This article has been written by Ms. Sheereen Iqbal, a student of South Calcutta College of Law, Calcutta
INSPECTION, INQUIRY AND INVESTIGATION UNDER COMPANIES ACT
INTRODUCTION
The provision of “investigation,” “inquiry,” and “inspection” is defined in Sections 206 to 229 of Chapter XIV of the Companies Act, where the Central Government’s main goal was to protect shareholders’ interests and uphold transparency so that shareholders could inspect, investigate, inquire when it appeared that the company’s business was conducted in a dishonest or unfair way. In general, the phrases “inquiry” and “inspection” refer to the act of seeking information and meticulous examination, respectively. Investigation as explained within the provisions of the act is a kind of probe, a deeper probe, into the affairs of a corporate sector. The aforementioned statement also covers a study of all business-related matters, including gains and losses, assets, including goodwill, transactions, contracts, investments, and other property interests, as well as management of subsidiary businesses. It is an investigation of the facts. The fundamental goal of an investigation is to gather evidence, identify any illegal behavior or offences, and determine the next course of action. Inquiry refers to the process of gathering facts and gathering information in order to decide whether a claim of wrongdoing or an apparent incident of it calls for an investigation.
We will now discuss some of the provisions of investigation, inspection and inquiry under companies act which will provide us the procedure about how it is carried out.
POWER TO CALL FOR INFORMATION
Section 206 of companies act,2013 deals with power to call for information, inspect and conduct inquiries. According to section 206(1) where the registrar is of the opinion that some further information or any document is required for scrutiny in respect of any document filed by the company then he may by a written notice can ask the company for furnishing in writing such information or explanation or to produce any other documents within the given time. According to (2) on such notice the company is bound to produce such information or documents within reasonable time. Further sub-section 3 specifies that if the registrar on examination of the information and documents is of the opinion that the information furnished is not full and fair and is inadequate then by providing another notice he may call on the company again to provide such book of accounts or papers or explanations. Further under sub-section (4) if the registrar is satisfied with the furnished documents or information that the company or business is carried out for fraudulent purpose and it does not comply with the provisions then after informing the company about the allegations the company can be given reasonable opportunity of being heard and to furnish in writing any information or explanation within the specified time. Under sub-section (5) without affecting the requirements of this section, the Central Government may, if it determines that the situation justifies it, order an inspector it has hired for the job to inspect the accounts and documents of a corporation. Further sub-section(6) specifies that the Central Government may, by general or special order, authorise any statutory authority to conduct the inspection of the books of accounts of a firm or class of companies, taking into account the circumstances. Sub-section (7) further specifies that company and each of its officers who violate this section by failing to provide any information, justification, or document required by it will be fined up to one lakh rupees, and in certain circumstances, they could also face imprisonment.
CONDUCT OF INSPETION AND INQUIRY
Section 207 of companies act explains the conduct of inspection and inquiry. Section 207(1), where a registrar or inspector orders for book of accounts and other documents as specified under section 206, it should be the duty of the company and its employee to furnish such details as and when required and should provide all assistance to the registrar.Sub-section (2) specifies that during the course of an inspection or inquiry conducted in accordance with section 206, the Registrar or inspector may: (a) make or cause to be made copies of books of account and other books and papers; or (b) place or cause to be placed any identification marks in such books as a sign that the inspection has been conducted. According to sub-section (3) , the registrar or inspector carrying out the inspection or inquiry are vested with all powers under Code of Civil Procedure,1908.Under sub-section (4)(i) if the director or officer of the company disobeys any order or directions as per specified by the registrar then he should be punishable with imprisonment which may extend to one year and fine which will not be less than twenty-five rupees.Under (i) of subsection (4) if the director or the officer of the company has been convicted of any offence after the inspection then from such date he should be deemed to have vacated the office.
SEARCH AND SEIZURE
According to section 209(1), if the registrar is of the opinion and there are reasonable grounds that the books and papers of the company are like to be destroyed then on obtaining order from the special court for the seizure of such books and papers then he may enter the place where such documents are kept with required assistance and seize such books or papers which are necessary. However there’s always a great debate on interplay of right to privacy provided by our constitution and provision of such seizure of documents of a corporate firm. After taking into account the rulings in the Triplex Safety Glass case and the aforementioned Hale case, the Bombay High Court in the case State of Maharashtra vs. The Nagpur Electric Light and Power Co. Ltd. concluded that under Indian law, businesses are entitled to the same protection against self-incrimination as individuals. The legitimacy of the summonses issued requesting the production of specific documents by the corporation was taken into consideration by the court. Therefore, it is obvious that any action taken under section 204 of the Act without following the due process of law would be unlawful if the corporation has been listed as an accused. However, the United States Supreme Court adopted a different stance in the Hale v. Henkel decision. The issue of whether such a right also applies to a firm has generated discussion all across the world. The leading British judgements can be used to trace the development of the jurisprudence. It was decided that a corporation could utilise the privilege against self-incrimination in the Triplex Safety Glass Co Ltd vs. Lancegaye Safety Glass Ltd. In a similar vein, the House of Lords upheld the availability of the privilege against self-incrimination for corporations in Rio Tinto Zinc Corporation v. Westinghouse Electrical Corporation by adopting the Court of Appeal’s reasoning in that case.
INVESTIGATION INTO AFFAIRS OF COMPANY
Under section 208, the Registrar or inspector shall, following the inspection of the books of account or an inquiry under section 206 and other books and papers of the company, submit a written report to the Central Government along with such documents, if any. Such report may, if necessary, include a recommendation that further investigation into the affairs of the company is necessary, giving his reasons in support. Under section 210 (1),where the Central Government determines that an investigation into a company’s operations is necessary,— (a) upon receipt of a report from the Registrar or inspector pursuant to section 208;(b) upon notification of a special resolution adopted by a company indicating that the company’s affairs should be investigated; or (c) in the interest of the public, it may order an investigation into the business’s affairs. Sub-section (2) specifies that the Central Government shall order an investigation into the affairs of a corporation when a court or the Tribunal orders one in any matter before it that the affairs of a company should be looked into. Section 211 states about the establishment of Serious Fraud Investigation Office by Central Government to investigate frauds relating to company. Under sec 211(1) of companies act, if the central government is of the opinion that it is important to investigate into the affairs of the company by Serious Fraud Investigation Office by receiving a receipt of report of the registrar or on informing by a special resolution passed by the company or in the public interest and on request of the Dept. of Central or State Government it may order the office of Serious Fraud investigation to carry on the investigation of the corporate firm and upon such order the officers may be designated by the office as and when required for the investigation.
CONCLUSION
It is clear that the central government now has broad, all-encompassing, and unfettered authority to look at a company’s finances and records whenever “the circumstances so warrant.” According to the way the provision is currently written, neither the central government is required to give notice or explain the grounds for such an exercise of power, nor are there enough checks and balances in place under section 206(5) of the Act to prevent the central government from abusing its authority in an arbitrary or malicious manner. The clause allows the State unrestricted authority to order the investigation of a company’s books for any cause, even if the necessity to issue a notice is to be read into the statute, provided “the circumstances so warrant.” A case can be made out that section 206(5) of the Act, which allows the central government to appoint an inspector to examine a company’s books and papers without affecting section 206(1) to (4) of the Act, would give the State broad and unrestricted authority to conduct book inspections, violating the fundamental right of companies to conduct trade and business.
SOURCES
1. https://taxguru.in/company-law/inspection-inquiry-companies-act-2013.html
2. https://www.icsi.edu/portals/0/INSPECTION,%20INQUIRY%20AND%20INVESTIGATION.pdf
4.Companies Act,2013
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