Inspection , Inquiry & Investigation
Section 206. Power to call for information, inspect books and conduct inquiries
206(1).
If the Registrar believes that additional clarification or documentation is needed then:
The Registrar can ask for more details or documents from a company if, after reviewing its filings or based on received information.
He must send a written notice to the company, specifying the information or documents required and giving a reasonable time to respond.
206(2).
Once the notice is received, it becomes the duty of the company and its officers to provide the requested information, explanations, or documents within the specified or extended time.
If the matter relates to a past period, even former officers of the company can be required to furnish information to the best of their knowledge.
206(3).
If the company fails to respond, gives incomplete or unsatisfactory information, or if the Registrar believes that the documents reveal an unsatisfactory or misleading state of affairs then:
He can issue a second written notice requiring the company to produce more books of account, papers, or explanations for inspection at a specified time and place.
However, before issuing this second notice, the Registrar must record his reasons in writing.
206(4).
If the Registrar finds or is informed that the company’s business is being conducted fraudulently, unlawfully, or against investor interests then:
He can issue a written order asking the company to provide explanations and may conduct an inquiry after giving the company a reasonable opportunity to be heard.
If necessary, the Central Government can direct the Registrar or an appointed inspector to conduct the inquiry.
If it is found that the business is being carried on fraudulently or unlawfully, every defaulting officer is punishable for fraud under Section 447.
206(5).
The Central Government can directly order an inspection of the books and papers of a company by appointing an inspector if it believes the situation demands it.
206(6).
The Central Government can also authorise any statutory authority to inspect the books of account of a company or class of companies if deemed appropriate.
206(7).
If the company fails to provide the required information, explanation, or documents then:
The Company and every defaulting officer are liable to a fine up to ₹1,00,000, and in case of a continuing failure, an additional ₹500 per day after the first day of default.
Section 207. Conduct of inspection and inquiry.
207(1).
When the Registrar or Inspector asks for books of account or any other company records under Section 206 then:
It becomes the duty of every director, officer, or employee of the company to:
Produce all the required books and documents,
Provide statements, information, or explanations in the form demanded, and
Fully assist the Registrar or Inspector during the inspection process.
Essentially all responsible company personnel must cooperate and provide full access to the company’s records.
207(2).
While carrying out an inspection or inquiry, the Registrar or Inspector may:
(a) Make copies or cause copies to be made of the company’s books of account and other records.
(b) Mark or stamp the books with identification marks to show that inspection has been conducted.
These steps serve as official proof that the inspection was carried out.
207(3).
Even if some other law or contract says something different:
The Registrar or Inspector has the same powers as a Civil Court under the Code of Civil Procedure, 1908, in the following matters:
(a). Ordering the discovery and production of books and documents at a specified place and time.
(b). Summoning and enforcing attendance of persons and examining them on oath.
(c). Inspecting any books, registers, or documents of the company at any place.
207(4).
(i).
If any director or officer disobeys the directions given by the Registrar or Inspector, then they:
Can be punished with imprisonment up to one year and a fine between ₹25,000 and ₹1,00,000.
(ii).
If a director or officer is convicted under this section, they automatically lose their position in the company from the date of conviction.
Thereafter they become disqualified from holding office in any company thereafter.
Section 208. Report on inspection made.
After examining the company’s books of account, records, and papers, the Registrar or Inspector must:
Prepare a written report of his findings.
This report records all the details, observations, and results of the inspection or inquiry.
It serves as an official document for the Central Government to review.
Submit the report to the Central Government,
Along with any relevant documents or evidence collected during the inspection.
The report may also include a recommendation for further investigation into the company’s affairs,
If the Registrar or Inspector believes that deeper inquiry is required.
He must give specific reasons to justify why such an investigation is necessary.
Section 209. Search and seizure.
209(1).
If the Registrar or Inspector has reliable information, or has a reason to believe that:
The books or records of a company.
The records connected to its key managerial personnel, directors, auditors, or company secretary in practice.
are at risk of being destroyed, changed, falsified, or concealed, then certain protective actions can be taken.
