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Power to Call for Information; Inspect Books and Conduct Inquiries [Section 206]

A check on the performance of Companies is generally exercised by scrutiny of Balance Sheet and Profit and Loss Account and other returns filed by them with the Registrar who is empowered to call for information and explanation with respect to any matter to which such documents purport to relate.

The Companies Act explains the legal requirement for the companies in relation to maintenance of books of account. The object of inspection is not to keep a watch on the performance of companies but also to evaluate precisely the level of efficiency in the conduct of the company concerned.

Section 206 of the Act provides for the power to call for information, inspect books and conduct inquiries. According to this section:

(a) Power of the Registrar to call for information, explanation or documents [Section 206(1)]

According to section 206(1) of the Companies Act, 2013, where on a scrutiny of any document filed by a company or on any information received by him, the Registrar is of the opinion that any further information or explanation or any further documents relating to the company is necessary, he may by a written notice require the company :

1. To furnish in writing such information or explanation; or
2. To produce such documents, within such reasonable time, as may be specified in the notice.

(b) Duty of the company and its officers [Section 206 (2)]

On the receipt of a notice under sub-section (1) of section 206, it shall be the duty of the company and of its officers concerned to furnish such information or explanation to the best of their knowledge and power and to produce the documents to the Registrar within the time specified or extended by the Registrar.

(c) Duty of past officers of the company [proviso to Section 206 (2)]

According to the proviso to sub-section (2) of section 206, where such information or explanation relates to any past period, the officers who had been in the employment of the company for such period, if so called upon by the Registrar through a notice served on them in writing, shall also furnish such information or explanation to the best of their knowledge.

(d) Additional written notice by the Registrar [Section 206 (3)]

The Registrar may by another written notice call on the company to produce for his inspection such further books of account, books, papers and explanations as he may require at such place and at such time as he may specify in the notice:

1. If no information or explanation is furnished to the Registrar within the time specified under Section 206 (1), or
2. If the Registrar on an examination of the documents furnished is of the opinion that the information or explanation furnished is inadequate, or
3. If the Registrar is satisfied on a scrutiny of the documents furnished that an unsatisfactory state of affairs exists in the company and the information or documents do not disclose a full and fair statement of the information required.

Provided that, before any notice is served under this sub-section, the Registrar shall record his reasons in writing for issuing such notice.

(e) Inquiry by the Registrar [Section 206 (4)] 

(1) The Registrar may call on the company to furnish in writing any information or explanation on matters specified in the order within such time as he may specify therein and carry out such inquiry as he deems fit after providing the company a reasonable opportunity of being heard, if the Registrar is satisfied:

• On the basis of information available with or furnished to him, or
• On a representation made to him by any person that the business of a company is being carried on for a fraudulent or unlawful purpose or not in compliance with the provisions of this Act, or
• The grievances of investors are not being addressed.

(2) Before calling the company to furnish in writing any information or explanations and carrying out inquiry, the Registrar has to inform the company of the allegations made against it by a written order.

(3) The Central Government may, if it is satisfied that the circumstances so warrant, direct the Registrar or an Inspector appointed by it for the purpose to carry out the inquiry under this sub-section.

(4) It is further provided that 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 in the manner as provided in section 447. 

(f) Inspection by Central Government [Section 206 (5)]

Without prejudice to the foregoing provisions of this section, the Central Government may, if it is satisfied that the circumstances so warrant, direct inspection of books and papers of a company by an Inspector appointed by it for the purpose.

(g) Order to Carry out Inspection [Section 206 (6)]

The Central Government may, having regard to the circumstances 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.

(h) Failure to furnish information [Section 206 (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 1 lakh rupees and in the case of a continuing failure, with an additional fine which may extend to 500 rupees for every day after the first during which the failure continues.

