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) Power of the Registrar to call for information, explanation or documents: According to section
206(1) of the Companies Act, 2013, where
• on a scrutiny of any document filed by a company or [ E.g. Annual Return / Financial Statement etc]
• on any information received by him, [ E.g. Complaint etc]
the Registrar is of the opinion that any further information or explanation relating to the company is
necessary, he may
ROC written To furnish information; or
notice To produce any document

(2) Co. & every officer shall

Furnish information Produce document

➢ Past officers may also be called upon (through separate notice)
(3) Second notice by ROC if

No reply to 1st notice Information submitted On submission

inadequate ROC satisfied
Stat. of affairs are
un-satisfied
➢ 2nd notice to call for books for inspection

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➢ Provided that before any notice is served under this sub-section, the Registrar shall record his
reasons in writing for issuing such notice.

(4) Inquiry by the Registrar [Section 206 (4)]:

ROC may conduct inquiry if based on Any information/ Representation made→satisfied that buss is for
→Fraudulent/ unlawful purpose or →Not in compliance of this ACT
• ROC to provide ROOBH
• If CG is satisfied that circumstance so warrant, direct to carry out inquiry without ROOBH
• Where buss conducted for fraudulent/ unlawful purpose →penalty u/s 447 to all guilty
[ Sec 447 is for Fraud]

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

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 director, 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.

(2) Powers of the Registrar or inspector

(a) The Registrar of 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.

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(4) (i) 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.

(ii) 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.

4.3. Sec 208 - Report on Inspection

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]

ROC / inspector on basis of information in his possession, if reasonable ground

to believe
Any books in relation to
Company/Director/KMP/Auditor/ CS
Likely to be destroyed / altered
After approval of special court

Enter & Search seize such books

Place Allow cos to take copies
Books are kept Max 180 days (+) 180 days extension

4.5. Sec 210- Investigation into affairs of co.

Where CG is of opinion on basis of

Report u/s 208 S/Res by co. Public interest

May order investigation into affairs

court/ tribunal, if Order to CG

CG shall

Order investigation
Person submitting complaint up to 25000 to be submitted to be refunded if
investigation resulted in to prosecution

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4.5. 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
(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 not
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 discharge
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

Where CG is of opinion on basis of

Report S/Res by members Public Int Request from

U/S 208 any deptt. Of
CG/SG
• the Central Government may, by order,
• assign the investigation into the affairs of the said company to the Serious Fraud Investigation Office

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Any other agency

Shall not initiate any investigation Already initiated

Stop [Not to proceed]

With such investigation

(3) Where the investigation into the affairs of a company has been assigned by the Central Government to
Serious Fraud Investigation Office➔it shall 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 shall be responsible to provide ➔all information,
explanation, documents and assistance to the Investigating Officer

(6) All offence covered under section 447 of this Act shall be cognizable and no person accused of any
offence under those sections shall 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 authorised in
this behalf by the Central Government 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

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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
forward a copy of the order, along with the material in his possession to the Serious Fraud Investigation Office
in a sealed envelope

(10) Every person arrested 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 the
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
investigation report to the Central Government.

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

(14) Central Government may, after examination of the report direct the Serious Fraud Investigation Office to
initiate prosecution against the company and its officers or employees, who are or have been in employment of
the company or any other person directly or indirectly connected with the affairs of the company.

(14A) Where the report states 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, whether in the form of any asset, property or cash or in any other manner,

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, other officer or any other person liable personally without any limitation of liability

(15) 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.

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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

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

Buss of company conducted Person concerned in formation inadequate

Or management information
Or Or to members
To Defraud creditors/member
Guilty of fraud, misfeasance including calculation of
Managerial Remuneration
➢ Issue direction to CG to investigate
➢ CG shall appoint 1 or more person
➢ 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, misfeas
ance
➢ 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

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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

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?

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2. CG may appoint inspector to find True person

Who have financial interest in have been able to

success/failure or control the policy of Co

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

Regarding investigation with regard to membership of Co.

4. CG may define scope of investigation

Tenure Matters to be covered Any other matter

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 relevant for the purposes of
his investigation.

[It means an Investigator have the power to Investigate even those agreement which are Void or unlawful in
nature]

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 employee

dismissal/removal
Any employee To his disadvantage

❖ Any such Co./B.C/Person to obtain prior approval of tribunal before proposed action
❖ Tribunal to raise its objection if any by post

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❖ If no objection from tribunal within 30days, Co./ B.C/Person may proceed to take proposed action
❖ Co./B.C/ person is dis-satisfied with objection of tribunal→ further appeal within 30days from receipt
of order of tribunal, to Appellate Tribunal

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

companies
If during investigation U/S 210/212/213 inspector appointed consider it necessary to investigate affairs of

Any other body Any other body Any body Any person
corporate corporate corporate
Who is/ has
Which is/ has been Which is/ has been Accustomed to been
managed by act as per
Subs. / Holding instruction of
MD/Manager
Subs of director of such
its MD/Manager of Co. or employer of
company under
Holding under investigation such Co.
investigation

❖ He shall investigate U/S 219 subject to prior approval of CG

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

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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
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

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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

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,

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• 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

4.16. Sec 223 – Inspectors Reports

Inspector's report

Interim Only if directed by CG Final

➢ Copy may be obtained by application to CG
➢ Report admissible in any legal proceeding as evidence if authenticated either

Common seal of Co. whose OR Certificate of officer

Affairs been investigated having its custody

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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 other 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 authorised by the
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.
Simple Terms:- Where circumstances as mentioned u/s 213 exist in any company, position of
which is so bad that it is on verge of winding up. CG may cause the petition for
• Winding Up
• Or
• Oppression & Mis-management
To be presented by any official so authorised by CG

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(3) If from any such report, it appears to the Central Government that proceedings in the public interest, to
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 misconduct 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.
Simple Terms:- Where on basis of such report, CG is of opinion that in public interest , action for
recovery of amount shall be taken, because of fraud etc conducted by officials of company , it may
initiate such action.

(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 states 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

4.18. Sec 225 - Expenses of investigation

(1) The expenses of an investigation by an inspector appointed by the Central Government under this Chapter
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
Situation No-1➔ Where a person is convicted / Ordered to pay damages [Sec 224]
He shall bear the cost➔to the extent as directed by court

(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;

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Situation-2➔ In the event of Sec 219 / Sec 210 / Sec 213 / Sec 216➔ Where proceeding taken in the
name of Company or Body Corporate (As per Sec 224) Company or B.C. held liable
To the extent of recovery they have from their officials, consequent to 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.

(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. [Thus these expenses will get Preferential Treatment during Winding
Up of Company]

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:
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.

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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

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

Any person 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

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