Companies Act Section 300

Companies Act, Section 300: Power of Tribunal to Order Examination of Promoters, Directors, and Officers in Cases of Suspected Fraud 

Section 300 of the Companies Act, 2013, empowers the National Company Law Tribunal (NCLT) to order a detailed judicial examination of any person particularly promoters, directors, or officers who is suspected of being involved in fraudulent activities relating to the promotion, formation, business, or conduct of a company’s affairs.

This power arises after a company has been ordered to be wound up and is based on a report submitted by the Company Liquidator, stating that fraud may have been committed. Section 300 ensures accountability of those who have managed or promoted the company, and it equips the Tribunal to investigate wrongdoings through a fair and structured process.

1. Trigger for Examination- Based on Liquidator’s Report

Once the Tribunal has ordered the winding up of a company, the Company Liquidator is required to investigate the affairs of the company.
If the Liquidator submits a report stating that, in his opinion, fraud has been committed by any person in connection with:
The promotion or formation of the company, The conduct of its business affairs, or The manner in which the company was managed since its incorporation, Then, the Tribunal has the authority to:
Consider this report, Summon the person concerned (including promoters, directors, officers, or others), Direct such person to attend a scheduled examination before the Tribunal and answer questions relating to their role in the promotion, business, or management of the company.
2. Company Liquidator’s Role During Examination

The Company Liquidator is required to take active part in the examination. To support the examination effectively:
The Liquidator may be authorized by the Tribunal to engage legal professionals (such as advocates or solicitors).
Such legal representation must be approved by the Tribunal, ensuring procedural fairness.
3. Manner of Examination- On Oath

The person summoned for examination is:
Required to take an oath before giving testimony.
Expected to answer all questions that the Tribunal either directly asks or permits to be asked.
This ensures that the responses are legally binding and that perjury laws apply to false statements made during the process.
4. Rights of the Person Being Examined

Before the examination begins, the person summoned has certain legal rights:

(a) Right to a Copy of the Report:

The person must be provided, at their own cost, a copy of the Liquidator’s report, which contains the allegations or matters being examined.
(b) Right to Legal Representation:

The person is entitled, at their own expense, to engage qualified professionals, such as:
Chartered Accountants (CAs), Company Secretaries (CSs), Cost Accountants,
Legal Practitioners.
These professionals must be eligible to appear before the Tribunal as per Section 432 of the Act.
Such representatives are allowed to ask questions during the examination (subject to the Tribunal’s approval), to help the person explain or clarify their answers.
5. Right to Apply for Exoneration

The person examined may apply to the Tribunal to be exonerated or cleared of any allegations made or implied in the Liquidator’s report. In such cases:
The Company Liquidator is obligated to appear at the hearing of this application.
The Liquidator must draw the Tribunal’s attention to all relevant facts whether in support or against the application ensuring a fair determination.
6. Tribunal’s Decision on Exoneration- Costs Award

If the Tribunal, after reviewing evidence and hearing relevant witnesses or the Liquidator, is satisfied that the applicant should be exonerated:
It may allow the application. Additionally, the Tribunal may award costs to the person examined, as it deems fit and just.
7. Recording and Use of Examination Proceedings

Complete notes of the examination must be taken in writing. These notes must be:
Read over to or by the person examined, Signed by that person, A copy must be supplied to the examinee. The written and signed examination record may:
Be used as evidence in legal proceedings against the person, Be made available for inspection by any creditor or contributory during reasonable hours.
This guarantees transparency and maintains an official and traceable record of the proceedings.

8. Adjournment of Examination

The Tribunal has the discretion to adjourn the examination from time to time as it deems necessary. This allows:
Adequate time for the production of documents, Legal preparation, or inclusion of additional witnesses or evidence.
9. Delegated Examination Authority

The Tribunal may direct that the examination be held not by itself, but by any person or authority specifically authorised for this purpose.
This ensures procedural flexibility and expedites the examination process, especially in complex or high-volume cases.
10. Powers of Delegated Authority

If the Tribunal delegates the examination to another person or authority:
That person or authority may exercise all powers related to the conduct of the examination, including:
Putting questions, Administering oaths, Recording answers. However, they cannot make decisions on costs this authority remains with the Tribunal.