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Company

Law Project

Army Institute of Law,

Mohali

Topic: Investigation under the

Companies Act 2013

Submitted to: Dr. Arvindeka Submitted by: Deepika(1563)

Acknowledgement

I would like to express my gratitude to my teacher Dr. Arvindeka Chaudhary,

who gave me this opportunity to complete this project of Company Law on the

topic ‘Investigation under Companies Act 2013’. I would also like to thank her

for her constant support and guidance.

I would also like to thank our Librarian for assisting me to find the relevant

books. Last but not the least; I am immensely grateful to my friend Miss Shruti

for proof reading this project.

Deepika

or any further documents relating to the company is necessary, he may by a written notice require the company to furnish in writing such information. [Sec.206 (1)]

(1)]. The Central Government may appoint one or more persons as inspectors to investigate into the affairs of the company [Sec.210 (2)]. No firm, body corporate or association shall be appointed as an inspector. [Sec.215]

2. If the information so provided by the company is inadequate or in Registrar’s opinion, unsatisfactory state of affairs exists in the company or does not disclose a full and fair statement of the information required, he may again call on the company to produce such books or papers. [Sec.206 (3)]. After fulfilling the procedure, the Registrar may carry such inquiry as he deems fit. [Sec.206 (4)]

3. The Central Government shall establish an office called Serious Fraud Investigation Office (SFIO) to investigate frauds relating to companies. It is a multidisciplinary organization consisting of experts from various fields inter alia Banking, Law, Corporate Affairs, Taxation and Information Technology etc. [Sec.211]

4. The Central Government may authorize any statutory authority to carry out the inspection of books of account of a company or class of companies. [Sec.206 (5)]

5. The Director of SFIO may designate such number of inspectors as he may consider necessary to investigate into the affairs of company [Sec. (1)]. Where any case has been assigned to SFIO, no other investigation agency of either Central or State Government is to investigate the same case. [Sec. 212(2)].

6. For carrying out such inspection or inquiry, the Registrar or inspector shall have powers of a civil court in relation to the matters as prescribed. [Sec.207 (3)]

7. The officer designated shall have the powers of an inspector under Sec.217.

8. The Registrar or Inspector shall submit a report to the Central Government and recommend, if necessary, further investigations into the affairs of the company ([Sec.208]

9. SFIO shall conduct the investigation in the manner and follow the procedure as per the provisions and submit its report to the Central Government within the specified period. The Central Government may demand an interim report of investigation. [Sections 212(3) and 212(11-17)].

10. The Registrar or inspector may enter and search the place or places and seize such books and papers if they have reasonable ground to believe that such papers as mentioned are likely to be destroyed, mutilated, altered or falsified or secreted. Before doing the search and seizure, they have to obtain an order from the Special Court. [Sec.209(1)]

11. The Director, Additional Director or Assistant Director of SFIO may arrest any person who he believes is guilty of an offence punishable under the sections referred in sec. 212(6) and such person arrested sub-section (8) shall within 24 hours be taken to a Judicial Magistrate or a Metropolitan Magistrate having the jurisdiction. [Sec.212(10)]

12. No company or member can ask for a copy of inspection report.

13. A copy of the investigation report may be obtained by any person concerned by making an application in this regard to the court.[ Sec.212(13)]

14. The expenses of inspection are borne entirely by the Government and are not recoverable.[Sec.225]

15. The expenses, in the first instance, shall be defrayed by the Central Government but may be reimbursed partially or fully by the persons as prescribed under Section 225.

The Powers of the Central Government: 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 discharge of SFIO functions under the Act. 3 The Central Government, where it

deems appropriate, may assign the investigation into the affairs of any erring company as per

the provisions of Sec. 212(1) to the SFIO. If the Central Government so directs, the SFIO

shall submit an interim report or investigation report on completion of the investigation to the

Central Government. 4 On receipt of the investigation report, the Central Government may,

after examination of the report (and after taking such legal advice, as it may think fit), direct

the SIFO to initiate prosecution against the company and its officers or employees, who or

have been in employment of the company or any other person directly or indirectly connected

with the affairs of the company. 5 Where the Central Government orders such an

investigation, it may require the applicant to give such security not exceeding Rs. 25,000/-

for payment of costs and expenses of investigation. 6

Investigation by the Tribunal: Sec 213 provides that in the following other cases, the

Tribunal may order investigation into company’s affairs:

a) On an application made by members:

• Not less than 100 members or members holding one tenth of the total voting power in

the case of a company having share capital.

• Not less than one-fifth of the persons on the company s register of members, in the

case of a company without share capital.

