Companies Act Section 207

Companies Act, Section 207: Conduct of Inspection and Inquiry

Section 207 of the Companies Act, 2013 outlines the duties of company personnel during an inspection or inquiry and prescribes the powers of the Registrar or appointed inspector when conducting such proceedings under Section 206. This section is crucial for ensuring that inspections are effective and that company officers and employees cooperate fully with regulatory authorities.

It lays down procedural requirements, the authority of inspectors, and the legal consequences for non-compliance, thereby strengthening the enforcement framework under the Act.

1. Duty to Cooperate During Inspection or Inquiry

Obligation of Directors, Officers, and Employees

Whenever the Registrar of Companies (RoC) or an inspector initiates an inspection or inquiry into a company under Section 206, and requests access to books of account or other records, it becomes the mandatory duty of every:

Director, Officer, and Other employee of the company to extend full cooperation to the inspecting authority.

This includes:

Producing all requested documents, including books of account and other papers.
Furnishing any statements, explanations, or information as required by the Registrar or inspector. These must be provided in the form and manner specified by the inspecting authority.
Rendering all necessary assistance, whether logistical, informational, or administrative, to facilitate the inspection process.
Failure to comply with this obligation can lead to penal consequences, as discussed later in the section.

2. Powers of the Registrar or Inspector During Inspection

Authority to Make Copies and Place Marks of Identification

During the course of an inspection or inquiry under Section 206, the Registrar or inspector is empowered to take specific actions to preserve and authenticate the records examined. These include:

Making copies of the books of account, papers, or other relevant records. The authority may do this themselves or cause others to do it on their behalf.
Placing marks of identification in the books or documents. These marks serve as official indicators that the documents were examined during the inspection or inquiry and help to maintain the integrity of the records.
This provision ensures that the inspection is not only thorough but that its process and findings are documented properly for future reference or legal proceedings.

3. Civil Court Powers of Registrar or Inspector

Equivalence to Powers of a Civil Court

The law grants the Registrar or inspector conducting the inspection or inquiry powers equivalent to those of a civil court under the Code of Civil Procedure, 1908 while trying a suit. These powers include:

Discovery and Production of Documents: The Registrar or inspector can require the company to produce books of account and other documents at a specified time and place. This is to ensure that the inspection process is not obstructed.
Summoning and Examining Persons Under Oath: The authority can summon individuals, enforce their attendance, and examine them under oath. This allows the Registrar to obtain oral testimony or clarifications directly from directors, officers, or employees during the inquiry.
Inspection of Company Documents at Any Place: The Registrar or inspector may inspect registers, books, and other documents at any location, whether at the company’s registered office or any other place where records are kept.
These powers strengthen the hands of regulatory authorities, ensuring they have all the tools necessary to carry out a comprehensive inspection or investigation.

4. Penalty for Non-Compliance with Directions

(i) Punishment for Disobeying Registrar or Inspector

If any director or officer of the company fails to comply with the directions given by the Registrar or inspector under this section, such non-compliance is treated as a criminal offence. The consequences are:

Imprisonment: The individual may be punished with imprisonment for a term that may extend to one year.
Fine: A minimum fine of ?25,000, which may extend to ?1,00,000, may also be imposed.
This provision serves as a deterrent against willful obstruction or delay in the inspection process.

(ii) Automatic Vacation of Office upon Conviction

If a director or officer is convicted of an offence under Section 207, they:

Shall be deemed to have vacated their office from the date of conviction. This happens automatically without the need for a separate resolution or order.
Shall also be disqualified from holding office in any company thereafter.
This ensures that individuals who obstruct regulatory oversight cannot continue in positions of responsibility and influence within corporate structures.