Companies Act Section 221 — Freezing of assets of company on inquiry and investigation
CHAPTER XIV INSPECTION, INQUIRY AND INVESTIGATION
Commercial / Corporate
Summary
Sub-section (1) allows the Tribunal to freeze a company's assets. This can happen when the Central Government refers a matter to it, or during an inquiry or investigation into the company's affairs, or on a complaint from a specified number of members, a creditor owed at least one lakh rupees, or any other person with reasonable grounds to believe that the company's funds, assets, or properties are likely to be removed, transferred, or disposed of in a way that harms the company, its shareholders, creditors, or the public interest. In such cases, the Tribunal can order that the transfer, removal, or disposal not happen for a period of up to three years, or that it can only happen under conditions and restrictions the Tribunal decides.
Sub-section (2) sets out the consequences for violating a Tribunal order under sub-section (1). If the company removes, transfers, or disposes of its funds, assets, or properties against the order, the company faces a fine of at least one lakh rupees, which can go up to twenty-five lakh rupees. Additionally, every officer of the company who is in default can be punished with imprisonment of up to three years, or a fine of at least fifty thousand rupees but not more than five lakh rupees, or both.
Official Text
(1) Where it appears to the Tribunal, on a reference made to it by the Central Government or in connection with any inquiry or investigation into the affairs of a company under this Chapter or on any complaint made by such number of members as specified under sub-section (1) of section 244 or a creditor having one lakh amount outstanding against the company or any other person having a reasonable ground to believe that the removal, transfer or disposal of funds, assets, properties of the company is likely to take place in a manner that is prejudicial to the interests of the company or its shareholders or creditors or in public interest, it may by order direct that such transfer, removal or disposal shall not take place during such period not exceeding three years as may be specified in the order or may take place subject to such conditions and restrictions as the Tribunal may deem fit.
(2) In case of any removal, transfer or disposal of funds, assets, or properties of the company in contravention of the order of the Tribunal under sub-section (1), the company shall be punishable with fine which shall not be less than one lakh rupees but which may extend to twenty-five lakh rupees and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to three years or with fine which shall not be less than fifty thousand rupees but which may extend to five lakh rupees, or with both.