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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.

Establishment of Serious Fraud Investigation Office [Section 211]

Section 211 of the Act provides for the establishment of Serious Fraud Investigation Office as under:

(a) Setting up of Serious Fraud Investigation Office (SFIO) [Section 211 (1)]

The Central Government shall, by notification, establish an office to be called the Serious Fraud Investigation Office (SFIO) to investigate frauds relating to a company. MCA vide Notification No. S.O.2005(E) dated 21st July, 2015 established under Section 211 of the Companies Act, 2013.

(b) Continuation of earlier SFIO

Earlier, the Serious Fraud Investigation Office was set-up by the Central Government in terms of the Government of India’s Resolution No. 45011/16/2003-Adm-I, dated 2nd July, 2003 to carry out the functions of SFIO.

(c) Composition of SFIO [Section 211 (2)]

The SFIO shall be:

(1) Headed by a Director, and

(2) Consist of such number of experts from the following fields to be appointed by the Central Government from amongst persons of ability, integrity and experience in:

• Banking;
• Corporate affairs;
• Taxation;
• Forensic audit;
• Capital market;
• Information technology;
• law; or
• Such other fields as may be prescribed.

(d) Appointment of a Director in SFIO 

The Central Government shall, by notification, appoint a Director in the SFIO, who shall be an officer not below the rank of a Joint Secretary to the Government of India having knowledge and experience in dealing with matters relating to corporate affairs [Section 211 (3)].

(e) Appointment of Experts

The Central Government may appoint of such experts and other officers and employees in the SFIO as it considers necessary for the efficient discharge of its functions under this Act [Section 211 (4)].

(f) Terms and conditions of service

The terms and conditions of service of Director, experts, and other officers and employees of the SFIO shall be such as may be prescribed [Section 211 (5)].

The terms and conditions of service of the above mentioned officers have been laid down in the Companies (Inspections, Investigations and Inquiry) Rules, 2014.

Investigation into Affairs of Company by SFIO [Section 212]

Section 212 of the Act provides for Investigation into affairs of Company by the Serious Fraud Investigation Office (SFIO). According to this section:

(a) Without prejudice to the provisions of section 210, where the Central Government :

1. On receipt of a report of the Registrar or Inspector under section 208;
2. On intimation of a special resolution passed by a company that its affairs are required to be investigated; [Every special resolution is required to be filed in Form No. MGT-14 as per Section 117(3)(a)]
3. In the public interest, or
4. On request from any Department of the Central Government or a State Government, is of the opinion that it is necessary to investigate into the affairs of a company by the SFIO, the Central Government may, by order, assign the investigation into the affairs of the said company to the SFIO. On receipt of such order, the Director, SFIO may designate such number of Inspectors, as he may consider necessary for the purpose of such investigation.

(b) Where any case has been assigned by the Central Government to the SFIO for investigation under this Act, no other investigating agency of Central Government or any State Government shall proceed with investigation in such case in respect of any offence under this Act. In case any such investigation has already been initiated, it shall not be proceeded further with and the concerned agency shall transfer the relevant documents and records in respect of such offences under this Act to SFIO [Sub section (2)]. 

(c) Where the investigation into the affairs of a company have been assigned by the Central Government to SFIO, it shall conduct the investigation in the manner and follow the procedure provided in this Chapter (Chapter XIV, Inspection, Inquiry and Investigation) and submit its report to the Central Government within such period as may be specified in the order [Sub section (3)].

(d) The Director, SFIO shall cause the affairs of the company to be investigated by an Investigating Officer who shall have the power of the Inspector under section 217 [Sub section (4)].

(e) The company and its officers and employees, who are or have been in employment of the company shall be responsible to provide all information, explanation, documents and assistance to the Investigating Officer as he may require for conduct of the investigation [Sub section (5)].

(f) Notwithstanding anything contained in the Code of Criminal Procedure, 1973, offences covered under section 447 of this Act shall be cognizable and no person accused of any offence under those sections shall be released on bail or on his own bond unless:

(1) the Public Prosecutor has been given an opportunity to oppose the application for such release, and

(2) where the Public Prosecutor opposes the application, the court is satisfied that there are reasonable grounds for believing that he is not guilty of such offence and that he is not likely to commit any offence while on bail [Sub section (6)].

