Companies Act Section 224 — Actions to be taken in pursuance of inspector’s report

CHAPTER XIV INSPECTION, INQUIRY AND INVESTIGATION

Commercial / Corporate

Summary

Sub-section (1) deals with criminal prosecution. If the Central Government finds from an inspector's report that a person has committed an offence in relation to the company or any other body corporate that was investigated, it may prosecute that person. All officers and employees of the company or body corporate are required to give the Central Government the necessary help in connection with such prosecution.

Sub-section (2) covers winding up of a company. If a company or body corporate is liable to be wound up under the Act or the Insolvency and Bankruptcy Code, and the Central Government thinks it is appropriate based on the inspector's report, it may present a petition to the Tribunal for winding up, unless the company is already being wound up. The Central Government can authorise any person to present this petition, which may be for winding up on just and equitable grounds, or an application under section 241, or both.

Sub-section (3) concerns proceedings in the public interest. If the Central Government believes from the inspector's report that proceedings should be brought by the company or body corporate for recovering damages related to fraud, misfeasance, or other misconduct in its promotion, formation, or management, or for recovering property that has been misapplied or wrongfully retained, the Central Government may itself bring such proceedings in the name of the company or body corporate.

Sub-section (4) provides for indemnity. The Central Government shall be indemnified by the company or body corporate against any costs or expenses it incurs in connection with proceedings brought under sub-section (3).

Sub-section (5) deals with fraud and disgorgement. If the inspector's report states that fraud has taken place in a company and a director, key managerial personnel, other officer, or any other person or entity has taken undue advantage or benefit from it, whether in the form of assets, property, cash, or any other manner, the Central Government may file an application before the Tribunal. The application can seek orders for disgorgement of such assets, property, or cash, and also for holding such person liable personally without any limitation of liability.

Official Text

(1) If, from an inspector’s report, made under section 223, it appears to the Central Government that any person has, in relation to the company or in relation to any other body corporate or other person whose affairs have been investigated under this Chapter been guilty of any offence for which he is criminally liable, the Central Government may prosecute such person for the offence and it shall be the duty of all officers and other employees of the company or body corporate to give the Central Government the necessary assistance in connection with the prosecution.

(2) If any company or other body corporate is liable to be wound up under this Act 1[or under the Insolvency and Bankruptcy Code, 2016 (31 of 2016)] and it appears to the Central Government from any such report made under section 223 that it is expedient so to do by reason of any such circumstances as are referred to in section 213, the Central Government may, unless the company or body corporate is already being wound up by the Tribunal, cause to be presented to the Tribunal 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 under section 241; or

(c) both.

(3) 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 under this Chapter—

(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 winding up in the name of such company or body corporate.

(4) The Central Government, shall be indemnified by 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 (3).

(5) Where the report made by an inspector states that fraud has taken place in a company and due to such fraud any director, key managerial personnel, other officer of the company or any other person or entity, has taken undue advantage or benefit, whether in the form of any asset, property or cash or in any other manner, the Central Government may file an application before the Tribunal for appropriate orders with regard to disgorgement of such asset, property, or cash, as the case may be, and also for holding such director, key managerial personnel, officer or other person liable personally without any limitation of liability.