This article has been written by Ishika rawat , a student studying LLB from Asian law college , Noida. The author is 1st year law student.

INTRODUCTION 

Inspection is a very useful instrument and the preliminary step for finding out materials and facts which would justify initiation  of investigation under section 201 of the companies act 2013.

POWER TO CALL FOR INFORMATION , INSPECT BOOKS AND CONDUCT INQUIRIES 

 

• Section 206 (1) provide that if the registrar on a scrutiny of any document filed by a company or on any information received by him , is of the opinion that any other further information or explanation or any further document relating to the company is necessary , he may require the company to  furnish in writing such information or explanation or to produce such documents. The registrar will give written notice to the company for that purpose specifying to provide the desired information or documents within a reasonable time . 
• The expression “document” include summons , notice , requisition , order , declaration , form and register ., whether issued , sent or kept in pursuance of this act or under any other law for the time being in force or otherwise , maintained on paper or in any electronic form provided under section 2(36) of the companies act 2013.
• The registrar may by any other notice call on the company to produce for his inspection such further book of accounts , books , papers and explanation if :-

1. The company fails to furnish the information or explanation within the time specified .
2. The registrar is of the opinion that the information or explanation is not adequate 
3. The registrar is satisfied with the unsatisfactory state of affairs exists in the company and does not disclose a full and fair statement of the information.

 

The registrar shall specify the time and place for production of books etc . before serving the notice the registrar shall record the reason in writing for issuing such notice as provided under section 206 (3).

Under section 206 (4) if the registrar is satisfied on the basis of information available with or furnished to him or on a representation made to him by any person that :- 

1. The business of the company is being carried on for a fraudulent or unlawful purpose .
2. Not in compliance of this act .
3. If the grievance of the investor are not being addressed .

 He may call the company to furnish in writing any information or explanation on matter specified in an order within such time as specified . the registrar shall inform the company of the allegation made against it by a written order and carry out such inquiry as he deem fit after providing the company the reasonable opportunity to be heard. Central government may direct the registrar or inspector appointed by it for the purpose to carry out the inquiry under this sub section ( proviso to section 206 (4) ).

 

The central government may :-

1. If it is satisfied that the circumstances so warrant , direct inspection of books and paper of a company by the registrar or inspector appointed .
2. Having regard to the circumstances by general or specific order , authorise any statutory authority to carry out the inspection of books of account of a company or class of companies .

• INSPECTION 

• Inspection covers the companies with paid up capital exceeding certain level , company incurring losses and companies in respect of which complaints are received .
• The material brought out in the inspection reports is made use of  for taking action under important provision of the act including inter alia appointment of government director , ordering investigation into the affairs of the company under section 210 and consideration of application seeking approval for the appointment of managerial personnel in companies.
•  In certain cases , prosecution are also launched on the basis of the findings contained in the inspection reports . besides cases involving non compliance of the certain provisions of the act , including inadequate maintenance of the statutory records noticed during such inspections are also taken up with the companies for necessary remedial action . information of interest to other government departments / agencies as brought out in the inspection reports is also communicated to them for suitable and appropriate action .

•  WHAT BOOKS AND PAPERS CAN BE INSPECTED ?

• Under section 206(3) , the registrar is authorized to call for production of books of account , books ,paper and explanation as he may require .
• The expression ‘book’ and ‘books of account’ has been defined in section 2(12) and 2(13) of the act respectively .
• Accordingly ‘books and paper’ and ‘book or paper’ include :-

1. Books of account 
2. Deeds
3. Vouchers
4. Writings
5. Documents 
6. Minutes
7. Registers 

Maintained in the electronic form .

• The ‘books of account’ include records maintained in respect of all sums of money received and expended by a company and matters in relation to which the receipts and expenditure take place ; all sale and purchase of goods and services by the company ; the assets and liabilities of the company and items of cost as may be prescribed under section 148 in the case of a company which belong to any class of company . 

