This article has been written by Ms.Taranjot Kaur, a 1st year law student of Panjab University,Chandigarh.
The term Investigation ,in common parlance means “a searching inquiry for ascertaining facts”,it is a detailed or careful examination to arrive at the truth behind the activities or affairs of the company.The provisions relating to Inspection,Inquiry and Investigation have been incorporated in the companies act 2013 at one place under chapter XIV which cover section 206 to 229 of the Companies Act 2013.
Part A covers inspection and inquiry (Section 206 to 209 of Companies Act 2013),Part B related to the investigation (Section 210,213 and 216),Part C relates to serious fraud investigation office (Section 211 and 212 of the companies at 2013),Part D relates to general provisions covering inspection,inquiry and investigations (Section 214,215,217 to 229 of Companies Act 2013).
Investigation within the meaning of relevant provisions of the Act is a form of probe into the affairs of the company.The main object of investigation is to collect evidence and to see if any illegal acts or offences are disclosed.
Section 210 (1)-Investigation in the opinion of central government
Where the central government is of the opinion,that it is necessary to investigate into the affairs of the company-
- On the receipt of a report of the registrar or inspector under section 208.
- On intimation of a special resolution passed by the company that the affairs of the company ought to be investigated.
- In public interest,it may order an investigation into the affairs of the company.
The central government may be empowered to appoint inspectors to investigate either on its own if it is of the opinion that such investigation is required in public interest ,or on the request of the company on the basis of a special resolution or on the direction of court or tribunal.
Section 210(2)- Investigation on the order by a court or the tribunal
Where an order is passed by a court or tribunal in any proceedings before it that the affairs of the company ought to be investigated,the central government shall order an investigation into the affairs of the company.
Section 210 (3) – Appointment of Inspectors
For the purposes of this section,the central government may appoint one or more persons as inspectors to investigate into the affairs of the company and to report to the central government.
Powers of the Inspector –
To conduct the investigation, a wide range of powers have been vested in the Inspector; they are:
- The power to summon the officers, employees (including former officers and employees of the company) and other persons in relation to the company as they deem necessary. [Sec. 217(1)]
- Require the body corporate to furnish information and produce such books and papers deemed necessary. [Sec. 217(1)(a)]
- Require any other body corporate to furnish information and produce such books and papers deemed necessary. [Sec. 217(1)(a)]
- Subject to the terms of appointment, the inspector may also investigate 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. [Sec. 216(4)]
- Seizure of documents if he has reasonable cause to believe that the documents can be mutilated or destroyed. [Sec. 220(1)]
- Keep seized documents in his/ her custody. [Sec. 220(2)]
- In addition to the above, the investigator is also vested with the powers of a civil court under the Code of Civil Procedure, 1908, with regard to the discovery of books and documents, summoning and enforcing the attendance of persons on oath and inspection of any books, records and other documents at any place. [Sec. 217(5)]
Private professionals as inspectors/investigators-
The central government may appoint any officer of the government ,any private professional or group/firm of professionals as inspectors for investigation.It should however be ensured that there is no conflict of interest.The inspector/investigator should not have any material relationship with the corporate entity or its holding or subsidiary entities.The provisions of investigation should also be extended to foreign companies which are carrying out business in India.
Section 211 – Establishment of serious fraud investigation office
Section 211 of the act provides for the establishment of Serious Fraud Investigation Office as under :
Section 211 (1) – Setting up of Serious Fraud Investigation Office
The government should establish Serious Fraud Investigation Office, a specialized multi disciplinary organization to deal with cases of corporate fraud.The central government may refer complex cases involving substantial public interest or multi disciplinary ramifications to the officers of SFIO.The committee feel that setting up of such organization is essential to unravel the complex corporate processes that may hide fraudulent behaviour.
Section 211 (2) – Composition of SFIO
The SFIO shall be –
Headed by director ,and
Consist of such number of experts from the fields like Banking, Corporate Affairs, Taxation, Forensic audit, Capital market, Information technology , Law to be appointed by the Central Government from amongst persons of ability,integrity and experience in above fields.
Section 211 (3) – Appointment of a Director in SFIO
The central government shall appoint a director in 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 the matters related to corporate affairs.
If a director of the company has been convicted of an offence under the provision of section 207 of the Companies Act, 2013, 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 any office in any company.
Section 211(4)-Appointment of experts
The central government may appoint of such experts and other officers and employees in the SFIO as it considers necessary for the efficient discharge of its functions under this Act.
The Act imposes penalties in case of violation of the orders of the inspector and the Tribunal. The following penalties may be levied:
- Disobedience of the direction of the Inspector or Registrar attracts imprisonment of upto 1 year and fine of Rs. 25,000/- extendable upto Rs. 1 lakh or both on the directors and officers of the company. [Sec. 217(6)(i)]
- Disqualification and vacation of office of the directors. [Sec. 217(6)(ii)]
- Non-furnishing of information, non-production of documents, non-appearance before the inspector etc. attracts imprisonment of upto 6 months and fine of Rs. 25,000/- extendable upto Rs. 2,000/- for every day of default. [Sec. 217(8)]
- Transfer of assets that are frozen by the NCLT attracts a fine of Rs. 1 lakh extendable to Rs. 25 lakhs on the company and imprisonment of upto 6 months and a fine of Rs. 25,000/- extendable upto Rs. 5 lakhs or both on the officers. [Sec. 221(2)]
- Certain acts like destruction, mutilation, falsification of documents, provision of false information etc. also attract criminal charges under Sec. 447. [Sec. 229]
The corporate sector despite of its favourable conditions ,sometimes get affected by the fraudulent behaviour of directors.The company as a whole is managed by Board of Directors and directors at times may or may not act in a favourable conditions towards shareholders or company.They sometimes can abuse their position as directors which can harm the reputation as well as status of the company. To prevent and curb all these practices ,the central government is vested with certain powers to investigate the affairs of the company in cases when they suspect that something fraudulent is going on with the intent to defraud its shareholders or other members.Hence,Chapter XIV has been provided in Companies Act 2013 which deals with all the provisions relating to Inspection,Inquiry and Investigation of the affairs of the company.
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