TABLE OF CONTENTS

1. INTRODUCTION.................................................................................................... 2

2. RELEVANT PROVISIONS UNDER THE LEGISLATION ............................. 3

2.1 - INVESTIGATION INTO AFFAIRS OF COMPANY (SECTION 210): 3

2.2- ESTABLISHMENT OF SFIO (SECTION 211): ........................................... 4

2.3- INVESTIGATION BY SERIOUS FRAUDS INVESTIGATION OFFICE

(SFIO) INTO THE AFFAIRS OF A COMPANY (SECTION 212): .................. 5

2.4- SECURITY FOR PAYMENT OF COSTS AND EXPENSES OF

INVESTIGATION [SECTION 214] : .................................................................... 5

2.5- FIRM, BODY CORPORATE OR ASSOCIATION NOT TO BE

APPOINTED AS INSPECTOR. (Section 215)- .................................................... 6

2.6- INVESTIGATION OF OWNERSHIP OF COMPANY (SECTION 216): . 6

Powers of Inspector.............................................................................................. 6

2.7- POWER OF INSPECTOR TO CONDUCT INVESTIGATION INTO

THE AFFAIRS OF OTHER RELATED COMPANIES (SECTION 219) : ...... 8

2.8- SEIZURE OF DOCUMENTS BY THE INSPECTOR (SECTION 220)- ... 9

2.9- INSPECTOR’S REPORT (SECTION 223)- .................................................. 9

2.10- INVESTIGATION OF FOREIGN COMPANIES (SECTION 228)........ 10

2.11- PENALTY FOR FURNISHING FALSE STATEMENT,

MUTILATION, DESTRUCTION OF DOCUMENTS (SECTION 229): ........ 10

3. CONCLUSION ...................................................................................................... 11

PURPOSE BEHIND APPOINTING INSPECTOR BY CENTRAL

GOVERNMENT AND NEED TO INVESTIGATE : ......................................... 11

1
1. INTRODUCTION

Investigation of affairs of a Company falls under the XIV Chapter of the Companies
Act, 2013. From Section 206 to Section 229, the details of Inspection, Inquiry and
Investigations are being explained. The Shareholders of a Company have several
rights, including those of the right to vote and elect their directors, right to convene
board meetings, right to receive dividends and so on. Although, sometimes these
shareholders are ill-equipped exercise all their powers, and this is abused by those
who control the majority of the affairs of the company. Thus, with the introduction of
the Companies Act, 2013, the Central Government through this Chapter of the Act,
vested the shareholders with the powers to inspect, inquire and investigate the affairs
of the company in appropriate situations where it could be believed that the business
of the company was being done in a fraudulent or unfair manner.

Shareholders have been vested with various rights including the right to elect
directors. However, shareholders are often ill-equipped to exercise effective control
over the affairs of companies, and, particularly in companies whose shareholders are
widely scattered, the shareholders are, by and large, sleeping and passive partners, and
the affairs of such companies are managed to all intents and purposes, by its Board of
directors to the exclusion of a predominant majority of shareholders. Such a situation
leads to abuse of power by persons in control of the affairs of company. It became,
therefore, imperative for the Central Government to assume certain powers to
investigate the affairs of the company in appropriate cases particularly where there
was reason to believe that the business of the company was being conducted with the
intent to defraud its creditors or members or for a fraudulent or unlawful purpose, or
in any manner oppressive of any of its members. Chapter XIV contains Sections 206
to 229 of the Companies Act, 2013, deals with the provisions relating to Inspection,
Inquiry and Investigation of the affairs of company. Investigation within the meaning
of the relevant provisions of the Act is a form of probe; a deeper probe; into the
affairs of a company. It is a fact finding exercise. The main object of investigation is
to collect evidence and to see if any illegal acts or offences are disclosed and then
decide the action to be taken.

2
WHEN CAN AN INVESTIGATION INTO THE AFFAIRS OF THE COMPANY
TAKE PLACE1?
Central Government can exercise its power to order for investigation into the affairs
of a Company on the basis of opinion:

a. On basis of the report of the Registrar or inspector under section 208;

b. Upon a special resolution passed by a company that the affairs of the company
need to be investigated; or

c. In public interest,

Where an order is passed by a court or the Tribunal2 in any proceedings before it that
the affairs of a company ought to be investigated3

2. RELEVANT PROVISIONS UNDER THE

LEGISLATION

2.1 - INVESTIGATION INTO AFFAIRS OF COMPANY (SECTION

210):
This section talks about Appointment of Investigators by Central Government.It says
that On the basis of the following, the Central Government may appoint one or more
inspectors to investigate the affairs of the company and to report, thereon:

 On the receipt of report of the Registrar or Inspectors under Section 208;

 On intimation of a special resolution passed by a company that the affairs of
the company ought to be investigated
 In public inertest Where an order is passed by a court or the Tribunal in any
proceedings before it that the affairs of a company ought to be investigated,

1
Section 210 of CA 2013
2
And where such an order is passed, the Central Government shall appoint one or more competent
persons as inspectors to investigate into the affairs of the company in respect of such matters and to
report thereupon to it in such manner as the Central Government may direct
3
Section 210 (2) of CA 2013

3
 the Central Government shall order an investigation into the affairs of that
company.

