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(COMPANY LAW-II) A PROJECT REPORT
Submitted to the UNIVERSITY FIVE YEAR LAW COLLEGE UNIVERSITY OF RAJASTHAN JAIPUR
Miss SONY KULSHRESTHA
B.A.,LL.B(HONS.) VI Semester
It is further certified that the candidate has done a sincere efforts in this work on the topic mentioned above.A LL. Uviversity Five Year Law College University of Rajasthan. Miss Sony Kulshreshtha Supervisor .CERTIFICATE This is to certify that AJIT YADAV.B VI Semester. Jaipur has submitted the project entitled "PROVISIONS OF INVESTIGATION IN THE COMPANIES ACT.1956" under my supervision and guidance. student of B.
University of Rajasthan. Further I am grateful to my learned teachers for their academic patronage and persistent encouragement extended to me. but above all. Jaipur. have helped in developing an analytical approach to this work. I am grateful and thankful to Prof. Mridul Srivastava.ACKNOWLEDGEMENT I have written the this presentation of entitled Sony "PROVISIONS OF INVESTIGATION IN THE COMPANIES ACT. The pains taken by her in the scrutiny of the rough draft as well her valuable suggestions to plug the loopholes therein have not only helped immensely in making this work see the light of the day. Director of University Five Year Law College. Jaipur for her cooperation and guidance.1956" under supervision Miss Kulshreshtha. University Five Year Law College. . I find no words to express my sense of gratitude for Miss Sony Kulshreshtha. Faculty lecturer for providing the necessary guidance and constant encouragement at every step of her endeavour. Faculty Lecturer.
A.LLB.I am highly indebted to the office and Library Staff of the University Five Year Law College.. Jaipur Roll No. family members and friends for the assistance received from them in the preparation of this dissertation for which I am indebted to them. 007 .) Fifth Semester UFYLC University of Rajasthan. University of Rajasthan. Jaipur for the support and cooperation extended by them from time to time. (Hons. AJIT YADAV. I cannot conclude with recording my gratefulness to my parents. Student of B.
. CHAPTER 1 Introduction…………………………………………………….3.. i.……........... Investigation into the affairs of the Companies……………….......... Powers of the Inspectors…………………………………………8...11....... Research methodology………………………………………........................ CHAPTER 3 Investigation into the affairs of Related persons (Section 239)…6............ CHAPTER 2 Investigation …………………………………………………...2.... Conclusion………………………………………………..............ii............... Table of cases…………………………………………………....... Bibliography & Webliography ..........7... CHAPTER 4 Investigation Into the ownership of Companies (Section 247…......3.....List of Contents Certificate...... Hypothesis……………………………………………………....... Acknowledgement.... The Inspector’s Report (Section 241)……………………………9.10............2......... 3. Types of Investigation ……………………………………… ......1...
Company Law Board. financial. The Companies Act is administered by the Central Government through the Ministry of Corporate Affairs and the Offices of Registrar of Companies. 1956. Director of Inspection. managerial and all the relevant aspects of a company. employees and others. is the most important piece of legislation that empowers the Central Government to regulate the formation. The Registrar of Companies (ROC) controls the task of incorporation of new companies and the administration of running companies. to order investigation into the affairs of a company and to launch prosecution for violation of the Act. action is initiated under provisions of the Companies Act or the same is referred to the Central Bureau of Investigation. Public Trustee. It empowers the Central Government to inspect the books of accounts of a company.Chapter-1 INTRODUCTION In India. Official Liquidators. functioning and winding up of companies. etc. financing. If an inspection discloses a prima facie case of fraud or cheating. The Act contains the mechanism regarding organizational. whether any unfair practices prejudicial to the public interest are being resorted to by any company or a group of companies and to examine whether there is any mismanagement which may adversely affect any interest of the shareholders. . to direct special audit. These inspections are designed to find out whether the companies conduct their affairs in accordance with the provisions of the Act. the Companies Act. creditors.
1 RESEARCH METHODOLOGY Researcher has used doctrinal method while dealing with the research project related to “Provisions of Investigation in The Companies Act. . 1.1956”.The provisions of investigation is a vital part of any company’s/establishment operations.1.2 HYPOTHESIS :.