However, a person, who, is under the age of sixteen years or is a woman or is sick or infirm, may be released on bail, if the Special Court so directs.

Provided further that the Special Court shall not take cognizance of any offence referred in point (f) except upon a complaint in writing made by:

• The Director, SFIO, or
• Any officer of the Central Government authorised, by a general or special order in writing in this behalf by that Government.

(g) The limitation on granting of bail specified in sub section (6) above is in addition to the limitations under the Code of Criminal Procedure, 1973 or any other law for the time being in force on granting of bail [Sub section (7)].

(h) The SFIO shall submit an interim report to the Central Government, if the Central Government so directs [Sub section (11)].

(i) The SFIO shall submit the investigation report to the Central Government on completion of the investigation [subsection (12)].

(j) Notwithstanding anything contained in the Companies Act, 2013 or in any other law for the time being in force, a copy of the investigation report may be obtained by any person concerned by making an application in this regard to the court [Sub section (13)].

(k) On receipt of the investigation report, the Central Government may, after examination of the report (and after taking such legal advice, as it may think fit) direct the SFIO to initiate prosecution against the company and its officers or employees, who are or have been in employment of the company or any other person directly or indirectly connected with the affairs of the company [Sub section (14)].

(l) Notwithstanding anything contained in this Act or in any other law for the time being in force, the investigation report filed with the Special Court for framing of charges shall be deemed to be a report filed by a police officer under section 173 of the Code of Criminal Procedure, 1973 [Sub section (15)]. 

(m) Notwithstanding anything contained in this Act, any investigation or other action taken or initiated by SFIO under the provisions of the Companies Act, 1956 shall continue to be proceeded with under that Act as if this Act had not been passed [Sub section (16)].

(n) In case SFIO has been investigating any offence under this Act, any other investigating agency, State Government, police authority, income-tax authorities having any information or documents in respect of such offence shall provide all such information or documents available with it to the SFIO [Sub section (17) (a)].

(o) The SFIO shall share any information or documents available with it, with any investigating agency, State Government, police authority or income tax authorities, which may be relevant or useful for such investigating agency, State Government, police authority or income-tax authorities in respect of any offence or matter being investigated or examined by it under any other law [Sub section (17) (b)].

Investigation Into Company’s Affairs in Other Cases [Section 213]

The Tribunal may:

(a) on an application made by:

1. Not less than one hundred members or members holding not less than one-tenth of the total voting power, in the case of a company having a share capital, or
2. Not less than one-fifth of the persons on the company’s register of members, in the case of a company having no share capital, and supported by such evidence as may be necessary for the purpose of showing that the applicants have good reasons for seeking an order for conducting an investigation into the affairs of the company; or

(b) on an application made to it by any other person or otherwise, if it is satisfied that there are circumstances suggesting that: 

(1) the business of the company is being conducted with intent to defraud its creditors, members or any other person or otherwise for a fraudulent or unlawful purpose, or in a manner oppressive to any of its members or that the company was formed for any fraudulent or unlawful purpose.

(2) persons concerned in the formation of the company or the management of its affairs have in connection therewith been guilty of fraud, misfeasance or other misconduct towards the company or towards any of its members, or

(3) the members of the company have not been given all the information with respect to its affairs which they might reasonably expect, including information relating to the calculation of the commission payable to a managing or other director, or the manager, of the company,

order, after giving a reasonable opportunity of being heard to the parties concerned, that the affairs of the company ought to be investigated by an inspector or inspectors appointed by the Central Government 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:

Provided that if after investigation it is proved that:

1. The business of the company is being conducted with intent to defraud its creditors, members or any other persons or otherwise for a fraudulent or unlawful purpose, or that the company was formed for any fraudulent or unlawful purpose, or
2. Any person concerned in the formation of the company or the management of its affairs have in connection therewith been guilty of fraud, then, every officer of the company who is in default and the person or persons concerned in the formation of the company or the management of its affairs shall be punishable for fraud in the manner as provided in section 447.