4 Inquiry/Inspection &

Investigation

Inspection/Inquiry/Investigation

4.1. Sec 206→Inquiry/Inspection

Inquiry Inspection

Soliciting information from any person Collection information through documents

(1) Where on a scrutiny of any document filed by a company or on any information received by him, the
Registrar is of the opinion that any further information or explanation or any further documents relating to th e
company is necessary, he may by a written notice require the 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.

(2) On the receipt of a notice under sub-section (1), it shall be the duty of the company and of its officers
concerned to furnish such information or explanation to the best of their knowledge and power and to produce
the documents to the Registrar within the time specified or extended by the Registrar:
Provided that 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.

(3) If no information or explanation is furnished to the Registrar within the time specified u n der su b -sect ion
(1) or if the Registrar on an examination of the documents furnished is of the opinion that the in form at ion or
explanation furnished is inadequate or if the Registrar is satisfied on a scrutiny of the documents furnished
that an unsatisfactory state of affairs exists in the company and does not disclose a full and fair st at em en t of
the information required, he may, by another written notice, call on th e 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:
Provided that before any notice is served under this sub-section, the Registrar shall record his reasons in
writing for issuing such notice.

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(4) Inquiry by the Registrar [Section 206 (4)]:
If the Registrar is satisfied on the basis of information available with or furnished to him or on a
representation made to him by any person that the business of a company is being carried on for a frau du len t
or unlawful purpose or not in compliance with the provisions of this Act or if the grievances of in vest ors are
not being addressed, the Registrar may, after informing the company of th e allegations made against it 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:

Provided that the Central Government 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 under this sub-section:

Provided further that where 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.

(5) CG may direct inspection of books by an inspector appointed by it

(6) The Central Government may, having regard to the circumstances by general or special order, authorize
any statutory authority to carry out the inspection of books of account of a company or class of companies.

(7) If a company fails to furnish any information or explanation or produce any document required under t h is
section, the company and every officer of the company, who is in default shall be punishable with a fine
which may extend to one lakh rupees and in the case of a continuing failure, with an additional fine which
may extend to five hundred rupees for every day after the first during which the failure continues.

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Check Your Concepts

Quest-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.

Solution

Quest-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 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?

Solution

4.2. Sec 207 - Conduct of Inspection & inquiry

(1) Duty of director, officer or employee [Sub-Section (1)]: Where a Registrar or inspector calls for the
books of account and other books and papers under section 206, it shall be the duty of every dire ct or, officer
or other employee of the company:
(a) to produce all such documents to the Registrar or inspector; and
(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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(2) Powers of the Registrar or inspector
(a) The Registrar or inspector making an inspection or inquiry under section 206 may, during the course of
such inspection or inquiry, as the case may be, —
(1) make or cause to be made copies of books of account and 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.
(3) Registrar or inspector making an inspection or inquiry 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:
—
(1) the discovery and production of books of account and other documents
(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.

(4) (i) If any director or officer of the company disobeys the direction issued by the Registrar or the in spect or
under this section, the director or the officer shall be punishable with imprisonment which may ext en d t o
one year and with fine which shall not be less than twenty-five thousand rupees but which may ext en d t o
one lakh rupees.
(ii) If a director or an officer of the company has been convicted of an offence under this section, the direct or
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.

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4.3. Sec 208 - Report on Inspection

ROC/ inspector shall

After inspection/ inquiry (u/s 206, 207)

Report to CG along with necessary document

Such report may include a recommendation that further investigation into the affairs of the company is
necessary giving his reasons in support.

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4.4. Sec 209 - [Search & Seizure]

(1) Where, upon information in his possession or otherwise, the Registrar or inspector has reasonable grou n d
to believe that the books and papers of a company, or relating to the key managerial personnel or any direct or
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,—
(a) enter, with such assistance as may be required, and search, the place or places where such books or
papers are kept; and
(b) 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.

(2) The Registrar or inspector shall return the books and papers seized under subsection (1), as soon as may
be, and in any case not later than one hundred and eightieth day after such seizure, to the company from
whose custody or power such books or papers were seized:
Provided that the books and papers may be called for by the Registrar or inspector for a further period of one
hundred and eighty days by an order in writing if they are needed again:
Provided further that 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.

(3) The provisions of the Code of Criminal Procedure, 1973 relating to searches or seizures shall apply,
mutatis mutandis, to every search and seizure made under this section.