The steps include:
He must first obtain an order from the Special Court authorizing the seizure.
After that, he can enter and search the place where such documents are kept.
He can seize those books or papers which he thinks are necessary for the inquiry or investigation.
Before seizure, the company must be allowed to take copies or extracts of those documents at its own cost.
209(2).
The Registrar or Inspector must return the seized documents to the company within 180 days (six months) from the date of seizure.
However, if those documents are still needed for further inquiry, the Registrar or Inspector can retain them for another 180 days.
In order to retain for another 180 days the Registrar or the Inspector must issue a written order explaining the need.
Before returning, he may also take copies, extracts, or mark identification signs on those documents for record-keeping or evidence.
209(3).
The entire process of search and seizure must follow the rules given under the Code of Criminal Procedure, 1973 (CrPC).
It states that the same safeguards, procedures, and rights that apply in criminal investigations will apply here mutatis mutandis.
Section 210. Investigation into affairs of company.
210(1).
The Central Government may order an investigation into a company’s affairs in any of the following three cases:
(a). If it receives a report from the Registrar or an inspector under Section 208 recommending such investigation.
(b). If the company itself passes a special resolution stating that its own affairs should be investigated.
(c). If it is necessary to do so in public interest. For example: When there are serious concerns affecting shareholders, investors, or the public.
210(2).
If a Court or the Tribunal, while hearing a case, orders that a company’s affairs should be investigated, then:
The Central Government is required to start that investigation.
This is not optional and once the court or tribunal gives the direction, the Government must carry it out.
210(3).
For conducting such an investigation, the Central Government may appoint one or more inspectors.
These inspectors will carry out the investigation and submit a report in the manner directed by the Government.
Section 211. Establishment of Serious Fraud Investigation Office.
211(1).
The Central Government is required to formally set up an office called the Serious Fraud Investigation Office (SFIO).
The purpose of this office is to investigate frauds related to companies.
Until the SFIO is formally established under this section, the existing SFIO will be considered as the SFIO under this Act.
211(2).
The SFIO will be headed by a Director.
It will include experts appointed by the Central Government who have ability, integrity, and experience in the following fields:
Banking
Corporate Affairs
Taxation
Forensic Audit
Capital Market
Information Technology
Law
Or any other prescribed fields that may be added by the Government later.
211(3).
The Central Government will appoint the Director of SFIO by a notification.
The Director must be an officer of at least Joint Secretary rank in the Government of India.
The person must also have knowledge and experience in corporate affairs, ensuring expertise in handling company-related investigations.
211(4).
The Central Government has the power to appoint additional experts, officers, and employees to the SFIO.
These appointments will be made as needed to ensure the efficient functioning of the office and proper discharge of its duties under the Act.
211(5).
The terms and conditions of service including pay, benefits, tenure, and other service rules for the Director, experts, officers, and employees of SFIO will be prescribed by the Central Government through rules or notifications.
Section 212. Investigation into affairs of company by Serious Fraud Investigation Office.
212(1).
The Central Government can assign a case to the Serious Fraud Investigation Office (SFIO) when it believes it is necessary to investigate a company’s affairs.
This can be done in the following circumstances:
(a). On receiving a report from the Registrar or an Inspector under Section 208.
(b). When the company itself passes a special resolution saying its affairs should be investigated.
(c). When it is required in public interest.
(d). On receiving a request from any Central or State Government Department.
Once such a decision is made, the Central Government issues an order assigning the case to the SFIO.
The Director of SFIO may then appoint any number of Inspectors as needed to carry out the investigation.
212(2).
When the Central Government hands over a case to SFIO, no other agency (whether Central or State) can continue or start an investigation for the same offence under this Act.
If another agency has already begun an investigation, it must stop immediately and transfer all relevant documents and records to the SFIO.
212(3).
Once the SFIO receives the case, it must conduct the investigation according to the procedure laid down in this Chapter.
The SFIO must submit its report to the Central Government within the time period specified in the order.
212(4).
The Director of SFIO will assign the investigation to an Investigating Officer.
This officer will have all powers of an Inspector as mentioned in Section 217.
