Chapter 4 Inspection Inquiry and Invetsigation

Chapter 4 Inspection, Inquiry and Investigation
Chapter 4
Inspection, Inquiry and Investigation
Chapter XIV of Companies Act, 2013 (Sec. 206 – 229)*
Inspection, Inquiry and Investigation
Sec. 206 Power to call for information, Sec. 218 Protection of employees
inspect books and conduct during investigation.
inquiries.
Sec. 207 Conduct of inspection and Sec. 219 Power of inspector to

inquiry. conduct investigation into
affairs of related
companies, etc.
Sec. 208 Report on inspection made. Sec. 220 Seizure of documents by

inspector.
Sec. 209 Search and seizure. Sec. 221 Freezing of assets of

company on inquiry and
investigation.
Sec. 210 Investigation into affairs of Sec. 222 Imposition of restrictions

company. upon securities.
Sec. 211 Establishment of Serious Sec. 223 Inspector’s report.

Fraud Investigation Office.
Sec. 212 Investigation into affairs of Sec. 224 Actions to be taken in

Company by Serious Fraud pursuance of inspector’s
Investigation Office. report.
Compiled by: Pankaj Garg

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Sec. 213 Investigation into company’s Sec. 225 Expenses of investigation.

affairs in other cases.
Sec. 214 Security for payment of costs Sec. 226 Voluntary winding up of
and expenses of investigation. company, etc., not to stop
investigation proceedings.
Sec. 215 Firm, body corporate or Sec. 227 Legal advisers and bankers
association not to be not to disclose certain
appointed as inspector. information.
Sec. 216 Investigation of ownership of Sec. 228 Investigation, etc., of

company. foreign companies.
Sec. 217 Procedure, powers, etc., of Sec. 229 Penalty for furnishing false
inspectors. statement, mutilation,
destruction of documents.
*Related Rules are covered in Companies (Inspection, Investigation and Inquiry)

Rules, 2014
4.1 - Power to call for information, inspect books and conduct inquiries (Sec.
206)
Power of the Circumstances Where

Registrar to in which • on a scrutiny of any document filed by a
call for Registrar can company
information, exercise
or
explanation power
or documents • on any information received by him,
– Sec. 206(1) the Registrar is of the opinion that

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• any further information or

• explanation or
• any further documents relating to the
company
is necessary.
Power of Registrar may by a written notice require the

registrar company—
(a) to furnish in writing such information or

explanation; or
(b) to produce such documents,
within such reasonable time, as may be specified

in the notice.
Duty of the On the receipt of a notice u/s 206(1), it shall be the duty of the
company and company and of its officers concerned
its officers – • to furnish such information or explanation to the best of their
Sec. 206(2) knowledge and power
and
• to produce the documents to the Registrar
within the time specified or extended by the Registrar.
Duty of past officers of the company – Proviso to Sec. 206(2)
Where such information or explanation relates to any past period,

the officers who had been in the employment of the company for
such period, if so called upon by the Registrar through a notice
served on them in writing, shall also furnish such information or
explanation to the best of their knowledge.

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Notice for Circumstances (a) If no information or explanation is furnished

inspection of in which to the Registrar within the time specified u/s
books etc. Notice can be 206(1); or
served
- Sec. 206 (3) (b) If the Registrar on an examination of the
documents furnished is of the opinion that
the information or explanation furnished is
inadequate; or
(c) If the Registrar is satisfied on a scrutiny of

the documents furnished that an
unsatisfactory state of affairs exists in the
company and the information or documents
do not disclose a full and fair statement of
the information required.
However, before serving notice under this sub-

section, the Registrar shall record his reasons in
writing for issuing such notice.
Power of The Registrar may by another written notice

Registrar call on the company to produce for his
inspection such further books of account,
books, papers and explanations as he may
require at such place and at such time as he may
specify in the notice.

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Inquiry by the If the Registrar is satisfied

Registrar • on the basis of information available with or furnished to him
- Sec. 206 (4) or
• on a representation made to him by any person that
• the business of a company is being carried on for a fraudulent
or unlawful purpose or not in compliance with the provisions
of this Act
or
• if the grievances of investors are not being addressed,
the Registrar may by a written order, call on the company to

furnish in writing any information or explanation on matters
specified in the order within such time as he may specify therein
and carry out such inquiry as he deems fit after providing the
company a reasonable opportunity of being heard.
Before passing such an order, the Registrar has to inform the

company of the allegations made against it.
Points to remember
(a) The C.G. may, if it is satisfied that the circumstances so

warrant, direct the Registrar or an inspector appointed by
it for the purpose to carry out the inquiry u/s 206(4).
(b) If it is concluded that business of a company has been or is

being carried on for a fraudulent or unlawful purpose,
every officer of the company who is in default shall be
punishable for fraud in the manner as provided in section
447.

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Inspection by • Without prejudice to the foregoing provisions of Section 206,

C.G. the C.G. may, if it is satisfied that the circumstances so warrant,
– Sec. 206(5) direct inspection of books and papers of a company by an
& 206(6) inspector appointed by it for the purpose.
• The C.G. may, having regard to the circumstances by general or
special order, authorise any statutory authority to carry out
the inspection of books of account of a company or class of
companies.
Points to remember
Power to appoint inspector for inspection of books and papers
has been delegated by C.G. to Regional Directors.
Penalty for • If a company fails to furnish any information or explanation or
Contravention produce any document required under this section, the
– Sec. 206(7) company and every officer of the company, who is in default
shall be punishable with a fine upto Rs. 1 Lac
AND
• in the case of a continuing failure, with an additional fine
which may extend to Rs. 500 for every day after the first
during which the failure continues.
Important Questions
Q. No. 1: A notice was sent to Mr. Left by the registrar to furnish the
information related to a business transacted during his tenure in
the X company. Mr. Left ignored the notice considering that he is no
more an employee of X company. Registrar issued the summon
against Mr. Left. Explain in the light of the Companies Act, 2013
about the liability of the Mr. Left in the given case. [RTP-May 16]
HINT: Mr. Left is liable to provide such information. Refer Section

206(2).

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Q. No. 2: A group of shareholders of M/s. FMG Limited made a complaint to

the concerned Registrar of Companies (RoC) that the business of the
Company is being carried on for unlawful and fraudulent purposes
and filed an application to enquire into the affairs of the Company.
Referring to and analyzing the provisions of the Companies Act,

2013, decide:
(i) Whether the RoC has the power to order for an inquiry into the
affairs of the Company?
(ii) If yes, state the procedure to be followed by the RoC.
(iii) Whether the inquiry should be pursued by the RoC in case the
complaint is withdrawn by the same group of shareholders
subsequent to the Order for enquiry?
(iv) Whether the Central Government has the power to direct the
RoC to carry out the inquiry? [Nov. 19 – New Syllabus (4 Marks)]
HINT: Refer Sec. 206(4). (i) Yes (iii) Yes (iv) Yes.
4.2 - Conduct of Inspection and Inquiry (Sec. 207)
Duty of Where a Registrar or Inspector calls for the books of account and
director, other books and papers u/s 206, it shall be the duty of every
officer or director, officer or other employee of the company:
employee (a) to produce all such documents to the Registrar or Inspector;
- Sec. 207(1) (b) to furnish him with such statements, information or
explanations in such form as the Registrar or Inspector may
require; and
(c) to render all assistance to the Registrar or Inspector in

connection with such inspection.

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Powers of the The Registrar or Inspector making an inspection or inquiry u/s

Registrar or 206 may, during the course of such inspection or inquiry, as the
inspector to case may be,
make copies (1) make or cause to be made copies of books of account and
– Sec. 207(2) other books and papers;
or
(2) place or cause to be placed any marks of identification in

such books in token of the inspection having been made.
Powers of The Registrar or Inspector making an inspection or inquiry shall

Registrar or have all the powers as are vested in a civil court under the Code of
Inspector as Civil Procedure, 1908, while trying a suit in respect of the
vested in Civil following matters, namely:
Court (1) the discovery and production of books of account and other
- Sec. 207(3) documents, at such place and time as may be specified by
such Registrar or Inspector making the inspection or
inquiry;
(2) summoning and enforcing the attendance of persons and

examining them on oath; and
(3) inspection of any books, registers and other documents of

the company at any place.
Penalty for • If any director or officer of the company disobeys the direction
Contravention issued by the Registrar or the Inspector under this section, the
– Sec. 207(4) director or the officer shall be punishable with imprisonment
which may extend to 1 year AND with fine which ranges from
Rs. 25,000 to Rs. 1 Lac.

