PROVISIONS UNDER COMPANIES ACT RELATING TO MAINTENANCE OF COST RECORDS AND COST AUDIT
The statutory provisions relating to maintenance of cost accounting records and cost audit were initially
introduced by the Companies (Amendment) Act, 1965.
Provisions for cost accounting records
The above noted developments resulted in inserting sections 209(1)(d) and 233B in the Companies Act,
1956, through the Companies (Amendment) Act, 1965 (31 of 1965). The central government amended
the Companies Act 1956 [Section 20 of the Companies (Amendment) Act 1965] and inserted sub-clause
(d) under sub-section (1) of Section 209 providing statutory maintenance of cost accounting records
in respect of class of companies engaged in production, processing, manufacturing and mining. The
Companies Act 1956 was further amended [Section 23 of the Companies (Amendment) Act 1965]
by inserting section 233B providing power to Central Government to order audit of cost accounts for
companies wherein maintenance of cost accounting records are prescribed under clause (d) of subsection
(1) of Section 209. The relevant provisions of the Companies Act 1956 are reproduced below:
Section 209 of the Companies Act 1956
Section 209 of the Companies Act 1956 deals with the books of accounts to be maintained by a body
corporate. The section provides as follows:
(1) Every company shall keep at its registered office proper books of account with respect to -
(a) all sums of money received and expended by the company and the matters in respect of
which the receipt and expenditure take place;
(b) all sales and purchases of goods by the company;
(c) the assets and liabilities of the company; and
(d) In the case of a company pertaining to any class of companies engaged in production,
processing, manufacturing or mining activities, such particulars relating to utilization of material
or labour or to other items of cost as may be prescribed, if such class of companies is required
by the Central Government to include such particular in the books of account.
Provided that all or any of the books of account aforesaid may be kept at such other place in India
as the Board of Directors may decide and when the Board of Directors so decides, the company
shall, within seven days of decision, file with the Registrar a notice in writing giving the full address
of that other place.
(2) Where a company has a branch office, whether in or outside India, the company shall be deemed
to have complied with the provisions of sub-section (1), if proper books of account relating to the
transactions effected at the branch office are kept at that office and proper summarised returns,
made up to dates at intervals of not more than three months, are sent by the branch office to the
company at its registered office or the other place referred to in sub-section (1).
(3) For the purposes of sub-sections (1) and (2), proper books of account shall not be deemed to be
kept with respect to the matters specified therein, -
(a) if there are not kept such books as are necessary to give a true and fair view of the state of the
affairs of the company or branch office, as the case may be, and to explain its transactions;
and;
(b) if such books are not kept on accrual basis and according to the double entry system of accounting.
(4) The books of account and other books and papers shall be open to inspection by any director
during business hours.
(4A) The books of accounts of every company relating to a period of not less than eight years immediately
preceding the current year together with the vouchers relevant to any entry in such books of
account shall be preserved in good order:
Provided that in the case of a company incorporated less than eight years before the current
year, the books of account for the entire period preceding the current year together with vouchers
relevant to entry in such books of account shall be so preserved.
(5) If any of the persons referred to in sub-section (6) fails to take all reasonable steps to secure
compliance by the company with the requirements of this section, or has by his own wilful act been
the cause of any default by the company there under, he shall, in respect of each offence, be
punishable with imprisonment for a term which may extend to six months, or with fine which may
extend to ten thousand rupees, or with both:
Provided that in any proceedings against a person in respect of an offence under this section
consisting of a failure to take reasonable steps to secure compliance by the company with the
requirements of this section, it shall be a defence to prove that a competent and reliable person
was charged with the duty of seeing that those requirements were complied with and was in a
position to discharge that duty:
Provided further that no person shall be sentenced to imprisonment for any such offence unless it
was committed wilfully.
(6) The persons referred to in sub-section (5) are the following, namely:-
(a) where the company has a managing director or manager, such managing director or manager
and all officers and other employees of the company; and
(b) where the company has neither a managing director nor manager, every director of the company.
(7) If any person, not being a person referred to in sub-section (6), having been charged by the
managing director, manager or Board of directors, as the case may be, with the duty of seeing that
the requirements of this section are complied with, makes default in doing so, he shall, in respect
of each offence, be punishable with imprisonment for a term which may extend to six months, or
with fine which may extend to ten thousand rupees, or with both.