Conduct of Inspection and Inquiry [Section 207]

Section 207 of the Act provides for the conduct of inspection and inquiry as follows:

(a) Duty of director, officer or employee [Section 207 (1)]

Where a Registrar or Inspector calls for the books of account and other books and papers under section 206, it shall be the duty of every director, officer or other employee of the company:

1. To produce all such documents to the Registrar or Inspector, and
2. To furnish him with such statements, information or explanations in such form as the Registrar or Inspector may require, and
3. To render all assistance to the Registrar or Inspector in connection with such inspection.

(b) Powers of the Registrar or Inspector [Section 207 (2) & (3)] 

(1) The Registrar or Inspector making an inspection or inquiry under section 206 may, during the course of such inspection or inquiry, as the case may be:

• Make or cause to be made copies of books of account and other books and papers, or
• Place or cause to be placed any marks of identification in such books in token of the inspection having been made.

(2) Notwithstanding anything contained in any other law for the time being in force or in any contract to the contrary, the Registrar or Inspector making an inspection or inquiry shall have all the powers as are vested in 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, at such place and time as may be specified by such Registrar or Inspector making the inspection or inquiry,
• 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.

(c) Penalty for Contravention [Section 207 (4)]

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 1 year and with fine which shall not be less than 25,000 rupees but which may extend to 1 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.

Report On Inspection Made [Section 208]

Section 208 of the Act provides for the submission of the report on inspection made. According to this section:

The Registrar or Inspector shall, after the inspection of the books of account or an inquiry under section 206 and other books and papers of the company under section 207, submit a report in writing to the Central Government along with such documents, if any and such report may, if necessary, include a recommendation that further investigation into the affairs of the company is necessary giving his reasons in support.

Search and Seizure [Section 209]

Search means, an examination of public records to determine and confirm a property's legal ownership, and find out what claims are on the property.

Seizure is the forcible taking of property by a government law enforcement official from a person who is suspected of violating, or is known to have violated, the law.

Search and seizure is a procedure used in many civil law and common law legal systems by which police or other authorities and their agents, who suspect that a crime has been committed, do a search of a person's property and confiscate any relevant evidence to the crime.

Section 209 of the Act provides for Search and seizure. According to this section:

(a) Circumstances for seizure [Section 209 (1)]

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:

1. The key managerial personnel or
2. Any director or
3. Auditor or
4. 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:

• Enter, with such assistance as may be required, and search, the place or places where such books or papers are kept, and
• 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. 

(b) Period of seizure [Section 209 (2)]

1. Original period of seizure: The Registrar or Inspector shall return the books and papers seized under subsection (1), as soon as may be, and in any case not later than 180th day after such seizure, to the company from whose custody or power such books or papers were seized.
2. Further period of seizure: The books and papers may be called for by the Registrar or Inspector for a further period of 180 days by an order in writing if they are needed again.

(c) Taking of copies, placing identification marks [second proviso to Section 209 (2)] 

The Registrar or Inspector may, before returning such books and papers as aforesaid, 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.

(d) Applicability of the provisions of the Code of Criminal Procedure, 1973 [Section209 (3)]

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

Investigation into affairs of company [section 210]

Sections 210 to 229 of the Companies Act, 2013 contain provisions relating to 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. Section 210 of the Act provides:

(a) Investigation in the opinion of Central Government [Section 210 (1)]

Where the Central Government is of the opinion, that it is necessary to investigate into the affairs of a company:

1. On the receipt of a report of the Registrar or Inspector under section 208.
2. On intimation of a special resolution passed by a company that the affairs of the company ought to be investigated, or [Every special resolution is required to be filed in Form No. MGT-14 as per Section 117(3)(a)].
3. In public interest, it may order an investigation into the affairs of the company.

(b) Investigation on the order by a court or the Tribunal [Section 210 (2)] 

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.

(c) Appointment of Inspectors [Section 210 (3)]

For the purposes of this section, the Central Government may appoint one or more persons as Inspectors to investigate into the affairs of the company and to report thereon in such manner as the Central Government may direct.