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• If a director or an officer of the company has been convicted of

an offence under this section, the director or the officer shall,
on and from the date on which he is so convicted, be deemed to
have vacated his office as such and on such vacation of office,
shall be disqualified from holding an office in any company.
4.3 - Report on inspection made (Sec. 208)
Report to C.G. • The Registrar or inspector shall, after the inspection of the
books of account or an inquiry u/s 206 and other books and
papers of the company u/s section 207, submit a report in
writing to the Central Government* along with such
documents, if any
AND
• such report may, if necessary, include a recommendation that

further investigation into the affairs of the company is
necessary giving his reasons in support.
*Powers are delegated to regional Directors.
Important Questions
Q. No. 3: The Registrar, after inspection of the book of accounts of the PQR
Ltd., submitted its report with further recommendation of
investigation into the affairs of the company. Explain the law as to
the recommendation for further investigation by the registrar.
[MTP-Oct.18]
HINT: Refer Sec. 208.

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4.4 - Search and Seizure (Sec. 209)
Circumstances Where, upon information in his possession or otherwise, the

for seizure Registrar or Inspector has reasonable ground to believe that the
- Sec. 209(1) books and papers of
• a company, or
• relating to the key managerial personnel or any director or

auditor or company secretary in practice if the company has
not appointed a company secretary,
are likely to be destroyed, mutilated, altered, falsified or secreted,

he may, after obtaining an order from the Special Court for
the seizure of such books and papers,
(1) enter, with such assistance as may be required, and search,

the place or places where such books or papers are kept;
AND
(2) seize such books and papers as he considers necessary after

allowing the company to take copies of, or extracts from, such
books or papers at its cost.
Period of • The Registrar or inspector shall return the books and papers
seizure – Sec. seized, as soon as may be, and in any case not later than 180th
209(2) day after such seizure, to the company from whose custody or
power such books or papers were seized.
• The books and papers may be called for by the Registrar or
Inspector for a further period of 180 days by an order in
writing if they are needed again.

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Taking of copies, placing identification marks – 2nd proviso to

Sec. 209(2)
The Registrar or inspector may, before returning such books and

papers as aforesaid, take copies of, or extracts from them or place
identification marks on them or any part thereof or deal with the
same in such other manner as he considers necessary.
Important Question
Q. No. 4: A group of creditors of Mac Trading Limited makes a complaint to
the Registrar of Companies, Hyderabad alleging that the
management of the company is indulging in destruction and
falsification of the accounting records of the company. The
complainants request the Registrar to take immediate steps to seize
the records of the company so that the management may not be
allowed to tamper with the records. The complaint was received at
11 A.M. on 6th June 2019and the ROC entered the premises at 11.30
A.M. for the search.
Examine the powers of the Registrar to seize the books of the
company. [May 16 (4 Marks)]
Or
A group of creditors of XYZ Limited makes a complaint to the
Registrar of Companies, Gujarat alleging that the management of the
company is indulging in destruction and falsification of the
accounting records of the company. The complainants request the
Registrar to take immediate steps to seize the records of the
company so that the management may not be allowed to tamper
with the records. The complaint was received at 11 A.M. on 06th June,
2019 and the registrar has attempted to enter the premise of
company but has been denied by the company, due to not having

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order from special court.

Is the contention of company being valid in terms of Companies Act,
2013? [RTP-Nov. 18]
HINT: Refer Sec. 209(1). Registrar is not authorized to enter, search and
seizure without obtaining order from Special Court.
4.5 - Investigation into affairs of company (Sec. 210)
Circumstances Where the C.G. is of the opinion, that it is necessary to investigate

when into the affairs of a company,
Investigation (a) on the receipt of a report of the Registrar or Inspector u/s
may be 208;
ordered by
(b) on intimation of a special resolution passed by a company
C.G.
that the affairs of the company ought to be investigated; or
- Sec. 210(1)
(c) in public interest,
it may order an investigation into the affairs of the company.
Investigation Where an order is passed by a court or the Tribunal in any

on Court or proceedings before it that the affairs of a company ought to be
Tribunal investigated, the Central Government shall order an investigation
order into the affairs of that company.
– Sec. 210(2)
Appointment For the purposes of this section, the Central Government may
of inspectors appoint one or more persons as inspectors to investigate into the
– Sec. 210(3) affairs of the company and to report thereon in such manner as
the Central Government may direct.

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Important Questions
Q. No. 5: Shareholders of Hide and Seek Ltd. are not satisfied about
performance of the company. It is suspected that some activities
being run in the name of the company are not in the interest of the
company or its members. 101 out of total 500 shareholders of the
company have made an application to the Central Government to
appoint an inspector to carry out investigation and find out the
true picture.
With reference to the provisions of the Companies Act, 2013,

mention whether the shareholders’ application will be accepted?
Elaborate. [Nov. 15 (4 Marks)]
Or
Shareholders of Akash Ltd. not satisfied with the performance of

the company inferred that some activities conducted by the
company are against the interest of the members of the company.
Group of shareholders of the company filed an application to the
Central Government to appoint an inspector to carry out
investigation to look into the matter.
With reference to the provisions of the Companies Act, 2013,

mention whether the shareholders’ application is tenable?
Elaborate.
HINT: Application will not be accepted as special resolution not passed.

Refer Section 210(1). Alternatively, in public interest, C.G. has discretion
to order for the investigation.
Q. No. 6: A majority of the Board of directors of M/s High Value InfoTech Ltd.
have realized that some of the business activities carried out in the
name of the company is not in the interest of either the company or

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its members. They want that the company should make an

application to the Central Government to appoint an Inspector to
carry out investigation and find out the whole truth. Explain the
steps that should be taken to achieve the purpose and draft the
application under the Companies Act, 2013.
HINT: Special Resolution need to be passed and application to be made to

C.G. Refer Section 210(1).
4.6 - Establishment of Serious Fraud Investigation Office (SFIO) (Sec. 211)
Setting up of The C.G. shall, by notification, establish an office to be called the

SFIO SFIO to investigate frauds relating to a company.
– Sec.
211(1)
Composition Sec. 211 (2) SFIO shall be headed by a Director, and consist of
of SFIO such number of experts from the following fields to
be appointed by the C.G. from amongst persons of
ability, integrity and experience in,
(1) banking;
(2) corporate affairs;
(3) taxation;
(4) forensic audit;
(5) capital market;
(6) information technology;
(7) law; or
(8) such other fields as may be prescribed (Rule 3).

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Sec. 211(3) The Central Government shall, by notification,

appoint a Director in the SFIO, who shall be an officer
not below the rank of a Joint Secretary to the
Government of India having knowledge and
experience in dealing with matters
relating to corporate affairs.
Sec. 211(4) The Central Government may appoint such experts

and other officers and employees in the SFIO as it
considers necessary for the efficient discharge of its
functions under this Act.
Appointment of persons having expertise in various fields –

Rule 3 of The Companies (Inspection, Investigation and
Inquiry) Rules, 2014,
The Central Government may appoint persons having expertise in

the fields of
• investigations,
• cyber forensics,
• financial accounting,
• management accounting,
• cost accounting and
• any other fields as may be necessary for the efficient discharge of
SFIO functions under the Act.
Terms and • The terms and conditions of service of Director, experts, and
conditions other officers and employees of the SFIO shall be such as may be
of service prescribed.
• Rule 4 of Companies (Inspections, Investigations and Inquiry)
– Sec.
Rules, 2014 laid down the terms and conditions of service of the
211(5)
abovementioned officers.

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Important Question
Q. No. 7: Explain the provisions of the Companies Act, 2013 relating to the
establishment of Serious Fraud Investigation Office by the Central
Government. State its composition. [RTP Nov. 2016]
HINT: Refer Section 211.
4.7 - Investigation into affairs of Company by Serious Fraud Investigation

Office (Sec. 212)
Assigning Without prejudice to the provisions of Sec. 210, where the C.G. is of
investigation the opinion that it is necessary to investigate into the affairs of a
to SFIO company by the SFIO -
– Sec. 212(1) (a) on receipt of a report of the Registrar or inspector u/s 208;
(b) on intimation of a special resolution passed by a company that

its affairs are required to be investigated;
(c) in the public interest; or
(d) on request from any Department of the Central Government or

a State Government,
it may, by order, assign the investigation into the affairs of the said
company to the SFIO.
Designating On receipt of such order, the Director, SFIO may

Inspectors designate such number of inspectors, as he may
consider necessary for the purpose of such
investigation.