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Check Your Concepts

Quest-3 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 10 A.M. on 1st July 2015 and the ROC entered the premises at 10.30 A.M. for the
search. Examine the powers of the Registrar to seize the books of the company

Solution

Quest-4 A group of creditors of MBIND Bronze Limited makes a complaint to the Registrar of
Companies, Himachal Pradesh 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 am on 6 January, 2018 and the registrar has attempted to enter the premise of
the company but has been denied by the company, due to not having order from the special
court.

Solution

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4.5. Sec 210- Investigation into affairs of co.

(1) Where the Central Government is of the opinion, that it is necessary to investigate into the affairs of a
company,—
(a) on the receipt of a report of the Registrar or inspector under section 208;
(b) on intimation of a special resolution passed by a company that the affairs of the company ought t o be
investigated; or
(c) in public interest, it may order an investigation into the affairs of the company.
2. Where an order is passed by a court or the Tribunal in any proceedings before it that the affairs of a
company ought to be investigated, the Central Government shall order an investigation into the affairs of t h at
company
3. For the purposes of this section, the Central Government may appoint one or more persons as inspect ors t o
investigate into the affairs of the company and to report thereon in such manner as th e Cen t ral Govern m en t
may direct.

Space for Analysis

Check Your Concepts

Quest-5 A majority of the Board of directors of M/s High Value Infotech Ltd. have realised that some of
the business activities carried out in the name of the company are not in the interest of either
the company or 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

Solution

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Quest-6 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.

Solution

4.5A. Sec 211- Establishment of Serious Fraud Investigation Office (Section

211)
(1) Setting up of Serious Fraud Investigation Office (SFIO) [Section 211 (1)]: The Central Government
shall, by notification, establish an office to be called the Serious Fraud Investigation Office to investigate
frauds relating to a company.
(2) Composition of SFIO [Section 211 (2)]: The SFIO shall be:
(a) Headed by a Director, and
(b) Consist of such number of experts from the following fields to be appointed by the Central
Government 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

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(8) such other fields as may be prescribed.
(3) The Central Government shall, by notification, appoint a Director in the SFIO, who shall be an officer n ot
below the rank of a Joint Secretary to the Government of India having knowledge and experience in dealing
with matters relating to corporate affairs [Section 211(3)].
(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 [Section 211(4)].
According to 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 disch arge
of Serious Fraud Investigation Office (SFIO) functions under the Act.
(5) Terms and conditions of service: The terms and conditions of service of Director, experts, and other
officers and employees of the SFIO shall be such as may be prescribed [Section 211(5)].

4.6. Sec 212 - Investigation into affairs of Co. by S.F.I.O

(1) Without prejudice to the provisions of section 210, where the Central Government is of the opinion, that it
is necessary to investigate into the affairs of a company by the Serious Fraud Investigation Office—

(a) on receipt of a report of the Registrar or inspector under section 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,

the Central Government may, by order, assign the investigation into the affairs of the said company to the
Serious Fraud Investigation Office and its Director, may designate such number of inspectors, as he may
consider necessary for the purpose of such investigation.

(2) Where any case has been assigned by the Central Government to the Serious Fraud Investigation Office
for investigation under this Act, no other investigating agency of Central Government or any State
Government shall proceed with investigation in such case in respect of any offence under this Act and in case
any such investigation has already been initiated, it shall not be proceeded further

(3) Where the investigation into the affairs of a company has been assigned by the Central Government to
Serious Fraud Investigation Office, it shall conduct the investigation in the manner and follow t h e procedu re
provided in this Chapter; and submit its report to the Central Government within such period as may be
specified in the order.

(4) The Director, Serious Fraud Investigation Office 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.

(5) The company and its officers and employees, who are or have been in employment of the company shall
be responsible to provide all information, explanation, documents and assistance to the Investigating Officer
as he may require for conduct of the investigation.

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(6) Notwithstanding anything contained in the Code of Criminal Procedure, 1973, offence covered under
section 447 of this Act shall be cognizable and no person accused of any offence under those sections sh all be
released on bail or on his own bond unless—

(i) the Public Prosecutor has been given an opportunity to oppose the application for such release; and

(ii) 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:

Provided that a person, who, is under the age of sixteen years or is a woman or is sick or infirm, may be
released on bail, if the Special Court so directs:

Provided further that the Special Court shall not take cognizance of any offence referred to this sub-section
except upon a complaint in writing made by—
(i)the Director, Serious Fraud Investigation Office; or

(ii) any officer of the Central Government authorised, by a general or special order in writing in this behalf by
that Government.

