Inspection, Inquiry and Investigation: formula sheet

Key formulas

Section 206(1): first notice

Scrutiny of a filed document or information received → written notice for information, explanation or documents within a reasonable time

Officers must reply to the best of their knowledge and power. Officers of a past period can also be called on by written notice.

Section 206(3): second notice

No reply, inadequate reply or unsatisfactory state of affairs → call for books of account, books, papers and explanations for inspection

The Registrar must record reasons in writing before serving this notice.

Section 206(4): inquiry

Fraudulent or unlawful business, non-compliance with the Act, or investor grievances not addressed → written order, then inquiry after reasonable opportunity of being heard

The Central Government may direct the Registrar or an inspector it appoints to carry out the inquiry. Officers in default for fraudulent business are punishable for fraud under Section 447.

Section 206(7): penalty for non-furnishing

Fine up to ₹1,00,000 on the company and every officer in default; continuing failure: additional fine up to ₹500 per day after the first day

This applies where information, explanation or a document required under Section 206 is not furnished.

Section 207(1)-(2): duty and powers

Duty: produce documents, give statements and render all assistance. Powers: make copies, place identification marks

The duty falls on every director, officer or other employee.

Section 207(3): civil court powers

(a) discovery and production of documents; (b) summoning and examining on oath; (c) inspection of books and registers at any place

These apply despite any other law or contract to the contrary.

Section 207(4): penalty for disobedience

Imprisonment up to 1 year and fine of ₹25,000 to ₹1,00,000; on conviction, deemed to vacate office and disqualified from office in any company

Both imprisonment and fine are stated. Remember the minimum fine of ₹25,000.

Section 208: report

Written report to the Central Government, which may recommend further investigation with reasons

Covers inspection of books and inquiry under Section 206 and other books under Section 207.

Who submits and to whom (Section 208)

Registrar or inspector → written report → Central Government

Submitted after inspection of books of account or an inquiry under Section 206 and inspection of other books and papers under Section 207. Documents go with it, if any.

Content of the report

Report + (if necessary) recommendation for further investigation + reasons

The recommendation is optional, but reasons must be given in support if it is made.

Investigation on the Section 208 report (Section 210)

Section 208 report → Central Government's opinion → order of investigation

Section 210(1)(a) lists receipt of the Section 208 report as one ground. Other grounds are a company's special resolution and public interest.

Assignment to SFIO (Section 212(1))

Section 208 report / special resolution / public interest / request from a Department of Central or State Government → order assigning to SFIO

The Central Government acts if it is of the opinion that investigation by SFIO is necessary. It may designate inspectors.

After SFIO investigation

SFIO report → Central Government examination → direction to initiate prosecution

Section 212(14): the Government may take legal advice first. Prosecution can cover the company, its officers or employees, and any person directly or indirectly connected.

Section 228 rule

Chapter provisions on inspection, inquiry and investigation apply mutatis mutandis to foreign companies

Say 'mutatis mutandis' and explain it as 'with necessary changes'.

Grounds for SFIO assignment (s.212(1))

Report under s.208 | special resolution | public interest | request from a Government Department

The Central Government must first form the opinion that investigation by SFIO is necessary. It assigns by order.

Exclusivity of SFIO (s.212(2))

Once assigned, no other agency proceeds in respect of offences under the Act

Other agencies must transfer relevant documents and records to SFIO.

Duty to assist (s.212(5))

Company, officers and employees (present or past) must provide all information, explanation, documents and assistance

Applies with adjustments for a foreign company.

Arrest safeguard (s.212(10))

Produce arrested person before Special Court or Magistrate within 24 hours, excluding journey time

Arrest power under s.212(8) is for offences covered under section 447, by an officer not below Assistant Director authorised by the Central Government.

Who is covered

Person required to explain or make a statement in inspection/inquiry/investigation OR officer/employee of a company or body corporate under investigation

Both groups are covered. The second group need not be asked for a statement.

Clause (a): documents

Destroys, mutilates, falsifies, conceals, tampers or unauthorisedly removes documents relating to property, assets or affairs of the company/body corporate, or is a party to such act

Being a party to the act is also an offence.

