PART VI

197 Investigation of company's affairs in other cases.-

198 Power of inspectors to carry investigation into affairs of related companies, etc.,.-

200 Seizure of documents by inspector.-

(1) Where in the course of an investigation under sections 196, 197, 198 or 207 the inspector has reasonable ground to believe that the books and papers of, or relating to, any company or other body corporate or managing director or manager of such company or other body corporate may be destroyed, mutilated, altered, falsified or secreted, the inspector may make an application to the Metropolitan Magistrate or as the case may be, a Judicial Magistrate of the First Class, having jurisdiction for an order for the seizure of such books and papers.

(2) After considering the application and hearing the inspector, if necessary, the Magistrate may by order authorise the inspector-

(a) to enter, with such assistance, as may be required, the place or places where such books and papers are kept;

(b) to search that place or those places in the manner specified in the order; and

(c) to seize books and papers he considers necessary for the purposes of his investigation.

(3) The inspector shall keep in his custody the books and papers seized under this section for such period not later than the conclusion of the investigation as he considers necessary and thereafter shall return the same after placing identification marks on them or any part thereof to the company or the other body corporate, or , as the case may be, to the managing director or the manager or any other person, from whose custody or power they were seized and inform the Magistrate of such return:

(4) Save as otherwise provided in this section, every search or seizure made under this section shall be carried out in accordance with the provisions of the Code of Criminal Procedure, 1973 (2 of 1974) relating to searches or seizures made under that Code.

201 Inspectors' report.-

(1) The inspectors may, and if so directed by the Central Government shall, make interim reports to that Government, and on the conclusion of the investigation, shall make a final report to the Central Government. and any such report shall be written or printed, as the Central Government may direct.

(2) The Central Government-

(a) shall forward a copy of any report (other than an interim report) made by the inspectors to the company at its registered office, and also to any body corporate dealt with in the report by virtue of section 198;

(b) may, if it thinks fit, furnish a copy thereof, on request and on payment of the prescribed fee, to any person-

aforesaid appear to the Central Government to be affected;

(c) shall, where the inspectors are appointed in pursuance of the provisions of sub-section (2) of section 196, furnish, at the request of the applicants for the investigation, a copy of the report to them;

(d) shall, where the inspectors are appointed under section 197 in pursuance of an order of the Court, furnish a copy of the report to the Court;

(e) shall, where the inspectors are appointed in pursuance of the provisions of sub-section (2) of section 196, furnish a copy of the report to the Company Law Tribunal; and

(f) may also cause the report to be published.

202. Prosecution..-

(1) If, from any report made under section 201, it appears to the Central Government that any person has, in relation to the company or in relation to any other body corporate, whose affairs have been investigated by virtue of section 198, been guilty of any offence for which he is criminally liable, the Central Government may, after taking such legal advice as it thinks fit, prosecute such person for the offence; and it shall be the duty of all officers and other employees and agents of the company or body corporate, as the case may be (other than the accused in the proceedings), to give the Central Government all assistance in connection with the prosecution which they are reasonably able to give.

(2) Sub-section (7) of section 199 shall apply for the purposes of this section, as it applies for the purposes of that section.

203. Application for winding up of company or an order under section 275—

If any such company or other body corporate is liable to be wound up under this Act and it appears to the Central Government from any such report as aforesaid that it is expedient so to do by reason of any such circumstances as are referred to in sub-clause (i) or (ii) of clause (b) of section 197 the Central Government may, unless the company or body corporate is already being wound up by the Court, cause to be presented to the Court by any person authorised by the Central Government in this behalf.-

(a) a petition for the winding up of the company or body corporate on the ground that it is just and equitable that it should be wound-up;

(b) an application for an order under section 275; or

(c) both a petition and an application as aforesaid.

204. Proceedings for recovery of damages or property.-

.(1) If from any such report as aforesaid, it appears to the Central Government that proceedings ought, in the public interest to be brought by the company or any body corporate whose affairs have been investigated in pursuance of clause (a) or (b) of section 198.-

(a) for the recovery of damages in respect of any fraud, misfeasance or other misconduct in connection with the promotion or formation, or the management of the affairs, of such company or body corporate; or

(b) for the recovery of any property of such company, or body corporate, which has been misapplied or wrongfully retained;

the Central Government may itself bring proceedings for that purpose in the name of such company or body corporate.

(2) The Central Government shall indemnify such company or body corporate against any costs or expenses incurred by it in, or in connection with, any proceedings brought by virtue of sub-section (1).

