Section 128 of the Companies Act, 2013 is the basic record-keeping rule for Indian companies. It is broader than a year-end requirement to produce a trial balance or financial statements. A company must maintain books of account and relevant books and papers that explain its transactions, cover its branches, and support a true and fair view of its affairs. The starting point is the official Companies Act, 2013 text on India Code.
What counts as books of account?
The Act defines books of account to include records of money received and spent and the matters to which those receipts and payments relate; all sales and purchases of goods and services; the company's assets and liabilities; and, for companies covered by section 148, prescribed cost items. The statutory record set is therefore not limited to a general ledger or final accounts.
The broader expression book and paper includes books of account, deeds, vouchers, writings, documents, minutes and registers, whether kept on paper or electronically. In practice, finance teams should think in two layers: accounting records that capture the transaction, and supporting records that allow the transaction to be understood and evidenced.
What standard must the records meet?
Section 128 requires books and financial statements for every financial year to give a true and fair view of the company's affairs, including its branches, and to explain transactions at both the registered office and branches. The books must be maintained on an accrual basis and according to the double-entry system of accounting.
Bank statements, tax returns and GST reports can be important evidence, but they do not replace proper company books capable of explaining transactions, assets, liabilities, income and expenditure.
Where should books of account be kept?
The default location is the company's registered office. However, all or any books of account and relevant papers may be kept at another place in India if the Board of Directors decides to do so. When the Board takes that decision, the company must file a notice with the Registrar within seven days giving the full address of the other place.
The Act also permits books and relevant papers to be kept in electronic mode in the prescribed manner. A cloud ERP or remote finance centre therefore does not remove the need to identify the legally compliant record-keeping arrangement and separately check the prescribed electronic-record rules.
How do branch-office records fit into Section 128?
A company with a branch in India or outside India can satisfy the branch-record requirement if proper books relating to the branch's transactions are kept at that branch and proper summarised returns are periodically sent to the registered office or the other approved place in India.
For multi-location companies, local records may stay close to the transaction, but head-office accounting should not become disconnected from branch activity. A defined branch-closing, reconciliation and periodic reporting process is therefore a practical control.
Can directors inspect the books?
Books of account and other books and papers maintained within India must be open for inspection by any director during business hours at the registered office or the other permitted place in India. Where financial information is maintained outside India, copies must be maintained and produced for inspection subject to prescribed conditions. Inspection relating to a subsidiary is restricted to a person authorised by a Board resolution.
How long must the records be retained?
Section 128 requires books of account for not less than eight financial years immediately preceding a financial year to be kept in good order, together with vouchers relevant to entries in those books. If the company has existed for less than eight years, records for all preceding years must be kept. Where an investigation has been ordered under Chapter XIV, the Central Government may direct retention for a longer period.
The eight-year rule should be built into the archive policy. Deleting old ERP data or source vouchers merely because another operational or tax retention period has expired can create a company-law problem if section 128 still requires them.
Worked example: registered office, finance centre and branch
Assume an Indian company has its registered office in Bengaluru, a central finance team in Pune and a sales branch in Chennai. If the principal books are to be kept at the Pune finance centre instead of the registered office, the Board should formally decide the alternative place and the company should give the Registrar the required notice within seven days. The Chennai branch can keep proper records of its own transactions while periodic summarised returns flow to the central accounting location. Supporting vouchers should remain linked to the relevant entries and the archive should preserve the required historical years.
The example separates three questions that are often mixed together: what records exist, where the statutory books are kept, and how branch information reaches those books.
Practical year-round compliance checklist
- Document the accounting records needed to capture receipts, payments, sales, purchases, assets and liabilities.
- Map each major ledger process to the supporting vouchers and other relevant books and papers.
- Confirm whether the registered office is the actual statutory record location. If another place in India is used, retain the Board decision and evidence of the Registrar notice.
- For electronic books, check the current prescribed requirements rather than relying only on ERP settings.
- For each branch, define who keeps local records, the frequency of summarised returns and the reconciliation into central accounts.
- Maintain a director-inspection process so authorised records can be retrieved during business hours.
- Apply an archive schedule that protects at least the statutory eight-financial-year history together with relevant vouchers, and extends retention where an investigation direction requires it.
Common mistakes to avoid
- Keeping only final financial statements. Section 128 concerns the underlying books and relevant papers, not only the year-end output.
- Confusing tax records with company-law books. GST returns, income-tax filings and bank statements may support the accounts but do not replace the section 128 record framework.
- Moving the books informally. If books are kept at another place in India, the Board decision and seven-day Registrar notice requirement should be addressed.
- Ignoring branch-to-head-office flow. Branch books require periodic summarised returns to the registered office or other permitted location.
- Applying an arbitrary deletion policy. The eight-financial-year retention rule includes vouchers relevant to book entries and may be extended when an investigation is ordered.
Practical takeaway
Section 128 compliance is best treated as a records architecture, not a filing-season task. Identify what constitutes the books and supporting papers, confirm the lawful place of keeping them, connect branch records to the central books, preserve inspection access, and enforce the statutory retention period. The current wording can be checked in the official India Code Companies Act, 2013 PDF. For a live compliance decision, also verify the latest Companies (Accounts) Rules and current MCA filing requirements before acting.
