Inspection of Books and Conduct Inquiry

Inspection of Books and Conduct Inquiry

Inspection of Books and Conduct Inquiry

As per the Companies Act, all companies incorporated in India are mandatorily required to maintain a book of accounts. Such books of accounts may have to be inspected when the company has been thought to have engaged in fraudulent trade practices. In this article, we look at the provisions relating to the inspection of books and inquiry in detail.

Conditions on inspection of the book

As per section 206(1) on the basis of inspection of any document filed by a company, the Registrar may require a company to:

  • furnish document along with information or explanation in writing or
  • produce such a document within the prescribed time as specified in the notice.

Resubmission of Documents

In case of non-submission of such information or explanation to the Registrar within the specified time.

If found that on the verification of the documents furnished with information or explanation is not acceptable.

Note: On the above cases, the Registrar would require another written notice from the company. Further, the company should furnish such books of accounts, papers, books and explanation for the inspection of the company at the same time and place as specified in the notice.

Additionally, any information provided above, which relates to the past employee of the company, then such employee is required by the Registrar based upon the notice submitted.

Conditions on Inquiry

As per section 206(4), the inquiry will be conducted on the following conditions:

  • Any information provided with the Registrar by the company is satisfied.
  • Any business of a company is being carried on a fraudulently and unlawfully.
  • Any company is not in compliance under the provisions of this Act
  • Any grievances of the investors are not being addressed.

In all the above cases, the Registrar may require the company to furnish written notice within the specified time regarding such declaration made against the company. Then the inquiry will be carried out after providing satisfactory reasons to the Registrar.

The Central Government on circumstances of the warrant may direct the Registrar or Inspector to carry out the inquiry under this subsection. Also, the Regional Director will be appointed by the Central Government to carry out inspection of the accounts book of a company.

Penalty

In case of failure in furnishing any information or explanation or produce any document required under this section, the company and concerned officer of the company, who is in default is liable for punishment with a fine which may extend to Rs. 1 lakh and in the case of a continuing failure, with an additional fine which exceeds Rs.5000 for a day during the continuation of failure.

Conduct of Inspection and Inquiry

  • As per section 207, the Registrar or the appointed inspector requires books of account and other documents during the conduct of the inspection. Therefore, it is the duty of every director of the company to furnish all such documents to the inspector or Registrar.
  • The inspector or Registrar making inspection or inquiry should:
    • make copies of books of accounts and other papers.
    • place any mark of identification in such books in order to confirm that the inspection having been conducted.
  • The Registrar or inspector making an inspection or inquiry are vested with the powers of a civil court as per the Code of Civil Procedure while trying a suit in respect of the following aspects:
    • development and production of books of account and other papers
    • summoning and enforcing the attendance of persons and monitoring them, and
    • inspection of any books, registers and other documents of the company in any place.

Penalty

If a company or any other officer of the company disobeys the Registrar or inspector under this section, the company and concerned officer of the company, who is in default is liable for punishment with imprisonment for one year along with the fine which is less than Rs.25000 but may extend to Rs.1 lakh.

Inspection Report

As per section 208, the Registrar or inspector will submit a report in writing to the Government after the inspection of books of accounts. The report consists of a recommendation for further investigation into the affairs of the company is necessary.

Search and Seizure

As per the section 209, where information within the Registrar has reasonable ground to believe that the books and papers of a company or relating to any director or auditor or key managerial personnel or company secretary are likely to be destroyed or altered after obtaining an order from the special court for seizing of such books and

  • Search the place where such books or papers are kept
  • Take copies of such books or papers at its cost.

The Registrar or inspector should return the seized books and papers within 180 days from the date of such seize. However, if needed, the Registrar or inspector can obtain such books of accounts by passing an order in writing.

Post by Karthiga

IndiaFilings is India's largest online compliance services platform dedicated to helping people start and grow their business, at an affordable cost. We were started in 2014 with the mission of making it easier for Entrepreneurs to start their business. We have since helped start and operate tens of thousands of businesses by offering a range of business services. Our aim is to help the entrepreneur on the legal and regulatory requirements, and be a partner throughout the business lifecycle, offering support at every stage to ensure the business remains compliant and continually growing.