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Effect of • Where any case has been assigned by the C.G. to the SFIO for
Assigning investigation under this Act, no other investigating agency of
Investigation Central Government or any State Government shall proceed
to SFIO over with investigation in such case in respect of any offence under
other this Act.
investigation • In case any such investigation has already been initiated, it shall
agencies not be proceeded further with and the concerned agency shall
– Sec. 212(2) transfer the relevant documents and records in respect of such
offences under this Act to SFIO.
Manner of • Where the investigation into the affairs of a company have been
Investigation assigned by the C.G. to SFIO, it shall conduct the investigation in
by SFIO – Sec. the manner and follow the procedure provided in this Chapter
212(3) & (Chapter XIV).
212(4) • SFIO shall submit its report to C.G. within such period as may be
specified in the order.
• The Director, SFIO shall cause the affairs of the company to be
investigated by an Investigating Officer who shall have the
power of the inspector under section 217.
Duties of The company and its officers and employees, who are or have been
company, its in employment of the company shall be responsible to provide
Officers or • all information,
employees
• explanation,
– Sec. 212(5) • documents and
• assistance to the Investigating Officer as he may require for
conduct of the investigation.

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Cognizable Offences covered u/s 447 of this Act shall be cognizable and no
nature of person accused of any such offence shall be released on bail or on
offence – Sec. his own bond unless—
212(6) (a) the Public Prosecutor has been given an opportunity to
oppose the application for such release; and
(b) where the Public Prosecutor opposes the application, the

court is satisfied that there are reasonable grounds for
believing that he is not guilty of such offence and that he is
not likely to commit any offence while on bail.
However, a person, who, is under the age of 16 years or is a

woman or is sick or infirm, may be released on bail, if the Special
Court so directs.
The Special Court shall not take cognizance of any offence referred
in this sub section except upon a complaint in writing made by—
(a) the Director, SFIO; or
(b) any officer of the C.G. authorised, by a general or special

order in writing in this behalf by that Government.
Sec. 212(7) The limitation on granting of bail specified in Sec.

212(6) is in addition to the limitations under the
Code of Criminal Procedure, 1973 or any other law
for the time being in force on granting of bail
Provisions as Sec. 212(8) If any officer not below the rank of Assistant
to powers of
Director of SFIO authorised in this behalf by the
SFIO Officers
to arrest the C.G. by general or special order, has on the basis of
accused material in his possession reason to believe (the

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reason for such belief to be recorded in writing)

that any person has been guilty of any offence
punishable under sections referred to in Sec.
212(6), he may arrest such person and shall, as
soon as may be, inform him of the grounds for
such arrest.
Sec. 212(9) • The Officer authorised u/s 212 (8) shall,

immediately after arrest of such person,
forward a copy of the order, along with the
material in his possession, to the SFIO in a
sealed envelope, in prescribed manner.
• SFIO shall keep such order and material for
such period as may be prescribed.
Sec. 212(10) • Every person so shall within 24 hours, be taken

to a Special Court or Judicial Magistrate or a
Metropolitan Magistrate, as the case may be,
having jurisdiction.
• The period of 24 hours shall exclude the time
necessary for the journey from the place of
arrest to the Special Court or c Magistrate's
court.
Note: Companies (Arrests in connection with Investigation by

SFIO) Rules, 2017 issued by the Central Government for the
purposes of Sec. 212 are given at end of this chapter as
Appendix 1.

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Provisions as Interim The SFIO shall submit an interim report to the C.G.,
to Reports of Report – Sec. if the Central Government so directs.
SFIO 212(11)
Investigation The SFIO shall submit the investigation report to

report – Sec. the Central Government on completion of the
212(12) investigation.
Obtaining a Notwithstanding anything contained in this Act or

copy of in any other law for the time being in force, a copy
report – Sec. of the investigation report may be obtained by any
212(13) person concerned by making an application in this
regard to the court.
Initiation of On receipt of the investigation report, the C.G. may, after

Prosecution – examination of the report (and after taking such legal advice, as it
Sec. 212(14) may think fit), direct the SFIO to initiate prosecution against the
company and its officers or employees, who are or have been in
employment of the company or any other person directly or
indirectly connected with the affairs of the company.
Filing Where the report under sub-section (11) or sub-section (12)

application states that fraud has taken place in a company and due to such
by C.G. for fraud any director, key managerial personnel, other officer of
disgorgement the company or any other person or entity, has taken undue
of assets etc. advantage or benefit, whether in the form of any asset,
– Sec. 212 property or cash or in any other manner, the Central
(14A)* Government may file an application before the Tribunal for
appropriate orders with regard to disgorgement of such asset,
property or cash and also for holding such director, key
managerial personnel, other officer or any other person liable
personally without any limitation of liability.
*inserted by Companies (Amendment) Act, 2019 w.e.f.
15.08.2019

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Other Sec. 212(15) Notwithstanding anything contained in this Act or

Provisions in any other law, the investigation report filed
with the Special Court for framing of charges shall
be deemed to be a report filed by a police officer
u/s 173 of the Code of Criminal Procedure, 1973.
Sec. 212(16) Notwithstanding anything contained in this Act,

any investigation or other action taken or initiated
by SFIO under the provisions of the Companies
Act, 1956 shall continue to be proceeded with
under that Act as if this Act had not been passed.
Sec. 212(17) • In case SFIO has been investigating any offence

under this Act, any other investigating agency,
State Government, police authority, income-tax
authorities having any information or documents
in respect of such offence shall provide all such
information or documents available with it to the
SFIO.
• The SFIO shall share any information or
documents available with it, with any
investigating agency, State Government, police
authority or income tax authorities, which may
be relevant or useful for such investigating
agency, State Government, police authority or
income-tax authorities in respect of any offence
or matter being investigated or examined by it
under any other law.

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Important Questions
Q. No. 8: What are the grounds on which the investigation is assigned to
Serious Fraud Investigation Office?
HINT: Refer Sec. 212(1).
Q. No. 9: Mrs. Preeti, a lady aged about 32 years and Managing Director of M/s
Growmore plantations Ltd., has been arrested for an offence covered
under section 447 of the Companies Act, 2013 on a complaint made
by the Director, Serious Fraud Investigation Officer. Mrs. Preeti
seeks your legal advise as to the conditions under which she can be
released on bail and the role of Special Court in this regard.
[Nov. 17 (4 Marks)]
HINT: She may be released on bail if the Special Court so directs. Refer
Section 212(6).
Q. No. 10: Answer the following:
(i) The shareholders of Kumar Ltd. passed a special resolution that
the affairs of the company ought to be investigated. The
company submitted the special resolution to the Central
Government. Examine, explaining the relevant provisions of the
companies Act, 2013, whether the power of the Central
Government to order an investigation is mandatory or
discretionary?
(ii) Enumerate the procedures to be followed by the Serious Fraud
Investigation Office to arrest a person who has been found
guilty of an offence committed under section 447 of the
Companies Act, 2013. [Nov. 18-New Syllabus (7 Marks)]
HINT: Refer Sec. 210 and 212 and Companies (Arrests in connection with
Investigation by SFIO) Rules, 2017. Use of the term ‘may’ in Sec. 210 make
it clear that the power of the Central Government to order an
investigation is discretionary.

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4.8 - Investigation into company’s affairs in other cases (Sec. 213)
Circumstances (a) On an application made by:

in which (i) not less than 100 members or members holding not
Tribunal may less than 1/10th of the total voting power, in the case of
pass order a company having a share capital;
or
(ii) not less than 1/5th of the persons on the company’s
register of members, in the case of a company having no
share capital,
and supported by such evidence as may be necessary for the

purpose of showing that the applicants have good reasons
for seeking an order for conducting an investigation into the
affairs of the company.
(b) On an application made to it by any other person or

otherwise, if it is satisfied that there are circumstances
suggesting that—
(i) the business of the company is being conducted with
intent to defraud its creditors, members or any other
person or otherwise for a fraudulent or unlawful
purpose, or in a manner oppressive to any of its
members or that the company was formed for any
fraudulent or unlawful purpose;
(ii) persons concerned in the formation of the company or
the management of its affairs have in connection
therewith been guilty of fraud, misfeasance or other
misconduct towards the company or towards any of its
members; or

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(iii) the members of the company have not been given all
the information with respect to its affairs which they
might reasonably expect, including information
relating to the calculation of the commission payable
to a managing or other director, or the manager, of the
company,
Order by • In the circumstances mentioned above, Tribunal may order

Tribunal that the affairs of the company ought to be investigated by an
inspector or inspectors appointed by the Central Government.
• Order shall be passed after giving a reasonable opportunity of
being heard to the parties concerned.
Appointment Where such an order is passed, the Central Government shall

of Inspector appoint one or more competent persons as inspectors to
investigate into the affairs of the company in respect of such
matters and to report thereupon to it in such manner as the
Central Government may direct.
Punishment If after investigation it is proved that

for fraud (i) the business of the company is being conducted with intent to
defraud its creditors, members or any other persons or
otherwise for a fraudulent or unlawful purpose, or that the
company was formed for any fraudulent or unlawful purpose; or
(ii) any person concerned in the formation of the company or the
management of its affairs have in connection therewith been
guilty of fraud,
then, every officer of the company who is in default and the
person or persons concerned in the formation of the company or
the management of its affairs shall be punishable for fraud in the
manner as provided in section 447.

