(a) The second proviso to **Section 128(1)** of the Companies Act, 2013 allows
company to keep books of account or other relevant papers in electronic
mode as per manner specified in **Rule 3** of the Companies (Accounts)
Rules, 2014.
**Rule 3(1)** states the books of account and other relevant books and
papers maintained in electronic mode shall remain accessible in India, at
all times, so as to be usable for subsequent reference.
(i) Audit Trail and Edit Log [Proviso to **Rule 3(1)**]
In order to ensure audit trial, in case of company which uses
accounting software for maintaining its books of account, the proviso
to **Rule 3(1)** of the Companies (Accounts) Rules, 2014 requires that:
(1) For the financial year commencing on or after the 1st day of April,
2023,
(2) Every such company (which uses accounting software) shall use
only such accounting software,
(3) Which has a feature of recording audit trail of each and every
transaction,
(4) Creating an edit log of each change made in books of account
along with the date when such changes were made and
(5) Ensuring that the audit trail cannot be disabled.
Further, Sub-rule 5 requires there shall be a proper system for
storage, retrieval, display or printout of the electronic records as the
Audit Committee, if any, or the Board may deem appropriate and
such records shall not be disposed of or rendered unusable, unless
permitted by law.
Advice to the Company:
XYZ Ltd. has not complied with the Audit Trail and Edit Log
requirements of the Companies Act, 2013 since the journal entries
were altered without creating edit logs and audit trail feature was
also partially disabled.
Therefore, XYZ Ltd. should ensure compliance with the above
provisions by enabling edit log features for all entries linked to its
creation and alteration, and enabling the audit trail feature for all
modules.
(ii) The back-up of books of accounts
Proviso to sub-rule 5 of **Rule 3** requires the back-up of the books of
account and other books and papers of the company maintained in
electronic mode, including at a place outside India, if any, shall be
kept in servers physically located in India on a daily basis.
Hence, the issue raised by the statutory auditor of XYZ Ltd. with
respect to mandatory requirement of maintaining the audit trail and
edit log requirement, and with respect to maintenance of the backup
of books of accounts is correct.
CORPORATE AND OTHER LAWS
(b) (i) As per **Section 29(2)** of the Limited Liability Partnership Act, 2008,
where after a partner’s death the business is continued in the same
LLP name, the continued use of that name or of the deceased
partner’s name as a part thereof shall not by itself make his legal
representative or his estate liable for any act of the LLP done after his
death.
In the instant case, Mr. K’s share cannot be used to repay the firm’s
debts after his death as the firm continued its operations after his
death without dissolving the firm and the losses were incurred after
his death.
(ii) As per **Section 42** of the Limited Liability Partnership Act, 2008,
(1) The rights of a partner to a share of the profits and losses of the
limited liability partnership and to receive distributions in
accordance with the limited liability partnership agreement are
transferable either wholly or in part.
(2) The transfer of any right by any partner pursuant to sub-section
(1) does not by itself cause the disassociation of the partner or a
dissolution and winding up of the limited liability partnership.
(3) The transfer of right pursuant to this section does not, by itself,
entitle the transferee or assignee to participate in the
management or conduct of the activities of the limited liability
partnership, or access information concerning the transactions of
the limited liability partnership.
In the instant case, Mr. W can transfer his share in the limited liability
partnership to his son, however, transfer of share does not, by itself,
entitle M to participate in the management or conduct of the
activities of the firm. Hence, the remaining partners of Sun Roofings
LLP can forbid M to take part in the business.
(c) Illustrations cannot have the effect of modifying the language of the
Section and can neither curtail nor expand the ambit of the Section
Many Sections of an Act have illustrations appended to them. These
illustrations follow the text of the sections and, therefore, do not form a
part of the sections. However, illustrations do form a part of the statute
and are considered to be of relevance and value in construing the text of
the sections. However, illustrations cannot have the effect of modifying
the language of the section and can neither curtail nor expand the ambit
of the section.
Example: **Section 73** of the Indian Contract Act, 1872 does not permit the
award of interest as damages for mere detention of debt. Here, the Privy
Council rejected the argument that illustration given in the Act can be
used for arriving at a contrary result. It was observed that an illustration
cannot have the effect of modifying the language of the section which
alone forms the enactment.