Investigations

Army Institute of Law, Mohali

In the partial fulfillment of BA LLB 5 Year Course

Submitted to:- Dr. Arvendika Chaudhary

(Assistant Professor of Law)

Submitted by:- Rashmi Pandey (1462)

3yr Section B
Acknowledgement

I, would like to express my deepest gratitude to Dr. Arvendika Chaudhary Assistant

Professor of Law, for her kind support and guidance. She has helped me in making this
project through enlightening me on this topic. I am really thankful to her for cooperating
with me whenever required. I have learnt a lot through my project.
Rashmi Pandey
1462
3rd year
Index

 INTRODUCTION
 POWER OF THE REGISTRAR TO CALL FOR INFORMATION AND INSPECT DOCUMENTS
(SECTION 206)
 CONDUCT OF INSPECTION AND INQUIRY (SECTION 207)
 APPOINTMENT OF INVESTIGATORS BY CENTRAL GOVERNMENT [SECTION 210]
 ESTABLISHMENT OF SFIO (SECTION 211)
 INVESTIGATION BY SFIO INTO THE AFFAIRS OF A COMPANY [SECTION 212]
 RESPONSIBILITY OF COMPANY AND ITS OFFICERS TO PROVIDE INFORMATION TO
THE INVESTIGATING OFFICER
 MANNER OF INVESTIGATION AND SUBMISSION OF REPORT
 LIMITATION ON BAIL TO BE IN ADDITION TO THOSE UNDER THE CRPC, 1973
 ARREST OF PERSON GUILTY OF ANY OFFENCE UNDER SECTION 212(8)

 INVESTIGATION INTO AFFAIRS OF COMPANY IN OTHER CASES [SECTION 213]

 PUNISHMENT
 SECURITY FOR PAYMENT OF COSTS AND EXPENSES OF INVESTIGATION [SECTION
214]
 PROCEDURE, POWERS ETC., OF INSPECTORS (SECTION 217)
 POWERS OF INSPECTOR
 SEIZURE OF DOCUMENTS BY THE INSPECTOR (SECTION 220)
 INSPECTION, INQUIRY AND INVESTIGATION
Introduction
Shareholders have been vested with various rights including the right to elect directors.
However, shareholders are often ill-equipped to exercise effective control over the affairs
of companies, and, particularly in companies whose shareholders are widely scattered,
the shareholders are, by and large, sleeping and passive partners, and the affairs of such
companies are managed to all intents and purposes, by its Board of directors to the
exclusion of a predominant majority of shareholders. Such a situation leads to abuse of
power by persons in control of the affairs of company. It became, therefore, imperative
for the Central Government to assume certain powers to investigate the affairs of the
company in appropriate cases particularly where there was reason to believe that the
business of the company was being conducted with the intent to defraud its creditors or
members or for a fraudulent or unlawful purpose, or in any manner oppressive of any of
its members1. Chapter XIV contains Sections 206 to 229 of the Companies Act, 2013,
deals with the provisions relating to Inspection, Inquiry and 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. The said expression also includes
investigation of all its business affairs—profits and losses, assets including goodwill,
contracts and transactions, investments and other property interests and control of
subsidiary companies too2.
Power of the Registrar to call for information and inspect documents (Section 206)
Obligation of the company to provide information, explanations and documents as the
Registrar may direct On the basis of scrutiny of any document filed by a company or any
information received if the Registrar forms the opinion that any further information,
explanation or any further document relating to company is necessary, he may by a
written notice require the company: — furnish in writing such information or
explanation; or — to produce such documents.
Conduct of Inspection and Inquiry (Section 207)
(i) Duty of every director and officer of the company to render assistance to the
Registrar or Inspector
It shall be duty of every director, officer or other employee of the company
(a) to produce books of account, books and other papers as the Registrar or
Inspector may call under Section 206 and
(b) to furnish him such statements, information or explanations as the Registrar
or Inspector may require and
1
https://www.icsi.edu/portals/0/INSPECTION,%20INQUIRY%20AND%20INVESTIGATION.pdf visited on
1/04/2017
2
http://www.lakshmisri.com/News-and-Publications/Publications/Articles/Corporate/Investigation-
whistle-blowing-provisions-under-Companies-Act-2013-An-overview visited on 29/03/2017
 (c) to render all assistance in connection with such inspection

Appointment of Investigators by Central Government [Section 210]

On the basis of the following, the Central Government may appoint one or more
inspectors to investigate the affairs of the company and to report, thereon3:
(a) On the receipt of report of the Registrar or Inspectors under Section 208;
(b) On intimation of a special resolution passed by a company that the affairs of
the company ought to be investigated
(c) In public inertest
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.

