Accounts) Rules, 2014.
Section 129 has been notified by the Ministry of Corporate Affairs (MCA) vide Notification No. S.O. 902(E) issued dated March 27, 2014. This notification has come into force from 1st day of April, 2014 i.e. the commencement date of section 129 is 01/04/2014.
Definition of Financial Statement of a Company
As per section 2(40) of the Companies Act, 2013 the term Financial Statement includes the following:
i) Balance Sheet;
ii) Profit and Loss account or Income and Expenditure account (as the case may be);
iii) Cash Flow Statement;
iv) Statement of changes in Equity (if applicable); and
v) Explanatory Note annexed thereto.
However, there is no need to prepare cash flow statement in case of One Person Company (OPC), Small Company and Dormant Company.
Forms and items contained in Financial Statements of a Company
In accordance with the provisions of section 129(1) of CA, 2013, the financial statements of companies shall have following three basic legal requirements:
1) Gives True and Fair View:
Financial Statement shall give a true and fair view of the state of affairs of the company or companies;
2) Complies with AS:
Financial Statement shall comply with the Accounting Standards notified under section 133;
3) In the Form of Schedule III:
Financial Statement shall be in the form or forms as may be provided for different class or classes of companies in Schedule III.
Further, a new Rule 4A has been inserted by the Companies (Accounts) Second Amendment Rules, 2015 vide G.S.R. 680 (E), issued dated 07-09-2015. As per the said rule the Financial Statements shall be in the form specified in Schedule III and comply with Accounting Standards (AS) or Indian Accounting Standards (Ind AS) as applicable.
As per section 129(2) of CA, 2013, the Financial Statement must be placed before shareholders at every AGM by the Board of Directors of a company. Section 129(3) read with Rule 5 of the Companies (Accounts) Rules, 2014, the company shall also attach along with its financial statement, a separate statement containing the salient features of the financial statement of its subsidiary or subsidiaries in Form AOC-1.
Companies not required to comply with legal requirements u/s Section 129
The following companies need not required to comply with the basic legal requirements as stated in the provisions of sub-section (1) of section 129:
A) Insurance company;
B) Banking company;
C) Electricity company;
D) Any other class of company for which a form of financial statement has been specified in or under the CA, 2013 governing such class of company.
It has also been stated in the proviso of section 129(1) that the financial statements shall not be treated as not disclosing a true and fair view of the state of affairs of the company, merely by reason of the fact that they do not disclose—
(a) in the case of an insurance company, any matters which are not required to be disclosed by the Insurance Act, 1938, or the Insurance Regulatory and Development Authority Act, 1999;
(b) in the case of a banking company, any matters which are not required to be disclosed by the Banking Regulation Act, 1949;
(c) in the case of a company engaged in the generation or supply of electricity, any matters which are not required to be disclosed by the Electricity Act, 2003;
(d) in the case of a company governed by any other law for the time being in force, any matters which are not required to be disclosed by that law.
Mandatory requirement for Consolidated Financial Statement
As per sub-section (3) of section 129, if a company has one or more subsidiaries, it shall prepare and lay a Consolidated Financial Statement (CFS) before the annual general meeting of the company. Subsidiary shall include associate company and joint venture.
The manner of consolidation of accounts of companies has been provided by the Central Government in Rule 6 of the Companies (Accounts) Rules, 2014. Accordingly, the CFS shall be made in accordance with Schedule III and the applicable accounting standards. In case of a company which is not required to prepare CFS under the accounting standards then CFS need to be made in accordance with Schedule III only.
That means a company having either subsidiary, associate or joint venture in India or outside India, shall prepare CFS for each financial year and must comply with AS and that CFS should be in the form prescribed in Schedule III.
A new proviso has been inserted in Rule 6 by the Companies (Accounts) Amendment Rules, 2015 vide G.S.R. 37(E), dated 16-01-2015. In accordance with the newly inserted proviso nothing in Rule 6 shall apply in respect of consolidation of financial statement by a company having subsidiary or subsidiaries incorporated outside India only for the financial year commencing on or after 1st April, 2014.
Where the financial statements of a company do not comply with AS, the company shall disclose in its financial statements:
i) the deviation from AS;
ii) the reasons for such deviation; and
iii) the financial effects, if any, arising out of such deviation.
Contravention of provisions of Section 129 of CA, 2013
Responsible Persons to comply with Section 129: Following persons of a company are responsible for the compliance requirements of the provisions of section 129 of CA, 2013:
a) Managing Director (MD);
b) Whole-time Director (WD) in charge of finance;
c) Chief Financial Officer (CFO); or
d) Any other person charged by BOD to comply with Section 129.
Note that in the absence of any of the officers mentioned above, all the directors of that company shall be punishable.
Punishments for Non-compliance of Section 129: If a company contravenes the provisions of section 129, the above responsible persons shall be punishable with:
i) Imprisonment upto 1 year; or
ii) Fine of Minimum ₹50,000 or Maximum ₹5,00,000; or
iii) Both i.e. Imprisonment as well as Fine.
Power of CG to grant Exemption from Provision of Section 129
The Central Government may on its own or on an application exempt any class or classes of Companies from complying with Section 129 or the Rules made thereunder and such exemption may be granted either unconditionally or subject to such conditions as may be specified in that exemption notification.
Accordingly, the Central Government has granted exemption to Government Company producing Defence Equipments from complying with any of the requirements of section 129 or the rules made thereunder.