INSPECTION, INQUIRY, INVESTIGATION

We will discuss one important but neglected aspect of inspection, inquiry and investigation in this blog post.

POWER TO CALL FOR INFORMATION, INSPECTION AND INQUIRIES (SECTION 206):

This is a long but very powerful section as it appear from its section – heading.

Information or explanation (Sub – section 1 and 2):

The Registrar by a written notice require a company to:

(a)  furnish in writing information or explanation (ok, no power to ask for oral information or explanation); or

(b) to produce documents,

within a given reasonable specified time.

The Registrar may ask such information:

(a)  on scrutiny of any document filed by the company, not by any other company; or

(b) on any information received by him.

It shall be a duty of the company and of its officers:

(a)  to furnish the information or explanation to the best of their knowledge and power; and

(b) to produce the documents

within the specified or extended time.

Now, the Section takes past employees in its scope. The proviso say where such information or explanation relates to any past period, the Registrar through a notice in writing require the officers who was employee that period to furnish such information or explanation to the best of their knowledge.

Inspection (Sub – section 3, 5 and 6):

In case of inadequate information or unsatisfactory explanation, the Registrar may by another written notice, call on the company to produce for his inspection such further books of accounts, books, papers and explanations as he may require at such place and at such time as specified in the notice. In this notice, the Registrar shall record his reason in writing for issuing the notice.

The Central Government may, on satisfaction that circumstance so warrant, direct inspection of books and papers of a company by an inspector.

The Central Government may 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.

Inquiry (Sub – section 4):

If, after all this exercise, the Registrar is satisfied on the basis of (i) information available with or (ii) furnished to him or (iii) on representation made to him; that the business of the company is being carried on (a) for a fraudulent purpose, (b) unlawful purpose or (c) not in compliance with the provision of this Act or (d) investors grievances not being addressed; the Registrar may after informing the company of the allegation made against it by a written order; call on the company in writing any information or explanation within specified time and carry out such inquiry as he deemed fit after giving the company a reasonable opportunity of being heard.

The Central Government may, on satisfaction that circumstance so warrant, direct the Registrar or Inspector to carry out the inquiry under this sub – section.

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.

Enforcement of this Section (Sub – section 7):

Inspection (Photo credit: Ruth Flickr)

If a company fails to furnish any information or explanation or produce any document required under this 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.

CONDUCT OF INSPECTION AND INQUIRY (SECTION 207):

Where a Registrar or inspector calls for the books of account or other books and papers, it shall be duty of every director, officer or other employee of the company to produce all these documents to the Registrar or inspector. It shall also be duty of these persons to furnish statements, information or explanation as the Registrar or inspector may require and shall render all assistance to the Registrar of inspector in connection with the inspection.

The Registrar or inspector making an inspection or inquiry may—

(a)  make or cause to be made copies of books of account or other books and papers; or

(b) place or cause to be placed any mark of identification on such books in token of the inspection having made.

The Registrar or inspection making an inspection or inquiry shall have all powers of 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;

(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.

Enforcement of this Section:

(a)  If any director or officer of the company disobeys the direction issued by the Registrar or the inspector under this section, the director or the officer shall be punishable with imprisonment which may extend to one year and with fine which shall not be less than twenty-five thousand rupees but which may extend to one lakh rupees.

(b) 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.

INSPECTION REPORT (SECTION 208):

The Registrar or inspector shall, after the inspection or an inquiry, submit a report in writing to the Central Government along with such documents, if any.  The report may include a recommendation that further investigation into the affairs of the company is necessary giving his reasons in support.

SEARCH AND SEIZURE (SECTION 209):

Carribean Sea (Aug. 26, 2006) – Search and Seizure  Photo credit: Wikipedia)

Where, upon information in his possession or otherwise, the Registrar or inspector has reasonable ground to believe that the 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,—

(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.

The Register or inspector shall return the books and papers within one hundred and eighty days after such seizure to the company from whose custody or power such books or papers were seized. These books and papers may be called for by the Registrar or inspector for a further period of one hundred and eighty days ay an order in writing if they are needed again.

Registrar or inspector may, before returning such books and papers, 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.

The provisions of the Code of Criminal Procedure, 1973 relating to searches or seizures shall apply, mutatis mutandis, to every search and seizure.

INVESTIGATION INTO AFFAIRS OF COMPANY (SECTION 210):

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;

(b) on intimation of a special resolution passed by a company that the affairs of the company ought to be investigated; or

(c) in public interest,

it may order an investigation into the affairs of the company.

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 that company.

INVESTIGATION INTO COMPANY’S AFFAIRS IN OTHER CASES (SECTION 213):

The Tribunal may order after giving a reasonable opportunity of being heard to the parties concerned that affairs of a company ought to be investigated and where such a order is passed, the Central Government shall appoint one or more competent persons as inspectors to investigate into the affairs of the company and to report thereupon.

The tribunal may make this order on an application made by –

(a)  not less one hundred members or members holding not less than one – tenth of the total voting power, in case of a company having a share capital; or

(b) not less than one – fifth of the persons on the company’s register of members, in case company having no share capital

and supported by evidence showing good reason for seeking and order for conducting and investigation into affairs of the company.

The Tribunal may also make such order on an application made to it by any other person or otherwise, if it is satisfied that the circumstance suggest that –

(a)  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;

(b) person concerned in the formation of the company or the management of its affairs have been guilty of fraud, misfeasance or other misconduct towards the company or towards its members; or

(c)  the members of the company have not been given all reasonable information including information relating to the calculation of commission payable to a managing or other director or the manager of the company.

If after investigation it is proved that—

(a)  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

(b) 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.

SECURITY FOR PAYMENT OF COST AND EXPENSES OF INVESTIGATION (SECTION 214):

Investigation (Photo credit: Wikipedia)

Where an investigation is ordered by the Central Government in pursuance of clause (b) of sub-section (1) of section 210, or in pursuance of an order made by the Tribunal under section 213, the Central Government may before appointing an inspector under subsection (3) of section 210 or clause (b) of section 213, require the applicant to give such security not exceeding twenty-five thousand rupees as may be prescribed, as it may think fit, 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.

INVESTIGATION OF OWNERSHIP OF COMPANY (SECTION 216):

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—

(a) who are or have been financially interested in the success or 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.

The Central Government shall appoint one or more inspectors under that sub-section, if the Tribunal, in the course of any proceeding before it, directs by an order that the affairs of the company ought to be investigated as regards the membership of the company and other matters relating financial control or material influence to the company.

The Central Government may define the scope of the investigation and may limit the investigation to particular shares of debenturs.

INFORMATION, INSPECTION, INQUIRIES AND INVESTIGATION OF FOREIGN COMPANY (SECTION 228):

The provisions of this Chapter XIV shall apply mutatis mutandis to inspection, inquiry or investigation in relation to foreign companies.

Please note: I welcome your comments and feedback. This blog post is not a professional advice. Readers may share this post on social media by using buttons given here.

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