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
Section 210 to 229 contain provisions relating to investigation into the affairs of companies. Section 211 provides for the establishment of serious fraud investigation office { SFIO }whereas section 212 deals with the investigation into affairs of a company by the SFIO .
WHO CAN APPLY AND THE SCOPE OF INVESTIGATION
Section 210{1} provides that the central government may order investigation into the affairs of a company on receipt of a report from the registrar or inspector under section 208 or where a company has passed a special resolution for the investigation of the affairs of the company or in public interest .
The central government has discretion to order investigation as the expression used is ‘may’. Section 210{2} makes it mandatory for the central government to order an investigation into the affairs of a company if there is an order by the :-
1} court
2} the tribunal
Directing that the affairs of a company ought to be investigation .
ON THE REPORT OF REGISTRAR OR INSPECTOR
-
- Sub clause (a) of section 210(1) empower the central government to order investigation into the affairs of a company on the report of the registrar or inspector under section 208 .
- When an inquiry or inspection of books of account or other papers is made under section 206 or section 207 , the person making the inquiry or inspection may recommend further investigation into the affairs of the company .
- The central government may appoint one or more competent person as inspector . when a company is violating any of the provision of the act , the registrar is competent to take steps for investigation of the affairs of the company :- standards brand ltd ., In re {1980 }50 comp. Cas .75(cal).
THE COURT OR TRIBUNAL BY ORDER
Section 210 (2) provide that central government may direct , if a court or the tribunal in any proceeding before it , by order declares that the affairs of the company ought to be investigated by an inspector appointed by the central government .
It has been contended in several cases that the power and discretion of the government were uncontrolled and the court could direct an investigation whenever it suspected that all was not well with the company and it was not necessary for the petitioner to prove his allegation before court .
Case :- Mrs.U.A.Sumathy v Digvijay chit fund (P.) Ltd .(1983);
53 comp. Cas .493 ( ker .)
No doubt , clause (a)(ii) of section 237( now under section 210(2) does not lay down what circumstances are to be proved before the court and on what material , the court could act but that does not mean that mere allegation are sufficient . A court can act only on the material placed before it and those material should at least be such as to satisfy the court that a deeper probe into the company affairs is desirable in the interest of the company itself .
IN PUBLIC INTEREST
Under sub clause (c) of section 210 (1) , the central government has discretion to order an investigation into the affairs of company ‘ in public interest’.
Case :- N.R.Murthy v. Industrial development corporation of orissa limited (1977) 47 comp . cas . 389 (Ori,)
It emphasis the idea of the company functioning for the public good or general welfare of the community , at any rate , not in manner detrimental to the public goods .
OBJECTIVES FOR ORDERING OF AN INVESTIGATION
- Where an inspector can bring to light any major contravention of company law or any other law on the basis of which necessary corrective or remedial measure can be applied .
- Where the application of such measures alone will be enough to lend succour to the aggrieved parties , where necessary or to set right the affairs of company so as to bring them in conformity with the accepted principles and standard of good and efficient management .
- Where the allegation bring out clearly or by implication a charge of irregular accounting , the truth of which can be established only by the analysis of the books by a qualified chartered accountant.
It was held by the Delhi high court that the objectives of investigation under section 210 was to unearth and find out new material or data. If no information is found then application for investigation would be rejected :- Amaan Sachdev v fahed abdul rahman ali alkhamiri (2016) 70 taxmann . com 337 ( Delhi ) .
INVESTIGATION INTO AFFAIRS OF A COMPANY BY SERIOUS FRAUD INVESTIGATION OFFICE
Under section 211 , the central government shall by notification establish a serious fraud investigation office to investigate fraud relating to the company . The central government may order the SFIO under section 212(1) to investigate the affairs of a company in the circumstances given below :-
- When there is a receipt of the report of the registrar or inspector which is provided under section 208 .
- When there is intimation of the special resolution passed by a company whose affairs is to be investigated .
- Public interest
- Request from any department of the either :
- Central government
- State government
POWER OF SFIO
There are various powers of the SFIO which are as follows :-
1} to call for information
Sub section 5 cast a duty on the company and its officers and employees , who are or have been in employment of the company to provides all information , explanation , documents and assistance to the investigating officer .
2} to arrest
Sub section (8) of the section 212 provide that officers who are authorized by the central government to arrest a person if he has reason to believe the person is guilty of any offence punishable under sub section (6).
3} submission of report to the central government
The SFIO , when complete the investigation is required to submit the investigation report to the central government .
4} sharing of information
Other investigating agencies such as state government , police etc when investigate any offence gather information will should be shared with the SFIO.
INVESTIGATION INTO COMPANY’S AFFAIRS IN OTHER CASES
Under section 213 of the company act 2013 provide that the tribunal may pass an order that affairs of a company ought to be investigated by an inspector or inspectors appointed by the central government. If such order is passed by the tribunal , the central government shall appoint inspector(s) to investigate the affairs of the company in respect of different matter which came before it . the tribunal may pass an order to investigate in the following condition :- 1.
- In case of company having share capital ,
{1} application made
{2} not less than 100 member
{3} 1/10th of the total voting power
- In case of company having no share capital
{1} not less than 1/5th of the person in company’s register
- An application must be supported by the evidence.
2 On an application made to it by any other person , if it is satisfied that there are circumstances suggesting that :-
- The business of the company is being conducted with intent to defraud its creditors , member or any other person or otherwise for a fraudulent or unlawful purpose , or in a manner oppressive to any of its member or that the company was formed for any fraudulent or unlawful purpose .
- Person concerned in the formation of the company or the management of the affairs have in connection therewith been guilty of fraud , misfeasance or other misconduct toward the company or toward any of its member .
- The member of the company have not been given all the information with respect to its affairs which they might reasonably expect including information relating to the calculation of the commission payable to a managing or other director of the company.
The application is required to be made in FORM NCLT – 1 and accompanied with documents as mentioned in the national company law tribunal rules , 2016 . before passing an order under section 213 , the parties concerned shall be given a reasonable opportunity of being heard .
OBJECT :- The object of an investigation under section 213 is to discover something that is not apparent to naked eyes .
1} Case : Delhi flour mill company Ltd (supra)
Economic working of the company cannot be matter for investigation . there must be allegation of illegal acts or malpractices , malfeasance etc to sustain an order for investigation.
2}Case :- New central jute mills company Ltd v. deputy secretary , ministry of finance [1966] 36 comp . cas 512 ( Cal ).
Contravention of the provision of the other laws for the time being in force is of course within the scope of clause (b) of section 237 (now under section 213[b]).
3} Case:- M.Subbiah v. madras cricket club
[2007] 80 SCL. 155
The CLB { now tribunal }has held that grievance of petitioners regarding induction of friends and associates of member of executives committee in the club , who have no sports background , does not fall within the ambit of section 237(b).
4} Case :- Chandrika Prasad sinha v. Bata India Ltd
[1996] 9 SCL 108 ( CLB )
The power to form an opinion regarding an investigation under section 237(b)[now under section 213(b) to is an exclusive jurisdiction conferred on the CLB ( tribunal under the act ) and as such no other forum including the district consumer forum or authority including the central government can exercise this power . The fact that petitioner was an insignificant shareholder shall have no bearing .
5} Case :- Bank of Rajasthan Ltd v. Rajasthan breweries Ltd [2007] 79 SCL 395 [CLB – New Delhi ]
The scope of section 237 (b) [ now section 213 (b) ] is very wide as compared to inspection under section 209A ( now under section 207 ) . Violation of the provision of the act noticed on the inspection strengthen the ground for ordering investigation under section 237(b) now under section 213(b).
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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