Section 220 and Section 221 of the Companies Act
Updated: May 11
Both Sections 220 and 221 of the Companies Act are a part of Chapter XIV, which deals with Inspection, Inquiry, and Investigation. Both sections facilitate investigations by the inspectors.
Section 220 vests upon the inspector the power to seize documents. Under Section 220(1), if an inspector, carrying out an investigation under Chapter XIV has reason to believe that documents, books, or papers relating to the company or body corporate or managing director or manager of the company have a chance to be destroyed, mutilated, altered, falsified or secreted the inspector may enter the place or places where such documents books or papers are kept and seize such documents books or papers. Section 220(1)(a) of the act requires the company to provide the inspector assistance to enter the above-mentioned place or places.
Section 220(1)(b) of the act provides that the inspector should allow the company to take the copies or extract from such documents, books, or papers at its own cost. Section 220(2) provides that the inspector shall not keep in his custody such documents, books, or papers for a period not later than the conclusion of the investigation as he considers necessary and shall thereafter return such documents, books, or papers to the party from whom it was seized. According to the proviso of this section, the inspector has the power to copy or extract from, or place identification marks on such documents, books, or papers as he sees fit.
Section 220(3) provides that this section shall apply mutatis mutandis to the provisions relating to seizures or searches under the Code of Criminal Procedure, 1973
Section 221 provides the National Company Law Tribunal with the power to freeze the assets of the company. Section 221(1) provides that the tribunal may take action under this section if:
There is a reference from the Central Government, or
It is in connection with any inquiry or investigation into the affairs of a company under Chapter XIV, or
By any complaint made by such number of members as specified under sub-section (1) of Section 244, or
A creditor having one lakh amount outstanding against the company or any other person has a reasonable ground to believe that the removal, transfer, or disposal of funds, assets, properties of the company is likely to take place in a manner that is prejudicial to the interests of the company or its shareholders or creditors or in the public interest
Under this section, the tribunal may order that such transfer, removal, or disposal shall not take place for such period not exceeding three years as may be specified in the order or may take place subject to such conditions and restrictions as the Tribunal may deem fit.
Section 221(2) states that if any such transfer, removal, or disposal that is in direct contravention to the order under sub-section (1) of this section, then the company shall be punishable with a fine which shall not be less than one lakh rupees but which may extend to twenty-five lakh rupees. It also provides that every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to three years or with a fine which shall not be less than fifty thousand rupees but which may extend to five lakh rupees, or with both.