This includes examining people on oath, inspecting books, and demanding information.
212(5).
The company, its officers, and current or former employees are legally bound to provide all necessary documents, explanations, information, and assistance required for the investigation.
212(6).
Offences covered under Section 447 (Fraud) are declared cognizable which means the accused can be arrested without a warrant.
The accused cannot be released on bail or bond unless:
(i). The Public Prosecutor has been given a chance to oppose the bail application.
(ii). The Court is satisfied that the accused is not guilty and will not commit an offence while on bail.
A minor (under 16 years), a woman, or a sick or infirm person may be granted bail if the Special Court directs.
The Special Court can take notice of such offences only when a written complaint is made by:
(i). The Director of SFIO.
(ii). Any Central Government officer authorised in writing.
212(7).
Bail extremely strict for offences investigated by the Serious Fraud Investigation Office (SFIO).
Bail can be granted only if the court is satisfied that:
There are reasonable grounds to believe the accused is not guilty &
The accused is not likely to commit any offence while on bail.
These are known as “Twin conditions”.
The above conditions are in addition to the bail conditions that apply in criminal cases. (Please refer CrPC Section 437/438)
212(8).
An SFIO officer (not below Assistant Director rank), authorised by the Central Government, may arrest a person if he has reasons to believe that the person is guilty of an offence under Section 447.
The reasons for arrest must be recorded in writing, and the accused must be informed of the grounds for arrest immediately.
212(9).
The officer making the arrest must immediately forward a copy of the arrest order and the related materials to the SFIO headquarters in a sealed envelope as per prescribed procedure.
The SFIO must retain these records for the period specified by rules.
212(10).
Every arrested person must be brought before a Special Court or Judicial/Metropolitan Magistrate within 24 hours of arrest.
The 24-hour limit excludes travel time from the place of arrest to the court.
212(11) .
The Central Government may direct SFIO to submit an interim report before completing the full investigation.
212(12).
After completing the investigation, SFIO must submit a final report to the Central Government.
212(13).
Any person concerned with the case may apply to the Court to obtain a copy of the investigation report.
212(14).
After reviewing the SFIO’s report (and taking legal advice if needed), the Central Government may instruct SFIO to initiate prosecution against:
The company,
Its present or past officers or employees.
Any other person connected with the company’s affairs.
212(14A).
If the SFIO investigation report concludes that fraud has been committed, and that any person such as:
A director.
A key managerial personnel (KMP).
An officer.
Any other individual or entity.
Has received an undue benefit (in the form of money, property, or any other asset), then the Central Government can file an application before the NCLT (Tribunal) asking for:
Disgorgement (return) of the unlawful gains: The person must give back any benefit obtained through fraud.
Personal liability without any limit: That the person can be held fully and personally responsible, with no limit on how much they may be required to pay.
212(15).
The investigation report that SFIO submits to the Special Court for framing charges will be treated in the same way as a police report under Section 173 of the CrPC.
So an SFIO report has the same legal status and effect as a regular police charge sheet.
212(16).
Any investigation or action already started by SFIO under the Companies Act, 1956 shall continue under that old Act as if the 2013 Act had not been enacted.
212(17).
(a).
If any other investigating agency, State Government, police department, or income-tax authority has information or documents connected to a case that SFIO is investigating, they must share that information with SFIO.
(b).
SFIO must also share any relevant information it has with these agencies if that information is useful for their investigations under any other law.
Section 213. Investigation into company’s affairs in other cases.
(a). When Members Can Apply for Investigation
The Tribunal can order an investigation based on an application made by members of the company if the following conditions are met:
For a company with share capital:
The application must be made by at least 100 members, or members holding not less than one-tenth (10%) of the total voting power.
For a company without share capital:
The application must be made by not less than one-fifth (20%) of the total number of members on the company’s register.
The application must be supported by evidence showing that there are valid and reasonable grounds to request such an investigation.
(b). When Tribunal Can Act on Its Own or on Other Applications
Apart from members’ applications, the Tribunal can also act:
On its own (Suo motu).
