Corporate and Economic Laws · Inspection, Inquiry and Investigation

Inspection of Books and Inquiry into Company Affairs

Updated 11 October 2026 · Fact-checked

Under Sections 206 and 207 of the Companies Act, 2013, the Registrar can call for information, inspect books of account and inquire into a company's affairs. Section 206 gives the power and the trigger. Section 207 sets out the conduct, civil court powers and penalties. Under Section 208, a report goes to the Central Government.

Understand Inspection of Books and Inquiry into Company Affairs

A company files many documents with the Registrar. The law does not make the Registrar a passive record-keeper. If a filing looks incomplete or wrong, or a complaint arrives, the Registrar can ask questions and check the books. This is the first and lightest layer of state oversight, before any full investigation.

Section 206 is the power section. It works in escalating stages. First, on scrutiny of a filed document or on information received, the Registrar may issue a written notice asking for further information, explanation or documents within a reasonable time. Second, if nothing is furnished, or the reply is inadequate, or an unsatisfactory state of affairs appears, the Registrar may call for books of account and papers for inspection. Before this second notice, the Registrar must record reasons in writing. Third, under sub-section (4), if the Registrar is satisfied that the business is carried on for a fraudulent or unlawful purpose, or not in compliance with the Act, or that investor grievances are not being addressed, the Registrar can issue a written order and hold an inquiry after giving the company a reasonable opportunity of being heard.

Section 207 is the conduct section. It tells the company's people what they must do and what the Registrar or inspector may do. Directors, officers and employees must produce documents, give statements, information or explanations and render all assistance. The Registrar or inspector may make copies and place identification marks on the books. Such an officer also has civil court powers on three matters: discovery and production of documents, summoning and examining persons on oath, and inspection of books and registers at any place.

Section 208 closes the loop. After inspection or inquiry, the Registrar or inspector submits a written report to the Central Government. The report may recommend further investigation, with reasons.

In the exam, link each stage to its trigger and its penalty. The Central Government can also direct an inspection by an inspector it appoints (Section 206(5)) or authorise a statutory authority to inspect books (Section 206(6)). Do not confuse this with a director's right to inspect books under Section 128(3).

Key rules to remember

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.

How to solve Inspection of Books and Inquiry into Company Affairs questions

Use this method for any case-based or theory question on inspection and inquiry by the Registrar.

1Identify the stage: first notice for information, notice for inspection of books, or inquiry on fraud, non-compliance or investor grievances.
2Match the trigger to the sub-section of Section 206. Quote the trigger in the facts, such as an inadequate reply or a complaint of fraud.
3Check the procedural safeguard: written notice, reasons recorded in writing before the second notice, written order and hearing before an inquiry.
4State the duties of the company and its people under Section 206(2) and Section 207(1). Mention who is covered.
5State the Registrar's or inspector's powers under Section 207(2)-(3): copies, marks, and civil court powers.
6Apply the penalty: Section 206(7) for non-furnishing, Section 207(4) for disobedience, Section 447 for fraud. Match it to the right person.
7Say what follows: the report under Section 208 to the Central Government and the possible recommendation for investigation.
8Conclude with a clear answer on what the Registrar may do or what the officer must do.

Quickest way: Trigger, power, duty, penalty, report

When to use it: Use this for MCQs and short case questions where you must pick the right section or penalty in under a minute.

Underline the trigger in the facts: scrutiny, no reply, fraud, disobedience.
Name the section: 206 for the power to ask, inspect and inquire; 207 for conduct, assistance and civil court powers; 208 for the report.
Pick the penalty by the default: failure to furnish under Section 206 gives a fine; disobeying a direction under Section 207 gives imprisonment plus fine and disqualification.
Check the number in the option: ₹1,00,000 and ₹500 per day for Section 206(7); ₹25,000 to ₹1,00,000 and one year for Section 207(4).