Page 24
Important Question
Q. No. 11: Some creditors of NTY Limited approached you to guide them to
apply to the Tribunal for seeking an order for conducting an
investigation into the affairs of the company due to the fact that the
business of the company is being conducted with intention to
defraud its creditors. Referring to the provisions of the Companies
Act, 2013, guide them regarding the circumstances under which
and how a person, not being a member of the company can apply to
the Tribunal to seek an order for conducting an investigation into
the affairs of a company.
[May 18 – Old Syllabus (4 Marks), RTP-Nov. 18]
HINT: Refer Sec. 213 – Topic “Circumstances in which Tribunal may

pass order”.
4.9 - Security for payment of costs and expenses of investigation (Sec. 214)
Investigation Where an investigation is ordered by the Central Government

in which • in pursuance of clause (b) of sub-section (1) of section 210,
security may
or
be
demanded • in pursuance of an order made by the Tribunal under section
213.
Requirement • C.G. may before appointing an inspector u/s 210 or u/s 213,
of security require the applicant to give such security not exceeding Rs.
25,000 as may be prescribed, for payment of the costs and
expenses of the investigation.
• Such security shall be refunded to the applicant if the
investigation results in prosecution.

Page 25
Important Questions
Q. No. 12: The business of Weak Fabrication Limited is conducted

fraudulently and the management activities are not in the
interests of the company. The paid-up capital of the company is
one crore rupees. A group of shareholders numbering 110
members representing 1/9 of total voting power decided to
approach Tribunal (NCLT) to carryout investigation into the
company’s affairs under the provisions of the Companies Act,
2013. They seek your advice in the following matters, stating the
relevant provisions of the companies Act, 2013.
1. Whether the group can make valid application?
2. Other than member, can any other person make application?
3. Are the applicants required to furnish security for payment of

cost and expenses of investigation?
[May 18 – New Syllabus (7 Marks)]
HINT: Refer Sec. 213 & 214.
1. Group as stated in the question can make valid application as the

group consists of more than 100 members.
2. Persons other than Shareholders can also make application as per

the circumstances mentioned above.
3. Applicants are required to furnish security as per the provisions of

Sec. 214 which states that C.G. may before appointing an inspector
u/s 213, require the applicant to give such security not exceeding
Rs. 25,000 as may be prescribed, for payment of the costs and
expenses of the investigation.

Page 26
4.10 - Firm, body corporate or association not to be appointed as inspector

(Sec. 215)
No firm, body corporate or other association shall be appointed as an inspector.
4.11 - Investigation of ownership of company (Sec. 216)
Purposes for Where it appears to the C.G. that there is a reason so to do, it may
which appoint one or more inspectors to investigate and report on
investigation matters relating to the company, and its membership for the
may be purpose of determining the true persons-
ordered – (a) who are or have been financially interested in the success or
Sec. 216(1) failure, whether real or apparent, of the company; or
(b) who are or have been able to control or to materially influence

the policy of the company; or
(c) who have or had beneficial interest in shares of a company

or who are or have been beneficial owners or significant
beneficial owner of a company*.

13.06.2018.
Appointment Without prejudice to its powers under sub-section (1), the C.G.
of inspectors shall appoint one or more inspectors, if the Tribunal, in the course
on directions of any proceeding before it, directs by an order that the affairs of
of Tribunal the company ought to be investigated as regards the membership
– Sec. 216(2) of the company and other matters relating to the company, for the
purposes specified in Sec. 216(1).

Page 27
Scope of While appointing an inspector, the C.G. Government may define the
Investigation scope of the investigation,
– Sec. 216(3) • whether as respects the matters or
• the period to which it is to extend or

• otherwise,
and in particular, may limit the investigation to matters connected

with particular shares or debentures.
Powers of Powers of the inspectors shall extend to the investigation of any

Inspectors – circumstances suggesting the existence of any arrangement or
Sec. 216(4) understanding which, though not legally binding, is or was
observed or is likely to be observed in practice and which is
relevant for the purposes of his investigation.
4.12 - Procedure, powers, etc., of inspectors (Sec. 217)
Duty to It shall be the duty of all officers and other employees and agents
produce including the former officers, employees and agents of a company
books and which is under investigation and where the affairs of any other
render body corporate or a person are investigated u/s 219, of all officers
assistance and other employees and agents including former officers,
– Sec. employees and agents of such body corporate or a person-
217(1) (a) to preserve and to produce to an inspector or any person
authorised by him in this behalf all books and papers of, or
relating to, the company or, as the case may be, relating to the
other body corporate or the person, which are in their custody
or power; and
(b) otherwise to give to the inspector all assistance in connection
with the investigation which they are reasonably able to give.

Page 28
Obtaining The inspector may require any body corporate, other than a body
information corporate whose affairs are investigated u/s 219 to
from other • furnish such information to, or
body
• produce such books and papers before him or any person
corporate
authorised by him in this behalf as he may consider necessary,
– Sec.
if the furnishing of such information or the production of such
217(2)
books and papers is relevant or necessary for the purposes of his
investigation.
Period of • The inspector shall not keep in his custody any books and papers
Retention of produced to him u/s 217(1) or 217(2) for more than 180 days.
books – Sec. • He shall return the same to the company, body corporate, firm or
217(3) individual by whom or on whose behalf the books and papers
were produced.
• The books and papers may be called for by the inspector if they
are needed again for a further period of 180 days by an order in
writing.
Power to An inspector may examine on oath:

examine a (a) any of the persons referred to in Sec. 217(1); and
person on (b) any other person, with the prior approval of the Central
Oath – Sec. Government,
217(4)
in relation to the affairs of the company, or other body corporate or
person, as the case may be, and for that purpose may require any of
those persons to appear before him personally.
However, in case of an investigation u/s 212, the prior approval of

Director, SFIO shall be sufficient under clause (b).

Page 29
Powers of Notwithstanding anything contained in any other law for the time
Civil Court – being in force or in any contract to the contrary, the inspector, being
Sec. 217(5) an officer of the C.G. making an investigation under this chapter,
shall have all the powers as are vested in a civil court under the
Code of Civil Procedure, 1908, while trying a suit in respect of the
following matters, namely:
(a) the discovery and production of books of account and other

documents, at such place and time as may be specified by such
person;
(b) summoning and enforcing the attendance of persons and

examining them on oath; and
(c) inspection of any books, registers and other documents of the

company at any place.
Penalty If any director or officer of the company disobeys the direction

provisions – issued by the Registrar or the inspector under this section, the
Sec. 217(6) director or the officer shall be punishable
• with imprisonment which may extend to 1 year
and
• with fine which shall not be less than Rs. 25,000 but which may
extend to Rs. 1 lakh.
If a director or an officer of the company has been convicted of an

offence under this section, he shall, on and from the date on which
he is so convicted, be deemed to have vacated his office as such and
on such vacation of office, shall be disqualified from holding an
office in any company.

Page 30
Notes of The notes of any examination u/s 217(4), shall be taken down in
Examination writing
– Sec. and
217(7)
shall be read over to, or by, and signed by, the person examined,
and
may thereafter be used in evidence against him.
Penalty for If any person fails without reasonable cause or refuses—

failure to (a) to produce to an inspector or any person authorised by him in
comply with this behalf any book or paper which is his duty u/s 217(1) or
the 217(2) to produce;
provisions –
(b) to furnish any information which is his duty u/s 217(2) to
Sec. 217(8)
furnish;
(c) to appear before the inspector personally when required to do

so u/s 217(4) or to answer any question which is put to him by
the inspector in pursuance of that point; or
(d) to sign the notes of any examination referred to in Sec. 217(7),
he shall be punishable
• with imprisonment for a term which may extend to 6 months
and
• with fine which shall not be less than Rs. 25,000 rupees but
which may extend to Rs. 1 lakh,
and
• with a further fine which may extend to Rs. 2,000 for every day
after the first during which the failure or refusal continues.