2.2- ESTABLISHMENT OF SFIO (SECTION 211):

This section talks about - establishment of SFIO.It says that the Serious Frauds
Investigation Office (SFIO) shall be established by the Central Government with the
object of investigating frauds relating to a company. Provided that until the SFIO is
established under this section, the SFIO set up earlier vide Government of India
resolution No.45011/16/2003-Admn1 dated 2nd July 2003 shall be deemed to be the
SFIO for the purpose of this section.

The appointment of Director in the SFIO shall be done by the Central Government by
a notification in the Official Gazette. The person to be appointed Director shall not be
below the rank of a Joint Secretary to the Government of India having knowledge and
experience in dealing with matters relating to corporate affairs.

The Central Government may appoint such experts and other officers and employees
in the Serious Fraud Investigation Office as it considers necessary for the efficient
discharge of its functions under this Act.

The appointment of Director in the SFIO shall be done by the Central Government by
a notification in the Official Gazette. The person to be appointed Director shall not be
below the rank of a Joint Secretary having knowledge and experience in dealing with
matters relating to corporate affairs. Besides the Director, the Central Government
may appoint such experts and other officers and employees in the SFIO as it considers
necessary for the efficient discharge of its functions. In terms of Rule 3 of the
Companies (Inspection, Investigation and Inquiry) Rules, 2014, the Central
Government may appoint persons having expertise in the fields of investigations,
cyber forensics, financial accounting, management accounting, cost accounting and
any other fields as may be necessary for the efficient discharge of Serious Fraud
Investigation Office (SFIO) functions under the Act. Rule 4 prescribes the terms and
conditions of service of service of Director, experts, other officers and employees of
the SFIO shall be such as may be prescribed.

4
2.3- INVESTIGATION BY SERIOUS FRAUDS INVESTIGATION OFFICE (SFIO)
INTO THE AFFAIRS OF A COMPANY (SECTION 212): The Central Government
may by order assign the investigation into affairs of a company to the Serious Frauds
Investigation Office on the basis of an opinion formed based on the following:

 on receipt of report of the Registrar or Inspector under section 208;

 on intimation of a special resolution passed by a company requesting an
investigation into its affairs;
 in public interest; or
 on the request of any Department of Central Government or a State
Government.

On receipt of Central Government order, the Director may designate such number of
inspectors as he may consider necessary for the purpose of such investigation.The
Serious Fraud Investigation Office, shall conduct the investigation in the manner and
follow the procedure provided in this Chapter; and submit its report to the Central
Government within such period as may be specified in the order.4

2.4- SECURITY FOR PAYMENT OF COSTS AND EXPENSES OF

INVESTIGATION [SECTION 214] : Where an investigation is ordered by the
Central Government under section 210(1) or pursuant to Tribunal’s order under
section 213, then before appointing an Inspector, the Central Government may require
the applicants to give a security not exceeding Rs. 25,000/- towards the costs and
expenses of investigation as per the following criteria:

 Turnover up to Rs. 50 crore- Rs. 10,000/-

 Turnover more than Rs. 50 crore and up to 200 crore- Rs. 15,000/-
 Turnover more than Rs. 200 crore- Rs. 25,000/-

The security shall be refunded to the applicant if the investigation results in

prosecution.
4
Provided that in case of an investigation under section 212, the prior approval of Director, Serious
Fraud Investigation Office shall be sufficient under clause (b).
The notes of any examination under this section shall be taken down in writing and shall be read over
to, or by, and signed by, the person examined, and may thereafter be used in evidence against him.

5
2.5- FIRM, BODY CORPORATE OR ASSOCIATION NOT TO BE APPOINTED
AS INSPECTOR. (Section 215)-

No firm, body corporate or association shall not to be appointed as inspector for

inspection and investigation of the company.

2.6- INVESTIGATION OF OWNERSHIP OF COMPANY (SECTION 216):

Where it appears to the Central Government that there is a reason so to do, it may
appoint one or more inspectors to investigate and report on matters relating to the
company, and its membership for the purpose of determining the true persons—

 who are or have been financially interested in the success or failure, whether
real or apparent, of the company; or
 who are or have been able to control or to materially influence the policy of
the company.