(7) The limitation on granting of bail specified in sub-section (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.

(8) If any officer not below the rank of Assistant Director of Serious Fraud Investigation Office au t h orised in
this behalf by the Central Government by general or special order, 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 sections referred to in sub-section (6), he may arrest such person and
shall, as soon as may be, inform him of the grounds for such arrest.

(9) The officer authorised under sub-section (8) shall, immediately after arrest of such person under su ch su b-
section, forward a copy of the order, along with the material in his possession, referred to in that su b-sect ion ,
to the Serious Fraud Investigation Office in a sealed envelope, in such manner as may be prescribed and the
Serious Fraud Investigation Office shall keep such order and material for such period as may be prescribed.

(10) Every person arrested under sub-section (8) shall within twenty-four hours, be taken to a Special Court or
Judicial Magistrate or a Metropolitan Magistrate, as the case may be, having jurisdiction:

Provided that the period of twenty-four hours shall exclude the time necessary for the journey from t h e place
of arrest to the Special Court or Magistrate’s court.

(11) The Central Government if so directs, the Serious Fraud Investigation Office shall submit an interim
report to the Central Government.

(12) On completion of the investigation, the Serious Fraud Investigation Office shall submit the invest igat ion
report to the Central Government.

(13) Notwithstanding anything contained in this Act or in any other law for the time being in force, a copy of
the investigation report may be obtained by any person concerned by making an application in this regard to
the court.

(14) On receipt of the investigation report, the Central Government may, after examination of t h e report (an d
after taking such legal advice, as it may think fit), direct the Serious Fraud Investigation Office to initiate
prosecution against the company and its officers or employees, who are or have been in employm ent of the
company or any other person directly or indirectly connected with the affairs of the company.

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(14A) Where the report states that fraud has taken place in a company and due to such fraud any direct or, key
managerial personnel, other officer of the company or any other person or entity, has taken u n du e advan t age
or benefit, whether in the form of any asset, property or cash or in any other manner, the Central Govern m en t
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

(15) Notwithstanding anything contained in this Act or in any other law for the time being in force, the
investigation report filed with the Special Court for framing of charges shall be deemed to be a report filed by
a police officer under section 173 of the Code of Criminal Procedure, 1973.

(16) Notwithstanding anything contained in this Act, any investigation or other action taken or initiated by
Serious Fraud Investigation Office 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.

(17) (a) In case Serious Fraud Investigation Office 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 Serious Fraud Investigation Office;

(b) The Serious Fraud Investigation Office shall share any information or documents available with it, with
any investigating agency, State Government, police authority or incometax 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.

Analysis

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Check Your Concepts

Quest-7 Central Government on receipt of a report of the Registrar, assigned SFIO to investigate into
the affairs of the XYZ, a government company. On the basis of the material in his possession, it
was found that Mr. Saheb, Managing director of the company, was guilty for conduct of its
business for unlawful purpose. SFIO arrested the Managing director of the Company.
Determine as to the validity of the conduct of the act of the SFIO on the arrest of Mr. Saheb, in
connection with the investigation in the light of the Companies Act, 2013.

Solution

4.7. Section 213 - Investigation into affairs of company

Tribunal may

1. On application by
At least 100 members; or 1/5th of members

Having 1/10th of total voting power company’s having no share capital

in case of Company’s having share capital

Along with necessary evidence

Or
2. On application by other person (creditors) suggesting that

Buss of co. conducted Person concerned in formation inadequate

Or management information
to members
To Defraud creditors/member
Guilty of fraud, misfeasance including calculation of
Managerial Remuneration
➢ Issue direction to CG to investigate

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➢ the Central Government shall appoint one or more competent persons as inspectors to investigate int o
the affairs of the company in respect of such matters and to report thereupon to it in su ch m an n er as
the Central Government may direct
➢ Where upon investigation it is proved that
Buss of co. conducted to Defraud creditors/ member
Person concerned in formation or management is guilty of fraud, misfeasance
➢ All concerned shall be punishable with fraud u/s 447

Upon direction of Tribunal u/s 213

CG to order investigation either

U/s 210 u/s 216

Or
Investigation into affairs of company Investigation into ownership of
company

4.8. Section 214 - Security for payment of costs and expenses of investigation
• Where an investigation is ordered by the Central Government u/s 210, or 213
• the Central Government may, before appointing an inspector
• under section 210 or section 213,

• require the applicant to give such security not exceeding twenty-five thousand rupees

• for payment of the costs and expenses of the investigation and

• such security shall be refunded to the applicant if the investigation results in prosecution

4.9. Section 215- Firm, body corporate or association not to be appointed as

inspector
No firm, body corporate or association shall be appointed as an inspector

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4.10. SEC 216 - Investigation of ownership of Co.