Page 31
Duty of The officers of the C.G., S.G., police or statutory authority shall
certain provide assistance to the inspector for the purpose of inspection,
persons to inquiry or investigation, which the inspector may, with the prior
assist approval of the C.G., require.
inspector
– Sec.
217(9)
Agreement The C.G. may enter into an agreement with the Government of a
with foreign State for reciprocal arrangements to assist in any inspection,
Foreign inquiry or investigation under this Act or under the corresponding
Countries law in force in that State.
– Sec.
217(10)
Reference of Notwithstanding anything contained in this Act or in the Code of

certain Criminal Procedure, 1973 if, in the course of an investigation into
matters to the affairs of the company, an application is made to the competent
Foreign court in India by the inspector stating that evidence is, or may be,
Court – Sec. available in a country or place outside India, such court may issue a
217(11) letter of request to a court or an authority in such country or place,
competent to deal with such request,
• to examine orally, or otherwise, any person, supposed to be

acquainted with the facts and circumstances of the case,
• to record his statement made in the course of such examination,
• to require such person or any other person to produce any
document or thing, which may be in his possession pertaining to
the case, and

Page 32
• to forward all the evidence so taken or collected or the

authenticated copies thereof or the things so collected to the
court in India which had issued such letter of request.
The letter of request shall be transmitted in such manner as the C.G.

may specify in this behalf.
Every statement recorded or document or thing received under this

subsection shall be deemed to be the evidence collected during the
course of investigation.
Reference of Upon receipt of a letter of request from a court or an authority in a

certain country or place outside India, competent to issue such letter in that
matters by country or place for the examination of any person or production of
Foreign any document or thing in relation to affairs of a company under
Court – Sec. investigation in that country or place, the C.G. may, if it thinks fit,
217(12) forward such letter of request to the court concerned, which shall
thereupon
• summon the person before it and record his statement or cause
any document or thing to be produced, or
• send the letter to any inspector for investigation, who shall
thereupon investigate into the affairs of company in the same
manner as the affairs of a company are investigated under this
Act and the inspector shall submit the report to such court
within 30 days or such extended time as the court may allow for
further action
The evidence taken or collected as above or authenticated copies
thereof or the things so collected shall be forwarded by the court, to
the C.G. for transmission, in such manner as the C.G. may deem fit, to
the court or the authority in country or place outside India which
had issued the letter of request.

Page 33
4.13 - Protection of employees during investigation (Sec. 218)
Requirement If during the course of any investigation of the affairs and other
of Tribunal matters of or relating to a company, other body corporate or
Approval to person u/s 210, 212, 213 or 219 or of the membership and other
take any matters of or relating to a company, or the ownership of shares in
action or debentures of a company or body corporate, or the affairs and
against other matters of or relating to a company, other body corporate or
employee person, u/s 216
– Sec. 218(1) or
during the pendency of any proceeding against any person

concerned in the conduct and management of the affairs of a
company under Chapter XVI (Sec. 241 to 246 – Prevention of
Oppression and Mismanagement) such company, other body
corporate or person proposes:
(i) to discharge or suspend any employee; or

(ii) to punish him, whether by dismissal, removal, reduction in
rank or otherwise; or
(iii) to change the terms of employment to his disadvantage,
the company, other body corporate or person, as the case may be,
shall obtain approval of the Tribunal of the action proposed against
the employee.
If the Tribunal has any objection to the action proposed, it shall

send by post notice thereof in writing to the company, other body
corporate or person concerned.

Page 34
Non-receipt If the company, other body corporate or person concerned does not
of approval receive within 30 days of making of application, the approval of the
from Tribunal, then and only then, the company, other body corporate or
Tribunal person concerned may proceed to take against the employee, the
– Sec. 218(2) action proposed.
Appeal • If the company, other body corporate or person concerned is

against dissatisfied with the objection raised by the Tribunal, it may,
Tribunal within a period of 30 days of the receipt of the notice of the
Objection objection, prefer an appeal to the Appellate Tribunal in such
– Sec. 218(3) manner and on payment of such fees as may be prescribed.
& 218(4) • The decision of the Appellate Tribunal on such appeal shall be
final and binding on the Tribunal and on the company, other
body corporate or person concerned.
Important Questions
Q. No. 13: Mr. Atul is an employee of the company ABC Limited and
investigation is going on him under the provisions of Companies
Act, 2013. The company wants to terminate the employee on the
ground of investigation is going against him. They have filed the
application to tribunal for approval of termination. Company has
not received any reply from the tribunal within 30 days of filling
an application. The company consider it as a deemed approval
and terminated Mr. Atul.
(a) Is the contention of company being valid in law?

(b) What is remedy available to Mr. Atul?
(c) What is remedy available to Mr. Atul, if reply of Tribunal has
been received within 30 days of application?
[MTP-March 18, March 19]

Page 35
HINT: (a) Valid Contention (b) No Remedy (c) Appeal to Appellate

Tribunal. Refer Section 218.
Q. No. 14: Damage Ltd., the Company wanted to suspend Mr. Z, the CFO of the
Company during the pendency of an investigation being conducted
under the provisions of the Companies Act, 2013 on the order of
Tribunal. The Company approached the Tribunal on 3rdJanuary,
2019 for the proposed action. The Company on 15thFebruary, 2019
passed an order of suspension without waiting for the orders from
Tribunal. Comment upon the action taken by the Company with
reference to the relevant provisions of the Act.
[May 17 (4 Marks)]
HINT: Action taken by company is valid as suspension takes place after

30 days. Refer Section 218.
Q. No. 15: Pursuant to Section 210 of the Companies Act, 2013 an Inspector
was appointed to investigate the affairs of Sterling Trading Limited.
Mr. Ahmed the General Manager (Operations) who is aware of
certain misdeeds of the management, desires to know whether he
is entitled to any protection against dismissal by the company if he
discloses the misdeeds during the course of examination by the
Inspector. Advise him explaining the relevant provisions of the
Companies Act, 2013. [Nov. 17 (3 Marks)]
HINT: Protection available u/s 218 of Companies Act, 2013.

Page 36
4.14 - Power of inspector to conduct investigation into affairs of related

companies, etc. (Sec. 219)
Investigation If an inspector appointed u/s 210 or 212 or 213 to investigate into

into affairs the affairs of a company considers it necessary for the purposes of
of related the investigation, shall also investigate the affairs of—
companies (a) any other body corporate which is, or has at any relevant time
been the company’s subsidiary company or holding company,
or a subsidiary company of its holding company;
(b) any other body corporate which is, or has at any relevant time
been managed by any person as managing director or as
manager, who is, or was, at the relevant time, the managing
director or the manager of the company;
(c) any other body corporate whose Board of Directors

comprises nominees of the company or is accustomed to act
in accordance with the directions or instructions of the
company or any of its directors; or
(d) any person who is or has at any relevant time been the
company’s managing director or manager or employee.
Such Investigation is allowed only with prior approval of the

Central Government.
Report of Inspector shall report on the affairs of the other body corporate or
inspector of the managing director or manager, in so far as he considers that
the results of his investigation are relevant to the investigation of
the affairs of the company for which he is appointed.

Page 37
Important Questions
Q. No. 16: Discuss the powers of Inspectors regarding investigation into

affairs of related companies.
Or
What are the circumstances in which an inspector appointed under

section 210 of the Companies Act, 2013, can investigate into affairs
of related companies also?
HINT: Refer Sec. 219.
Q. No. 17: During investigations conducted on the affairs of a company in the

public interest, the inspector observed that the Directors of the
company had been acting on the instructions of the holding
company and he proceeded to investigate the holding company. Is
Inspector permitted to do under the provisions of the Companies
Act, 2013? [May 17 (4 Marks)]
Or
Members of Sarat Solutions Ltd. are concerned about the

performance of the company as they suspect gross negligence and
mismanagement of the affairs of the company that may be
detrimental to the interests of the company and therefore filed an
application to the Central Government to appoint an inspector to
carry on the investigation. Mr. X, who was appointed as inspector,
is of the view that to find out the true picture it is necessary to
investigate into the affairs of M/s. Hemant Softech Solutions Ltd.,
which is a subsidiary of Sarat Solutions Ltd. Referring to and
analysing the provisions of the Companies Act, 2013 decide,
whether the inspector has powers to investigate into of M/s.

