Investigation and inspection

The investigation and inspection provisions of the Companies Act 2013 pertain to legal mechanisms through which authorities can scrutinise the affairs of companies to ensure compliance and transparency.

These provisions empower regulatory bodies to conduct investigations into the financial, operational, or governance aspects of companies, often in response to complaints or concerns.

The aim is to uncover any irregularities, fraud, or mismanagement that undermine the company’s credibility or financial stability. Inspection is typically carried out by designated authorities who have the power to request documents, ask questions, and gather evidence.

These measures are essential for maintaining the integrity of the corporate sector and protecting the interests of stockholders.

Information and “examination” mean ‘precisely examination or scrutiny’. Also, the Companies Act, 2013: Investigation, Inquiry, and Inspection are defined in Chapter XIV of the Companies Act under Sections 206 to 229, where the main idea of the central government is to cover the interests of shareholders and maintain transparency so that shareholders can check, probe, or interrogate during situations where it could be perceived that the business of the company was done fraudulently and illegally.

Investigation, inquiry, and inspection: Power to probe check and interrogate is vested in Section 206 of the companies act

Where, on scrutiny of any document filed by any company or information entered by the registrar, he thinks that further information or explanation of documents relating to the company is necessary, he may, by written notice, bear the company’s

a) to furnish in writing similar information or explanation or

b) to produce similar documents within a similar reasonable time as may be specified in the notice.

After entering the damage notice, the company and its officers must furnish similar information or explanations of their knowledge and power to produce documents to the registrar within the time specified by the registrar. This information can also include information about former workers of the company.

If the registrar thinks that shy information is entered, he may ask through notice to produce similar documents and explanations.

[1] After entering acceptable information, if the registrar thinks that the company has carried out fraudulent activities or some grievances of investors need to be addressed, the registrar, after informing the company, can call on the company to furnish in writing similar information and carry out similar inquiries as deemed fit, consequently, where the company is given occasion to be heard.

The Central Government can also, if satisfied that circumstances warrant an inquiry, direct the Registrar and an inspector appointed by it to carry out an inquiry. Where the business of the company has been or is being carried out on or for a fraudulent or unlawful purpose, every officer of the company in dereliction shall be punishable for fraud in the manner as handed down in Section 447 of the Companies Act.

If the Central Government is satisfied that the circumstances so warrant, it may direct examination of the books and papers of a company by an inspector appointed by it for this purpose without any prejudice.

It can consequently, about circumstances, by general or special order authorise any statutory authority to examine the books of account of a company or class of companies. If the company fails to furnish any information or explanation or produce any document needed under Section 206, every officer of the company who’s in dereliction shall be punishable with a forfeiture that may extend to one lakh rupees and, failing that, it may extend to five hundred rupees for every day after the first during which failure continues.

Compass of inquiry and inspection

The vittles related to inquiry and inspection are equally applicable to all companies, irrespective of whether the company is a public company, private company, small company, one-person company (OPC), government company, or foreign company.

Power to call for information, chequebooks, and conduct inquiries (Section 206)

The vittles related to inquiry and inspection are equally applicable to all companies, irrespective of whether the company is a public company, private company, small company, one-person company (OPC), government company, or foreign company.

Conduct of inspection and inquiry (Section 207)

Section 207 of the Companies Act, 2013 provides for the conduct of examinations and inquiries as follows: It is the duty of the director, officer, or other workers of the company to produce all similar documents, furnish similar statements, information, or explanations in such form as may be appropriate, and render all backing in connection with similar examinations.

Powers of the Registrar or Inspector The registrar or inspector making an examination or inquiry under Section 206 may, during a similar examination or inquiry, make copies of books and papers and place identification marks there.

The registrar or inspector making an examination 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 posterior matter.

The examination and product of books of account and other documents, at a similar place and time as may be specified by a similar registrar or inspector making the examination or inquiry; Summoning and administering the attendance of persons and examining them on a pledge

Penalty for Contravention If any director or officer of the company disobeys the direction issued by the Registrar or the inspector under this section, the director or officer shall be punishable with imprisonment, which can reach up to 1 time, and with forfeiture between 25,000 rupees and 1 lakh rupees, as may be deemed fit.

Report on inspection made (Section 208)

The registrar or inspector shall, after the examination of the books of account or an inquiry under Section 206 and other books and papers of the company under Section 207, submit a report in writing to the Central Government along with a similar document, if any, and a similar report may, if necessary, include a recommendation that further disquisition into the affairs of the company is necessary, giving his reason in support.

Search and seizure (Section 209)

1) Where the registrar or inspector believes that books and papers relating to the company may be destroyed, crippled, altered, falsified, or buried, he can make an operation to the Special Court.

2) The Special Court may, by order, authorise it to enter the places or demesne where books and papers are placed, to search the place, and to seize the books and papers after allowing the company to make clones.