1. Where it appears to the Central Government that there is a reason so to do, it may appoint one or
more inspectors to investigate and report on matters relating to the company, and its membership
for the purpose of determining the true persons—

Who have have been able to materially who have or had

financial to control the influence the beneficial interest in
interest in policy of Co or policy of the shares of a company or
success/failure? company who are or have been
beneficial owners or
significant beneficial
owner of a company?

2. CG shall appoint inspector if direction by Tribunal u/s 213

Regarding investigation with regard to membership of Co.

3. CG may define scope of investigation

Tenure Matters to be covered Any other matter

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4. Subject to the terms of appointment of an inspector, his powers shall extend to the investigation of
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 and which is relevan t
for the purposes of his investigation.

Analysis

Check Your Concepts

Quest-8 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.

Solution

Quest-9 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 rupee. 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?

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Solution

4.11. Section 218: - Protection of employees during investigation

❖ During investigation of affairs of Co./ other Body corporate or any person U/S 210/212/213 or Sec
219 or any member U/S 216
: - Any such Co./Body corporate / person, proposed

To discharge or suspend Punish him by way of Change terms of his

dismissal/removal employment
Any employee
To his disadvantage

the company, other body corporate or person, as the case may be, shall obtain approval of the Tribunal of t h e
action proposed against the employee and 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.

(2) If the company, other body corporate or person concerned does not receive within thirty days of making
of application under sub-section (1), the approval of the Tribunal, then and only then, the company, other
body corporate or person concerned may proceed to take against the employee, the action proposed.

(3) If the company, other body corporate or person concerned is dissatisfied with the objection raised by the
Tribunal, it may, within a period of thirty days of the receipt of the notice of the objection, prefer an appeal t o
the Appellate Tribunal in such manner and on payment of such fees as may be prescribed.

(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.

Analysis

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Check Your Concepts

Quest-10 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 3rd January, 2017
for the proposed action. The Company on 15th February, 2017 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.

Solution

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Quest-11 Mr. Shram, 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 Mr.
Shram on the ground of investigation proceeding against him. ABC Ltd. filed the application
to tribunal for approval of termination. However, 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. Shram. Examine the given situations in the light of the stated facts as per the
Companies Act, 2013
1. Is the contention of company being valid in law?
2. What is remedy available to Mr. Shram?
3. What is remedy available to Mr. Shram, if reply of Tribunal has been received within 30
days of application?

Solution

Quest-12 Doomed Limited wanted to reduce the rank of Mr. happy (the Chief Operations Officer of the
company) during the pendency of investigation being conducted on the company on the
order of the Tribunal as per the provisions of the Act. Doomed Ltd. made an application to
Tribunal regarding the reduction of the rank of the Mr. happy on 2nd May, 2020 and received
objection of the Tribunal on 29th May, 2020. What course of action/ remedy is available to
Doomed Ltd. and to Mr. happy as per the provisions of the Companies Act, 2013?
Solution

4.12. Section 219: - Power of inspector to investigate in to affairs of related

companies
If an inspector appointed under section 210 or section 212 or section 213 to investigate into the affairs of a
company considers it necessary for the purposes of the investigation, to investigate also the affairs of—

(a) any other body corporate which is, or has at any relevant time been the company’s subsidiary com pan y or
holding company, or a subsidiary company of its holding company;

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(b) any other body corporate which is, or has at any relevant time been managed by any person as m an agin g
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 accust om ed
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,

he shall, subject to the prior approval of the Central Government, investigate into and report on th e affairs of
the other body corporate or 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.