The Central Government may define the scope of the investigation and may limit the
investigation to particular shares or debentures.

Duties of officers, employees, agents, etc., of the company or body corporate under
investigation Section 217(1) obligates all existing and former officers, employees and
agents of the company which is under investigations within the provisions of this
Chapter or of the body corporate being investigated under Section 219 :

(a) to preserve and produce to an inspector all books and papers of or relating to the
company or the other body corporate or person which are in their custody or power;
and (b) to give to the inspector all assistance in connection with the investigation
which they are reasonably able to give.

Powers of Inspector :- These shall include the following:

(i) To require any body corporate other than that referred to in Section 217(1)
to furnish information or produce books and papers before him which he
may consider relevant for the purpose of investigation. The books and
papers shall not however be kept in custody for more than 180 days though
these may again be called for a further period of 180 days by giving an

6
 order in writing . The books and papers shall be returned to the company,
body corporate, firm or individual by whom or on whose behalf the books
and papers were produced.
(ii) To examine on oath any of the persons referred to in Section 217(1) and
with prior approval of the Central Government any other person in relation
to the affairs of the company or other body corporate or person, as the case
may be. However, in case of an investigation under section 212, the
approval of Director, Serious Frauds Investigation Office shall be
sufficient. The notes of examination shall be taken down in writing read
over to, or by, and signed by the person examined and thereafter be used in
evidence against him [Section 217(7)]
(iii) Have all the powers of a Civil Court under the Code of Civil Procedure,
1908, in respect of the following matters : (a) the discovery and production
of books of account and other documents at such time and place as may be
specified; (b) summoning and enforcing attendance of persons and
examining them an oath; and (c) inspection of any books, registers and
other documents of the company at any place . Duty of Central/State
Government officers to provide assistance to the Inspector Where the
inspector so requires with the prior approval of the Central Government it
shall be obligatory for the officers of the Central/ State Government, police
or statutory authority to provide necessary assistance to the inspector for
the purpose of inspection, inquiry or investigation. Reciprocal
arrangements with foreign governments for inspection, inquiry and
investigaiton In terms of Section 217(10), the Central Government may
make reciprocal arrangements, with a foreign state to assist in any
inspection, inquiry or investigation under this Act or under the
corresponding law in force in that state. For this purpose, the Central
Government may by notification apply this Chapter subject to
modifications, exceptions, conditions and qualifications as may be deemed
expedient for implementing the agreement with that state. Under Section
217(11), if in the course of investigation into the affairs of a company, an
application is made to the competent court in India by the inspector stating
that the evidence is, or may be, available in a country or place outside
India, such a court may issue a letter of request to the court or authority in
7
 such country or place. The Court or authority in foreign country may be
requested (a) to examine orally or otherwise any person supposed to be
acquainted with the facts and circumstances of the case; (b) to record his
statement made in the course of such examination and (c) to require such
person to produce any document or thing which may be in his possession
relating to the case, and (d) to forward all the evidence taken or collected
or authenticated copies thereof to the court in India which had issued the
letter of request. Every statement recorded or a document received under
this sub-section shall be deemed to be the evidence collected during the
course of investigation. Similarly, under Section 217(12), upon receipt of a
request from a court or authority outside India, the Central Government
may forward the same to the court concerned which shall thereupon
summon the person before it and record his statement, or cause any
document or thing to be produced, or send the letter to any inspector for
investigation. The inspector shall investigate into the affairs of company in
same manner as investigation is done under this Act. The inspector shall
send the report to the court within 30 days or such extended time as the
court may allow. The evidence collected or its authenticated copies shall
be forwarded by the court to the Central Government for transmission to
the court or authority in a country outside India which had issued the letter
of request.

2.7- POWER OF INSPECTOR TO CONDUCT INVESTIGATION INTO THE

AFFAIRS OF OTHER RELATED COMPANIES (SECTION 219) :
An inspector appointed under section 210 or section 212 or section 213 to investigate
into the affairs of a company may consider it necessary for the purposes of the
investigation, to investigate also the affairs of any other body corporate—

 which is or has been at the relevant time been the company’s subsidiary or
holding or subsidiary of its holding company;
 which is or has been at the relevant time been managed by any person as a
managing director or manager who is or was at the relevant time the managing
director or the manager of the company;

8
  whose Board of Directors’ comprises nominees of the company or is
accustomed to act in accordance with the directions of the company or any of
its directors; or
 in case any person is or has at any relevant time been the company’s managing
director or manager or employee.