3) Haunt and seizure must be according to the Vittles Code of Criminal Procedure.

4) The seized papers must be returned within 180 days. The registrar can take copies of any document or place identification marks on them before returning the books and papers. He can ask for the papers again, if demanded, by transferring a written order.

Disqualification from the affairs of the company (Section 210)

Disquisition in the opinion of the Central Government The Central Government may order and appoint inspectors for disquisition into the affairs of the company under the following three conditions on the damage of a report of the Registrar or an Inspector under Section 208: On the suggestion of a special resolution passed by the company, the affairs of the company ought to be delved into. Suo-moto in intimate interest.

[2] Disquisition on the order by a court or the Tribunal: Where an order is issued by a court or the Tribunal in any proceedings before it that the affairs of an establishment need to be delved into, the Central Government shall order a disquisition into the affairs of that company.

Establishment of a significant fraud investigation office (Section 211)

The Central Government shall, by announcement, establish an office to be called the Serious Fraud Investigation Office (SFIO) to check fraud concerning a company. The SFIO shall be headed by a director appointed for this purpose and shall also correspond to other competent authorities who shall be experts on this matter.

Disqualification into affairs of a company in serious fraud disqualification officer (Section 212)-

Under Section 212, when the Central Government thinks that it’s necessary to probe into the affairs of a commercial by the SFIO, it may, by order, assign the disquisition into the affairs of the said company to the SFIO.

2.) On damage of a similar order, the Director, SFIO, may designate a similar number of inspectors, as he may consider necessary for the conduct of a similar disquisition.

Where any case has been assigned by the Central Government to the SFIO for disquisition under this Act, no other probing agency of the Central Government or any State Government shall do with disquisition in a similar case in respect of any offence under this Act.

Still, if any similar disquisition has formerly been initiated, it shall not be progressed further. Where the disquisition into the affairs of an establishment is assigned by the Central Government to SIFO, it shall conduct the disquisition in the manner described in this Chapter (Chapter XIV: Inspection, Inquiry, and Investigation) and submit its report to the Central Government within the same period as may be laid out in the order.

3.) The company and its officers and workers, who are or have been employed by the company, shall be responsible for furnishing all information, explanations, documents, and backing to the probing officer as he may bear for the conduct of the disquisition.

4.) Offences covered under Section 447 of this Act shall be cognizable, and no bone indicted for any offence under those sections shall be released on bail or his bond unless

a) The public prosecutor has been given a chance to oppose the plea for similar release; and

b) Where the public prosecutor opposes the plea, the court is satisfied that there are reasonable grounds for believing that he’s acquitted of a similar offence for which he’s doubtful to commit any offence while on bail. Still, a person who is under the age of sixteen, is a woman, or is sick or tender may be released on bail if the Special Court so directs.

handed that the Special Court shall not take cognizance of any offence appertained in point 5 above except upon a complaint in writing made by the Director, SFIO, or still, authorised on this behalf by the Central Government, has a reason to believe that a person has been shamefaced of any punishable offence under sections mentioned in sub-section (6), he may arrest a similar person and shall inform him of the grounds for similar arrest if any officer is not below the rank of the adjunct director of SFIO.

All persons arrested shall, within twenty-four hours, be taken to a Special Court, a Judicial Magistrate, or a Metropolitan Magistrate having governance.

The SFIO shall submit the disquisition report to the Central Government on completion of the disquisition. On damage to the disquisition report, the Central Government may, after examination of the report, direct the SFIO to initiate execution against the establishment and its officers or workers, once or present, or any other person directly or laterally connected with the affairs of the company.

Where the report states that fraud has taken place in a company and owing to similar fraud, any director, crucial directorial labour force, other hand of the company or any other person or reality, has taken overdue advantage or benefit, whether, in the form of any asset, property, cash, or any other manner, the Central Government may file an operation before the Tribunal for applicable orders concerning disgorgement of similar assets, property, cash, and also for holding similar director, crucial directorial labour force, other officer, or any other person liable with no limitation of liability.

The SFIO shall partake in any information or documents available with it from any probing agency, state government, police authority, or duty authorities that can be applicable or useful to them in respect of any offence or matter being delved into under other laws.

Investigation into the company’s affairs in other cases (Section 213)

According to this section, NCLT can order disquisition in specified cases. A similar order can be issued by NCLT only after giving reasonable occasion of being heard to the concerned parties.

Cognizance of Offence by Tribunal: On occasion of an organisation having an offer of capital, the Court may request a lead or disquisition on an activity made by 100 or more individuals or individuals holding 1/tenth of complete democratic powers.

Assuming the request is upheld by comparative validations is vital for the thought process of showing that the hopefuls have valid justifications for looking for a request for leading a disquisition into the undertakings of the organisation.

This article has been contributed by Utkarsh Upadhyay.