Companies Act Section 213 — Investigation into company’s affairs in other cases
CHAPTER XIV INSPECTION, INQUIRY AND INVESTIGATION
Commercial / Corporate
Summary
Under clause (a), the Tribunal may order an investigation into a company's affairs if an application is made by a specified number of members. For a company with share capital, the application must come from at least one hundred members, or from members holding at least one-tenth of the total voting power. For a company without share capital, the application must come from at least one-fifth of the persons on the company's register of members. In either case, the application must be supported by evidence showing that the applicants have good reasons for seeking the investigation.
Under clause (b), the Tribunal may also order an investigation on an application made by any other person, or even on its own motion, if it is satisfied that there are circumstances suggesting certain problems. These circumstances include the company's business being conducted with intent to defraud its creditors, members, or any other person, or 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. They also include situations where persons involved in the company's formation or management have been guilty of fraud, misfeasance, or other misconduct towards the company or its members. Additionally, they include situations where members have not been given all the information about the company's affairs that they might reasonably expect, including information about the calculation of commission payable to a managing or other director, or the manager.
When the Tribunal passes such an order, it must first give a reasonable opportunity to be heard to the parties concerned. The order directs that the company's affairs ought to be investigated by an inspector or inspectors appointed by the Central Government. Once such an order is passed, the Central Government shall appoint one or more competent persons as inspectors to investigate the company's affairs in respect of the matters specified and to report to the Central Government in the manner it directs.
The proviso states that if, after the investigation, it is proved that the company's business is being conducted with intent to defraud its creditors, members, or any other persons, or for a fraudulent or unlawful purpose, or that the company was formed for any fraudulent or unlawful purpose, or that any person concerned in the company's formation or management has been guilty of fraud, then every officer of the company who is in default and the person or persons concerned in the formation or management shall be punishable for fraud in the manner provided in section 447.
Official Text
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 a share capital; or
(ii) 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—
(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 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
(iii) 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—
(i) 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
(ii) 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.