The inspector in the above said situations shall undertake investigation with the prior
approval of the Central Government so for as the results of the investigation are
relevant to the investigation of the affairs of the company for which he is appointed.

2.8- SEIZURE OF DOCUMENTS BY THE INSPECTOR (SECTION 220)-

Where in the course of investigation, the inspector has reasonable grounds to believe
that books and papers relating to any company, body corporate, managing director or
manager of such company are likely to be destroyed, mutilated, altered, falsified or
secreted he may:

 enter the place where such books and papers are kept, and
 seize books and papers after allowing the company to take copies or extracts
therefrom at its costs.

The books and papers shall be kept by the inspector in his custody until the
conclusion of investigation and thereafter return to the person from whose custody
they were seized. Before returning, the inspector may take copies or extracts or place
identification marks on them or any part thereof

2.9- INSPECTOR’S REPORT (SECTION 223)-

Interim and Final Report. Some features of this report are listed below:-

 Depending on the nature of directions given by the Central Government, an

inspector may submit interim reports and on conclusion of the investigation,
he shall submit a final report.
 Report to be in writing
 Every report shall be in writing or printed or the Central Government may
direct in this regards.
 Right to obtain copy of the report

9
  A person may obtain a copy of the report by making an application to the
Central Government.
 Authentication and Admissibility in legal proceedings
 Every report to be authenticated by :
 the seal of the company whose affairs have been investigated; or
 a certificate of the public officer having custody of the report as provided in
Section 76 of the Evidence Act, 1872.
 The report shall be admissible in any legal proceeding as evidence of the
matter contained in the report.
 Exception: Nothing in this section shall apply to a report referred to in Section
212.

2.10- INVESTIGATION OF FOREIGN COMPANIES (SECTION 228)

Provisions relating to inspection, inquiry and investigation are applicable mutatis

mutandis to foreign companies also.

2.11- PENALTY FOR FURNISHING FALSE STATEMENT,

MUTILATION, DESTRUCTION OF DOCUMENTS (SECTION 229):

A person who is required to provide an explanation or make a statement during the

course of inspection, inquiry or investigation or an officer or other employee of a
company or other body corporate which is also under investigation:

 destroys, mutilates, or falsifies or conceals or tampers or unauthorized by

removes or is a party to such destruction, mutilation or falsification etc. of
documents relating to property, assets or affairs of the company or the body
corporate.
 makes a party to making of false entry in any document concerning the
company or body corporate; or
 provides an explanation which is false or which he knows to be false.

he shall be punishable for fraud in the manner as provided in Section 447

10
3. CONCLUSION
The need for Investigation of affairs of a company arises due to fraudulent activity,
corporate fraud, and abuse of high corporate positions for personal benefit in the name
of company. These acts & omission then need to be investigated and for purpose of
which inspector is required to be appointed by the central government by exercising
its power to investigate into the affairs of a company.

PURPOSE BEHIND APPOINTING INSPECTOR BY CENTRAL GOVERNMENT

AND NEED TO INVESTIGATE :

The affairs of the companies are managed to all extend by its Board of directors to the
exclusion of majority of shareholders as they are ill equipped to exercise effective
control over the affairs of companies and are sleeping and passive partners. This
situation leads to abuse of power by persons or key personal manger or managing
director, employees, agent in control of the affairs of company. Thus, due to such
reason that let central government to believe or form opinion that the business of the
company was being conducted with intent to defraud creditors or fraudulent or
unlawful purpose or to cause harmful loss, then this act need to be investigated and
for such purpose inspector is appointed by central government to investigate into the
affairs of the company.5

The job of the inspector appointed by the Central Government is to conduct the
investigation into the affairs of a company. The inspector is required to make a report
to the Central Government on the completion of his work. Government may also
require him to submit interim reports from time to time.

The Central Government:

 Shall forward a copy of any report made by the inspectors to the company at
its registered office, and also to anybody corporate dealt with in the report;

 May, if it thinks fit, furnish a copy thereof, on request and on payment of the
prescribed fee, to any person :

5
Available at: https://www.icsi.edu/portals/0/INSPECTION,%20INQUIRY%20AND%20INVESTIGATION.pd,
Last accessed on 06/13/2019

11
 Who is a member of the company or other body corporate dealt with in the
report; and

 Whose interests as a creditor of the company or other body corporate appear to

the Central Government to be affected

 Shall furnish a copy of the report to the applicants on whose request the
inspectors are appointed for the investigation;

 Shall furnish a copy of the report to the Court, where the inspectors are
appointed in pursuance of an order of the Court;

 Shall furnish a copy of the report to the Company Law Board (Tribunal)
where the inspectors are appointed on the behest of the Company Law Board
(Tribunal);

 May also cause the report to be published.

12