The ministry of corporate affairs has tweaked the accounting rules under company law in an attempt to enhance government surveillance of the books of accounts of companies, especially multinational corporations (MNCs).
Companies would now have to provide real-time access to their books of accounts on Indian operations to authorities in the form of “daily backups” of records even if the servers that hold the books of accounts are located outside India. The backups would have to be maintained in servers physically located in India.
The Companies (Accounts) Fourth Amendment Rules, 2022 brought out by the ministry modified the manner in which books of accounts have to be kept in electronic mode. The amendments said that the books of account and other relevant books and papers maintained in electronic mode should remain accessible in India “at all times”.
Companies are required to maintain the electronic records the way their audit committees or board of directors consider it appropriate and these details are not to be disposed of unless permitted by law.
The latest amendment says that the backup of the books of account and other documents kept in electronic mode, including at any place outside India, have to be kept in servers physically located in India “on a daily basis”.
The earlier requirement was to maintain them in servers in India on a periodic basis without specifying the frequency for updates.
Companies have to give more information about the service provider that maintains the books of accounts and other documents in the electronic mode. The amendment says that where the service provider is located outside India, the name and address of the person in control of the books of account and other books and papers in India have to be reported. This has to be reported to the registrar of companies on an annual basis. Former ICAI president Ved Jain said: “Now, all corporates — not just MNCs — will have to comply with the new rules. This means that the India law enforcement agencies will have real-time access to any company’s books of accounts at all times.
At present, there are many MNCs which have centralised accounts outside India. There may be a few MNCs which may find it difficult to comply with the new rules. And this could impact investments by these MNCs.”
Sandeep Jhunjhunwala, M&A and regulatory partner at Nangia Andersen LLP, said: “Amendments mandating accessibility of books of accounts ‘at all times’ in India and prescribing the periodicity of maintenance of back-up in servers physically located in India on a daily basis, not only accentuate the administrative processes but may also impose additional costs on firms.”
“This will allow the Indian authorities to pin accountability on persons in India, in cases where the service provider is located outside India. This amendment increases the degree of compliance for the purposes of maintaining accounts in electronic form and it allows for an enhanced level of scrutiny by Indian authorities,” Megha Bhargava, partner, Cyril Amarchand Mangaldas, said.
“The amendment ensures documents are maintained in a secure manner and the focus on maintaining critical data within India is in line with the approach taken by other regulators,” said Gaurav Dayal, partner Lakshmikumaran and Sridharan Attorneys.