Section 338 — Liability where proper accounts not kept

(1) Where a company is being wound up, if it is
shown that proper books of account were not kept by the company throughout the period of two years
immediately preceding the commencement of the w inding up, or the period between the incorporation of
the company and the commencement of the winding up, whichever is shorter, every officer of the company
who is in default shall, unless he shows that he acted honestly and that in the circumstances in wh ich the
business of the company was carried on, the default was excusable, be punishable with imprisonment for a
term which shall not be less than one year but which may extend to three years and with fine which shall
not be less than one lakh rupees but which may extend to three lakh rupees.
(2) For the purposes of sub-section (1), it shall be deemed that proper books of account have not been
kept in the case of any company,—
(a) if such books of account as are necessary to exhibit and explain the transact ions and financial
position of the business of the company, including books containing entries made from day -to-day in
sufficient detail of all cash received and all cash paid, have not been kept; and
(b) where the business of the company has involved deal ings in goods, statements of the annual