Serious Frauds Investigation Office (SFIO)

This need to establish a separate Serious Frauds Investigation Office was first indicated
by the Naresh Chandra Committee Report on Corporate Audit and Governance. The
committee felt that there was a need to establish “a multi-disciplinary team that not only
uncovers the fraud, but is able to direct and supervise prosecutions under various
economic legislations through appropriate agencies.” A separate agency is therefore
direly needed to take up investigation of serious frauds characterized by complexity in
the sense of having inter-departmental and multi-disciplinary ramifications and involving
large sums of money.

It is on the basis of this background that the Companies Act has made provisions for the
setting up of a Serious Frauds Investigation Office which had carved out a niche in
successfully investigating the Satyam scam. Serious Frauds Investigation Office (SFIO)
is a multi-disciplinary organization under the Ministry of Corporate Affairs consisting of
experts in the field of accounting, forensic auditing, law, information technology, law,
capital markets, and taxation concerned with detection and prosecuting or
recommending for prosecution white collar frauds. The SFIO takes up for investigation
the following types of cases for investigation which are characterized by:
(i) complexity coupled with inter-departmental and multidisciplinary
ramifications;
(ii) substantial involvement of public interest to be judged by size in terms of
monetary misappropriation or in terms of the number of persons affected;
(iii) Possibility of investigation leading to contribution to or clear improvement in
systems, laws or procedures.
3
http://corporatelawreporter.com/companies_act/section-212-of-companies-act-2013-investigation-
into-affairs-of-company-by-serious-fraud-investigation-office/ visited on 29/03/2017
 Investigations by SFIO should be directed to yield the following results as per the
Naresh Chandra Committee : — a quick unraveling of the fraud or scam, the persons
who committed the offence or were involved in the conspiracy with a view to bring
them to justice quickly;
— maximum recovery of the gains from the fraud and the restoration of such assets
or moneys to the rightful owners;
— identification of weaknesses in law or monitoring and reporting systems because
of which the fraud had occurred so as to enable the government to take corrective
action.
Establishment of SFIO (Section 211)
The Serious Frauds Investigation Office shall be established by the Central
Government with the object of investigating frauds relating to a company. However,
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 Serious Frauds Investigation
Office for the purpose of this section4.
The SFIO shall be headed by a Director. It shall consist of such number of experts
from the following field to be appointed by the Central Government from amongst
persons of ability, experience and experience in: (i) banking; (ii) corporate affairs;
(iii) taxation; (iv) forensic audit; (v) capital market; (vi) information technology; (vii)
law; or (viii) persons having expertise in the fields of investigations, cyber forensic,
financial accounting, management accounting, cost accounting and any other fields as
may be necessary for the efficient discharge of Serious Fraud Investigation Office
(SFIO) functions under this Act.

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 having knowledge and experience in dealing with
matters relating to corporate affairs. Besides the Director, the Central Government may
appoint such experts and other officers and employees in the SFIO as it considers
necessary for the efficient discharge of its functions5.

Investigation by SFIO into the affairs of a company [section 212]

Basis of ordering investigation by the Central Government The Central Government may
assign the investigation into affairs of a company to the Serious Frauds Investigation
Office on the basis of an opinion formed from the following:
(a) on receipt of report of the Registrar or Inspector under section 208;

4
http://lexisnexis.in/books-company-law.htm
5
corporatelawreporter.com/product/corporate-law-referencer/
(b) on intimation of a special resolution passed by a company requesting an investigation
into its affairs;
(c) in public interest;
(d) 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.
Investigating officer to exercise powers of Inspector The Investigating Officer, to whom
the Director has assigned the task of investigating the affairs of the company shall have
the powers of an Inspector under section 217.

Responsibility of company and its officers to provide information to the

Investigating Officer
It shall be the responsibility of the company, its officers and employees, who are or have
been in the employment of the company to provide all information, explanation,
documents and assistance to the Investigating Officer as he may require for conduct of
business.
Manner of investigation and submission of report
The investigation into the affairs of a company shall be conducted in the manner and by
following the procedure specified in this Chapter. The SFIO shall submit its report to the
Central Government within the period specified in the order. Restrictions on other
investigating agencies Where any case has been assigned by the Central Government to
the Serious Fraud Investigation Office 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 and 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 Serious Fraud Investigation Office6.

Submission of Interim Report and also the Investigation Report to the Central
Government If the Central Government so directs, the Serious Frauds Investigation
Office shall submit an interim report to the Central Government7. On completion of
investigation, the SFIO shall submit the Investigation Report to the Central Government.
Right of any person to obtain a copy of the investigation report Notwithstanding anything
contained in this Act or in any other law, any person may obtain a copy of the
investigation report by making an application in this regard to the court.