 

• DEPARTMENT’S VIEWS

The view of the department on the subject as under :-

1. The inspecting officer has a right to examine the books and records of any firm in which the company concerned is a partner .
2. The inspecting officer has a right to examine the books and records of any joint venture in which the company concerned has an interest .

 

• PLACE AND TIME OF INSPECTION

The place at which inspection may be carried out need not be the registered office of the company . The books of account have to be kept either at the registered office of the company or at some other place , after an intimation to the registrar . 

The books of account can be inspected at such other place also . thus the authorised officer or the registrar was held entitled to demand inspection of the books of account even in his office :- Indra Prakash Karnani v. ROC (1985) 57 Comp. Cas. 62 (Cal ).

 

• DUTIES OF DIRECTORS , OFFICERS , EMPLOYEES OF THE COMPANY TO ASSIST IN INSPECTION 

Sub section (1) of section 207 casts a duty on every director , other officer or employees of the company to produce to the person making inspection all such documents and to furnish him with any statement , information or explanation relating to the affairs of the company in such forms as the said person may require of him within such time and at such place as he may specify .

• POWER OF THE INSPECTOR 

• Power to make copies 

A person making the inspection under this section may during the course of inspection make or cause to be made copies of books of account and other books and paper .

• Power to place identification marks 

The inspector may during the course of inspection place or cause to be placed any marks of identification thereon in token of the inspection having being made .

• Power of civil courts 

Sub section (3) of section 207 provides that not with standing anything contained in any other law for the time being in force or any contract to the contrary , any person making an inspection shall have the same 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 at such place and such time as may be specified by such person .
2. Summoning or enforcing the attendance of person and examining them on faith .
3. Inspection of any books , registrar and other documents of the company at any place .

• Power to search and seizure  

Under section 209 (1) if the registrar or inspector making inspection has reason to believe that books and paper of the company or relating to the key managerial personnel or any director or auditor or company secretary in practice are likely to be destroyed , mutilated , altered or falsified , he may after obtaining order from the special court for seizure of such books and paper enter and search the place or places where the relevant books or papers are kept and seizure such books and paper .

 

CRPC :- for every search and seizure under this section the provisions of the code of criminal procedure 1973 shall apply . The books and paper seized shall be returned to the company as soon as possible but within one hundred and eighty days .Before returning the books and paper the person making the inspection may take copies of or extract from them or place identification mark on them .

• Power to carry investigation into affairs of related companies (section :- 219)

 Section 219 states that the inspector appointed under section 210 or section 212 or section 213 may , if considered necessary , investigate even the affairs of another company under the same management or in the same group . Under this section , an inspectors is empowered to investigate of the following person and / or body corporate and report on their affairs also if he thinks tat such an investigation is relevant to the affairs of the company under investigation

A} any other body corporate which is or has at any relevant times been the company subsidiary or holding company or a subsidiary of its holding company .

B} any other body corporate which is or has at any relevant time been managed by any person as managing director or as manager who is or was at the relevant time either the managing director or the manager of the company under investigation .

C} any body corporate whose board of directors comprising nominees of the company or is accustomed to act in accordance with the directors or instructions of :- 

1. The company 
2. Any of the directors of the company 

D} Any persons who is or has been at any relevant time , the company managing director or manager .

 

Case :- Coimbatore spinning & weaving co. Ltd v. M.S. Srinivasan

• 29 Comp.Cas.97 (Mad)

Duties of the inspectors are not judicial or quasi judicial in nature , there are no litigants before him nor is he bound by any procedure ; nor is his report binding on government .

 

Case :- Titagarh paper mills co. Ltd v. Union of India (1986) 59 Comp.Cas,(Cal)

New central jute mills co. Ltd v. Deputy secretary (supra)

Inspector is not barred from taking help of other person in conducting enquiry , but he should himself consider all material thus collected , while preparing his report .