Common mistakes in Inspection of Books and Inquiry into Company Affairs

Treating Section 206 and Section 207 as the same power.
Both deal with inspection and appear together in the chapter.
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).
Students remember the notice but not the proviso.
Fix: Link the proviso to the second notice only. Write that reasons are recorded in writing before the notice is served.
Mixing up the penalty under Section 206(7) with that under Section 207(4).
Both involve a fine and look similar.
Fix: Section 206(7) is a fine only, up to ₹1,00,000 with ₹500 per day for continuing failure. Section 207(4) has imprisonment up to one year, a fine of ₹25,000 to ₹1,00,000, and disqualification on conviction.
Saying the penalty under Section 207(4) falls on the company.
Students assume penalties always fall on the company.
Fix: Section 207(4) names the director or officer who disobeys the direction. Section 206(7) covers the company and every officer in default.
Confusing the Registrar's inspection with a director's right of inspection under Section 128(3).
Both involve looking at books of account.
Fix: Section 128(3) lets a director inspect books during business hours at the registered office or another place in India. Sections 206 and 207 give regulatory powers to the Registrar or inspector.
Ignoring the hearing requirement before an inquiry under Section 206(4).
Students focus on the fraud trigger and skip the safeguards.
Fix: Write the full sequence: written order informing the company of the allegations, then inquiry after giving a reasonable opportunity of being heard.

Worked examples

Example 1

Sundaram Textiles Ltd filed its annual return. On scrutiny, the Registrar thought more information was needed and sent a written notice asking for an explanation within 15 days. The company did not reply. Explain what the Registrar can do next and the consequence for the company.

Show the solution

Stage one was a notice under Section 206(1) on scrutiny of a filed document. It required information within a reasonable time.
The company and its officers concerned had a duty under Section 206(2) to reply to the best of their knowledge and power within the time specified or extended.
No information was furnished. Under Section 206(3), the Registrar may by another written notice call for books of account, books, papers and explanations for inspection, at a place and time specified.
Before serving this notice, the Registrar must record reasons in writing.
On default, Section 206(7) applies. The company and every officer in default are liable to a fine up to ₹1,00,000, and for continuing failure an additional fine up to ₹500 for every day after the first.

Answer: The Registrar can issue a second written notice under Section 206(3), after recording reasons in writing, to inspect books and papers. The company and officers in default face a fine up to ₹1,00,000 plus up to ₹500 per day after the first day of continuing failure.

Example 2

During an inspection of Ganga Foods Ltd, the Registrar asked its finance manager Mr. Rao to produce ledgers and explain certain entries. He refused and gave no help. The Registrar also wished to copy some books and summon the CFO for examination on oath. Advise on the Registrar's powers and Mr. Rao's position.

Show the solution

Section 207(1) makes it the duty of every director, officer or other employee to produce all documents, furnish statements, information or explanations, and render all assistance. A finance manager is covered.
Under Section 207(2), the Registrar may make or cause to be made copies of books and papers and place identification marks in token of the inspection.
Under Section 207(3), the Registrar has civil court powers: discovery and production of documents, summoning and examining persons on oath, and inspection of books and registers at any place. So the CFO can be summoned and examined on oath.
Section 207(4) penalises a director or officer who disobeys a direction under the section: imprisonment up to one year and a fine of at least ₹25,000, extending to ₹1,00,000.
If convicted, the director or officer is deemed to vacate office and is disqualified from holding office in any company.
The Registrar will then report to the Central Government under Section 208, and may recommend further investigation, giving reasons.

Answer: Yes, the Registrar can copy the books and summon and examine the CFO on oath. Mr. Rao's refusal breaches Section 207(1). If he is an officer who disobeys a direction, he faces up to one year's imprisonment and a fine of ₹25,000 to ₹1,00,000, and disqualification on conviction. The Registrar reports to the Central Government under Section 208.

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.

Practice questions from Inspection, Inquiry and Investigation

Inspection of Books and Inquiry into Company Affairs: frequently asked questions

What does Section 206 of the Companies Act, 2013 allow the Registrar to do?

It lets the Registrar require information, explanation or documents by written notice, call for books of account for inspection, and carry out an inquiry in cases of fraud, non-compliance or unaddressed investor grievances. The Central Government can also direct an inspection by an inspector it appoints. Safeguards such as written reasons and a hearing apply at the relevant stages.

What civil court powers does the Registrar have under Section 207?

The Registrar or inspector has the powers of a civil court under the Code of Civil Procedure, 1908 on three matters. These are discovery and production of books and documents, summoning and examining persons on oath, and inspection of books and registers at any place. These powers apply despite any other law or contract.

What is the penalty for disobeying the Registrar's direction under Section 207?

A director or officer who disobeys is punishable with imprisonment up to one year and a fine of not less than ₹25,000 but up to ₹1,00,000. On conviction, the person is deemed to vacate office and is disqualified from holding office in any company.

What happens after the inspection or inquiry is complete?

Under Section 208, the Registrar or inspector submits a written report to the Central Government with any documents. The report may recommend that further investigation into the company's affairs is necessary, giving reasons.