Companies Act Section 206

Companies Act, Section 206: Power to Call for Information, Inspect Books, and Conduct Inquiries

Section 206 of the Companies Act, 2013 grants the Registrar of Companies (RoC) the power to demand information, conduct inspections, and initiate inquiries to ensure that companies comply with the legal provisions under the Act. The section provides the Registrar with authority to investigate a company's activities, scrutinize its documents, and ensure transparency and accountability in corporate operations.

This section is vital for ensuring that companies maintain proper records, disclose necessary information, and adhere to regulatory requirements. If the Registrar believes that a company is not compliant or that its financial or operational practices are questionable, this section empowers him to take action.

1. Power of Registrar to Call for Information or Explanation

Request for Information or Documents

Section 206(1) empowers the Registrar to call for additional information or documentation from a company when, upon scrutiny of any filed documents or received information, he deems it necessary. The Registrar has the authority to issue a written notice to the company, requiring it to:

Furnish additional information or explanations: The Registrar can request further details that may be relevant for understanding the company’s operations, financial position, or compliance status.
Produce specific documents: The company may be asked to submit particular documents that the Registrar deems necessary for his review.
The notice will specify a reasonable timeline for the company to comply, allowing sufficient time for the company to gather and submit the required information or documents. The company is legally obligated to respond to these notices as per the prescribed timeframe.

2. Duty of the Company to Comply with the Registrar’s Notice

Company’s Duty to Furnish Information or Explanation

Upon receiving a notice from the Registrar, it becomes the duty of the company and its concerned officers to provide the requested information or explanations, to the best of their knowledge and abilities. This must be done within the timeframe stipulated in the notice or any extended period granted by the Registrar.

Obligation of company officers: If the information or explanation requested pertains to a past period, officers who were in employment during that time, if notified by the Registrar, must also provide the necessary information or explanations.
This provision emphasizes the responsibility of company officers, including past employees, to cooperate with the Registrar’s requests for information, thereby ensuring that the company remains compliant with the law.

3. Registrar’s Power to Inspect Further Books and Documents

Further Investigation if Information is Inadequate

If the Registrar finds that:

The information or explanation provided by the company is inadequate or unsatisfactory,
The documents furnished do not fully or accurately disclose the required information, the Registrar has the power to issue a further written notice to the company, requiring it to produce additional books of account, documents, and explanations. This notice may specify:

What books and papers need to be inspected,
The place and time for the inspection.
Before issuing this notice, the Registrar is required to record his reasons in writing, justifying why further scrutiny is necessary.

The ability of the Registrar to request more documents ensures that the company’s affairs are fully examined if there are concerns about the completeness or accuracy of the company’s disclosures.

4. Registrar’s Power to Conduct Inquiry for Fraudulent or Unlawful Activities

Inquiry into Fraudulent or Unlawful Practices

Section 206(4) gives the Registrar the power to investigate the company’s business if he is satisfied, based on the information available to him or representations made by any individual, that the company’s operations are:

Fraudulent or unlawful: The Registrar can initiate inquiries if he believes the company is engaged in fraudulent activities or business practices that violate the provisions of the Companies Act.
Non-compliance with the Act: If there are concerns that the company is not following the regulations laid down by the Companies Act, the Registrar may step in.
If the Registrar receives complaints regarding investor grievances or believes that they are not being addressed, he can also initiate an inquiry.

Once the Registrar has informed the company about the allegations against it, he can order the company to provide the required information or explanations within a specified timeframe. An inquiry may then be conducted after giving the company a reasonable opportunity to present its case.

The Registrar also has the authority to refer the matter to the Central Government, which may direct the Registrar or an inspector appointed by it to conduct a more detailed inquiry.

If the Registrar concludes that the company has engaged in fraudulent or unlawful activities, the company’s officers who are found to be at fault may be punished for fraud under Section 447 of the Companies Act.

5. Inspection by Central Government or Statutory Authorities

Power of the Central Government to Direct Inspection

Section 206(5) grants the Central Government the authority to direct an inspection of a company’s books and papers by an inspector appointed for the purpose. This provision serves as an additional safeguard to ensure that the company’s affairs are transparent and comply with the regulatory framework.

The Central Government may intervene and mandate an inspection if it believes that the circumstances warrant such a measure.

Authorization of Statutory Authorities for Inspection

In Section 206(6), the Central Government may also issue a general or special order authorizing specific statutory authorities to carry out inspections of the books of account of a company or a class of companies. This provision gives the Central Government flexibility in designating competent authorities to inspect a company’s records as necessary, depending on the situation.

6. Penalty for Non-Compliance

Penalty for Failure to Furnish Information

If the company fails to comply with the Registrar’s notice by not providing the requested information, explanation, or documents, the company and any officer who is in default will face penalties.

The company may be fined up to ?1 lakh.
In the case of continuing failure, the penalty increases to an additional ?500 per day, up to a maximum of ?5 lakh.
This penalty mechanism underscores the importance of corporate transparency and ensures that companies cannot ignore the Registrar's requests without facing financial consequences.