The said application should be supported by such evidence as may be necessary for the

purpose of showing that the applicants have a good reason for seeking an order.

b) On an application made by any other person or otherwise if the circumstances suggest that

• (^) The business of the company is being conducted with intent to defraud its creditors,

members or any other person or otherwise for fraudulent or unlawful purposes or in a

manner oppressive to any of its members or that the company was formed for any

fraudulent or unlawful purpose.

• Persons concerned in the formation of the company or management of its affairs have

been guilty of fraud, misfeasance and other misconduct towards the company or

towards any of its members; or

• The members of the company have not been given all the information about its

affairs which they might reasonably expect including information relating to

calculation of the commission payable to managing or other director, or the manager,

of the company.

Reasonable opportunity of being heard must be provided to the concerned parties. The

Central Government shall appoint one or more persons as inspectors to investigate into the

affairs of the company. Such inspectors shall submit their report to the Government. The

defaulting persons are liable to be punished for fraud under Section 447.

3 Rule 3 Companies (Inspection, Investigation & Inquiry Rules), 2014. 4 Sec. [212(12)], The Companies Act, 2013.

5 sec. [212(14)]. The Companies Act, 2013.

6 Rule 5 of the Companies (Inspection, Investigation & Inquiry Rules), 2014.

As per Sec. 223, the inspector may submit his interim reports and final report on the

conclusion of investigation to the Central Government. A copy of the report can be obtained

by making an application to the Central Government. The report has to be authenticated by

▲ the seal of the company whose affairs have been investigated, or

▲ by a certificate of the public officer having custody of the report as per Sec. 76 of the

Evidence Act, 1872.

The report is admissible in any legal proceeding as evidence to its contents. This Section

shall not apply to the report of SFIO under Section 212.

In the case of Ashoka Marketing Ltd. v. Union of India 9 , it was held that failure on part of

inspector to submit the report within reasonable time amounts only to a breach of duty on his

part but it doesn’t bring the investigation automatically to an end.

Action to be taken in pursuance of report [Sec. 224]:

If from the report, it appears that any person has been guilty of an offence for which he is

criminally liable, the Central Government may prosecute him for the offence. The company

and its employees shall be duty bound to provide the necessary help in connection with the

prosecution. If the report shows that it would be expedient to wind up the company, the

Central Government may file a petition for winding up on any of the following grounds:

a) just and equitable;

b) an application for prevention of oppression and mismanagement under Sec. 241; or

c) both

If it appears to the Central Government from the report that the proceedings ought to be

brought in public interest by the company or any body corporate whose affairs have been

investigated for recovery of damages in respect of fraud, misfeasance or other misconduct in

the promotion, formation or management of the company or for recovery of any property of

such company, the Central Government may itself bring proceedings for winding up in the

name of company, for which the company has to indemnify the Government for its costs.

Disgorgement of benefits obtained by director, etc [Sec. 224(5)] :

Where the report states that a 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 in any form whatsoever, the Central Government

may file an application to the Tribunal for appropriate order for disgorgement of such benefit

and also for holding the person concerned liable personally without any limitation or liability.

Expenses of Investigation [Sec.225]:

Expenses of investigation are to be borne by the Central Government at the initial stage but

the Government can seek reimbursement from any person who has been convicted or

prosecuted or called upon to pay damages or restore the property of the company, the

company in whose name the proceedings have been brought or persons dealt within the

report or applicants for investigation where the inspector was appointed under Section 213.

Voluntary winding up of company not to stop investigation [Sec.226] :

9 AIR 1967 Cal. 159.

An investigation can be initiated and it is not to be stopped only because an application has

been made under Sec. 241 or the company has passed a special resolution for voluntary

winding up or any other proceeding for the winding up of the company is pending before the

Tribunal. The Inspector has to inform the Tribunal of the pendency of investigation. The

Tribunal may pass such order as it deems fit.

Legal Advisers and Bankers not to disclose certain information [Sec.227]:

Legal advisers and bankers are not to disclose any privileged communication or information

as to the affairs of bank s customers.

Investigation, etc. of foreign companies [Sec. 228]:

With effect from 01.04.2014, the provisions mentioned herein shall apply mutatis mutandis to

inspection, inquiry or investigation in relation to foreign companies.

Penalty for furnishing false statement, mutilation or destruction of documents [Sec.

229] :

Any person, who is required to provide an explanation during the course of inspection,

inquiry or investigation:

▲ destroys, mutilates or falsifies or conceals or tampers or unauthorizedly removes

documents related to property or affairs of company;

▲ makes a false entry in any document concerning the company or body corporate; or

▲ furnishes false information

shall be punishable for fraud. 10

BIBLIOGRAPHY

Books

Avtar singh

N.V. Pranjape, Company Law, 427-432 (8 ed, 2017).

10 Sec 447, The Companies Act, 2013