Chp 12 - Inspection, Inquiry and Investigation

1. What are the objective for conducting inspection and under what circumstances the
inspection can be ordered by the Registrar of Companies?
Answer:

Objectives of Inspection under Companies Act, 2013:

 Ensure compliance with the Act

 Detect fraud or irregularities
 Protect interest of stakeholders
 Maintain transparency & governance
 Collect evidence for investigation

When ROC Can Order Inspection (Section 206):

1. Suo Motu – On its own belief of non-compliance or irregularity

2. On Complaint – Received from shareholders, creditors, or public
3. Failure to Respond – Company doesn’t furnish info or gives unsatisfactory reply
4. Doubt on Company’s Affairs – Suspected fraud or misconduct
5. Government Direction – As instructed by the Central Government

2. Describe the provisions relating to Search and Seizure under the Companies Act, 2013.
Answer:

A) Power to Enter, Search and Seize (Section 209)

An Inspector appointed by the Central Government can enter, search, and seize books and
papers of a company under the following conditions:

 He has reasonable grounds to believe that: The books and papers may be destroyed,
altered, falsified, or hidden.
 The Inspector must obtain prior approval from the Magistrate of the competent
jurisdiction before conducting such search and seizure.

B) Procedure

 The Inspector, with approval, may enter any premises, including the company’s office, or
any place where relevant documents are kept.
 The Inspector may: Search and seize such documents and Take copies or extracts from
the books and papers.
 The seized documents must be returned within 180 days, unless required for further
investigation. The time period may be extended by the Tribunal.

C) Safeguards and Compliance

 The search must follow procedures prescribed under the Code of Criminal Procedure,
1973.
 The company and its officers must cooperate and provide access to all documents.

Conclusion:

Section 209 ensures that in cases of suspected fraud or concealment, the government-
appointed Inspector can, with judicial approval, conduct search and seizure to secure
necessary evidence, with due process and time-bound safeguards.
 Chp 12 - Inspection, Inquiry and Investigation
3. Under what circumstances the tribunal makes order for the investigation in to the affairs of the
company.
Answer:

Circumstances under which the Tribunal may order investigation into the affairs of a company

Under Section 210(2) and 213 of the Companies Act, 2013, the National Company Law
Tribunal (NCLT) can order an investigation into the affairs of a company in the following
cases:

1. On Application by a Specified Number of Members

As per Section 213(a), the Tribunal may order an investigation if an application is made by:

 In case of a company with share capital: Not less than 100 members or members holding
at least one-tenth of the total voting power.
 In case of a company without share capital: Not less than one-fifth of the total number of
members.

2. On Application by Any Other Person or Authority (Section 213(b))

The Tribunal may order an investigation on application by any person or suo motu, if it
believes that:

 The business of the company is being conducted fraudulently;

 The company was formed for a fraudulent or unlawful purpose;
 The persons involved in the formation or management are guilty of fraud, misfeasance, or
misconduct;
 The members have not been given all necessary information, including financial
statements.

3. On Report of the Registrar or Inspector (Section 210(1))

The Central Government may direct the Tribunal to initiate investigation based on:

 The report of the Registrar or Inspector under Section 208 indicating the need for deeper
investigation.

Conclusion:

The Tribunal orders an investigation when there is sufficient evidence or reasonable cause to
believe that the company’s affairs are being conducted in a fraudulent, unlawful, or oppressive
manner, or when significant shareholder thresholds demand it.

4. What are the preparatory steps for the company secretary to face investigation?
Answer:

Preparatory Steps for the Company Secretary to Face Investigation

1. Understand the Scope of Investigation

- Identify the specific sections or issues under scrutiny (e.g., fraud, non-compliance,
misstatement).
2. Collect and Organize Records
 Chp 12 - Inspection, Inquiry and Investigation
- Ensure availability of statutory registers, board minutes, financial statements,
filings, audit reports, and ROC documents.
3. Review Past Compliance
- Cross-check compliance status under Companies Act, SEBI regulations, FEMA,
etc.
- Identify and flag any gaps or irregularities.
4. Coordinate Internally
- Inform and align with senior management and board members.
- Form an internal response team if needed.
5. Consult Legal Experts
- Take legal opinion on possible exposure and prepare documentation accordingly.
- Review rights and obligations during investigation.
6. Maintain Communication Records
- Keep a log of all notices, communications, and responses to authorities.
7. Avoid Tampering or Destruction of Evidence
- Ensure no documents are altered or destroyed once the investigation is initiated.
8. Prepare for Examination
- Be ready to respond to questions during personal hearing or statements under
oath.
- Stay fact-based, accurate, and calm.
9. Train Key Staff
- Ensure relevant staff understand their role and responsibilities during the
investigation.
10. Ensure Ethical Conduct
- Avoid any misleading statements or actions.
- Cooperate fully with investigating authorities like SFIO or ROC.

Conclusion:
Being transparent, organized, and legally prepared is key to smoothly handling any
investigation process.

5. Ramesh, is a Senior Partner in Ramesh Chandra & Co. LLP, Practising Company
Secretaries. The firm has good repute in handling corporate related matters including
investigations and other representations. Rakesh, Company Secretary of Skylimit Ltd. is a
professional acquaintance of Ramesh and has reached out to him for advice on investigation
initiated on the Company. Rakesh has requested Ramesh to meet the Board of Directors of
Skylimit Ltd. and make a presentation on various statutory aspects involved in investigation.
Prepare a detailed note, explaining the provisions of investigation into affairs of a Company
under Section 212 of the Companies Act, 2013.
Answer:

Section 212 of the Companies Act, 2013 empowers the Central Government to assign
investigation of a company’s affairs to the Serious Fraud Investigation Office (SFIO) in cases
of suspected fraud, based on:

 Report of Registrar/Inspector
 Special resolution by the company
 Public interest
 Request from any government department

Once SFIO is appointed, no other agency can investigate the same matter. SFIO has powers
like a civil court and can arrest persons involved in fraud (Section 447). Arrested individuals
must be produced before a Magistrate within 24 hours.

The company must fully cooperate, provide documents, and assist in the investigation. Non-
compliance can lead to penalties.
 Chp 12 - Inspection, Inquiry and Investigation
Conclusion:
SFIO investigations are serious and must be dealt with legally and transparently.

6. P is an employee of ABC Limited and he is being investigated under the provisions of

Companies Act, 2013. The Company wants to terminate P on the ground that an investigation
is going on against him. They have filed the application to Tribunal for approval of termination.
Company has not received any reply from the Tribunal within 30 days of filling the application.
The Company considers it as a deemed approval and terminates him. Is the contention of
Company valid in law?
(a) Yes, the termination of P made by the company is totally valid in law
(b) Yes, the termination of P made by the company is totally valid in law, but intimation to
SEBI is also required
(c) No, the termination of P made by the company is not valid in law
(d) None of the above.
Answer:

Correct Answer: (c) No, the termination of P made by the company is not valid in law

Explanation:

Under Section 218 of the Companies Act, 2013, when an investigation is initiated, no
employee (including directors, managers, etc.) can be discharged, suspended, or punished
without the prior approval of the Tribunal.

If an application is made to the Tribunal for such approval and no response is received within
30 days, it does NOT amount to deemed approval. The company must wait for explicit
permission from the Tribunal before taking any action.

Therefore, termination without approval is not valid in law.