Companies Act Section 226

Companies Act, Section 226: Continuation of Investigation Despite Voluntary Winding Up or Other Proceedings

Section 226 of the Companies Act, 2013 plays a crucial role in ensuring that an ongoing or proposed investigation into the affairs of a company is not hindered or obstructed by actions that would otherwise result in the dissolution or winding up of the company. This provision reinforces the supremacy of investigative powers and ensures that accountability is not evaded through procedural tactics such as voluntary winding up or legal applications.

Purpose and Scope of Section 226

This section is intended to prevent companies and their officers from using winding up proceedings, applications for relief, or other legal proceedings as a shield to escape the consequences of investigations initiated under Chapter XIV of the Act. It allows the Central Government or its appointed inspector to initiate and continue an investigation regardless of such developments.

1. Investigation May Be Initiated Despite Certain Events

The first part of the section clarifies that the initiation of an investigation under Chapter XIV is not restricted or prevented merely because of the occurrence of any of the following circumstances:

(a) Filing of an Application under Section 241

Section 241 deals with applications for relief in cases of oppression and mismanagement.
Even if a company or its members file such an application before the National Company Law Tribunal (NCLT), it does not stop the Central Government from starting or continuing an investigation into the company’s affairs.
This ensures that procedural remedies like Section 241 are not used to obstruct scrutiny.

(b) Passing of a Special Resolution for Voluntary Winding Up

A company may, by passing a special resolution, initiate a voluntary winding up under the Companies Act.
However, the mere fact that the company is undergoing a voluntary dissolution process does not invalidate or halt the initiation or continuation of an investigation under this Chapter.
This prevents companies from dissolving themselves voluntarily to avoid exposure or liability from ongoing investigations.

(c) Pendency of Winding Up Proceedings Before the Tribunal

If the company is already facing winding up proceedings initiated and pending before the Tribunal, that too shall not stop the investigation process.
This means that judicial proceedings for the company’s dissolution cannot interrupt or block the inspector’s work under the Act.

2. Role of the Tribunal upon Issuing a Winding Up Order

The first proviso to Section 226 addresses a situation where the Tribunal, after hearing the winding up petition referred to in clause (c), actually passes an order to wind up the company.

In such a case:

The inspector is required to notify the Tribunal about the ongoing or pending investigation.
Upon being informed, the Tribunal has discretion to pass any appropriate order that it deems fit, taking into account the coexistence of the investigation and the winding up order.
This ensures that the winding up process and investigation proceedings are coordinated rather than conflicted, and the Tribunal can issue directions to facilitate both in the public interest or interest of justice.

3. Accountability of Directors and Officers Remains Intact

The second proviso further strengthens the intent of this provision by making it clear that:

The winding up order passed by the Tribunal shall not absolve or relieve any director, officer, or employee of the company from:
Participating in the investigation proceedings, and
Bearing any legal or financial liability that may arise from the findings of the inspector.
This is important because once a company is wound up, it ceases to exist as a legal entity. Without this provision, directors or officers could claim immunity or non-involvement on that basis. Section 226 ensures that individual responsibility remains enforceable, even after the company is dissolved.