On an application made by any other person. if it is satisfied that certain suspicious circumstances exist, as listed below:
(i.) Business Conducted Fraudulently or Unlawfully
If the company’s business is being conducted:
With intent to defraud creditors, members, or others,
For a fraudulent or unlawful purpose, or
In a way that is oppressive to its members, or
If the company itself was formed for a fraudulent or unlawful purpose.
(ii.) Fraud or Misconduct by Management
If any person involved in forming the company or managing it has committed fraud, misfeasance (wrongful or improper use of authority), or any other misconduct towards:
The company itself.
Its shareholders.
Its creditors.
Any other persons connected with the company.
(iii.) Withholding of Information from Members
If members have not been provided adequate information about:
The company’s overall affairs, especially about:
how commissions paid to the managing director are calculated.
how commissions or payments to other directors are determined.
how payments to the company’s manager are fixed.
or any other sensitive financial details involving key managerial personnel.
(c). Tribunal’s Order and Appointment of Inspectors
After giving all parties concerned a reasonable opportunity to be heard, the Tribunal may order that the company’s affairs be investigated.
The Central Government, on receiving such an order, must appoint one or more competent inspectors to:
Investigate into the company’s affairs, and
Report the findings to the Central Government in the manner it specifies.
(d). Punishment if Fraud Is Proved
If the investigation confirms that:
The company’s business was conducted to defraud creditors, members, or others, or for any fraudulent or unlawful purpose.
The company was formed for a fraudulent purpose.
Any person involved in the formation or management of the company has been guilty of fraud.
Then every officer in default and the persons responsible for such formation or management shall be punishable for fraud under Section 447 of the Act.
Section 214. Security for payment of costs and expenses of investigation.
If an investigation is ordered:
1. Under Section 210(1)(b)
This is when the company itself passes a special resolution asking the Central Government to conduct an investigation.
2. Under Section 213
This is when the Tribunal (NCLT) orders an investigation based on an application made by:
members of the company, or
other eligible persons then:
Before appointing an inspector, the Central Government may ask the applicant (the person or group who requested the investigation) to deposit a security amount.
This security is meant to cover the costs and expenses of the investigation.
The amount of security cannot exceed ₹25,000, and the exact amount is as prescribed by rules.
However, if the investigation results in a prosecution meaning that wrongdoing or fraud is actually found the government will refund the security to the applicant.
Section 215. Firm, body corporate or association not to be appointed as inspector.
According to Section 215:
The Central Government cannot appoint a firm, a body corporate (like a company), or any other association of persons as an inspector.
Only individual persons can be appointed as inspectors under the Companies Act.
Section 216. Investigation of ownership of company.
216(1).
The Central Government can appoint one or more inspectors to investigate and report on matters related to a company and its membership, when it believes there is a valid reason to do so.
The purpose of such investigation is to identify the real individuals behind the company’s control or interest, specifically:
(a). To find out who has or had a financial interest in the company’s success or failure.
(b). To find out who has or had the power to control or influence the company’s policy or decisions.
(c). To find out who has or had a beneficial interest in the company’s shares, or who are or were beneficial owners or significant beneficial owners.
216(2).
The Central Government must appoint inspectors under this section if:
the Tribunal (NCLT), during any legal proceeding, issues an order stating that
The company’s membership.
Matters connected to its membership, should be investigated for the purposes mentioned earlier.
216(3).
When appointing an inspector, the Central Government can define the scope of the investigation.
(For example, limit it to certain time periods, specific issues, or particular shares or debentures.)
216(4).
The inspector also has the power to investigate:
Any arrangements.
Any understandings.
Any informal practices.
even if they are not legally binding, as long as:
They are actually followed in practice, and
They are relevant for discovering the real control or true ownership of the company.
Section 217. Procedure, powers of inspectors.
217(1).
All current and former officers, employees, and agents of the company (and of any other body corporate or person whose affairs are being investigated under section 219) must:
(a). Preserve and produce all books and papers related to the company or person under investigation when demanded by the inspector.
(b). Provide all reasonable assistance to the inspector in connection with the investigation.
217(2).
