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INVESTIGATION INTO THE AFFAIRS OF COMPANY

I. INVESTIGATION INTO AFFAIRS OF COMPANY (SECTION 210):

  • Where the Central Government is of the opinion, that it is necessary to investigate into the affairs of a company,—
    • on the receipt of a report of the Registrar or inspector;
    • on intimation of a special resolution passed by a company that the affairs of the company ought to be investigated; or
    • in public interest,
    it may order an investigation into the affairs of the company.
  • 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, the Central Government shall order an investigation into the affairs of that company.

II. ESTABLISHMENT OF SFIO (SECTION 211):

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.

III. 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.

IV. INVESTIGATION INTO COMPANY’S AFFAIRS IN OTHER CASES (SECTION 213): (NOT YET ENFORCED)

V. 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:

  1. Turnover up to Rs. 50 crore- Rs. 10,000/-
  2. Turnover more than Rs. 50 crore and up to 200 crore- Rs. 15,000/-
  3. Turnover more than Rs. 200 crore- Rs. 25,000/-

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

VI. 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.

VII. 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.

VIII. 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;
  • 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.

XI. 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 .

The provisions of Criminal Procedure Code 1973 relating to searches or seizures shall apply mutatis mutandis to every search or seizure made under section 220.

X. FREEZING OF ASSETS OF THE COMPANY ON INQUIRY AND TO THE INVESTIGATION (SECTION 221):

 (THIS SECTION IS NOT YET NOTIFIED)

XI. INSPECTOR’S REPORT (SECTION 223)

  • Interim and Final Report

    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

    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.

XII. INVESTIGATION OF FOREIGN COMPANIES (SECTION 228)

Provisions relating to inspection, inquiry and investigation are applicable mutatis mutandis to foreign companies also.

XIII. 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.

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