Page 38
Hemant Softech Solutions Ltd. [May 19 – Old Syllabus (4 Marks)]
HINT: Inspector is permitted to investigate the affairs of related

companies, but only after obtaining prior approval from C.G. Refer
Section 219.
4.15 - Seizure of documents by Inspector (Sec. 220)
Seizure of Where in the course of an investigation, the inspector has
books and reasonable grounds to believe that the books and papers of, or
papers relating to, any company or other body corporate or managing
director or manager of such company are likely to be destroyed,
– Sec.
mutilated, altered, falsified or secreted, the inspector may:
220(1)
(a) enter, with such assistance as may be required, the place or
places where such books and papers are kept in such manner as
may be required;
and
(b) seize books and papers as he considers necessary after allowing
the company to take copies of, or extracts from, such books and
papers at its cost for the purposes of his investigation.
Time period • The inspector shall keep in his custody the books and papers
for keeping seized under this section for such a period not later than the
books and conclusion of the investigation as he considers necessary
papers and
– Sec.
• thereafter shall return the same to the company or the other
220(2)
body corporate, or, as the case may be, to the managing director
or the manager or any other person from whose custody or
power they were seized.

Page 39
Point to remember
The inspector may, before returning such books and papers as

aforesaid, take copies of, or extracts from them or place
identification marks on them or any part thereof or deal with
the same in such manner as he considers necessary.
Application The provisions of the Code of Criminal Procedure, 1973, relating to

of searches or seizures shall apply mutatis mutandisto every search or
provisions seizure made under this section.
of Code of
Criminal
Procedure
– Sec.
220(3)
4.16 - Freezing of assets of company on inquiry and investigation (Sec. 221)
Circumstance Where it appears to the Tribunal,

s in which • on a reference made to it by the C.G. or
assets may be
• in connection with any inquiry or investigation into the affairs
freezed – Sec.
of a company under this Chapter or
221(1)
• on any complaint made by such number of members as
specified u/s 244(1) or
• a creditor having Rs. 1 lakh outstanding against the company or
• any other person
having a reasonable ground to believe that the removal, transfer

or disposal of funds, assets, properties of the company is likely to

Page 40
take place in a manner that is prejudicial to the interests of the

company or its shareholders or creditors or in public interest, it
may by order direct that such transfer, removal or disposal shall
not take place during such period not exceeding 3 years as may be
specified in the order or may take place subject to such conditions
and restrictions as the Tribunal may deem fit.
Points to remember
Number of Members specified u/s 244(1):
(a) in the case of a • Lower of 100 members or 1/10th of

company having a the total number of members.
share capital or
• Any member or members holding

not less than 1/10th of the issued
share capital of the company
provided the applicant has paid all
calls and other sums due on his
shares.
(b) in the case of a Atleast 1/5th of the total number of its

company not members.
having a share
capital
Penalty In case of any removal, transfer or disposal of funds, assets, or

provisions – properties of the company in contravention of the order of the
Sec. 221(2) Tribunal u/s 221(1),
• the company shall be punishable with fine which shall not be

less than Rs. 1 lakh but which may extend to Rs. 25 lakh

Page 41
and
• every officer of the company who is in default shall be

punishable with imprisonment for a term which may extend to
3 years or with fine which shall not be less than Rs. 50,000 but
which may extend to Rs. 5,00,000, or with both.
Important Questions
Q. No. 18: The members of company with no paid-up share capital, filed a
complaint against change in the management of the company due
to which it was likely that the affairs of the company will be
conducted in a manner that it will be prejudicial to the interest of
its 25 members. Total number of members of company were 100.
On inquiry and investigation on the complaint, having a reasonable
ground to believe that the transfer or disposal of assets of the
company may be against to the interests of its shareholders. The
Tribunal passed an order that such transfer or disposal of assets
shall not be made during one year of such order.
Evaluate on the basis of the given facts, the following situations

according to the Companies Act, 2013:
(a) Eligibility of the members to file a complaint.

(b) Where if the management dispose of the certain assets in
contravention to the order of the Tribunal.
[MTP-March 18, Oct. 19]
HINT: Refer Sec. 221 & 244. (a) 1/5th of members (b) Penalty will be
imposed u/s 221(2).

Page 42
Q. No. 19: XYZ Ltd. proposed for amalgamation with the PQR Ltd. The issued
and paid up capital of XYZ Ltd. is Rs. 5 crore consisting of 5,00,000
equity shares of Rs. 100 each. The said company has 500 members.
It was believed by certain members of the company that the
proposed Scheme of amalgamation resulting into the transfer and
disposal of funds and assets of the company to the transferee will
be effecting their interest. So, 80 members holding 10,000 equity
shares of the company decided to file an application for relief
before the Tribunal.
Examine the given situation in the light of the Companies Act, 2013-
(i) Whether the said petition will be maintainable.

(ii) In case where it appears to the Tribunal, that such proposal is
likely to effect the interest of the members, remedy available
to the aggrieved members. [MTP-Aug. 18]
HINT: Refer Sec. 221 & 244. (i) Petition is maintainable (ii) Tribunal
may pass order u/s 221(1). Contravention of order will attract penalty
u/s 221(2).
4.17 - Imposition of restrictions upon securities (Sec. 222)
Circumstances • Where it appears to the Tribunal, in connection with any

in which investigation u/s 216 or on a complaint made by any person in
restrictions this behalf, that there is good reason to find out the relevant
may be facts about any securities issued or to be issued by a company
imposed on and
securities
• the Tribunal is of the opinion that such facts cannot be found
– Sec. 222(1)
out unless certain restrictions, as it may deem fit, are imposed,

Page 43
the Tribunal may, by order, direct that the securities shall be

subject to such restrictions as it may deem fit for such period not
exceeding 3 years as may be specified in the order.
Penalty Where securities in any company are issued or transferred or

Provisions – acted upon in contravention of an order of the Tribunal u/s
Sec. 222(2) 222(1),
• the company shall be punishable with fine which shall not be

less than Rs. 1 lakh but which may extend to Rs. 25lakh
and
• Every officer of the company who is in default shall be

punishable with imprisonment for a term which may extend to
6 Months or with fine which shall not be less than Rs. 25,000
but which may extend to Rs. 5lakh, or withboth.
Important Question
Q. No. 20: Remedial Pharma Limited, over the years, enjoys a high reputation
in the market and its general reserves are ten times more than the
paid-up capital of the company. There is a serious apprehension of
cornering the share of the company by a group of unscrupulous
persons likely to result in change in the Board of directors which
may be prejudicial to the public interest. The company seeks your
advice as to how it can block the transfer of shares of the company
under the provisions of the Companies Act, 2013.
[Nov. 17 (4 Marks)]
HINT: Application can be made to Tribunal u/s 222 for imposition of

restriction on securities.

Page 44
Q. No. 21: The Central Government ordered an investigation under Section

216 of Companies Act, 2013 against M/s Green Wood Limited for
determining the true membership of the company. In connection
with this investigation a reference was made to the Tribunal. It
appears to the Tribunal that there is a good reason to find out the
relevant facts about the company and the Tribunal is of the opinion
that unless restrictions are imposed on further issue of such equity
shares for two years, the purpose cannot be solved.
Referring to the provisions of the Companies Act, 2013 and Rules

framed in this regard, answer:
(i) Can the Tribunal put such a restriction on further issue of

shares?
(ii) Period for which such a restriction can be imposed by the

Tribunal? [Nov. 18-Old Syllabus (4 Marks)]
HINT: Refer Sec. 222. Tribunal may restrict further issue of shares for any
period not exceeding 3 years.
Q. No. 22: An investigation was ordered by the Central Government under

section 216 of the Companies Act, 2013, against PKR Limited for
determining the true membership of the Company. In connection
with this investigation, it appears to the Tribunal that there is good
reason to find out the relevant facts about 9% Redeemable
Cumulative Preference Shares (RCPS) issued by the company on
15.10.2018 and the Tribunal is of the opinion that unless restriction
is imposed on further issue of such shares, the purpose cannot be
solved. Accordingly, the Tribunal, by an Order dated 15.08.2019,
directed the Company that the further issue of RCPS shall be subject
to restrictions for a period of four years. Despite the order of the
Tribunal as above, PKR Limited proceeded with further issue of
RCPS on 20.08.2019 in order to fund the working capital requirements

Page 45
for its expansion project.
Referring to the provisions of the Companies Act, 2013, examine the

following:
(i) Can the Tribunal restrict further issue of RCPS? If yes, then to what
period?
(ii) What are the penal provisions in case of contravention to the

above order? [Nov. 18-New Syllabus (5 Marks)]
HINT: Refer Sec. 222. Tribunal may restrict further issue of RCPS for any
period not exceeding three years.
4.18 - Inspector’s Report – Sec. 223
Submission of • An inspector appointed under this Chapter may, and if so

interim report directed by the Central Government shall, submit interim
and final reports to that Government,
report and
– Sec. 223(1) • on the conclusion of the investigation, shall submit a final

report to the Central Government.
Report to be Every report made u/s 223(1) shall be in writing or printed as

writing or
the C.G. may direct.
printed
– Sec. 223(2)
Obtaining A copy of the above report may beobtained by members,

copy or report creditors or any other person whose interest is likely to be
– Sec. 223(3) affected* making an application in this regard to the C.G.