Clause (b): false entry

Makes, or is a party to making, a false entry in any document concerning the company or body corporate

The document need not be a book of account; any document concerning the company counts.

Clause (c): false explanation

Provides an explanation which is false or which he knows to be false

The wording is 'false or which he knows to be false', so knowledge is not stated as a condition for the first limb.

Punishment

Punishable for fraud in the manner provided in section 447

Section 229 itself gives no separate fine or jail term.

Contrast: section 207(4)

Disobeying direction of Registrar/inspector: imprisonment up to 1 year and fine ₹25,000 to ₹1,00,000

Applies to a director or officer; conviction also means deemed vacation of office and disqualification.

Quick revision

• Under section 207, directors, officers and employees must produce documents, give statements and assist the Registrar or inspector.
• The Registrar or inspector may copy books and place identification marks in them as proof of inspection.
• Under sections 207 and 217, the Registrar or inspector has civil court powers for discovery and production of documents, summoning and examining on oath, and inspection of books.
• Under section 208, the Registrar or inspector submits a written report to the Central Government.
• The report may recommend further investigation, with reasons.
• Under section 217, officers, employees and agents, including former ones, must preserve and produce books and give reasonable assistance.
• An inspector cannot keep books for more than 180 days, but may call for them again for a further 180 days by written order.
• An inspector may examine on oath the persons in section 217(1); for any other person, prior approval of the Central Government is needed.
• Notes of examination are written, read over, signed by the person examined, and may be used in evidence against him.
• Disobeying a direction: imprisonment up to one year and fine of ₹25,000 to ₹1,00,000; conviction means deemed vacation of office and disqualification from holding office in any company.
• Section 217(8) default: imprisonment up to six months, fine of ₹25,000 to ₹1,00,000, plus up to ₹2,000 for every day after the first.
• Section 228 applies the Chapter mutatis mutandis to foreign companies; section 229 punishes destruction, falsification, false entry or false explanation as fraud under section 447.

Common mistakes

• Treating Section 206 and Section 207 as the same power. Fix: Remember that Section 206 gives the power to call for information, inspect and inquire, while Section 207 governs how it is conducted and the duties and penalties that follow.
• Forgetting that the Registrar must record reasons in writing before calling for books under Section 206(3). Fix: Link the proviso to the second notice only. Write that reasons are recorded in writing before the notice is served.
• Saying the report goes to the Tribunal, SEBI or the company's board. Fix: Section 208 says the report is submitted in writing to the Central Government.
• Treating the recommendation for investigation as compulsory in every report. Fix: The report is mandatory. The recommendation is included only if necessary, and then with reasons.
• Saying foreign companies are fully exempt because they are incorporated abroad. Fix: Remember Section 228 extends the Chapter to foreign companies. Their Indian business can be investigated.
• Treating mutatis mutandis as 'exactly the same'. Fix: Write 'with necessary changes' and give a short example of adjustment.
• Quoting a fine or jail term as the penalty under section 229. Fix: Write that the punishment is for fraud as provided in section 447. Keep section 207(4) figures for disobeying directions.
• Saying only directors are liable. Fix: The section covers any person required to explain or make a statement, and any officer or employee of the company or body corporate under investigation.

Exam tips

• Learn the three stages of Section 206 as a ladder: notice for information, notice for books with reasons recorded, then inquiry with a hearing.
• Memorise the two penalty sets together: ₹1,00,000 plus ₹500 per day under Section 206(7), and one year plus ₹25,000 to ₹1,00,000 under Section 207(4).
• In case questions, name the section and the person liable. Marks are given for the correct person, such as the director or officer under Section 207(4).
• Mention the civil court powers under Section 207(3) by listing all three heads. Examiners often test one of them in an MCQ.
• Close long answers with the Section 208 report to the Central Government and the possible recommendation for investigation.
• Write the full chain, from inspection to prosecution, in a few lines. Case-based answers need the stage identified.
• Use the Act's own words: 'report in writing', 'Central Government', 'further investigation', 'giving his reasons'.
• In MCQs, watch for options that send the report to the wrong authority or call the recommendation mandatory.