The inspector can also require any other body corporate (not only the one under direct investigation) to furnish information or produce books and papers if such documents are relevant or necessary for the investigation.
217(3).
The inspector cannot keep any books or papers for more than 180 days, after which they must be returned to the concerned company or person.
However, if the documents are needed again, they may be recalled for another 180 days through a written order.
217(4).
The inspector may examine under oath:
(a) Persons mentioned in 217(1).
(b) Any other person, with prior approval of the Central Government.
For investigations conducted by the Serious Fraud Investigation Office (SFIO) under section 212, the Director of SFIO’s approval is sufficient.
217(5).
Inspectors have the same powers as a Civil Court under the Code of Civil Procedure, 1908, for the following purposes:
(a). Discovery and production of books of account and other documents.
(b). Summoning and enforcing attendance of persons and examining them on oath.
(c). Inspection of company books, registers, and other documents at any place.
217(6).
(i). If any director or officer disobeys the inspector’s directions, he can be imprisoned up to 1 year, and fined between ₹25,000 and ₹1,00,000.
(ii). If convicted, the person automatically vacates his office and becomes disqualified from holding office in any company thereafter.
217(7).
Notes of any examination conducted under oath must:
Be written down by the inspector or authorised officer.
Be read over to the person examined or read by the person himself.
Be signed by the person being examined.
These notes may later be used as evidence against that person in legal proceedings.
217(8).
If any person, without reasonable cause:
(a). Fails to produce required books or papers.
(b). Fails to furnish required information.
(c). Refuses to appear before the inspector or answer questions.
(d). Refuses to sign examination notes, then he is punishable with:
Imprisonment up to 6 months.
Fine between ₹25,000 and ₹1,00,000.
Additional fine of ₹2,000 per day for continuing default.
217(9).
The inspector can request assistance from officers of the Central or State Government, police, or statutory authorities, with the prior approval of the Central Government.
217(10).
The Central Government can enter into reciprocal agreements with foreign governments to assist in inspections or investigations under this Act or under similar foreign laws.
It can also modify the application of this Chapter to such foreign cases for effective cooperation.
217(11).
If an inspector believes that relevant evidence lies outside India, the competent Indian court may issue a Letter of Request to a foreign court or authority to:
Examine persons abroad.
Record statements.
Require production of documents or items.
Send the collected evidence or authenticated copies to the Indian court.
Such evidence is treated as valid evidence in the investigation.
217(12).
If an Indian company is being investigated by a foreign country, and that country sends a Letter of Request to India:
The Central Government may forward it to an Indian court, which will:
Summon persons, record statements, or require documents; or
Send it to an inspector for investigation.
The inspector must report back within 30 days (or extended time allowed).
The collected evidence or documents will then be forwarded back to the foreign court through the Central Government.
Section 218. Protection of employees during investigation.
218(1).
This sub-section applies when an investigation or proceeding is underway under:
Section 210 – Investigation by Central Government,
Section 212 – Investigation by Serious Fraud Investigation Office (SFIO),
Section 213 – Investigation by Tribunal order,
Section 216 – Investigation of company membership and ownership, or
Section 219 – Investigation into related companies or persons, or
During any proceeding under Chapter XVI (relating to management and administration).
If, during such an investigation, the company or body corporate intends to take disciplinary action against any employee such as:
(i) Discharging or suspending the employee,
(ii) Punishing him by dismissal, removal, reduction in rank, or any other means, or
(iii) Changing his employment terms to his disadvantage, then:
The company must first seek approval from the Tribunal (NCLT) before taking any such action.
If the Tribunal finds any issue or objects to the proposed action, it will send a written notice to the company stating its objections.
218(2).
If the company or person does not receive the Tribunal’s approval within 30 days of applying, then:
It may proceed with the proposed action against the employee.
So essentially , silence beyond 30 days would be treated as deemed approval.
218(3).
If the company or person is not satisfied with the objection or refusal raised by the Tribunal, then:
It can file an appeal to the Appellate Tribunal (NCLAT) within 30 days of receiving the objection notice.