Central Government’s to direct SFIO to initiate prosecution

6
C.S. Chetan, “Company Law made easy” 10th ed 2017.
7
www.taxmann.com/bookstore/professional/company-law-manual.aspx visited on 23/03/2017
 After receipt and examination of the investigation report and taking the legal advice, the
Central Government may direct the SFIO to initiate prosecution against the company, its
officers, employees (past and present) or any other person directly or indirectly connected
with the affairs of the company.
Investigation Report to be reckoned as report by police officer 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 Procedure8.

The following persons may be released on bail of the Special Court so directs:
(a) a person below 16 years of age,
(b) a woman, or
(c) a sick or infirm person

Limitation on bail to be in addition to those under the CrPC, 1973

The limitation on grant of bail under section 212(6) shall be in addition to those under the
Code of Criminal Procedure or any other law for the time being in force on granting of
bail.
Arrest of person guilty of any offence under section 212(8)

A Director, Additional Director or Assistant Director of SFIO, authorized by the Central

Government by general or special order, may arrest the person believed to be guilty of
any offence punishable under sections referred to in section 212(6) on the basis of the
material in his possession. He shall as soon as may be inform the person of the grounds
for such arrest.

Investigation into affairs of company in other cases [Section 213]

The Tribunal may
(a) On an application made by:
(i) 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 share capital; or
(ii) not less than one-fifth of the persons on the company’s register of members in case
the company has no share capital. and supported by such evidence as may be necessary to
show that the applicants have good reasons for seeking an order for conducting an
investigation into the affairs of the company or

8
Sec 173 CRPC Report of police officer on completion of investigation.
(1) Every investigation under this Chapter shall be completed without unnecessary delay.
(2) (i) As soon as it is completed, the officer in charge of the police station shall forward to a Magistrate
empowered to take cognizance of the offence on a police report, a report in the form prescribed by the State
Government,
(b) on an application made to the it by other persons or otherwise if it is satisfied that
there are circumstances suggesting that :
(i) 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.
(ii) Persons engaged in the formation of company or management of its affairs have been
guilty of fraud, misfeasance or other misconduct towards the company or any of its
members; or
(iii) The members of the company have not been given all the information with respect
to its affairs which they might reasonably explicit including information relating to
calculation of commission payable to a managing or other director or manager of the
company,
order, after giving reasonable opportunity of being heard to the parties concerned that the
affairs of the company ought to be investigated by inspector appointed by the Central
Government. In case such an order is passed, the Central Government shall appoint
inspectors to investigate into the affairs of the company. And to report thereupon in such
manner as the Central Government may direct.

Punishment
If after investigation it is proved that :
(i) the business of the company is being conducted with intent to defraud creditors,
members or any other person or otherwise for a fraudulent or unlawful purpose or that the
company was formed for any fraudulent or unlawful purpose; or
(ii) any person connected with formation or management of company has been guilty of
fraud.
Then every officer of the company who is in default or persons concerned in its
formation or management shall be punishable for fraud under Section 447.

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

Procedure, powers etc., of inspectors (Section 217)

Duties of officers, employees, agents, etc., of the company or body corporate under
investigation Section 217(1) obligates all existing and former officers, employees and
agents of the company which is under investigations within the provisions of this Chapter
or of the body corporate being investigated under Section 219 :
(a) to preserve and produce to an inspector all books and papers of or relating to the
company or the other body corporate or person which are in their custody or power; and
(b) to give to the inspector all assistance in connection with the investigation which they
are reasonably able to give.

Powers of Inspector These shall include the following:

(i) To require any body corporate other than that referred to in Section 217
(1) to furnish information or produce books and papers before him which he may
consider relevant for the purpose of investigation. The books and papers shall not
however be kept in custody for more than 180 days though these may again be called for
a further period of 180 days by giving an order in writing . The books and papers shall be
returned to the company, body corporate, firm or individual by whom or on whose behalf
the books and papers were produced.
(ii) To examine on oath any of the persons referred to in Section 217(1) and with prior
approval of the Central Government any other person in relation to the affairs of the
company or other body corporate or person, as the case may be.

However, in case of an investigation under section 212, the approval of Director, Serious
Frauds Investigation Office shall be sufficient. The notes of examination shall be taken
down in writing read over to, or by, and signed by the person examined and thereafter be
used in evidence against him [Section 217(7)]
(iii) Have all the powers of a Civil Court under the Code of Civil Procedure, 1908, in
respect of the following matters :
(a) the discovery and production of books of account and other documents at such time
and place as may be specified;
(b) summoning and enforcing attendance of persons and examining them an oath; and
(c) inspection of any books, registers and other documents of the company at any place .

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 liability to destroyed, mutilated, altered, falsified or secreted he may
(a) enter the place where such books and papers are kept, and
(b) 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 CrPC 1973 relating to searches or seizures shall apply mutatis
mutandis to every search or seizure made under section 220.