09.02.2018

Page 46
Authentication The report of inspector appointed under this Chapter shall be

of report authenticated either:
– Sec. 223(4) (a) by the seal, if any, of the company whose affairs have been
investigated;
or
(b) by a certificate of a public officer having the custody of the

report, as provided u/s 76 of the Indian Evidence Act, 1872,
Such report shall be admissible in any legal proceeding as

evidence in relation to any matter contained in the report.
Exceptions Nothing in this section shall apply to the report referred to in
– Sec. 223(5) Section 212.
Important Question
Q. No. 23: What the duties of the inspector as enumerated in section 223 of
the Companies Act, 2013, in relation to his report.
4.19 - Actions to be taken in pursuance of inspector’s report (Sec. 224)
Prosecution • If, from an inspector’s report, made u/s 223, it appears to the
– Sec. 224(1) C.G. that any person has, in relation to the company or in
relation to any other body corporate or other person whose
affairs have been investigated under this Chapter been guilty
of any offence for which he is criminally liable, the C.G. may
prosecute such person for the offence
and

Page 47
• it shall be the duty of all officers and other employees of the

company or body corporate to give the C.G. the necessary
assistance in connection with the prosecution.
Petition for • If any company or other body corporate is liable to be wound

Winding up or up under this Act or under the Insolvency and Bankruptcy
Application for Code 2016
relief from and
Oppression and
• it appears to the C.G. from any such report made u/s 223 that
Mismanagement
it is expedient so to do by reason of any such circumstances
– Sec. 224(2)
as are referred to in section 213,
the C.G. may, unless the company or body corporate is already

being wound up by the Tribunal, cause to be presented to the
Tribunal by any person authorised by the C.G. in this behalf—
(a) a petition for the winding up of the company or body

corporate on the ground that it is just and equitable that it
should be wound up;
(b) an application u/s 241 (claiming relief from oppression and
mismanagement); or
(c) both.
Proceedings for If from the inspector’s report, it appears to the C.G. that
for recovery of proceedings ought, in the public interest, to be brought by the
damages company or any body corporate whose affairs have been
– Sec. 224(3) investigated under this Chapter:
(a) for the recovery of damages in respect of any fraud,

misfeasance or other misconduct in connection with the

Page 48
promotion or formation, or the management of the affairs,

of such company or body corporate;
or
(b) for the recovery of any property of such company or body

corporate which has been misapplied or wrongfully
retained,
the C.G. may itself bring proceedings for that purpose in the
name of such company or body corporate.
Indemnity to The C.G. shall be indemnified by such company or body

C.G. – Sec. corporate against any costs or expenses incurred by it in, or in
224(4) connection with, any proceedings brought by virtue of Sec.
224(3).
Application Where the report made by an inspector states that fraud has
w.r.t. taken place in a company and due to such fraud any director,
disgorgement key managerial personnel, other officer of the company or any
and personal other person or entity, has taken undue advantage or benefit,
liability of whether in the form of any asset, property or cash or in any
directors etc. other manner, the Central Government may file an application
– Sec. 224(5) before the Tribunal for appropriate orders
• with regard to disgorgement of such asset, property or cash,

as the case may be,
and
• also for holding such director, key managerial personnel,

officer or other person liable personally without any
limitation of liability.

Page 49
4.20 - Expenses of investigation (Sec. 225)
Expenses to be The expenses of, and incidental to, an investigation by an

borne by C.G. inspector appointed by the C.G. under this Chapter) other than
expenses of inspection u/s 214 (Security for payment of costs
and expenses of investigation) shall be borne in the first
instance by the C.G.
Reimbursement Expenses of investigation shall be reimbursed by the following

of Expenses persons to the extent mentioned below, namely:
(a) any person who is convicted on a prosecution instituted, or

who is ordered to pay damages or restore any property in
proceedings brought, u/s 224, to the extent specified by the
court convicting such person, or ordering him to pay such
damages or restore such property, as the case may be;
(b) any company or body corporate in whose name proceedings

are brought, to the extent of the amount or value of any
sums or property recovered by it as a result of such
proceedings;
(c) unless, as a result of the investigation, a prosecution is

instituted u/s 224, —
(1) any company, body corporate, managing director or

manager dealt with by the report of the inspector; and
(2) the applicants for the investigation, where the

inspector was appointed u/s 213,
to such extent as the C.G. may direct.

Page 50
Point to remember
W.r.t. amount for which a company or body corporate is

liable under clause (b) above there shall be a first charge on
the sums or property mentioned in that clause.
4.21 - Voluntary winding up of company, etc., not to stop investigation

proceedings (Sec. 226)
Effect of An investigation under this Chapter may be initiated

winding up notwithstanding, and no such investigation shall be stopped or
events on suspended by reason only of, the fact that—
Investigation (a) an application has been made u/s 241 (claiming relief from
oppression and mismanagement);

(b) the company has passed a special resolution for voluntary
winding up; or
(c) any other proceeding for the winding up of the company is
pending before the Tribunal.
Informing Where a winding up order is passed by the Tribunal in a

Tribunal as proceeding referred to in clause (c), the inspector shall inform the
to pendency Tribunal about the pendency of the investigation proceedings
of before him and the Tribunal shall pass such order as it may deem
investigation fit.
Liability of Nothing in the winding up order shall absolve any director or other
Directors employee of the company from participating in the proceedings
and before the inspector or any liability as a result of the finding by the
employees inspector.

Page 51
Important Questions
Q. No. 24: M/s Genesis Paper Ltd. has been incurring business losses for past
couple of years. The company, therefore, passed a special resolution
for voluntary winding up. Meanwhile, complaints were made to the
Tribunal and to the Central Government about foul play of the
directors of the company, which adversely affected the interests of
shareholders of the company as well as the public. In this situation
advise whether investigation may be initiated against the company
under the provisions of the Companies Act, 2013.
[Nov. 17 (4 Marks), RTP-May 18, MTP-Oct. 18]
HINT: Investigation may be initiated. Refer Section 226.
Q. No. 25: Origin paper Ltd. has been incurring business losses for past couple
of years. The company therefore, passes a special resolution for
voluntary winding up. Meanwhile, complaints were made to the
tribunal and to the Central Government about foul play of the
directors of the company, which adversely affected the interests of
shareholders of the company as well as public.
(a) In this situation advise whether investigation may be initiated

against the company under the provision of the Companies Act,
2013.
(b) Further decide whether application can be made to Tribunal for
Relief in the above affairs of the company once the investigation
is initiated against the company. [MTP-April 18, RTP-May 18]
HINT: (a) Refer answer of Q. No. 15 (b) Refer Sec. 241, application can be
made to Tribunal for relief.

Page 52
4.22 - Legal advisers and bankers not to disclose certain information (Sec.
227)
Professional Nothing in this Chapter shall require the disclosure to the Tribunal
immunity to or to the C.G. or to the Registrar or to an inspector appointed by the C.G.:
Legal (a) by a legal adviser, of any privileged communication made to him
Advisors in that capacity, except as respects the name and address of his
and bankers client;
or
(b) by the bankers of any company, body corporate, or other

person, of any information as to the affairs of any of their
customers, other than such company, body corporate, or person.
Important Question
Q. No. 26: State the provisions relating to professional immunity to legal

advisors and bankers under the Companies Act, 2013.
4.23 - Investigation etc. of foreign companies (Sec. 228)
The provisions of this Chapter shall apply mutatis mutandis to inspection, inquiry
or investigation in relation to foreign companies.
4.24 - Penalty for furnishing false statement, mutilation, destruction of

documents (Sec. 229)
Persons to • Person who is required to provide an explanation or make a

be charged statement during the course of inspection, inquiry or
investigation.

