Evidential Nature of Commercial Books: How can they be used in your favour or against you in court?
Every merchant is obliged to keep certain books (journal, general ledger, inventory book, etc.) in relation to their commercial activities. These books are an important source of evidence not only in terms of tax law, but also in commercial disputes. The proper keeping and storage of commercial books is one of the most important elements that strengthen the hand of a merchant in commercial disputes. The Code of Civil Procedure (CPL) specifically regulates the evidential nature of commercial books and stipulates certain conditions for these books to be evidence both in favour of and against the owner. In this article, we will examine in detail the legal importance of commercial books, the conditions for their use as evidence, the obligation to keep them and the severe consequences of not submitting them to the court.
Obligation to Keep Commercial Books (Art. 64 TCC): Pursuant to Article 64 of the Turkish Commercial Code, every merchant is obliged to keep books in accordance with the nature and importance of his business, in a manner that is suitable for determining the economic and financial status of his commercial enterprise, his debt and receivable relations, and the results obtained in each business year. The main books that must be kept are as follows:
- Journal Book: It is the book in which commercial transactions are recorded in date order and in items based on documents.
- Ledger Kebir (Big Book): It is the book that takes the transactions recorded in the journal and distributes them systematically to the accounts and collects them in these accounts in a classified manner.
- Inventory Book: It is the book that shows in detail the assets, receivables and payables of the business on the opening and closing dates.
Retention Obligation (Art. 82 TCC): Merchants are obliged to keep their commercial books and the documents (invoices, receipts, contracts, etc.) that form the basis of these books for ten years from the end of the calendar year in which the last entry was made. This period is an obligation stipulated by both the TCC and the Tax Procedure Law.
Evidential Quality of Commercial Books (Art. 222 of the CCP): The use of commercial books as evidence in a lawsuit is subject to strict conditions under Article 222 of the CCP. These conditions vary according to whether the ledger will be evidence in favour of or against the owner.
1. Commercial Books Being Evidence in Favour of the Owner: In order for a merchant to use the records in the books kept by him as evidence in his favour in a lawsuit, all of the following conditions must be met together:
- The books must be kept in accordance with the Law: The books must be kept in accordance with the procedures stipulated in the TCC and Tax Procedure Law (opening and closing certifications, timely and complete records, etc.).
- Verification of Records: The records in the books should not contradict each other and should confirm each other.
- Counterparty Status:
- The records in the other party’s books of the same nature are not contrary to these records,
- Or the other party has not kept its commercial books at all, has not kept them duly or has not submitted them to the court,
- Or there should be no record in the books of the other party that proves the contrary of the record in the plaintiff’s books. When these conditions are met, duly kept commercial books become conclusive evidence in favour of the owner.
2. Commercial Books Being Evidence Against the Owner: The entries in the commercial books of a merchant, even if not kept in accordance with the law, shall always constitute evidence against the owner. In other words, a merchant cannot claim the invalidity of a record written in its own commercial books by claiming that it is against itself. This is based on the principle of “creating evidence against oneself”.
3. Evidential Nature of the Books of the Other Party: In a lawsuit, while the commercial books of one of the parties are evidence in its favour, if the records in the duly kept books of the other party prove the contrary, the book records of the first party are not relied upon. In other words, if the duly kept books of both parties contradict each other, the court reaches a decision by evaluating other evidence (witnesses, contracts, invoices, etc.).
Submission of Commercial Books and Consequences of Non-Submission: In a commercial case, the court may decide to examine the commercial books for the resolution of the dispute. In this case, the parties are obliged to submit their books to the court.
- Obligation to Submit: A merchant may not refrain from submitting his/her books by claiming that they are trade secrets. The court may decide to examine only the parts relevant to the dispute.
- Sanction for Failure to Submit: If the party requested to submit its commercial books to the court fails to fulfil this obligation, the court shall deem the other party to have accepted the claim of the other party requesting submission regarding the content of the books . This is an extremely severe legal consequence and may cause you to lose the case. For example, if the plaintiff claims that the defendant’s books record a receivable of TL 100,000 in its favour and the defendant fails to produce its books, the court may accept the existence of this TL 100,000 receivable.
Commercial books are not only the documents through which a merchant fulfils its financial and tax obligations, but also one of the strongest defence or claim tools in commercial disputes. Keeping the books in accordance with the law, in a complete and timely manner, having the opening and closing certifications made, and keeping them securely for ten years is one of the most important investments a merchant makes in its legal future. In a lawsuit, while duly kept books may be conclusive evidence in your favour, improperly kept or not submitted books may become the biggest risk that will cause you to lose the lawsuit. For this reason, it is critical that every trader takes the obligation to keep and maintain commercial books seriously and regularly receives support from his/her financial advisor and lawyer in this regard.