The appeal must be filed in the prescribed manner and with the prescribed fees.
218(4).
The decision made by the Appellate Tribunal (NCLAT) is final and binding on:
The Tribunal (NCLT).
The company, body corporate, or person concerned.
No further appeal or challenge is available under this section.
218(5).
This provision operates without prejudice to other existing laws.
This means it does not override or conflict with other labor or employment laws and both can apply simultaneously.
Section 219. Power of inspector to conduct investigation into affairs of related companies.
(a). Investigation of Subsidiaries or Holding Companies
The inspector may investigate any related company that has a corporate relationship with the main company, such as:
Its subsidiary company.
Its holding company.
A subsidiary of its holding company.
(b). Investigation of Companies Managed by the Same Person
If another company is or was managed by the same Managing Director (MD) or Manager who manages the company being investigated, then the inspector can investigate that other company as well.
This helps uncover possible misuse of managerial control, where the same person might be involved in fraudulent activities across multiple companies.
(c). Investigation of Companies Controlled or Influenced by the Company
The inspector can also investigate any company:
Whose Board of Directors consists mainly of nominees of the company being investigated, or
Whose Board is accustomed to act according to the directions or instructions of that company or its directors.
(d). Investigation of Individuals Associated with the Company
The inspector may also investigate the affairs of any person who is or was:
The Managing Director,
The Manager, or
An Employee of the company.
This allows examination of personal or related dealings that may have affected the company’s affairs (e.g., misuse of funds or conflict of interest).
Before extending the investigation to other companies or individuals as described above, the inspector must obtain prior approval from the Central Government.
Section 220. Seizure of documents by inspector.
The inspector the power to search and seize documents during an ongoing company investigation.
It is meant to prevent the destruction, hiding, or alteration of important company records that may serve as evidence in uncovering fraud, mismanagement, or irregularities.
220(1).
If, during the course of an investigation, the inspector has reasonable grounds to believe that:
The books and papers of a company or a related entity.
The documents belonging to its Managing Director (MD) or Manager are likely to be destroyed, mutilated, altered, falsified, or hidden (secreted)
Then the inspector has the authority to take the following actions:
(a).
The inspector may enter the premises (with assistance, if needed) where the documents are kept.
This could be the office, branch, warehouse, or any other location related to the company.
(b).
The inspector may seize such books and papers that he considers necessary for the purpose of investigation.
However, before taking them away, the inspector must allow the company to take copies or extracts of those documents at its own cost.
220(2).
After seizing the books and papers, the inspector must keep them in his custody for as long as he finds it necessary but no later than the conclusion of the investigation.
Once the investigation is over (or when the documents are no longer needed), the inspector must return them to:
The company.
The Body corporate.
The MD / Manager / other person from whom they were taken.
Before returning, the inspector may:
Take copies or extracts,
Place identification marks on the documents, or
Otherwise deal with them in a way he thinks is necessary to preserve evidence.
220(3).
The provisions of the Code of Criminal Procedure, 1973 (CrPC) relating to searches and seizures apply mutatis mutandis meaning, with necessary changes to every search or seizure made under this section.
Section 221. Freezing of assets of company on inquiry and investigation.
221(1).
The Tribunal (NCLT) can step in and restrict any movement or disposal of a company’s assets if it believes such actions may be harmful.
This power can be exercised under any of the following situations:
When a reference is made by the Central Government to the Tribunal during or after an inquiry or investigation into a company’s affairs.
When there is a complaint by:
The required number of members under Section 244(1) (i.e., shareholders holding at least 1/10th of voting power or 1/10th of total members).
A creditor who has at least ₹1 lakh outstanding against the company.
Any other person who has reasonable grounds to believe that the company’s assets are about to be removed, transferred, or disposed of in a way that could harm:
The company itself.
Its shareholders or creditors.
The public interest.
If the Tribunal is satisfied that there is a risk of misuse of assets, it may pass an order that:
The transfer, removal, or disposal of funds or assets shall not take place for a period not exceeding three years, or
Such transfer may only take place under certain conditions or restrictions specified by the Tribunal.
