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INSPECTION AND INQUIRY

Shareholders are real owners of the organization but they are sometimes ill-equipped to exercise effective control over the Company. It leads to abuse of power by persons in control. Therefore, Central Government took cognizance of the matter while drafting Companies Act, 2013 and assumed powers by enacting new provisions relating to inspection and inquiry which are as follows:

I. POWER TO CALL FOR INFORMATION, INSPECTION AND INQUIRIES (SECTION 206):

  • Information: (Subsection 1& 2)
    • The Registrar may by a written notice require a company to:
      • furnish in writing information or explanation; or
      • to produce documents,
      within a given reasonable specified time.
    • The Registrar may ask such information:
      • on scrutiny of any document filed by the company; or
      • on any information received by him
    • It shall be a duty of the company and of its officers:
      • to furnish the information or explanation to the best of their knowledge and power; and
      • to produce the documents
      within the specified or extended time.
    • Now, the Section includes past employees under in its scope. The proviso says where such information or explanation relates to any past period, the Registrar through a notice in writing may require the officers who were employee(s) during that period to furnish such information or explanation to the best of their knowledg
  • Inspection: (Subsection 3,5 & 6)
    • In case of inadequate information or unsatisfactory explanation, the Registrar may by another written notice,
      • call on the company to produce for his inspection such further books of accounts, books, papers and explanations as he may require at such place and at such time as specified in the notice.
    • In this notice, the Registrar shall record his reason in writing for issuing the notice.
    • The Central Government may, on satisfaction that circumstances so warrant, direct inspection of books and papers of a company by an inspector.
    • The Central Government may by general or special order authorise any statutory authority to carry out the inspection of books of account of a company or class of companies.
  • Inquiry (Sub section 4):
    • If, after all this exercise, the Registrar is satisfied on the basis of
      • information available with or
      • furnished to him or
      • on representation made to him; that the business of the company is being carried on (a) for a fraudulent purpose, (b) unlawful purpose or (c) not in compliance with the provisions of this Act or (d) investors grievances not being addressed;
    • the Registrar may after informing the company of the allegation made against it bya written order; call on the company in writing any information or explanation within specified time and carry out such inquiry as he deems fit after giving the company a reasonable opportunity of being heard.
    • The Central Government may, on satisfaction that circumstances so warrant, direct the Registrar or Inspector to carry out the inquiry under this sub section.
    • Where business of a company has been or is being carried on for a fraudulent or unlawful purpose, every officer of the company who is in default shall be punishable for fraud.
  • Failure to comply with the requirement of provisions of this Section (Sub section 7):
    • If a company fails to furnish any information or explanation or produce any document required under this section, the company and every officer of the company, who is in default shall be punishable with a fine which may extend to one lakh rupees and in the case of a continuing failure, with an additional fine which may extend to five hundred rupees for every day after the first during which the failure continues.

II. CONDUCT OF INSPECTION AND INQUIRY (SECTION 207)

  • Where a Registrar or inspector calls for the books of account or other books and papers, it shall be duty of every director, officer or other employee of the company to produce all these documents to the Registrar or inspector.
  • It shall also be duty of these persons to furnish statements, information or explanation as the Registrar or inspector may require and shall render all assistance to the Registrar of inspector in connection with the inspection.
  • The Registrar or inspector making an inspection or inquiry may—
    • make or cause to be made copies of books of account or other books and papers; or
    • place or cause to be placed any mark of identification on such books in token of the inspection having made.
  • The Registrar or inspector making an inspection or inquiry shall have all powers of a civil court under the Code of Civil Procedure, 1908 while trying a suit in respect of the following matters, namely—
    • the discovery and production of books of account and other documents;
    • summoning and enforcing the attendance of persons and examining them on oath; and
    • inspection of any books, registers and other documents of the company at any place.
  • Failure to comply with the requirement of provisions of this Section –
    • If any director or officer of the company disobeys the direction issued by the Registrar or the inspector under this section, the director or the officer shall be punishable with imprisonment which may extend to one year and with fine which shall not be less than twenty-five thousand rupees but which may extend to one lakh rupees.
    • If a director or an officer of the company has been convicted of an offence under this section, the director or the officer shall, on and from the date on which he is so convicted, be deemed to have vacated his office as such and on such vacation of office, shall be disqualified from holding an office in any company.

III. INSPECTION REPORT (SECTION 208):

  • The Registrar or inspector shall, after the inspection or an inquiry, submit a report in writing to the Central Government along with such documents, if any.
  • The report may include a recommendation that further investigation into the affairs of the company is necessary giving his reasons in support.

IV. SEARCH AND SEIZURE (SECTION 209):

  • Where, upon information in his possession or otherwise, the Registrar or inspector has reasonable ground to believe that the
    • books and papers of a company, or
    • relating to the key managerial personnel or
    • any director or auditor or
    • company secretary in practice if the company has not appointed a company secretary,

    are likely to be destroyed, mutilated, altered, falsified or secreted, he may, after obtaining an order from the Special Court for the seizure of such books and papers,—

    1. enter, with such assistance as may be required, and search, the place or places where such books or papers are kept; and
    2. seize such books and papers as he considers necessary after allowing the company to take copies of, or extracts from, such books or papers at its cost.
  • The Registrar or inspector shall return the books and papers within one hundred and eighty days after such seizure to the company from whose custody or power such books or papers were seized. These books and papers may be called for by the Registrar or inspector for a further period of one hundred and eighty days by an order in writing if they are needed again.
  • Registrar or inspector may, before returning such books and papers, take copies of, or extracts from them or place identification marks on them or any part thereof or deal with the same in such other manner as he considers necessary.

The provisions of the Code of Criminal Procedure, 1973 relating to searches or seizures shall apply, mutatis mutandis, to every search and seizure.

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