Discuss the powers and duties and functions of an inspector appointed by the

Central Government to investigate into the affairs of a company.

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.1

What are the pre conditions for investigation?

1
https://www.icsi.edu/portals/0/INSPECTION,%20INQUIRY%20AND%20INVESTIGATION.pdf
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 Company 2?

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

need to be investigated; or

c. In public interest,

d. Where an order is passed by a court or the Tribunal 3 in any proceedings before it

that the affairs of a company ought to be investigated4

Investigation by Whom –

By Establishment of Serious Fraud Investigation Office5

Section 211 of Companies Act, 2013 has provided to constitute / establish Serious Fraud

2
Section 210 of CA 2013
3
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
4
Section 210 (2) of CA 2013
5
Section 211 of CA 2013
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 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 extend 6.

6
Section 216(3) of the CA 2013
 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

investigation7.

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 papers8.

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

investigation9.

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 investigation 10.

4. Power of a Civil Court 11: 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 Central

Government. That inspector will exercise such power while trying a suit in respect of the

following matters, namely12: —

7
Section 216(4) of the CA 2013
8
Section 207(2)(a) of CA 2013
9
Section 207(2)(b) of CA 2013
10
Section 217(2) of CA 2013
11
Section 217(5) of CA 2013
12
Section 207
 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 oath 13 any person with the prior approval of the

Central Government14 in relation to the affairs of the company and for that purpose may

require any person to appear before him personally15.

5. Retention of Record16: 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 produced17.

6. Search and Seizure18: 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 copies19.

7. Power of inspector to conduct investigation into affairs of related companies, etc. 20: That

an inspector appointed by the central government to investigate into the affairs of the

13
Section 217(4) of CA 2013
14
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).
15
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 .
16
Section 217(3) of CA 2013
17
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.
18
Section 220 of Companies Act 2013
19
Section 220(1) of Companies Act 2013
20
Section 219 of CA 2013
 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 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.21

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 evidence22.

3. Inspector’s Report23 (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.

21
Section 217(3) of the Companies Act 2013
22
Section 217(7) of the Companies Act 2013
23
Section 223of the Companies Act 2013