Section 213 Of Companies Act 2013 - Investigation Into Company’s Affairs In Other Cases

The process of inspection, inquiry, and investigation of the affairs of the companies are dealt with within chapter XIV of the Companies Act, 2013. (ACT) In the companies act four provisions deal with the investigation of the company’s affairs, although these four sections (210, 212, 213, 216) run parallelly, they are interlinked at one of the other stages. This blog aims to highlight and analyze the scope of section 213 of the companies act by understanding the areas which are shadowed.

The purview of section 213 of the companies’ act puts forth the circumstances that result in an investigation into the company’s affairs in other cases by the order of the tribunal. As per this section, the tribunal may order an investigation into the affairs of the company in three circumstances. Before understanding these situations, there has to be conceptual clarity in the section.

Application by Members

Section 213 (a) (i) and (ii) mention who is eligible to request an application of investigation. Under these clauses, the people who can make the application are directly related to the company itself. Clause (i) mentions who can apply in case the company has a share capital whereas clause (ii) indicates who can apply when the company doesn’t have a share capital.

· In a company with a share capital, the application should be made by not less than 100 members or members holding not less than one-tenth of the total voting power.

· In the case of a company not having a share capital, then the application should be made to not less than one-fifth of the persons on the company’s register of members.

Application by People Other than the Members

Further, Section 213 (b) also brings up that ‘other person can make an application for the investigation as well. Now the question which arises here is, who can be considered in the ambit of ‘other person’ as per section 213 (b). The term ‘other person’ should be examined in the context of the ‘Ejusdem Generis’ rule of construction. As per the rule of ‘Ejusdem Generis,’ the general words that follow the specific words derive their meaning and take the color of the specific words that precede them.

Here when we are considering the phrases’ other person’ or ‘any other person’ under the companies act, the focus should be on the preceding words of such phrases. The below paragraph analyses section 213(b) of the act. Section 213(b)(i) provides that an application for an investigation into the affairs of a company can be made if the business of the company is being conducted with the intent to defraud its creditors, member,s or any other person – Here, ‘any other person’ refers to the category of persons having an interest in the company and who may potentially have been defrauded by such company. By applying the principle of ‘Ejusdem Generis’ the extent of the term ‘other person’ can be clarified upon.

Notice to the Concerned Parties for Being Heard

Once the application for the investigation is filed. The concerned parties are given a reasonable time and opportunity to be heard. The tribunal before ordering the investigation should issue a notice to the related parties to hear from their side as to why the affairs of the company should not be investigated. After the period of notice is over, it is at the discretion of the tribunal to pass an order to further probe into the affairs of the company. Once such an order is passed the central government should appoint one or more competent person as the inspector of the case to investigate the affairs of the company, in respect of the issues and matters raised, and to report it in such a manner as the central government may direct.

Section 213 of the companies act 2013 is in place to keep a check on the practices of the companies, the section itself is exhaustive with the matters about the eligibility to file an application and the consequences for the same. But when the investigation is filed under the same, one might wonder what will happen to the employees, although there exists a punishment for the people involved in the misconduct, the investigation takes place for the entire organization. Section 218 of the companies act provides for the protection of employees during such investigation. And in case the employee has to be suspended, the same notification should also be put across the tribunal. During the period of investigation, the company singlehandedly cannot take any decision without putting it across the tribunal.