JAMIA MILLIA ISLAMIA

FACULTY OF LAW

CORPORATE LAW ASSIGNMENT

TOPIC- Powers, Duties and Rights of officers in the investigation of
affairs of companies

SUBMITTED TO:
Prof. Qazi Usman
SUBMITTED BY:
Md. Zeeshan Ali
B.A. LL.B. (Regular)
Roll No. - 38
IIInd Year/ VIth Semester
Batch -2018-2023
RESEARCH QUESTIONS:

1. What is the purpose of appointing Inspector by Central Government and

need to investigate?
2. What are the pre conditions for investigation?
3. When can an Investigation into the Affairs of the Company1?

INTRODUCTION:

Introduction In last few decades, there has been a radical shift in the
perception towards business generally and incorporated enterprises
specifically. In National Textile Worker’s Union case, the Supreme Court of
India observed that the company is now no longer a mere profit-making
enterprise, but it has assumed the role of a ‘Social Institution’ to discharge its
social responsibilities for accomplishing the socio-economic objectives of a
welfare State as enshrined in Part IV of the Constitution of India relating to the
Directive Principles of State Policy. To keep an effective control and check
over the functioning of the companies, the To make students understand the
procedure of investigation as prescribed in the Companies Act 2013 To
appraise the students of the need and importance of investigation of the
Companies The main objective of the module is to provide preliminary
knowledge about the investigation of the companies to the students Companies
Act, 2013 provides for administrative machinery as well as the procedure for
inspection, inquiry and investigation of companies. Chapter XIV (Ss.206 to
229) of the Act provides for the inspection, inquiry and investigation of the
companies. The Act imposes a duty upon the directors and officers of any
company to produce books and papers and information demanded by the
Registrar. Disobedience on the part of the directors makes them liable for
imprisonment as well as fine. The Registrar or inspector may order for search
and seizure of books and papers if they have reasonable grounds to believe so.
The Central Government is authorized to issue order for such investigation.
The Act provides for establishment of Serious Fraud Investigation Office

1
Section 210 of CA 2013
(SFIO) to investigate frauds relating to companies. 18.2 Need for Investigation
of Companies Since the shareholders themselves are unable to supervise and
ensure efficient functioning of the companies, the organized supervision by
government agencies assumes significant role. Its only efficient and smooth
functioning of the corporate that can ensure an adequate return on capital
invested by the shareholders. In Barium Chemicals Ltd., the SC observed:
“The elementary philosophy of the Companies Act is to trust the shareholders
for ensuring efficient performance. But for reasons more than one, the
shareholder has already receded to the background. Firstly, he is an investor
who, for the most part does not wish to be bothered except by dividends.
Secondly, due to great diffusion of stock, shareholders become indifferent to
voting and controlling. Thirdly, the shareholders are ill-equipped to challenge
the wisdom and expertise of officers. Fourthly, few shareholders have the
means or ability to act against management.” As per Freund, “The reality of
control can only be found in the action of public opinion and in the organized
supervision exercised by government agencies. Hence, the importance of
investigation.” Thus, the provisions for investigation help prevent corporate
abuses, as well as wrongs and ensure efficient functioning of the corporate
managements.
 The powers and duties and functions of an inspector appointed by
the Central Government to investigate into the affairs of a company.

Power of the Registrar to inspect books, paper, documents, etc. 

(i) Grounds for conduct of inquiry
On the basis of the information available or furnished or representations made by any
person, the Registrar is satisfied that:
(a) the business of the company is being carried on for a fraudulent or unlawful
purpose, or not in compliance with the provisions of this Act; or
(b) Investor’s grievances are not being addressed,
the Registrar may after informing the company of the allegations made against it,
require through a written order to furnish in writing any information or explanation
within the specified time. Thereupon, the Registrar may conduct such inquiry as he
deems fit after giving the company a reasonable opportunity of being heard.
(ii) Central Government’s powers to direct the Registrar or an Inspector to
conduct inquiry
If the Central Government is satisfied that the circumstances so warrant, it may direct
the Registrar, or an Inspector appointed for the purpose to conduct an inquiry under
this sub-section.
(iii) Liability of Officers for fraud
Where the 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 provided in Section 447.