• power to compel production of documents  

Section 217 sub section (1) and (2) deal with the power of the inspector as also the duties of officers , employees and agents of any company or related body corporate under investigation in connection with the actual work of investigation .

 

7} power to examine an oath 

The inspector may examine on oath any of the person referred to in sub section (1) of section 217 and any other person not mentioned therein . To examine any other person he may apply to the central government for necessary orders . 

 

Case :- Indra Prakash Karnani v. ROC ( Supra )

It may be noted that the company cannot be made liable for committing the default .

 

Case :-  State v. S Seshamal Pandia (1986) 60 Comp. Cas .889 (Mad)

The offence under this section is not the continuing one and is deemed to be committed on a particular date . Limitation began to run on that date . A prosecution launched more than one year after the date of the offence is barred by the limitation .

• PENALTY FOR DEFAULT 

The following penalties have been prescribed for default :- 

• Failure to furnish information under section 206 

A company and ever officer of the company who is in default which fails to furnish any information or explanation or produce any documents required under section 206 shall be punishable with fine which may extend to rupee one lakh and in case of a continuing failure , with an additional fine which may extend to rupee five hundred for every day after the first during which the failure continues.

• Default under section 207 

disobeying the direction issued by the registrar or the inspector under section 207 shall make the director or the officer punishable with imprisonment which may extend to 1 year and with fine which shall not be less than rupees 25000 but which may extend to 1 lakh . It may be noted that the company cannot be made liable for committing the default :- Indra Prakash Karnani v. ROC (1985) 57 Comp . Cas . 662 (Cal) .

However the offence under this section is not a continuing one and is deemed to be committed on a particular date . Limitation began to run on that date . A prosecution launched more than one year after the date of the offence is barred by the limitation :- State v. S. Seshamal Pandia (1986) 60 Comp . Cas .889 ( Mad ) .

• DIFFERENCE BETWEEN INVESTIGATION AND INSPECTION 

1.  The inspection of books of account and other books and paper of the company is authorised under section 206 of the companies act , while  the investigation can be ordered under section 210 or 212 or 216 or 219 of the act .
2. Inspection of books of account and other books and paper is not an investigation though it may lead to investigation in case anything wrong or objectionable is  found during the inspection . its object is to ensure that there is nothing objectionable in the books of account and other books and paper .
3. Inspection can be done either by the registrar or by an officer authorised by the central government . But investigation can be conducted by competent person only , appointed as inspector (investigators) by the central government or SFIO.
4. Under section 206 , the inspection is initiated based upon the security of the books of account and other books and papers the inspecting authority need not assign any reason. Investigation on the other hand may be ordered by the central government under section 210(1) on the report of the registrar under section 208 or where company has passed a special resolution for the investigation of the affairs of the company or in public interest .
5. No company or member can ask for a copy of inspection report , while a copy of investigation report may be obtained by anybody by making an application to the central government .
6. The expenses of inspection are borne entirely by the government and are not recoverable . In the case of investigation , the expenses in the first instance are borne by the central government but may be reimbursed partly or fully by the applicants in the case of investigation in accordance with any direction of the central government in this regard ( section 225 ).

• REPORT OF THE INSPECTOR 

Under section 223 of the act , the inspectors has to prepare and submit a report to the central government . The inspector may in his direction make interim report . but if he is so directed by the government , he is required to make and submit such interim report as may be required . Every report under under this section is required to be in writing and authenticated either by the seal if any of the company whose affairs have been investigated or by a certificate of a public officer having the custody of the report as provided under section 76 of the Indian evidence act , 1872 . A copy of the report may be  obtained by members , creditors or any other person whose interest is likely to be affected by making an application in this regard to the central government . These provision do not apply to investigating report of SFIO under section 212.

BIBLIOGRAPHY 

1}  The companies act 2013

2}  Company law and practice by Dr. G.K. Kapoor and Dr. Sanjay Dhamija

3} company law by Avtaar Singh

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