that a document filed with him. This may sometimes lead to abuse of power by a few. Fraud etc in any of the manner given below: • the business of the company is conducted to defraud3 its Members.Chapter 2 INVESTIGATION:Though the real owners of a Company are its shareholders. Investigation into the ownership of the Companies [Section 247] A. or does not disclose the full and fair statement of matters to which it purports2 to. discloses an unsatisfactory1 state of affairs. 3 Defraud means deprived of by deceit. Purports means have as a plan or objective. Types of Investigation:A. if in the opinion of the Company Law Board. there are circumstances suggesting: a. Investigation into the affairs of the Companies [Section 235 & 237] B. Hence the Central Government reserves its right to investigate companies. or other persons or • the business of the Company is conducted for a fraudulent or unlawful purpose or is oppressive to any Member or • Company was formed for any unlawful or fraudulent purpose. Discretionary Powers :i. 1 2 Unsatisfactory means not giving satisfaction. Creditors. . Based on the Opinion of the Company Law Board (Section 237 (b)) The Central Government may appoint one or more competent persons as inspectors to investigate the affairs of the Company. especially in cases of an alleged fraud or even the oppression of the minority shareholders. Investigation into the affairs of the Companies 1. On a Report of the Registrar of Companies under Section 234(6) – (Section 235(1)) The Central Government may appoint one or more competent persons to investigate into the affairs of the Company. if a report has been made to it by the Registrar of Companies. the Management of the Company will be vested in the Board of Directors. Investigation into the affairs of the related Companies [Section 239] C. ii.
The persons connected with the formation or management of the Company have been found guilty of fraud. 2. or b. • In V. .V. or other misconduct towards the Company or any of its Members c. Mandatory Powers :i.The Central Government shall appoint one or more Inspectors to investigate into the affairs of the Company and to report thereon if: a. which they are entitled to including the particulars of commission. payable to the Managing Director or other Director or the Manager. even based upon a complaint received from a single shareholder. Appointment Under Section 237(a) :. the Court by an Order (Section 237(a)(ii)) declare that the affairs of the Company ought to be investigated by an Inspector appointed by the Central Government. The Company Law Board can form an opinion as aforesaid. Issues a. misfeasance4. ((1980) 50 Comp. EMC Steel Ltd. 4 5 Misfeasance means doing a proper act in a wrongful or injurious manner. Purie v. The Members of the Company are deprived of any information. Powers of Court Under Section 237(a)(ii) • The Court can direct an investigation whenever it suspects that all is not well with the company. The Company itself passing a Special Resolution as aforesaid will be a rare happening. Cases 127). b. The reason is that Section 235(2) and Section 237(b) are two independent provisions.5 it was held that the following classes of persons can approach the court in order to obtain an order as above mentioned: • A creditor who cannot bring an action under Section 235 of the Companies Act. irrespective of the fact that he didn’t have the requisite number of shares as mentioned in Section 235(2). the company by a Special Resolution (Section 237(a)(i)). if any. 1956.b.
When Will The Company Law Board Make Such Declaration? For this purpose the following persons can apply to the Company Law Board: 1.1000 to meet the costs of such investigation (Section 236). • A Company which wants an investigation but fails to pass a Special Resolution • ii. Where the Company has share capital • Not less than 200 Members or • Members holding not less than 1/10th of the total voting power therein 2. Inspector means An investigator who observes carefully. require the Applicants to give security not exceeding Rs.• Aggrieved6 Members who are unwilling to move to the Company Law Board under Section 235 or are unable to fulfill the requirements under Section 236. The Central Government may. in such manner. Before making a declaration as aforesaid. as the Central Government may direct. Appointment On a Declaration By The Company Law Board:On a declaration being made by the Company Law Board that the affairs of the Company ought to be investigated. Where the Company does not have Share Capital • Not less than 1/5th of the persons in the Company Register of Members. The Application by Members mentioned above. Persons who have applied to the Company Law Board under Section 235(2) or 237(b) but their application had been rejected. should be supported by the necessary evidence. before appointing the Inspectors. Chapter 3 6 7 Aggrieved means (law) infringe on the rights of. the Central Government shall appoint one or more competent Inspectors7 to investigate into the affairs of the Company and to report thereon. to show that the Applicants have good and sufficient reasons for requiring an investigation. . the Company Law Board give the parties concerned an opportunity of being heard.
Any person who is. or has. 4. who is or was. Chapter 4 8 9 The subsidiary company are those companies which are completely controlled by another company. . any other Body Corporate. 10 Accustomed means Commonly used or practiced . The Central Government shall.B. or has. the Inspectors can also investigate into the affairs of related Companies/persons. been managed by the Company OR whose Board of Directors comprises of Nominees of the Company OR is accustomed10 or any Directors of the Company or any Company. at any relevant time the Managing Director or Manager of the Company. If the Inspector wants to extend the investigation to the persons mentioned in (b). been: * The Company’s subsidiary8 or * The Company’s holding9 company * Subsidiary of the Company’s holding Company * Holding Company of the Company’s subsidiary b. been the Company’s Managing Director or/the Manager. at any relevant time. What is a Related Company/Person? a. any of whose Directorships is held by the Employees or Nominees of those having control and management of the first mentioned Company. at any relevant time. prior approval from the Central Government must be obtained. During the course of. d. and for the purposes of the investigation of the affairs of the Company. before granting such approval. which is or has at any relevant time been managed by any person as the Managing Director or Manager. any tangible or intangible possession that is owned by someone. or has been. any other body corporate which is. (c) or (d) above. any other body Corporate which is. usual. Holding word means Something owned. at any relevant time. 3. c. Investigation into the affairs of Related persons (Section 239) 1. 2. issue a Show Cause Notice to the other party as to why the approval should not be granted.