The Companies Act, 2013 have dealt in detail all the provisions related to the
inspection, inquiry and investigation by an inspector or registrar or Serious Fraud
Investigating Officer appointed by the Central government under Chapter XIV from
section 206 to 229. The need for this chapter arises due to fraudulent activity,
corporate fraud, and abuse of high corporate positions for personal benefit in the name
of company. These acts / omission then need to be investigated and for purpose of
which inspector is required to be appointed by the central government by exercising
its power to investigate into the affairs of a company.

What is the purpose of appointing Inspector by Central Government and need to

investigate?
The affairs of the companies are managed to all extend by its Board of directors to the
exclusion of majority of shareholders as they are ill equipped to exercise effective
control over the affairs of companies and are sleeping and passive partners. This
situation leads to abuse of power by persons or key personal manger or managing
director, employees, agent in control of the affairs of company. Thus, due to such
reason that let central government to believe or form opinion that the business of the
company was being conducted with intent to defraud creditors or fraudulent or
unlawful purpose or to cause harmful loss, then this act need to be investigated and
for such purpose inspector is appointed by central government to investigate into the
affairs of the company.2

What are the pre conditions for investigation?

Before Central Government order an investigation into the affairs of the company, a
report by the registrar is submitted under section 206. That registrar in normal course
of business, when upon scrutiny of any documents filed by a company in compliance
of the mandatory provision of filing of Audit etc. is not satisfied and require any other
document or explanation will send a written notice requiring the company to provide
them in reasonable time. If registrar from the information, documents is of the opinion
that business of the company is carried on for a fraudulent or unlawful purpose make
an inquiry into the matter in the manner as specified under section 207. That based
upon the inquiry then will prepare and submit a report to the central government.

When can an Investigation into the Affairs of the Company3?

Central Government can exercise its power to order for investigation into the affairs
of a Company on the basis of opinion:
a. On basis of the report of the Registrar or inspector under section 208;
b. Upon a special resolution passed by a company that the affairs of the company
2
https://www.icsi.edu/portals/0/INSPECTION,%20INQUIRY%20AND%20INVESTIGATION.pdf
3
Section 210 of CA 2013
 need to be investigated; or

c. In public interest,

d. Where an order is passed by a court or the Tribunal 4 in any proceedings before

it that the affairs of a company ought to be investigated5

Investigation by Whom –

By Establishment of Serious Fraud Investigation Office6

Section 211 of Companies Act, 2013 has provided to constitute / establish Serious
Fraud Investigation office to be set up by the central government to investigate into
matters relating to fraud in the company with the power to arrest. That under section
210 central government may refer any matter for investigation into affairs of the
company to the inspector or SFIO and if any case has been assigned, then no other
investigating agency of central or state government shall proceed with their respective
investigation till SFIO has completed. SFIO have power to arrest in respect of certain
offences, which are punishable for fraud provided in section 447. That the person so
arrested by SFIO in exercise of its power has to be taken to a Judicial Magistrate or
Metropolitan Magistrate, as the case may be, having jurisdiction within 24 hours.

Order by Central Government: On completion of the investigation, SFIO will submit

the investigation report to the Central Government, who on its receipt may, direct the
SFIO to initiate prosecution against the company and its officers or employees. That
the investigation report of the SFIO filed with the special court for framing of charges
shall be treated as a report filed by a Police Officer under the CrPC.

Sharing of information by Government Agencies - Where SFIO has been

investigating any offence, any other investigating agency, having any information or
documents in respect of such offence shall provide all such information or documents
available with it to the SFIO. Similarly, SFIO shall also share such information with
4
And where such an order is passed, the Central Government shall 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
5
Section 210 (2) of CA 2013
6
Section 211 of CA 2013
 any investigating agency.