221(2).
If the company disobeys or violates the Tribunal’s freezing order.
For example, by selling or transferring property despite the restriction then it will face serious penalties:
The company itself will be liable to a fine of not less than ₹1 lakh, which can extend up to ₹25 lakh.
Every officer of the company who is responsible for or involved in the violation will face:
Imprisonment for up to 3 years.
Fine between ₹50,000 and ₹5 lakh.
Both imprisonment and fine.
Section 222. Imposition of restrictions upon securities.
222(1).
If it appears to the Tribunal that:
There is a need to investigate certain facts related to the issue, ownership, or transfer of securities (like shares or debentures) of a company &
Such facts cannot be properly discovered unless restrictions are placed on those securities. then, the Tribunal may, by an order, direct that:
The securities of the company shall be subject to specific restrictions.
These restrictions will remain in force for a period not exceeding three years.
The nature of the restrictions will depend on what the Tribunal considers necessary for the investigation.
Some of the restrictions can include:
Freezing the transfer of shares.
Restricting voting rights.
Stopping issue or sale of new shares.
The power can be exercised by the Tribunal:
During an investigation under Section 216 (which deals with determining the true ownership or control in a company).
On a complaint made by any person who provides a valid reason to believe that such restrictions are necessary.
222(2).
If any securities are Issued, Transferred, or Acted upon in violation of the Tribunal’s restriction order, then the following penalties apply:
The company shall be liable to a fine of not less than ₹1 lakh, which may extend up to ₹25 lakh.
Every officer of the company who is responsible for the violation shall be punishable with:
Imprisonment up to 6 months.
Fine between ₹25,000 and ₹5 lakh.
Both imprisonment and fine.
Section 223. Inspector’s report.
223(1).
An inspector appointed by the Central Government:
May submit interim reports (if needed or directed), to provide updates during the investigation.
Shall submit a final report to the Central Government after completing the investigation.
223(2).
The inspector’s report must be in writing or printed form, as directed by the Central Government.
This gives it an official, recorded status suitable for legal or administrative action.
223(3).
A copy of the report can be obtained by:
Members.
Creditors.
Any other person whose interest is likely to be affected by making a formal application to the Central Government.
223(4).
The inspector’s report is considered authentic legal evidence if it is properly authenticated, either:
By the seal of the company being investigated or
By a certificate from a public officer who has custody of the report, as per Section 76 of the Indian Evidence Act, 1872.
Once authenticated, the report becomes admissible in court as valid evidence for matters contained in it.
223(5).
This section does not apply to reports prepared under Section 212, since those are governed separately by the Serious Fraud Investigation Office (SFIO) provisions.
Section 224 . Actions to Be Taken in Pursuance of Inspector’s Report.
224(1).
Once the Inspector’s Report is Submitted under (Section 223) the Central Government can take the following actions:
If the report shows that any person connected to the company has committed an offence, the Central Government may:
1. Start prosecution
The Government can prosecute (file criminal charges against) the person who has committed the offence.
This applies to directors, KMPs, officers, employees, or anyone linked to the company or related entities.
2. Officers and employees must assist
Every officer and employee of the company is legally required to help and cooperate with the Government during the prosecution.
They cannot refuse to assist or withhold information.
Example:
If the inspector’s report finds that directors committed fraud, then:
The Central Government can file criminal cases against those directors.
All employees, officers, and other company personnel must support the prosecution by giving documents, evidence, or statements.
224(2).
If the report suggests that:
The company’s situation fits circumstances under Section 213 (like fraud, oppression, or mismanagement).
It appears just and equitable to wind up the company then:
The Central Government can authorize a person to file before the Tribunal (NCLT):
A petition to wind up the company.
An application under Section 241 (for oppression and mismanagement).
Both.
This can even apply to companies governed under the Insolvency and Bankruptcy Code, 2016 (IBC).
224(3).
If the report shows that:
There was fraud, misfeasance, or misconduct in forming or managing the company.
Some property of the company was misused or wrongfully held by someone then:
The Central Government may itself file civil proceedings:
To recover damages or restore property.