Financially interested in the success or failure. Investigation Into the ownership of Companies (Section 247):1.C. 11 12 The word determining means Having the power or quality of deciding. Or b. declares that the ownership of the Company needs to be investigated. Appointment of Inspectors under this Section may be sometimes mandatory and sometimes discretionary as well: a. Able to control or materially influence the policies of the Company. whether real or apparent of the Company. 2. The purpose of appointing an Inspector under this provision is to investigate and report on the membership of the Company for the purpose of determining11 the real persons who are or have been a. The scope and manner of conducting the investigation will be as defined by the Central Government. Mandatory: The Central Government shall appoint Inspectors if the Company Law Board. b. 3. . Discretionary means Having or using the ability to act or decide according to your own discretion or judgment. in the course of any of the proceedings before it. Discretionary12 : The Central Government may appoint Inspectors if there are good and sufficient reasons to do so.
authorize the Inspector to: a. With the previous approval of the Central Government to call for the production of books and other papers of any other Body Corporate. Any other persons with the previous approval of the Central Government. of the Company under investigation as well as of related companies. 5. and take evidence14 in writing. Employees and Agents of the Company under investigation. from the following persons: a. For this purpose Agents include Bankers. 2. The Magistrate may. 13 The word oath means A solemn promise. Advocates and the Auditors. 14 Evidence means (law) all the means by which any alleged matter of fact whose truth is investigated at judicial trial is established or disproved. Enter the place where the books. . and also those of the related companies. b. documents etc. 4. The Inspector may make an application to the Magistrate for entry. search and seizure. Investigating into the affairs of related Companies with the prior approval of the Central Government. Officers. usually invoking a divine witness. The Inspector may examine on oath13. regarding your future acts or behavior. by order. documents etc are kept b. Search that place and c. To call for the production of books.Powers of the Inspectors:1. 3. Seize the books and documents he considers necessary for the purposes of investigation.
The Central Government may furnish15 a copy thereof to any Member or any interested Body Corporate or a Creditor16. as well as to any other Body Corporate. Sometimes the Central Government may cause the Report to be published. on request and payment. . of the prescribed fee. The Central Government shall forward a copy of the Report (only the Final Report) to the Company. Where the Inspectors are appointed under Section 235(2) pursuant to an Application made by the Shareholders. 8. Creditor. 2. A Copy thereof. In all cases a Copy of the Report is filed with the Registrar of Companies. Where Inspectors are appointed under Section 237. covered under the investigation. 4. shall also be given to the Company Law Board. pursuant to a Court Order.The Inspector’s Report (Section 241) 1. The Inspector shall submit his Final Report to the Central Government. 6. Copy of the Report shall be sent to the Court. 5. He may furnish an Interim Reportm if he so desires.A person to whom money is owed by a debtor. 15 16 The word furnish means Give something useful or necessary to. the Central Government shall give a Copy of the Report to them on request. and shall furnish an Interim Report if called for by the Central Government. 3. 7.
functioning and winding up of companies. The Act contains the mechanism regarding organizational. . 1956. action is initiated under provisions of the Companies Act or the same is referred to the Central Bureau of Investigation. to direct special audit. financial. creditors. is the most important piece of legislation that empowers the Central Government to regulate the formation. managerial and all the relevant aspects of a company. If an inspection discloses a prima facie case of fraud or cheating. financing. It empowers the Central Government to inspect the books of accounts of a company.Conclusion The Companies Act. to order investigation into the affairs of a company and to launch prosecution for violation of the Act. employees and others. whether any unfair practices prejudicial to the public interest are being resorted to by any company or a group of companies and to examine whether there is any mismanagement which may adversely affect any interest of the shareholders. These inspections are designed to find out whether the companies conduct their affairs in accordance with the provisions of the Act.
.V. EMC Steel Ltd. ((1980) 50 Comp.Table of Cases • V. Cases 127). Purie v.
S. Company Law by R.in.Bibliography and Webliography 1. Company Law by S.com. 2. Company Law by Kailash Rai.Bangia.blogspot. 2. 3.co. 5. books. Company Law by Wadhwa. 1.K. Gulshan. lawandotherthings. . 4.google. Company Law by Avatar Singh.
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