Analysis

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4.13. Section 220: - Seizure of document by Inspector

❖ If during course of investigation
❖ Inspector has reasonable ground to believe that
❖ Book/paper relating to Co./MD/Manager or other Body. Corporate
❖ Likely to be destroyed/ altered/ mutilated

He may enter any Seize them after allowing copy to company

&
such place where Till completion of investigation
these books are kept
While returning such books, he may keep
copies as well

Comparison of 209 & 220

209 Similarity 220

❖ Search & seizure Search & seizure
❖ If books are expected to be destroyed/ altered Same

Difference

❖ On basis of information u/S 206 or 207 ❖ On basis of investigation U/S

210/212/213/219/216
❖ Max seizure =180days (+) 180days
❖ No such limit (i.e., seizure till completion
❖ Any such search shall be subject to prior of investigation)
approval of Special court
❖ Search only if books/papers relating to
❖ Search only if books/papers relating to Company/Managing
Company/KMP/Auditor/Secretary are Director/Manager/Other Body Corporate
likely to be destroyed are likely to be destroyed

Concept behind introduction of Sec 222 and Sec 221

Investigation

u/s 216 u/s 210 / 212/ 213

i.e. Investigation into ownership i.e. Investigation of state of affairs of company

During the course of Investigation, it was During the course of Investigation, it was anticipated

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anticipated by Investigator that by Investigator that

To avoid such investigation, any transfer of To avoid such investigation, any transfer of assets are
shares may take place expected so as to safeguard those involved in mis-
conduct into affairs

Investigator may impose restriction through tribunal on

Transfer of shares u/s 222 upto 3 years Transfer of assets u/s 221 upto 3 years

4.14. Sec 221 - [Freezing of assets]

Tribunal may upon

On Reference In connection with inquiry/ investigation complaint by complaint by

by central govt into affairs of company no. of member as creditors having
Prescribed u/s 244 having o/s of
1 lakh or more
In addition, complaint may also be lodged by any other person (including employee) having reasonable
ground to believe that →Removal/Disposal/Transfer of assets/funds is likely to take place, which may be
prejudicial for interest of co. / share holder / creditors/ public interest
➢ Tribunal may direct

No such transfer/ disposal/ removal up to 3year

➢ Any contravention

Company office in default

Up to 3yr or both
Minimum Max

100000 2500000 50,000 5, 00,000

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4.15. Section 222- Imposition of restrictions upon securities

(1) Where it appears to the Tribunal,
❖ in connection with any investigation under section 216 or
❖ on a complaint made by any person in this behalf,
that there is good reason to find out the relevant facts about any securities issued or to be issued by a
company and

• In opinion of Tribunal

• any such facts cannot be found out unless certain restrictions are imposed,
• 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 three years as may be specified in the order.

➢ Any contravention

Company office in default

Up to 6 months or both
Minimum Max

100000 2500000 25,000 5,00,000

Check Your Concepts

Quest-13 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 15.10.2017 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 15.08.2018, 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
20.08.2018 in order to fund the working capital requirements for its expansion project.
Referring to the provisions of the Companies Act, 2013, examine the following:

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(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?

Solution

4.16. Sec 223 – Inspectors Reports

Inspector's report

Interim Only if directed by CG Final

➢ A copy of the report made under sub-section (1) may be obtained by members, creditors or an y ot h er
person whose interest is likely to be affected] by making an application in this regard to the Central
Government.
➢ Report admissible in any legal proceeding as evidence if authenticated either

Common seal of Co.,if any, whose OR Certificate of officer

Affairs been investigated having its custody

Nothing in this section shall apply to the report referred to in section 212.

Analysis

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4.17. Sec 224 - Action on basis of report

(1) If on basis of report u/s 223

C.G. of opinion any person in relation to

Company Body Corporate another person

Whose affairs investigated u/s 219

➢ Guilty of any offence
➢ CG may prosecute such person for offence
➢ Duty of every officer/employee/body-corporate to support
(2) If any company or other body corporate is liable to be wound up under this Act or under the
Insolvency and Bankruptcy Code, 2016 and
it appears to the Central Government
from any such report made under section 223
that it is expedient so to do by reason of any such circumstances as are referred to in section 213,
the Central Government may, cause to be presented to the Tribunal by any person au t h orised by t h e
Central Government 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 under section 241; or
(c) both.

