Companies Act Section 129

Companies Act Section 129- Financial Statement: Preparation, Compliance, Presentation, and Consequences for Non-Compliance

Section 129 of the Companies Act, 2013, lays down the statutory obligations regarding the preparation, form, content, and presentation of financial statements by companies. The intention behind this section is to ensure that every company’s financial health is presented in a true, fair, and transparent manner, enabling shareholders, regulators, and stakeholders to make informed decisions based on reliable financial data.

Requirement to Prepare Financial Statements 

Every company is mandated to prepare financial statements for each financial year, which must meet the following essential criteria:

1. True and Fair View

The financial statements must present a true and fair view of the state of affairs of the company (or group of companies, where applicable). This means the statements should accurately represent the assets, liabilities, financial position, and operational results without misleading or concealing any material facts.

2. Compliance with Accounting Standards

All financial statements must comply with the accounting standards notified under Section 133 of the Companies Act. This ensures uniformity and consistency across companies in the presentation of their financial information.

3. Form and Format

The format and structure of the financial statements must conform to the forms prescribed under Schedule III of the Act. Different classes or categories of companies may have to follow separate formats, as specified.

Exceptions for Certain Companies

This general obligation does not apply to certain specific types of companies, which are governed by sector-specific laws:

Insurance Companies- Governed by the Insurance Act, 1938 and Insurance Regulatory and Development Authority Act, 1999.

Banking Companies- Governed by the Banking Regulation Act, 1949.

Electricity Companies- Companies engaged in generation, transmission, or supply of electricity, governed by the Electricity Act, 2003.

Other Companies governed by Special Laws- Any other class of company for which specific financial statement requirements are prescribed by any other law applicable to them.

For these companies, financial statements are considered compliant even if they omit certain disclosures required by the Companies Act, as long as such omissions are permitted under their sector-specific legislation.

Laying of Financial Statements at Annual General Meeting

At every Annual General Meeting (AGM), the Board of Directors of the company has a statutory duty to formally lay before the shareholders the financial statements of the company for the relevant financial year.

Consolidated Financial Statements

If a company has one or more subsidiaries or associate companies, it has an additional obligation to prepare a consolidated financial statement (CFS). This consolidated statement must:

Be prepared in the same form and manner as the standalone financial statements.

Follow the same accounting standards applicable to the main company.

Be presented at the AGM along with the standalone financial statements.

Additional Disclosure - Salient Features of Subsidiaries/Associates

Along with the consolidated financial statement, the company must attach a separate statement summarizing the salient features of the financial position and performance of each subsidiary and associate company in a prescribed form.

Government Power to Prescribe Consolidation Rules

The Central Government has the authority to prescribe detailed rules regarding the consolidation of financial statements. These rules may define:

Manner of consolidation.

Exemptions, if any.

Treatment of jointly controlled entities.

Application of Holding Company Rules to Consolidated Statements

All provisions of the Companies Act that apply to the preparation, adoption, and audit of a company’s standalone financial statements also apply mutatis mutandis to its consolidated financial statements. This ensures uniform governance standards for group-level reporting.

Disclosure of Deviations from Accounting Standards 

In case a company’s financial statements do not fully comply with the applicable accounting standards, the company must make specific disclosures within the financial statements. These disclosures must clearly state:

The specific deviation from the applicable accounting standards.

Reasons for the deviation.

Financial impact of the deviation, if any, on the company’s reported financial position or performance.

This ensures that shareholders and regulators are fully aware of any departure from standard accounting practices and can assess the potential consequences of such deviations.

Exemptions for Certain Classes of Companies 

The Central Government has the power, either:

On its own motion, or

In response to a formal application by a class or classes of companies,

to exempt such companies from complying with any part of Section 129 or the rules framed under it.

Such exemptions can be granted:

If it is considered necessary in the public interest, and

Either unconditionally or subject to specified conditions as mentioned in the notification granting the exemption.

Penalties for Non-Compliance

If a company fails to comply with the requirements of Section 129, the following individuals can be held personally liable:

Managing Director, or

Whole-time Director in charge of finance, or

Chief Financial Officer (CFO), or

Any other person specifically charged by the Board with ensuring compliance.

If none of these positions exist or have been designated, all directors of the company become liable.

Punishment

The penalty for non-compliance includes:

Imprisonment- up to one year; or

Fine- not less than ?50,000, but which may extend to ?5,00,000; or

Both imprisonment and fine, depending on the severity of the violation.