Reopening & Recasting of Accounts Of Company.

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Reopening & Recasting Of Accounts Of Company

The article explains what is meant by reopening and recasting of accounts under Companies Act, 2013, who can apply for reopening of accounts, Punishment, and Compoundability, Grounds on which application for reopening of accounts can be made and Duration for which revision is permitted. Section 130 read with section 131 are newly inserted provisions that prohibit the company from suo-moto opening its accounts or revising its financial statements. The procedure for the same has been provided in the Act.

What is meant by reopening and recasting of accounts?

Reopening of accounts means the opening of accounts which are closed and filed at the appropriate authority and recasting means attempt is being made to give different form by reshaping the accounts.

Section 130 of the Act contains that a company shall not be Re-Open its books of Accounts and Recast the financial statement unless an application in this regard is made by the Central Government, the Income-Tax Authorities, the Securities and Exchange Board, any other statutory regulatory body or authority or any person concerned and an order is made by a court of competent jurisdiction or the tribunal to the effect that- 
  • The relevant earlier accounts were prepared in a fraudulent manner: or
  • The Affairs of the company were mismanaged during the relevant period, casting doubt on the reliability of financial statements.
As per the provision of sub-section (1) of section 130, a company is allowed to reopen the books of accounts or recast its financial statements only on the order of a court of competent jurisdiction or the Tribunal made upon the application of specified persons. The words ‘reopen’ and ‘recast’ represent the nature of treatment required for books of accounts and financial statements respectively.
The finality of accounts so recast the accounts so revised or re-cast as per the order of the court or Tribunal shall be final. Hence, after the order of Tribunal or Court, no further revision can be made.
The question is who can apply for the reopening of accounts?
The following authorities have the right to reopen the financial statements
a) Central Govt
b) Income tax authorities
c) SEBI
d) Any other statutory regulatory body
e) Any person concerned
Any other statutory regulatory body means that any authority can apply for reopening of account. The act does not specify the nature of authority. Hence even though that authority does not have any control over the company, it can apply for the reopening of accounts. Hence RBI, Provident Fund Regulatory Authority apart from the authorities mentioned above.

Punishment and Compound ability

There are no specific penal provisions provided in section 130. Therefore the penal provisions under section 450 would apply in case of any non-compliance of this section. Accordingly, for contravention, the company and every officer of the company who is in default shall be punishable with a fine up to Rs.10,000, in case the contravention is a continuing one then the fine shall be Rs. 1,000 every day. The offenses under this section are compoundable under section 441 of the Act.

Grounds on which application for reopening of accounts can be made?

1. Events in which one can apply for reopening the financial statements
a) Earlier accounts were prepared in the fraudulent manner
b) Affairs of the company were mismanaged casting doubt on the reliability of the financial statement
2. Voluntary revision of financial statements
a) Directors of the company states the financial statements of the company does not comply with section 129 of the companies act 2013
b) Directors of the company state the Board report of the company does not comply with section 134 of the companies act 2013

Duration for which revision is permitted

The revision of financial statements and board reports in respect of any of the three preceding financial year are permitted by the Tribunal. The revised financial statements and board report shall not be prepared or filed more than once in a financial year. The detailed reason for which revision of financial statements or board report shall be disclosed in the board report in the relevant financial year in which such revision is being made

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