Legal basis: Section 128, Companies Act 2013 (Act No. 18 of 2013), read with Rule 3, Companies (Accounts) Rules 2014 — Effective: 1 April 2014. Source: https://ca2013.com/128-books-of-account-etc-to-be-kept-by-company/. Last reviewed by CA Harun Raaj: September 2026.
Key point: Section 128 requires every company to keep accrual-basis, double-entry books that give a true and fair view — a personal, ongoing obligation on the finance director, not an optional monthly report for the bank.
A Bengaluru-based SaaS startup had ₹85 lakh sitting in its current account and what looked like profitable Tally printouts. In October, the bank's annual credit review arrived, and the relationship manager asked for six months of management accounts. The founder had none — just unprocessed ledger reports. The ₹70 lakh cash-credit limit was frozen until a CA could reconstruct six months of MIS reports from scratch, a process that took eight weeks.
This repeats often. Founders treat monthly management information system (MIS) reports as infrastructure for later — something a funded company with a finance team builds. The Companies Act 2013 and India's banking system take a different view.
What Section 128 actually requires
Section 128(1) leaves no ambiguity: every company shall prepare and keep at its registered office books of account and financial statements for every financial year that give a true and fair view of the state of affairs of the company, kept on an accrual basis and by the double-entry system.
"True and fair view" is a positive obligation, not an aspiration. A company whose books show ₹45 lakh in debtors when ₹15 lakh is irrecoverable has not produced a true and fair view, even with complete raw entries. Giving that view requires month-end adjustments — bad debt provisions, accruals, inventory write-downs — that are only possible with a regular close.
The rest of Section 128 is equally concrete:
- Section 128(2): Branch offices must send summarised returns periodically to the registered office — in practice, monthly for any company carrying working capital from a bank.
- Section 128(3): Books must be open for inspection by any director at any time during business hours. A director cannot inspect what does not exist.
- Section 128(5): Books and vouchers must be preserved for a minimum of eight financial years preceding the current year, extended indefinitely while any government investigation is pending.
Rule 3, Companies (Accounts) Rules 2014 adds a requirement for companies using accounting software: the software must maintain a complete audit trail — every transaction edit recorded with a timestamp and the user's identity — preserved for the same eight-year period, with server backups physically located in India.
The penalty, and who personally carries it
Section 128(6) places personal liability on the managing director, the whole-time director in charge of finance, the CFO, or any other person the board designates as responsible for maintaining books.
This is a personal fine, not a company fine. If you are the director in charge of finance and the accounts are in disorder, the ROC's Section 454 adjudication targets you individually.
Why your bank asks for monthly MIS
Section 128 governs the books you keep. Your bank's sanction letter governs what you report from them — and the two are linked. RBI guidelines for working capital lending require banks to ensure regular, timely submission of monthly stock and receivables statements from borrowers, verified periodically against physical stock. A typical sanction condition reads: "Borrower to submit monthly stock and book-debt statement by the 20th of the following month."
Missing three consecutive monthly submissions is ordinarily enough for a bank to tag the account SMA-1 (Special Mention Account), triggering enhanced monitoring — a prolonged SMA-1 position is the entry point toward NPA classification, with consequences across the company's entire banking relationship.
The six schedules a CA-prepared MIS includes
Well-structured monthly management accounts, produced as part of a disciplined bookkeeping and accounting close, are not one document — they are six schedules:
- P&L — month and year-to-date, from 1 April, with gross margin, overhead categories, EBITDA and PAT tracked monthly so a margin squeeze is caught before it becomes a cash crisis.
- Balance sheet as at month-end, showing whether the company sits inside typical bank covenants — a minimum current ratio (often 1.25:1) and a maximum debt-equity ratio.
- Stock and debtors statement, with debtors aged into 0–30, 31–60, 61–90 and over-90-day buckets and inventory valued per AS 2 — the exact schedule a bank cross-checks against the cash-credit drawing power.
- Creditors aging with MSME payables shown separately — Section 43B(h) of the Income Tax Act disallows the deduction for amounts due to MSME suppliers unless paid within 45 days, a disallowance many companies discover only at tax audit.
- Bank reconciliation statements, one per account, with anything unreconciled past 30 days flagged.
