India: Disclosure Of Specified Bank Notes

Last Updated: 28 April 2017
Article by Bijit Das and Chanakya Sharma

Fight against corruption has been a priority for the Government for past few years. Many steps have been taken to fight against it, at all possible levels, whether it relates to Government Officials, illegal cross-border transactions, corporates and even the general public. One of the most important leaps taken by the government to curb such corruption was demonetization.

Ministry of Finance, on the mid night of November 8, 20161, put a ban on holding and transaction of currency notes of INR 500 and INR 1000 referred as Specified Bank Notes (hereinafter referred to as the 'SBN')2. A close check was done so as to ensure that no violation of these orders is possible.

In order to bring further transparency, Ministry of Corporate Affairs vide notification dated March 30, 2017, has amended Schedule III of the Companies Act, 2013, which relates to instructions for preparation of Balance Sheet and Profit and Loss Statement of the company, as well as matters to be stated in Statutory Auditors Report. According to the notification, every company is now required to disclose details with respect to bank notes that ceased to be legal tender from November 8, 2016.

Amendment No.1 - Amendment of Schedule III of Companies Act 2013 by notification No. G.S.R 308(E)3, under the heading of General Instruction for Preparation of Balance Sheet4, disclosure related to old currency notes of INR 500 & INR 1000 held and transacted during November 8, 2016 to December 31, 2016, are required to be disclosed in the format given below:

SBNs Other denomination notes Total
Closing cash in hand as on November 8, 2016
+ Permitted receipts
- Permitted Payments
- Amount deposited in banks
Closing cash in hand as on December 30, 2016

The table given above is made part of the General Instructions for preparation of Balance Sheet

Further, companies whose financial statements are required to be drawn up in compliance of Companies (Indian Accounting Standards) Rules, 20155, are also required to make similar disclosure in the same format given above.

Amendment No.2- Amended Companies (Audit and Auditors) Rule, 2014 with Companies (Audit & Auditors) Rule 2017, by notification G.S.R 307(E) dated March 30, 20176, as per which, Statutory Auditors Report for the year ending March 31, 2017, is required to include following details:

"Whether the company had provided requisite disclosure in its financial statements as to holdings as well as dealings in Specified Bank Notes during the period from November 8, 2016 to December 30, 2016, and if so, whether these are in accordance with the books of accounts maintained by the company."

Noncompliance of the above circulars would result in the imposition of penalty or punishment prescribed under Section 447 (Punishment for Fraud) & 448 (Punishment for false return) of the Companies Act, 2013.7

Punishment for false statement in any return, certificate, financial statement, or any other document required under the Act, knowing it to be false or omission of any material fact is punishable with imprisonment for not less than six months and may extend to ten years and also imposition of fine which shall not be less than the amount involved and may extend to three times the amount involved. Further, provided where fraud involves public interest, term of imprisonment shall not be less than three years.

In short, the details of old notes of INR 500 and INR 1000, held and transacted by the company during November 8, 2016 to December 30, 2016, are required to be disclosed in the financial statement of the company and the same is required to be mentioned in Statutory Auditor's Report, failing which the company, or the auditor shall be liable for penalty or imprisonment as prescribed.


1 Press Release, Ministry of Finance

2 S.O. 3407(E ), Ministry of Finance

3 Notification G.S.R 308 (E )Ministry of Corporate Affairs

4 Schedule III of Companies Act,2013
MCA notification G.S.R 404(E )

5 Companies(Indian Accounting Standards) Rules, 2015
G.S.R 111(E ),Ministry of Corporate Affairs ,16/02/2015

6 Notification G.S.R 307(E ), Ministry of Corporate Affairs

7 Companies Act,2013

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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