Companies Act Section 131

Companies Act Section 131- Voluntary Revision of Financial Statements or Board’s Report

Section 131 of the Companies Act, 2013 provides a legal framework under which a company’s Board of Directors can voluntarily revise its financial statements or the Board’s report, if they subsequently discover that the original documents do not comply with certain statutory provisions.

This section recognizes that, despite a company’s best efforts to ensure accuracy and compliance, errors or omissions may occur in the preparation and presentation of financial statements or the Board’s report. Such errors could result from inadvertent mistakes, accounting misinterpretations, or evolving regulatory clarifications.

To address these situations, Section 131 allows the company to make necessary corrections but subject to strict procedural safeguards, including the prior approval of the Tribunal (NCLT).

When Revision is Allowed

The Board of Directors may initiate the process to revise financial statements or the Board’s report if they discover that:

The financial statements do not comply with the provisions of Section 129 of the Companies Act (which requires financial statements to give a true and fair view and comply with accounting standards).

The Board’s report does not comply with the provisions of Section 134 of the Companies Act (which sets out the required contents and disclosures to be made in the Board’s report).

Scope of Revision- What Can Be Revised?

The revision can cover any of the financial statements or Board reports issued for any of the three immediately preceding financial years. However, revision of documents older than three years is not allowed under this section.

Mandatory Prior Approval from the Tribunal (NCLT)

The process of revision is not left solely to the discretion of the Board of Directors. Before proceeding with any revision, the company must file an application with the Tribunal (NCLT), and the Tribunal must grant its approval.

The application to the Tribunal must be filed in the prescribed form and manner, and the company must clearly explain the reasons why it believes a revision is necessary.

Once the Tribunal grants its approval, the order of the Tribunal must be filed with the Registrar of Companies (ROC), ensuring transparency and public disclosure.

Notification and Representations from Authorities

Before making a final decision, the Tribunal is required to:

Issue formal notices to the following authorities:
 

The Central Government

The Income Tax Authorities

Invite and consider representations from these authorities, if any, before passing the final order.
 

This ensures that the proposed revision does not cover up any regulatory violations or interfere with tax compliance.

Frequency Restriction- One Revision Per Financial Year

A company is permitted to revise its financial statements or Board report only once in a financial year. This restriction is important to prevent companies from abusing the provision or using it to make frequent retrospective adjustments, which could compromise investor confidence and market transparency.

Disclosure Requirement in the Board’s Report

When the revision is undertaken and approved, the reasons for revision must be fully disclosed in the Board’s Report of the relevant financial year in which the revision takes place.

This disclosure ensures transparency and allows shareholders, investors, and regulators to understand why the revision was necessary, fostering greater accountability.

Limits on Scope of Revision

If the original versions of the financial statements or Board’s report have already been:

Circulated to shareholders; or

Filed with the Registrar of Companies; or

Laid before the General Meeting,

then any subsequent revision must be limited to:

1. Correcting the non-compliance identified under Section 129 (financial statements) or Section 134 (Board’s report); and

2. Making any necessary consequential changes resulting from that correction.

This ensures that the revision does not open the door to arbitrary re-writing of history, but is strictly confined to fixing statutory non-compliance.

Role of the Central Government- Power to Make Rules

The Central Government has the power to prescribe rules governing how companies should apply this section in practice. These rules can provide guidance on:

The format and process for preparing revised documents   whether they must completely replace the original or whether a supplemental document can be issued indicating the corrections.

The role and responsibilities of the company’s statutory auditor in reviewing and certifying the revised financial statements or Board report.

Any additional steps or disclosures that the Board of Directors must undertake in connection with the revision.