Inspection, Inquiry and Investion under Companies Act

Introduction

Under chapter XIV, which covers sections 206 to 229 of the Companies Act 2013, the requirements relating to “inspection, inquiry, and investigation” have been incorporated. this clause falls under one of the following four categories:-

  • Part A of the Companies Act 2013 deals with inspection and investigation (sections 206 to 209);
  • The investigation is included in Part B (sections 210, 213 and 216);
  • Part C deals with the Serious Fraud Investigation Office (as of 2013, this was section 211 and 212 of the Companies);
  • The general provisions for inspection, inquiries, and investigations are included in Part D of the Companies Act of 2013 (articles 214, 215, and 217 to 229).

Part A, which deals with inspection and investigation, will be covered under this article. The following summarizes the Part A-related provisions of Chapter XIV of the Companies Act 2013:

The Registrar may be given written notice to call any additional information, justifications, or documents pertaining to the company under Section 206 of the Companies Act, 2013. The registrar must, however, include the justification for requesting any such information, an explanation, or other company-related documentation.

Upon receiving the notification, the company and its officers are required to provide all the information, justification, and further documents pertaining to the company that are requested in the notice, including the officers’ prior employment history.

The Central Government is also permitted to issue general or specific orders authorizing any statutory authority to conduct the inspections of the books of any class of firms or to direct an inspector appointed for this purpose to do so.

Under section 207 of the Companies Act 2013, the registrar and inspector, who were given powers under the Civil Procedure Code, have delivered orders, are subject to severe penalties for disobedience.

After obtaining a special court order, a search and seizure may be conducted. The confiscated books and papers may be kept by the registrar for 180 days. However, the registrar has an additional 180 days to call the books and documents.

If the central government does not notify the ROC, the ROC cannot utilize the power provided by Section 209 of the Businesses Act, 2013, with relation to other body corporate than companies.

The Registrar or Inspector shall send a report in writing to the C.G. together with documentation and a proposal that more inquiry into the affairs be conducted, with justification.

Investigation, Inquiry and Inspection

When the Registrar examines a document submitted by a company or information received by him and he determines that more information or an explanation of a document relating to the Company is necessary, he has the authority to inspect, investigate, and inquire under Section 206 of the Companies Act.

(a) To provide information, justification, or other details in writing.

(b) To provide the requested papers within the timeframe indicated in the notification, which may be reasonable.

Following notice, it is the responsibility of the company and its officers to provide any information or justification to the best of their ability to produce documents to the Registrar within the time frame specified by the Registrar. This information may also include information about previous employees of the company. The Registrar may issue a notice requesting the production of such papers and justifications if he believes that the information obtained is insufficient. If the Registrar determines after receiving sufficient information that the Company is operated in a dishonest manner or that there are investor complaints that need to be addressed, the Registrar may request the Company to provide such information in writing and may conduct any inquiry the Registrar deems appropriate after giving the Company the opportunity to be heard. Every officer of the company who is in default shall be punished for fraud in manner provided in Section 447 of the Companies Act, and the Central Government may also, if it is satisfied that the circumstances warrant an investigation, direct the Registrar or an inspector appointed by it to conduct the investigation.

If the Central Government determines that the situation justifies it, it may order a company’s records and papers to be impartially examined by an inspector it has designated for this reason. Any statutory authority may, in accordance with the circumstances, be authorised by general or special order to conduct an inspection of the financial records of a firm or class of companies. Every officer of the company who is in default will be punished with a fine that may reach one lakh rupees if the company fails to provide any information, an explanation, or any document that is required by Section 206. If that doesn’t work, the fine may increase to 500 rupees for each additional day that the failure persists.

Conducting an investigation and inspection:

Conduct of Inquiry and Inspection, Section 207, states that during the trial of a lawsuit involving any of the following matters, the Registrar or Inspector shall have the same authority as a civil court under the Code of Civil Procedure, 1908, including the right to inspect the company’s books and accounts.

  1. the discovery and production of financial records and other documents at the location and time designated by the Registrar or inspector conducting the inspection or inquiry;
  2. summoning them, requiring their presence, and questioning them under oath; and
  3. Any books, registers, and other firm records may be inspected anywhere.

If any director or officer of the company disobeys the order given by the Registrar or the inspector pursuant to this section, the director or officer shall be subject to imprisonment for a term that may not be less than one year or less than twenty-five thousand rupees and a fine for a term that may not be less than one lakh rupees. If a director or officer of the company is found guilty of a violation of this provision, they will be considered to have resigned from their position as such as of that day forward and will no longer be eligible to hold any office in any company.

Detailed Inspection Report

After inspecting the books of accounts or conducting an investigation pursuant to Section 206 and other books and papers of the company pursuant to Section 207, the Registrar or Inspector shall submit a report in writing to the Central Government along with such documents, if any, and such report may, if necessary, include a recommendation that further investigation into the affairs of the company is necessary with his justifications.

Search and Seizure:-

When a Registrar or Inspector has reason to believe that a company’s books and papers, or those of key managerial personnel, directors, auditors, or company secretaries (in the event that the company has not appointed a company secretary) are likely to be destroyed, altered, falsified, or secreted, he may, after obtaining an order from the Special Court for the seizure of such books and papers.

  • Enter, with any necessary help, and search the location or locations where such books or papers are kept; and
  • Confiscate any books and papers he deems relevant after enabling the business to make copies of or extracts from the materials at its expense.

The books and papers that were seized must be returned by the Registrar or inspector to the company from whose custody or control they were taken as soon as possible, but in no case later than one hundred and eighty days after the seizure. If necessary, they may also be called for another period of one hundred and eighty days by a written order. Each search and seizure carried out in accordance with this section shall be subject, mutatis mutandis, to the provisions of the Code of Criminal Procedure, 1973 relating to searches or seizures.