205. .Expenses of investigation-

(1) The expenses of and incidental to an investigation by an inspector appointed by the Central Government under section 196 or 197 shall be defrayed in the first instance by the Central Government; but the following persons shall, to the extent mentioned below, be liable to reimburse the Central Government in respect of such expenses:-

(a) any person who is convicted on a prosecution instituted in pursuance of section 202, or who is ordered to pay damages or restore any property in proceedings brought by virtue of section 204, may, in the same proceedings, be ordered to pay the said expenses to such extent as may be specified by the Court convicting such person, or ordering him to pay such damages or restore such property, as the case may be;

(b) any company or body corporate in whose name proceedings are brought as aforesaid shall be liable, to the extent of the amount or value of any sums or property recovered by it as a result of the proceedings; and

(c) unless, as a result of the investigation, a prosecution is instituted in pursuance of section 202,-

(2) Any amount for which a company or body corporate is liable by virtue of clause (b) of sub-section (1) shall be a first charge on the sums or property mentioned in that clause.

(3) The amount of expenses in respect of which any company, body corporate, managing director or manager is liable under clause (c) of sub-section (1) to reimburse the Central Government shall be recoverable from that company, body corporate managing director or manager, as an arrear of land revenue.

(4) For the purposes of this section, any costs or expenses incurred by the Central Government in or in connection with proceedings brought by virtue of section 204 including expenses incurred by virtue of sub-section (2) thereof shall be treated as expenses of the investigation giving rise to the proceedings.

(5)(a) Any liability to reimburse the Central Government imposed by clauses (a) and (b) of sub-section (1) shall, subject to satisfaction of the right of the Central Government to reimbursement, be a liability also to indemnify all persons against liability under clause (c) of that sub-section.

(b) Any such liability imposed by the said clause (a) shall, subject as aforesaid, be a liability also to indemnify all persons against liability under the said clause (b).

(c) Any person liable under the said clause (a) or (b) or sub-clause (i) or (ii) of the said clause (c) shall be entitled to contribution from any other person liable under the same clause or sub-clause, as the case may be, according to the amount of their respective liabilities thereunder.

(6) In so far as the expenses to be defrayed by the Central Government under this section are not recovered thereunder, they shall be paid out of moneys provided by parliament.

206. . Inspectors' report to be evidence.-

A copy of any report of any inspector or inspectors appointed under section 196 or 197 authenticated in such manner, if any, as may be prescribed, shall be admissible in any legal proceeding as evidence of the opinion of the inspector or inspectors in relation to any matter contained in the report.

207. Investigation of ownership of company –

(1) Where it appears to the Central Government that there is good reason so to do, it may appoint one or more inspectors to investigate and report on the membership of any company and other matters relating to the company, for the purpose of determining the true persons-

(a) who are or have been financially interested in the success or failure, whether real or apparent, of the company; or

(b) who are or have been able to control or materially to influence the policy of the company.

(2) Without prejudice to its powers under this section, the Central Government shall appoint one or more inspectors under sub-section (1), if the Company Law Tribunal, in the course of any proceedings before it, declares by an order that the affairs of the company ought to be investigated in regard to the matters specified in sub-section (1).

(3) When appointing an inspector under sub-section (1), the Central Government may define the scope of his investigation, whether as respects the matters or the period to which it is to extend or otherwise, and in particular, may limit the investigation to matters connected with particular shares or debentures.

(4) Subject to the terms of an inspector's appointment, his powers shall extend to the investigation of any circumstances suggesting the existence of any arrangement or understanding which, though not legally binding, is or was observed or is likely to be observed in practice and which is relevant to the purposes of his investigation.

(5) For the purposes of any investigation under this section, sections 198, 199 and 201 shall apply with the necessary modifications of references to the affairs of the company or to those of any other body corporate:

Provided that the said sections shall apply in relation to all persons (including persons concerned only on behalf of others) who have been, or whom the inspector has reasonable cause to believe to be or to have been,-

(i) financially interested in the success or failure, or the apparent success or failure, of the company, of any other body corporate whose membership or constitution is investigated with that of the company; or

(ii) able to control or materially to influence the policy of such company, body corporate as they apply in relation to officers and other employees and agents of the company of the other body corporate, as the case may be:

Provided further that the Central Government shall not be bound to furnish the company or any other person with a copy of any report by an inspector appointed under this section or with a complete copy thereof, if it is of opinion that there is good reason for not divulging the contents of the report or of parts thereof; but in such a case, the Central Government shall cause to be kept by the Registrar a copy of any such report, or as the case may be, of the parts thereof, as respects which it is not of that opinion.