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Space for analysis

(3) If from any such report, it appears to the Central Government that proceedings in the public interest, t o
be brought by the company or any body corporate whose affairs have been investigated under this
Chapter—
(a) for the recovery of damages in respect of any fraud, misfeasance or other miscondu ct in connection
with the 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 Central Government may itself bring proceedings for winding up in the name of such company or body
corporate.
(4) The Central Government, shall be indemnified by such company or body corporate against any costs or
expenses incurred by it in, or in connection with, any proceedings
(5) Where the report made by an inspector state that fraud has taken place in a company and due to such fraud
any director, key managerial personnel, other officer of the company or any other person or entity, has taken
undue advantage or benefit
the Central 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, officer or other person liable personally

Space for analysis

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4.18. Sec 225 - Expenses of investigation

(1) The expenses of an investigation by an inspector appointed by the Central Government under this Chapt er
other than expenses of inspection under section 214 shall be incurred in the first instance by the Central
Government, but shall be reimbursed by the following 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, under section 224,
• to the extent that he may in the same proceedings be ordered to pay the said expenses as may be
specified by the court convicting such person
(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 under section 224, —
(i) any company, body corporate, managing director or manager dealt with by the report of the inspector;
and
(ii) the applicants for the investigation, where the inspector was appointed under section 213, to such
extent as the Central Government may direct.

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(2) Any amount for which a company or body corporate is liable shall be a first charge on the sums
or property mentioned in that clause.

Analysis

4.19. Section 226 - Voluntary winding up of company, etc., not to stop

investigation proceedings.
An investigation under this Chapter may be initiated and shall not be stopped or suspended by reason only of,
the fact that—

(a) An application has been (b) Company has passed a (c) Proceeding for the winding up
made under section 241 Special resolution for voluntary of the company is pending
winding up before the Tribunal
Where winding up order is passed by the Tribunal in clause (c)→the inspector shall inform the Tribunal
➔about the pendency of the investigation proceedings before him and the Tribunal shall pass such order as it
may deem fit:

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Provided further that nothing in the winding up order shall absolve any director or other employee of the
company from participating in the proceedings before the inspector or any liability as a result of the finding
by the inspector.

Check Your Concepts

Quest-14 Decent Marbles Limited 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

Solution

Quest-15 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. In this situation advise whether investigation may be initiated against the company
under the provision of the Companies Act, 2013. Further state whether application can be
made to Tribunal for Relief in the above affairs of the company once the investigation is
initiated against the company.

Solution

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4.20. Section 227- Legal Advisers and Bankers Not to Disclose Certain
Information

Tribunal

CG

ROC
No Disclosure to

Inspector

By

Legal Advisor Banker

Of any privileged communication Of Information in relation to affairs of any of its

customer
Except-Name & Address of his client

Check Your Concepts

Quest-16 Investigation proceeding under the provisions of the Companies Act, 2013 is being carried
out against Fishy Ltd. During the investigation, the Tribunal has a reasonable ground to
believe that a removal, transfer or disposal of funds, assets or properties of the Company is
likely to take place in a manner that would be prejudicial to the interests of the Company. In
this connection, the Tribunal requested the Company’s legal advisers and the Bankers
respectively to disclose and furnish a copy of the communication made by them to the
company. But they refused to disclose any information. Under the circumstances, the
Tribunal wishes to pass an order to:
(i) Freeze the assets of the Company.
(ii) Punish the Company for the contravention, if any of the order of Tribunal
(iii) Compel the legal advisers and the bankers to provide the required information.
In the light of the provisions of the Companies Act, 2013 analyses whether the Tribunal has
the power to do so in respect of the above situations.

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Solution

4.21 Sec 228-Provision of this chapter to apply on foreign Co. as well

4.22 Sec 229→Penalty for furnishing false statement/ Destruction of documents

Where any person, who is required to provide
➢ Explanation or Make statement

During course of Inspection/Inquiry/Investigation

(a) Destroy / removes / conceals / tampers
Or
Become party to such acts [D/R/C/T] of any document of property /Affairs of Co. or Body-
corporate
(b) Makes or become party to→ Any false entry in any document
(c) Make any false explanation
He shall be Punishable u/s 447

Check Your Concepts

Quest-17 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.
(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.

Solution

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Quest-18 A group of members of XYZ Ltd. made a complaint to the Registrar of Companies alleging
that the management of the Company is indulging in destruction and falsification of the
records of the Company. Decide the liability of the person for commission of the following
acts during the course of inspection, inquiry or investigation under the Companies Act,
2013:
(i) Mr. B 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 name of shareholders in the Register of Members of the Company.
(ii) Mr. N an employee of the Company posted in social media that the company was making
profits so as to influence probable investors, when on the contrary, the Company was
incurring losses.

Solution

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