Examining the company’s operations:

When the Central Government determines that an investigation into a company’s affairs is necessary, whether as a result of a report from the Registrar or inspector under section 208, notification of a special resolution adopted by a company that the company’s affairs should be investigated, or for reasons of public interest, it may order such an investigation. The Central Government may designate one or more people as inspectors to look into the company’s business and to report on them in the manner that the Central Government may specify. If a court order or tribunal order is presented to the Central Government, it may then take the appropriate action.

Office of Serious Fraud Investigations:

It is governed by the Ministry of Corporate Affairs of the Indian Government, and personnel from the Indian Administrative Service, Indian Police Service, Indian Corporate Law Service, Indian Revenue Service, and other Central Services are principally in charge of overseeing it. Multidisciplinary investigations of significant corporate frauds must be conducted, per mandate.

It is a multidisciplinary firm that employs specialists in the financial industry, capital markets, accounting, forensic audit, taxation, law, information technology, corporate law, customs, and investigation. The Vajpayee administration decided to establish SFIO on January 9th, 2003, based on the recommendation of the Naresh Chandra Committee on Corporate Governance, which was established by the government on August 21, 2002. The Vajpayee administration also decided to do this because of stock market scams and the failure of non-banking companies, which resulted in significant financial losses for the general public. Field offices for the organization are spread out across India’s major cities, with the agency’s headquarters located in New Delhi.

To investigate frauds involving businesses, the Central Government shall, by notification, establish an office to be known as the Serious Fraud Investigation Office. The Serious Fraud Investigation Office shall be led by a Director and comprise such number of experts from the following fields as the Central Government shall appoint from among persons of ability, integrity, and experience in,

  • The financial sector;
  • Corporate affairs, second;
  • Taxation is item number
  • Forensic accounting;
  • Regarding the capital market;
  • Information technology
  • The law, or
  • Any further fields that may be required.

The Central Government shall, by notification, appoint a Director in the Serious Fraud Investigation Office, who shall be an officer not below the rank of a Joint Secretary to the Government of India with knowledge and experience in dealing with matters relating to corporate affairs, and may appoint such experts and other officers and employees in the Serious Fraud Investigation Office as it considers necessary for the efficient discharge of its functions under this Act.

Procedure and Inspectors’ Authority:

The Registrar of Companies appoints inspectors to conduct an investigation into affairs; the inspectors’ procedure and powers are described in Section 217 as follows:

  • Documents, books, and papers relevant to the investigation must be produced by employees, officers, and agents. The inspector is obligated to store the books and papers produced for 180 days, but they may be called again by the inspector upon written request.
  • When conducting an inquiry under Section 212, the Director of Serious Fraud Investigation must first provide the inspector permission to conduct an oath examination with the prior approval of the Central Government.
  • Officer. The inspector, who is a Central Government officer, has all the authority granted to a civil court by the Code of Civil Procedure, 1908, when conducting an investigation under this Chapter. These powers include the ability to demand the production of books of account and other documents at any location and time specified by the person conducting the investigation, summon people to appear, enforce their attendance, and subject them to oath examinations.
  • When a company officer or director disobeys an inspector’s instruction, they may be sentenced to up to one year in jail and fined up to one lakh rupees, but no less than twenty-five thousand rupees must be paid. If a director or officer of the company is found guilty of a violation of this section, he or she will be considered to have resigned from that position as of the date of the conviction and will no longer be eligible to occupy such position in any other company.
  • Without good reason, any person who refuses to provide an inspector with any books or papers that are required of him, to provide any information, to appear in person before the inspector when required, to respond to any questions the inspector poses, or to sign the exam’s notes will be punished with up to six months in jail and a fine of at least 25,000 roubles.
  • For the purposes of inspection, inquiry, or investigation that the inspector may require with the prior approval of the Central Government, the officers of the Central Government, State Government, police, or statutory authority shall provide assistance to the inspector. In order to cooperate in any inspection, inquiry, or investigation required by this Act or the applicable law in effect in a foreign State, the Central Government may enter into an agreement with the government of that State.

Conclusion

Many times, businesses are formed in order to carry out activities that aren’t always lawful in the strictest sense or to escape legal obligations and accountability. These actions have an effect on the other participants, including depositors, creditors, and the financial system as a whole. The 2013 Act includes measures on the investigation of businesses in an effort to bring to justice those individuals sheltering behind the corporate veil. The 2013 Act makes every effort to cover all potential bases, close all conceivable loopholes, and leave no stone unturned with the goal of exposing all wrongdoings and frauds while setting examples for everyone. The inspectors and Tribunals are also given specific authorities to carry out their functions. In order to create a climate conducive to sound corporate governance, these measures are therefore absolutely essential. All stakeholders, including shareholders, clients, employees, and the general public, stand to gain significantly from effective corporate governance. Whether an authority acting under a statute has a duty to act in a judicial manner relies on the explicit provisions of the statute read in conjunction with the type of rights affected, how they are handled, and how the decision will affect the people involved. As a result, it becomes imperative to always operate legally. Each and every citizen is shielded from the use of the state’s or Governments arbitrary power. Therefore, any case or investigation should be decided based solely on the facts and available evidence, without regard to any other factors. The 2013 Act appears to foster a respect for the law in those business sectors that are less scrupulous about business approaches and practices, but it does not unnecessarily worry well-run and law-abiding businesses by ordering investigations based solely on complaints devoid of supporting evidence or a reasonable basis for suspicion

References

https://www.linkedin.com/pulse/inspection-inquiry-under-companies-act-2013-mohit-singhal/

https://thedailyguardian.com/rise-of-inspections-inquiries-and-investigations-under-the-companies-act-2013/

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