Investigation in respect of the affairs of a company

The investigation of company affairs may be ordered by the central government or the national company law tribunal. The different types of investigations are explained hereunder. It may be noted in this connection that as per the amendments made by the second amendment act 2002, all the matters heard by the erstwhile company law board will come under the jurisdiction of national company law tribunal that will be established as per section 10FB of the act, but it has been notified that the company law board would continue to function till the Tribunal is established.

Investigation in respect of the affairs of a company

Power of registrar to call for information or explanation

Section 234 of the act empowers the ROC, while perusing any document which is compulsory to be registered with under the provisions of the act, to ask the company is involved to provided him such information or explanation with respect to any matter to which such document purports to relate. Whether it may be an private limited company or public limited company, the companies may be registered with their detail informations that related to registrar.

Powers of the registrar under the section

  • The registrar may ask the company to produce to him for inspection such books and papers which he considers necessary.
  • If the company declines to furnish information or reject to make books, the registrar may implement to the court to make an order on the production of the company for his books to inspection.
  • If the required information is not furnished or if after inspection the registrar is consider that the books and papers disclose an unsatisfactory state of affairs or do not disclose a full and fair view of any matter, he shall report the matter to the central government.

Report from the registrars of companies under section 234

Under section 235, the central government has rights to assign one or more inspectors to investigate the company affairs. The power of central government under this section arises in two circumstances. One circumstance where the central government directly decide is when the central government may receive a report from the ROC that the details and statement given by the company in response to his query discloses an unsatisfactory state of affairs or on material placed before him by a tributary or creditor or any other person interested that the business of a company is being involved on in fraud of its creditors or of person dealing with the company and on the basis of such report the central government may assign one or more inspectors.

Application from members for investigation

The second circumstance arises when the Tribunal receives a complaint from not less than 200 members or in the case of a company shall not having share capital, the members holding total voting power is not less than one-tenth of the total voting power or in the case of a company not having share capital, from not less than one-fifth of the members on the register of members of the company, the Tribunal, after giving the parties an possibility of being heard may declare that the company affairs may ought to be investigated.

When the Tribunal makes such a declaration, the central government shall appoint one or more inspectors to investigate the affairs of the company. The members referred to above may be holding equity share or preference shares if there is preference capital. The examination into the company affairs may appear to mean an investigation of all its businesses and all contracts and transactions.

Application of members to be supported by evidence

When an application is made by members to the tribunal, the tribunal may need the complaints to produce enough evidence to show that they have good reasons for requiring investigation.

Investigation under section 237

Under this section, the company members by passing a special resolution or the court may declare that the company affairs ought to be investigated by an inspector appointed by the central government.

Appointment of inspectors to investigate – section 237

Clause (a) (i) of the section allows the central government to make inspectors to examination the company affairs. If the company in general meeting by a special resolution declares that the affairs of the company ought to be investigated. This is an extraordinary situation as the company shareholders may turn against the persons who manage the company.

Clause (a) (ii) empowers the court having jurisdiction over the company to order the central government to appoint one or more inspectors to check that their registration are managed with their inspectors.

Power under section 237

The court observed that when concurrent jurisdictions were conferred on two different authorities, the lowest amongst them should be approached first and due to other grounds specified, this was another reason why the company law board should be approached in the first instance of their registration may placed under this section.

Investigation may relate to other companies also

Under section 235 or 237 an inspector appointed have the rights to examine also the affairs of any other body corporate which or was at any time the company’s subsidiary or holding company or manager or whose managing director was also the directors of the company. With the approval of the central government the inspector can also investigate the affairs of other bodies corporate whose board of directors comprises of nominees of the company or of any person who was at any relevant time the managing director or manager of the company.

Inspectors Report

The inspector may make interim report to the central government if so directed and shall make that final report to that government. The central government shall send copy of the report (other than the interim report) to:

  • The company and also to any other body corporate dealt with in the report,
  • If in thinks fit to any person on request subject to payment of a fee of Re.1 for every 100 words or fraction thereof:
  • Who is a company member or any other body corporate mentioned to in the report?
  • Who is a company creditor or the other body corporate?
  • The tribunal or the court where necessary as specified in section 241(1)
  • The central government shall cause the report to be published.

Expenses of investigation

In terms of section 245 the expenses of and incidental to an investigation is appointed under section 235 or 237 the central. The registration may be takes placed in Bangalore registrar with number of causes. He/ she shall be defrayed by the central government initially which shall be reimbursed to that government by the persons specified in section 245.

 

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