(6) The expenses of any investigation under this section shall be defrayed by the Central Government out of moneys provided by Parliament, unless the Central Government directs that the expenses or any part thereof should be paid by the persons on whose application the investigation was ordered.

208. Information regarding persons having an interest in company .-

.(1) Where it appears to the Central Government, or to the Company Law Tribunal in any proceedings before it, that there is good reason to investigate the ownership of any shares in or debentures of a company or of a body corporate and that it is unnecessary to appoint an inspector for the purpose, the Central Government or the Company Law Tribunal, as the case may be, may require any person whom it has reasonable cause to believe-

(a) to be, or to have been, interested in those shares or debentures; or

(b) to act, or to have acted, in relation to those shares or debentures, as the legal adviser or agent of someone interested therein;

to give the Central Government or the Company Law Tribunal, as the case may be, any information which he has, or can reasonably be expected to obtain, as to the present and past interests in those shares or debentures, and the names and addresses of the persons interested and of any persons who act or have acted on their behalf in relation to the shares or debentures.

(2) For the purposes of sub-section (1), a person shall be deemed to have an interest in a share or debenture-

(a) if he has any right to acquire or dispose of the share or debenture or any interest therein or to vote in respect thereof;

(b) if his consent is necessary for the exercise of any of the rights of other persons interested therein; or

(c) if other persons interested therein can be required, or are accustomed, to exercise their rights in accordance with his directions or instructions.

(3) Where it appears to the Central Government that there is good reason to investigate the ownership of any interest in a firm which has acted as managing agent or as secretaries and treasurers of any company, and that it is unnecessary to appoint an inspector for the purpose, the Central Government may require any person whom it has reasonable cause to believe-

to give the Central Government any information which he has, or can reasonably be expected to obtain, as to the present and past interests held in the firm, and the names and addresses of the persons interested and of any persons who act or have acted on their behalf in relation to any such interest.

(4) Any person-

shall be punishable with imprisonment for a term which may extend to six months, or with fine which may extend to ten thousand rupees, or with both.

209 Imposition of restrictions upon shares and debentures and prohibition of transfer of shares or debentures in certain cases –

(1) Where it appears to the Company Law Tribunal, whether on a reference made to it by the Central Government in connection with any investigation under section 207 or 208 or on a complaint made by any person in this behalf that there is good reason to find out the relevant facts about any shares (whether issued or to be issued) and the Company Law Tribunal is of the opinion that such facts cannot be found out unless the restrictions specified in sub-section (2) are imposed, the Company Law Tribunal may, by order, direct that the shares shall be subject to the restrictions imposed by sub-section (2) for such period not exceeding three years as may be specified in the order.

(2) So long as any shares are directed to be subject to the restrictions imposed by this sub-section-

(3) Where a transfer of shares in a company has taken place or the Company Law Tribunal has reasonable ground to believe that such transfer is likely to take place and as a result thereof a change in the composition of the Board of directors of the company is likely to take place and the Company Law Tribunal is of the opinion that any such change would be prejudicial to the public interest, it may, by order, direct that-

(4) The Company Law Tribunal may, by order at any time, vary or rescind any order made by it under sub-section (1) or sub-section (3).

(5) Any order made by the Company Law Tribunal under sub-section (4) shall be served on the company within fourteen days of the making of the order.

(6) Any person who-

shall be punishable with imprisonment for a term which may extend to six months, or with fine which may extend to five thousand rupees, or with both;

(7) Where shares in any company are issued in contravention of such of the restrictions as may be applicable to the case under sub-section (2), the company, and every officer of the company who is in default, shall be punishable with fine which may extend to five thousand rupees.

(8) A prosecution shall not be instituted under this section except by, or with the consent of, the Central Government.

(9) This section shall apply in relation to debentures as it applies in relation to shares.

210 Voluntary winding-up of company, etc., not to stop investigation proceedings.-

An investigation may be initiated under section 196, 197, 198, 207 or 208 notwithstanding that-

and no investigation so initiated shall be stopped or suspended by reason only of the fact that an application referred to in clause (a) has been made or a special resolution referred to in clause (b) has been passed.

211 Saving for legal advisers and bankers.-

Nothing in sections 194 to 209 shall require the disclosure to the Company Law Tribunal or to the Central Government or to the Registrar or to an Inspector appointed by Central Government.