The statutory provisions relating to maintenance of cost accounting records and cost audit were initially
introduced by the Companies (Amendment) Act, 1965.
Provisions for cost accounting records
The above noted developments resulted in inserting sections 209(1)(d) and 233B in the Companies Act,
1956, through the Companies (Amendment) Act, 1965 (31 of 1965). The central government amended
the Companies Act 1956 [Section 20 of the Companies (Amendment) Act 1965] and inserted sub-clause
(d) under sub-section (1) of Section 209 providing statutory maintenance of cost accounting records
in respect of class of companies engaged in production, processing, manufacturing and mining. The
Companies Act 1956 was further amended [Section 23 of the Companies (Amendment) Act 1965]
by inserting section 233B providing power to Central Government to order audit of cost accounts for
companies wherein maintenance of cost accounting records are prescribed under clause (d) of subsection
(1) of Section 209. The relevant provisions of the Companies Act 1956 are reproduced below:
Section 209 of the Companies Act 1956
Section 209 of the Companies Act 1956 deals with the books of accounts to be maintained by a body
corporate. The section provides as follows:
(1) Every company shall keep at its registered office proper books of account with respect to -
(a) all sums of money received and expended by the company and the matters in respect of
which the receipt and expenditure take place;
(b) all sales and purchases of goods by the company;
(c) the assets and liabilities of the company; and
(d) In the case of a company pertaining to any class of companies engaged in production,
processing, manufacturing or mining activities, such particulars relating to utilization of material
or labour or to other items of cost as may be prescribed, if such class of companies is required
by the Central Government to include such particular in the books of account.
Provided that all or any of the books of account aforesaid may be kept at such other place in India
as the Board of Directors may decide and when the Board of Directors so decides, the company
shall, within seven days of decision, file with the Registrar a notice in writing giving the full address
of that other place.
(2) Where a company has a branch office, whether in or outside India, the company shall be deemed
to have complied with the provisions of sub-section (1), if proper books of account relating to the
transactions effected at the branch office are kept at that office and proper summarised returns,
made up to dates at intervals of not more than three months, are sent by the branch office to the
company at its registered office or the other place referred to in sub-section (1).
(3) For the purposes of sub-sections (1) and (2), proper books of account shall not be deemed to be
kept with respect to the matters specified therein, -
(a) if there are not kept such books as are necessary to give a true and fair view of the state of the
affairs of the company or branch office, as the case may be, and to explain its transactions;
and;
(b) if such books are not kept on accrual basis and according to the double entry system of accounting.
(4) The books of account and other books and papers shall be open to inspection by any director
during business hours.
(4A) The books of accounts of every company relating to a period of not less than eight years immediately
preceding the current year together with the vouchers relevant to any entry in such books of
account shall be preserved in good order:
Provided that in the case of a company incorporated less than eight years before the current
year, the books of account for the entire period preceding the current year together with vouchers
relevant to entry in such books of account shall be so preserved.
(5) If any of the persons referred to in sub-section (6) fails to take all reasonable steps to secure
compliance by the company with the requirements of this section, or has by his own wilful act been
the cause of any default by the company there under, he shall, in respect of each offence, be
punishable with imprisonment for a term which may extend to six months, or with fine which may
extend to ten thousand rupees, or with both:
Provided that in any proceedings against a person in respect of an offence under this section
consisting of a failure to take reasonable steps to secure compliance by the company with the
requirements of this section, it shall be a defence to prove that a competent and reliable person
was charged with the duty of seeing that those requirements were complied with and was in a
position to discharge that duty:
Provided further that no person shall be sentenced to imprisonment for any such offence unless it
was committed wilfully.
(6) The persons referred to in sub-section (5) are the following, namely:-
(a) where the company has a managing director or manager, such managing director or manager
and all officers and other employees of the company; and
(b) where the company has neither a managing director nor manager, every director of the company.
(7) If any person, not being a person referred to in sub-section (6), having been charged by the
managing director, manager or Board of directors, as the case may be, with the duty of seeing that
the requirements of this section are complied with, makes default in doing so, he shall, in respect
of each offence, be punishable with imprisonment for a term which may extend to six months, or
with fine which may extend to ten thousand rupees, or with both.
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