Power of Inspectors appointed by central government as per Section 210

While appointing an inspector, the Central Government has provided powers to the
inspector to assist in the investigation of the company and for this has define the
scope of the investigation in respects to matters or the period to which it may extend7.
That as per the terms of appointment of an inspector, his powers will extend to the
investigation of any circumstances and which is relevant for the purposes of his
investigation8.
General Powers, Procedures of Inspectors etc. (Chapter XIV)
1. Power to make copies: Inspector can make or cause to be made copies of books of
account and other books and papers9.
2. Power to place marks of identification : Inspector can place or cause to be placed any
marks of identification in the books and papers of the company for assisting in his
investigation10.
3. Duty to Cooperate: That all the officers and employees including the former one’s of
a company under investigation have to cooperate the inspector or Registrar in charge
of investigation to do following -:
(a) To produce all books and papers of the company under investigation to an
inspector or person authorized by him and to do produce any other documents asked
by inspector.
(b) To provide all assistance to the inspector in regard to the investigation.
And
The inspector require any company to furnish such information or the production of
such books and papers as is relevant or necessary for the purposes of his
investigation11.
4. Power of a Civil Court12: The inspector shall have all the powers as are vested in a
Civil Court under the Code of Civil Procedure, 1908 who is being an officer of the

7
Section 216(3) of the CA 2013
8
Section 216(4) of the CA 2013
9
Section 207(2)(a) of CA 2013
10
Section 207(2)(b) of CA 2013
11
Section 217(2) of CA 2013
12
Section 217(5) of CA 2013
 Central Government. That inspector will exercise such power while trying a suit in
respect of the following matters, namely13: —
a) the discovery and production of books of account and other documents, at such
place and time as may be specified by such Registrar or inspector making the
inspection or inquiry;
b) to summon 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.
Further, an inspector may examine on oath14 any person with the prior approval of the
Central Government15 in relation to the affairs of the company and for that purpose
may require any person to appear before him personally16.
5. Retention of Record17: The inspector cannot / will not keep in his custody any books
and papers produced for more than one hundred and eighty days and return the same
to the company, body corporate, firm or individual by whom or on whose behalf the
books and papers were produced18.
6. Search and Seizure19: When the inspector or Registrar has reasonable ground to
believe that books and papers of a company, or relating to the key managerial
personal or director etc. are likely to be destroyed, altered, he may after obtaining an
order from the Special court for the seizure of such books by search the place where
such books and papers are kept and then seize them as he considers necessary after
allowing the companies to take copies20.
7. Power of inspector to conduct investigation into affairs of related companies, etc. 21:
That an inspector appointed by the central government to investigate into the affairs
of the company can investigate into the affairs of the company’s subsidiary company
or any other company managed by the managing director or an manager of the
13
Section 207
14
Section 217(4) of CA 2013
15
Provided that in case of an investigation under section 212, the prior approval of Director, Serious Fraud Investigation
Office shall be sufficient under clause (b).
16
The notes of any examination under this section shall be taken down in writing and shall be read over to, or by, and
signed by, the person examined, and may thereafter be used in evidence against him .
17
Section 217(3) of CA 2013
18
Provided that the books and papers may be called for by the inspector if they are needed again for a further period of
one hundred and eighty days by an order in writing.
19
Section 220 of Companies Act 2013
20
Section 220(1) of Companies Act 2013
21
Section 219 of CA 2013
 company or any person who has been the officer or employee of the company under
investigation, if inspector considers it necessary for the purpose of the investigation.
That inspector can investigate into all of them only to the extent of relevancy to the
investigation of the affairs of the company for which he is appointed with the prior
approval of the Central Government.
Duty of Inspector –
1. That it is the duty of inspector to not keep in his custody any books and papers
produced for more than one hundred and eighty days and return the same to the
company on whose behalf they were produced. That the books and papers may be
called back by the inspector if they are needed again for a further period of one
hundred and eighty days by an order in writing.22
2. That while examining on oath of any person in relation to the affairs of the company
or any other person, inspector has to take notes of such examination in writing. That
such note in writing has to be gets signed by the person examining which will be used
against the person in evidence23.
3. Inspector’s Report24 (different than the report of SFIO under section 212)
Interim and Final Report - That upon directions given by the Central Government, an
inspector is required to submit interim reports and on completion of the investigation,
has to submit a final report which can be in writing or printed as the central
government directs.

How is an investigation conducted?

Who can order the investigation?

 Suo-Motu action by the Central Government

 Order by the NCLT

 Complaint by members

22
Section 217(3) of the Companies Act 2013
23
Section 217(7) of the Companies Act 2013
24
Section 223of the Companies Act 2013
Who conducts the investigation?

The investigation will be conducted by an Inspector appointed by the Central

Government. The scope and the period of investigation also will be determined by the
Central Government.