- Budget vs actual variance analysis, with commentary on any line moving more than 15% — the evidence base for the board's duty under Section 166 to act with reasonable care and diligence.
Our MIS and management reporting service prepares these six schedules monthly, in the stock-statement formats Indian commercial banks accept.
What happens without them
- Bank credit: missing monthly stock statements risks SMA-1 classification; reinstating clean credit status typically takes 6–12 months of uninterrupted submission afterward.
- Tax audit exposure: Form 3CD Clause 33 asks whether books are maintained, and Clause 40 asks for the closing-stock valuation method — companies with only annual accounts often generate audit observations and scrutiny risk under Section 143(2) of the Income Tax Act 1961.
- Funding due diligence: VC and angel term sheets in India are conditioned on financial due diligence. Founders without 12 clean trailing months of accounts face a delayed close or a valuation haircut. Good bank credit and CMA report preparation starts with organised monthly accounts.
Setting up your monthly close
- Lock the prior period on the 7th of the following month — no backdated entries without a signed journal voucher, which supports the Rule 3 audit trail.
- Physical stock count on the last day of the month, reconciled to the inventory ledger; discrepancies above 2% go to the board.
- Clear every bank reconciliation — current, CC, OD, escrow — before closing.
- Provision all statutory dues on the accrual basis Section 128(1) requires: TDS (due 7th), GST (GSTR-3B due 20th), PF/ESI (due 15th) and advance tax, regardless of the actual payment date.
- Accrue outstanding expenses: vendor invoices, spillover salary, professional fees payable.
- CA prepares the six schedules within 10 working days of month-end.
- Submit the stock statement to the bank by the 20th, or earlier if the sanction letter specifies.
- Circulate a one-page management commentary — revenue, EBITDA, cash balance, debtors — to all directors, creating a documented record of board oversight.
For a compliance review of your company's monthly close, visit pvtltd.co/services/annual-compliance-package.
I'm CA Harun Raaj. If this affects your company's compliance calendar, reach out.
---
See Also
Frequently asked questions
My company has a turnover of ₹40 lakh and no bank loan. Do I still need monthly MIS?
Section 128 sets no turnover threshold — the accrual-basis books requirement applies from incorporation. Your statutory auditor needs monthly-closed accounts to prepare the financial statements that go into your AOC-4 filing, so quarterly is the practical floor and monthly is strongly recommended even at small scale.
My Tally has all the transactions. Can I give the bank a Tally daybook report?
A Tally daybook is raw data; a CA-prepared MIS interprets it through bad debt provisions, inventory NRV adjustments, accruals for expenses incurred but not invoiced, and the MSME creditor separation. Banks do not accept unprocessed Tally ledger exports as monthly stock statements.
Does Section 128 require me to file MIS with any government authority?
No — Section 128 requires maintenance and preservation of books, not submission to the ROC. The annual ROC submissions sit under Section 137 (AOC-4, financial statements) and Section 92 (MGT-7 or MGT-7A, annual return); monthly MIS is an internal management and bank-compliance tool.
What is the standard format for the monthly stock statement my bank wants?
Each bank sets its own format in the sanction letter, but the standard fields are opening stock, purchases, sales, closing stock, sundry debtors within 90 days, creditors for goods, other current assets, and the derived drawing power calculation. Ask your CA to set this format up when you first take the credit facility, not after the bank asks.
Who is personally liable if a company's books are not maintained under Section 128?
Section 128(6) places liability on the managing director, the whole-time director in charge of finance, the CFO, or any person the board has designated as responsible for maintaining books — it is a personal fine on that individual, not on the company.
What happens if a company misses three consecutive months of bank stock statements?
Missing three consecutive monthly stock statement submissions is ordinarily enough for a bank to tag the account SMA-1 (Special Mention Account), which triggers enhanced monitoring and is the entry point toward NPA classification if the position continues.
How long must a company preserve its books of account?
Section 128(5) requires preservation of books of account and vouchers for a minimum of eight financial years immediately preceding the current year, extended indefinitely for as long as any government investigation into the company is pending.
Ready to incorporate or sort your compliance?
Our team handles every filing. You focus on building.