In the public interest.
On behalf of the company or body corporate.
224(4).
When the Central Government files such proceedings under 224(3):
It will be reimbursed (indemnified) by the company or body corporate for all costs and expenses it incurs.
224(5).
If the inspector’s report establishes fraud, and it shows that:
A director,
A key managerial personnel (KMP),
An officer
Any other person, has benefited from that fraud, whether the benefit is:
Money.
Property.
Assets.
Any other advantage, then the Central Government can take the following actions:
1. File an application before the Tribunal (NCLT)
Asking for disgorgement. (The return or recovery of the illegal gains, assets, or benefits obtained through fraud.
2. Seek personal liability
Request that such persons be held personally liable,
Without any limit on how much they may be required to repay or compensate.
Section 225. Expenses of investigation.
225(1).
First, all expenses of the investigation are initially paid by the Central Government.
However, these expenses must later be reimbursed by certain persons, depending on the outcome of the investigation:
(a).
If someone is found guilty in a case under Section 224, or if a court orders them to pay damages or return property, then:
That person must also pay the costs of the investigation, in whatever amount the court decides.
(b).
If legal proceedings are filed in the name of a company or body corporate, and the company recovers money or property because of those proceedings, then:
The company must repay the investigation costs, but only up to the amount it recovered.
(c).
If, after the investigation is completed, no prosecution is launched, then the Central Government may order the following persons to repay the investigation expenses (in whatever amount the Government thinks appropriate):
(i). Any company, body corporate, managing director, or manager who is named in the inspector’s report.
(ii). The persons who originally applied for the investigation under Section 213.
225(2).
Any amount that a company or body corporate must pay under clause (b) will be treated as a first charge on whatever money or property it recovers.
This means that the investigation expenses must be paid first, before anyone else can claim any share of that recovered money or property.
Section 226. Voluntary winding up of company not to stop investigation proceedings.
An ongoing investigation cannot be stopped just because:
(a). Someone has filed an application under Section 241 claiming oppression or mismanagement.
(b). The company has passed a special resolution to wind itself up voluntarily.
(c). The company is already being wound up by the Tribunal.
Even if the company is facing internal disputes or is in the process of shutting down, the investigation continues.
If the Tribunal eventually decides to wind up the company, the investigator (inspector) must inform the Tribunal that an investigation is already in progress.
After being informed, the Tribunal can issue any directions it thinks necessary to coordinate the investigation and the winding-up process.
A winding-up order does not protect the company’s directors or employees.
They still must:
Participate in the investigation.
Face any liability (responsibility or consequences) that may arise based on what the inspector discovers.
Even if the company is being shut down, the people responsible can still be questioned and held liable.
Section 227. Legal advisers and bankers not to disclose certain information .
227(1).
It states that all private and confidential information held by lawyers and banks is protected during an investigation.
So no law in this Chapter (about inspection, inquiry, and investigation) can force the following to happen:
(a).
A legal adviser (like a lawyer) cannot be forced to reveal private or privileged conversations they had with their client while giving legal advice.
But if needed, the lawyer must still provide the client’s name and address, just not the confidential discussions.
(b).
A bank cannot be forced to share information about its other customers when one particular company, business, or person is being investigated.
The bank only has to give information about the specific customer who is under investigation, not about anyone else.
Section 228. Investigation of foreign companies.
All the rules and procedures are applicable to Indian companies under this Chapter will also apply mutatis mutandis to foreign companies operating in India, wherever possible and relevant.
Section 229. Penalty for furnishing false statement, mutilation, destruction of documents.
If any person who is required to give an explanation or statement or any officer or employee of a company or body corporate under investigation does any of the following acts:
(a). Destroys, alters, hides, or removes any documents related to the company’s property, assets, or affairs, or helps someone else to do it.
(b). Makes or helps to make false entries in company records or documents.
(c). Gives or helps to give a false explanation or statement, knowing it is false.
Then, that person will be punished for fraud under Section 447 of the Companies Act.
Section 447 prescribes severe penalties, including imprisonment and heavy fines depending on the seriousness of the fraud.