Page 53
• An officer or other employee of a company or other body

corporate which is also under investigation.
Situations Where the persons mentioned above,

under which (a) destroys, mutilates or falsifies, or conceals or tampers or
persons will unauthorisedly removes, or is a party to the destruction,
be charged mutilation or falsification or concealment or tampering or
unauthorized removal of, documents relating to the property,
assets or affairs of the company or the body corporate;
(b) makes, or is a party to the making of, a false entry in any

document concerning the company or body corporate; or
(c) provides an explanation which is false or which he knows to be

false.
Punishment Such persons shall be punishable for fraud in the manner as

provided in section 447.
Important Question
Q. No. 27: Decide the liability of the person for commission of the act during
the course of inspection, inquiry or investigation under the
Companies Act, 2013:
(i) A person who is required to make statement during the course

of investigation pending against its company, is a party to the
manipulation of documents related to the transfer of securities
and naming of holders in the register of members by the
company.

Page 54
(ii) An employee of the company publicized among his social

networking of sound financial position of his organization in
order to incite them to purchase the shares of its company. In
actuality, the company was running in loss.
[RTP-May 19]
HINT: (i) Liability arises u/s 447 (ii) No liability arises on employee.
----------------------------

Page 55
Scanner of Past Exam Questions – New Syllabus
Attempt Q. Topic Suggested Answer Marks

No. / Hints*
May 18 2(a) Practical Illustration on Sec. 213 Refer Q. No. 12 7

& 214
Nov. 18 2(a) Theory Questions on Sections 210 Refer Q. No. 10 7

and 212
2(b) Practical Illustration on Sec. 222 Refer Q. No. 22 5
May 19# No Questions asked 0
Nov. 19# 2(a) Theory Questions on Sections Refer Q. No. 2 4

206(4)
May 20
Nov. 20
May 21
Nov. 21
*detailed answers are given in Scanner.

#From May 2019 exam, questions are covered only for Descriptive Part of Paper.

Page 56
Appendix 1
Companies (Arrests in connection with Investigation by Serious Fraud

Investigation Office) Rules, 2017
Rule 2 Arrest of Persons in case of company other than a Government

company or foreign company
(1) Where the Director, Additional Director or Assistant Director of

the SFIO, investigating into the affairs of a company other than a
Government company or foreign company has, on the basis of
material in his possession, reason to believe (the reason for such
belief to be recorded in writing) that any person has been guilty of
any offence punishable under section 212 of the Act, he may arrest
such person;
Provided that in case of an arrest being made by Additional
Director or Assistant Director, the prior written approval of the
Director SFIO shall be obtained.
(2) The Director SFIO shall be the competent authority for all
decisions pertaining to arrest.
Rule 3 Arrest of Persons in case of company other than a Government

company or foreign company
Where an arrest of a person is to be made in connection with a

Government company or a foreign company under investigation, such
arrest shall be made with prior written approval of the Central
Government.
Provided that the intimation of such arrest shall also be given to the
Managing Director or the person in-charge of the affairs of the

Page 57
Government Company and where the person arrested is the Managing

Director or person in-charge of the Government Company, to the
Secretary of the administrative ministry concerned, by the arresting
officer.
Rule 4 Signing and Service of Arrest Order
The Director, Additional Director or Assistant Director, while

exercising powers u/s 212(8), shall sign the arrest order together
with personal search memo in the Form appended to these rules and
shall serve it on the arrestee and obtain written acknowledgement of
service.
Rule 5 Forwarding of Copy of Arrest Order
The Director, Additional Director or Assistant Director shall forward a

copy of the arrest order along with the material in his possession and
all the other documents including personal search memo to the office
of Director, SFIO in a sealed envelope with a forwarding letter after
signing on each page of these documents, so as to reach the office of
the Director, SFIO within 24 hours through the quickest possible
means.
Rule 6 Maintenance of Arrest Register
An arrest register shall be maintained in the office of Director, SFIO

and the Director or any officer nominated by Director shall ensure
that entries with regard to particulars of the arrestee, date and time of
arrest and other relevant information pertaining to the arrest are
made in the arrest register in respect of all arrests made by the
arresting officers.

Page 58
Rule 7 Entry in Arrest Register
The entry regarding arrest of the person and information given to

such person shall be made in the arrest register immediately on
receipt of the documents as specified under rule 5 in the arrest
register maintained by the SFIO office.
Rule 8 Preservation of Arrest Register
The office of Director, SFIO shall preserve the copy of arrest order
together with supporting materials for a period of five years
(a) from the date of judgment or final order of the trial court, in cases
where the said judgment has not been impugned in the appellate
court; or
(b) from the date of disposal of the matter before the final appellate
court, in cases where the said judgment or final order has been
impugned, whichever is later
Rule 9 Applicability of provision of Cr.P.C
The provisions of the Code of Criminal Procedure, 1973, relating to

arrest shall be applied mutatis mutandis to every arrest made under
this Act.
-----------------------

Page 59

Chapter 4 Inspection Inquiry and Invetsigation

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Chapter 4 Inspection Inquiry and Invetsigation

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Chapter 4 Inspection, Inquiry and Investigation

Inspection, Inquiry and Investigation

Sec. 207 Conduct of inspection and Sec. 219 Power of inspector to

Sec. 208 Report on inspection made. Sec. 220 Seizure of documents by

Sec. 209 Search and seizure. Sec. 221 Freezing of assets of

Sec. 210 Investigation into affairs of Sec. 222 Imposition of restrictions

Sec. 211 Establishment of Serious Sec. 223 Inspector’s report.

Sec. 212 Investigation into affairs of Sec. 224 Actions to be taken in

Compiled by: Pankaj Garg

Sec. 213 Investigation into company’s Sec. 225 Expenses of investigation.

Sec. 216 Investigation of ownership of Sec. 228 Investigation, etc., of

*Related Rules are covered in Companies (Inspection, Investigation and Inquiry)

Power of the Circumstances Where

– Sec. 206(1) the Registrar is of the opinion that

Compiled by: Pankaj Garg

• any further information or

Power of Registrar may by a written notice require the

(a) to furnish in writing such information or

(b) to produce such documents,

within such reasonable time, as may be specified

• to produce the documents to the Registrar

within the time specified or extended by the Registrar.

Duty of past officers of the company – Proviso to Sec. 206(2)

Where such information or explanation relates to any past period,

Compiled by: Pankaj Garg

Notice for Circumstances (a) If no information or explanation is furnished

(c) If the Registrar is satisfied on a scrutiny of

However, before serving notice under this sub-

Power of The Registrar may by another written notice

Compiled by: Pankaj Garg

Inquiry by the If the Registrar is satisfied

the Registrar may by a written order, call on the company to

Before passing such an order, the Registrar has to inform the

(a) The C.G. may, if it is satisfied that the circumstances so

(b) If it is concluded that business of a company has been or is

Compiled by: Pankaj Garg

Inspection by • Without prejudice to the foregoing provisions of Section 206,

HINT: Mr. Left is liable to provide such information. Refer Section

Compiled by: Pankaj Garg

Q. No. 2: A group of shareholders of M/s. FMG Limited made a complaint to

Referring to and analyzing the provisions of the Companies Act,

(ii) If yes, state the procedure to be followed by the RoC.

4.2 - Conduct of Inspection and Inquiry (Sec. 207)

(c) to render all assistance to the Registrar or Inspector in

Compiled by: Pankaj Garg

Powers of the The Registrar or Inspector making an inspection or inquiry u/s

(2) place or cause to be placed any marks of identification in

Powers of The Registrar or Inspector making an inspection or inquiry shall

(2) summoning and enforcing the attendance of persons and

(3) inspection of any books, registers and other documents of

Compiled by: Pankaj Garg

• If a director or an officer of the company has been convicted of

4.3 - Report on inspection made (Sec. 208)

• such report may, if necessary, include a recommendation that

*Powers are delegated to regional Directors.

HINT: Refer Sec. 208.

Compiled by: Pankaj Garg

4.4 - Search and Seizure (Sec. 209)

Circumstances Where, upon information in his possession or otherwise, the

- Sec. 209(1) books and papers of

• relating to the key managerial personnel or any director or

are likely to be destroyed, mutilated, altered, falsified or secreted,

(1) enter, with such assistance as may be required, and search,