Inspection and Inquiry

In one line

Before anybody investigates a company, the Registrar has a graduated set of powers: to ask for information, to require production of further books, to hold an inquiry where the business looks fraudulent or investors are unheard, to inspect with the powers of a civil court, to report to the Central Government with a recommendation, and, with an order of the Special Court, to search and seize.

In exam wording: under section 206(1), where on a scrutiny of any document filed by a company, or on any information received by him, the Registrar is of the opinion that any further information or explanation or any further documents relating to the company is necessary, he may by written notice require the company to furnish in writing such information or explanation, or to produce such documents, within such reasonable time as may be specified.

Why the law has this at all

The register is filled by the company itself. Nothing in Chapter XXIV, treated in [The Administrative Architecture], verifies that a filing is true; it only records that it was made. So the Act needs a way of looking behind the filings, and it needs it at four levels of intrusiveness, because most doubts are resolved by a question and only a few justify a search.

Level one is a question. Section 206(1) and (2), a written notice for information, explanation or documents, with a duty on the company and its officers to answer, and on former officers to answer about their own period.

Level two is production. Section 206(3), where the answer is not given, or is inadequate, or discloses an unsatisfactory state of affairs, the Registrar may call for further books at a place and time he specifies, recording his reasons in writing first.

Level three is inquiry. Section 206(4), where the Registrar is satisfied that the business is being carried on for a fraudulent or unlawful purpose, or not in compliance with the Act, or that investors' grievances are not being addressed, he may, after informing the company of the allegations, call for information and carry out an inquiry, giving the company a reasonable opportunity of being heard.

Level four is search. Section 209, on reasonable ground to believe that books are likely to be destroyed, mutilated, altered, falsified or secreted, and only after obtaining an order from the Special Court.

Read as a ladder, the chapter answers the standard examination question about the difference between inspection, inquiry and investigation in one line: inspection and inquiry are the Registrar's, investigation is ordered by the Central Government or the Tribunal, and the ladder in s.206 is what leads to the recommendation in s.208 that an investigation should follow.