Powers of the Inspector

To conduct the investigation, a wide range of powers have been vested in the
Inspector; they are:

 The power to summon the officers, employees (including former officers

and employees of the company) and other persons in relation to the
company as they deem necessary. [Sec. 217(1)]

 Require the body corporate to furnish information and produce such books
and papers deemed necessary. [Sec. 217(1)(a)]

 Require any other body corporate to furnish information and produce such
books and papers deemed necessary. [Sec. 217(1)(a)]

 Subject to the terms of appointment, the inspector may also investigate any
circumstances suggesting the existence of any arrangement or
understanding which, though not legally binding, is or was observed or is
likely to be observed in practice. [Sec. 216(4)]

 Seizure of documents if he has reasonable cause to believe that the

documents can be mutilated or destroyed. [Sec. 220(1)]

 Keep seized documents in his/ her custody. [Sec. 220(2)]

 In addition to the above, the investigator is also vested with the powers of a
civil court under the Code of Civil Procedure, 1908, with regard to the
discovery of books and documents, summoning and enforcing the
 attendance of persons on oath and inspection of any books, records and
other documents at any place. [Sec. 217(5)]
Submission of Report by the Inspector [Sec. 223]

Powers of the NCLT

 The Tribunal may, either on a reference by the Central Government or on a

complaint made under Sec. 244 or complaint by a creditor having Rs. 1
lakh outstanding against the company or deems it necessary, freeze the
assets of the company for a period of 3 years. [Sec. 221(1)]

 The Tribunal may, either on a complaint or Suo-motu in connection with

an ongoing investigation, impose restrictions on the transfer etc. of
securities. [Sec. 222(1)]
Action by Central Government upon receipt of the Report 

 Prosecute the officers and/ or employees if they are held guilty of offences
that are criminal in nature.

 Order for winding up of the company.

 Recover damages in respect of any fraud, misfeasance or other misconduct

in connection with the promotion or formation, or the management of the
affairs.

 Recover property which has been misapplied or wrongfully retained.

Other provisions 

Penal provisions

The Act imposes penalties in case of violation of the orders of the inspector and the
Tribunal. The following penalties may be levied:
  Disobedience of the direction of the Inspector or Registrar attracts
imprisonment of upto 1 year and fine of Rs. 25,000/- extendable upto Rs. 1
lakh or both on the directors and officers of the company. [Sec. 217(6)(i)]

 Disqualification and vacation of office of the directors. [Sec. 217(6)(ii)]

 Non-furnishing of information, non-production of documents, non-

appearance before the inspector etc. attracts imprisonment of upto 6
months and fine of Rs. 25,000/- extendable upto Rs. 2,000/- for every day
of default. [Sec. 217(8)]

 Transfer of assets that are frozen by the NCLT attracts a fine of Rs. 1 lakh
extendable to Rs. 25 lakhs on the company and imprisonment of upto 6
months and a fine of             Rs. 25,000/- extendable upto Rs. 5 lakhs or
both on the officers. [Sec. 221(2)]

 Transfer of securities in contravention of the order of the NCLT attracts a

fine of              Rs. 1 lakh extendable to Rs. 25 lakhs on the company and
imprisonment of upto 6 months and a fine of Rs. 25,000/- extendable upto
Rs. 5 lakhs or both on the officers. [Sec. 222(2)]

 Certain acts like destruction, mutilation, falsification of documents,

provision of false information etc. also attract criminal charges under Sec.
447. [Sec. 229]

Miscellaneous 

 The expenses of investigation may be recovered by the Central

Government from the convicts. [Sec. 225]

 The Act extends protection to employees, bankers and legal advisers during
the course of investigation. [Sec. 218, 227]

 All provisions under the Chapter apply to foreign companies also. [Sec.
228] 
 Conclusion

Corporate structures are often used to perpetrate illegal and fraudulent

activities. These activities impact the other members, creditors, depositors
and the financial system in general. It is with the intent to nail such
persons hiding behind the corporate veil that the Companies Act 2013
includes provisions on the investigation of ownership of companies. The
law also provides wide powers to the inspector to perform their duties.
These provisions are, thus, very critical towards building an environment
of good corporate governance.