Sec 214 company law :Security of payment of cost and expenses of investigation
Updated: Oct 4, 2022
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Quoting bare act:-
Where an investigation is ordered by the Central Government in pursuance of clause (b) of sub-section (1) of section 210, or in pursuance of an order made by the Tribunal under section 213, the Central Government may before appointing an inspector under subsection (3) of section 210 or clause (b) of section 213, require the applicant to give such security not exceeding twenty-five thousand rupees as may be prescribed, as it may think fit, for payment of the costs and expenses of the investigation and such security shall be refunded to the applicant if the investigation results in prosecution.
Relevant sections quoted in above section for better understanding of the section
Section 210: Investigation into affairs of company.
*210. (1) Where the Central Government is of the opinion, that it is necessary to investigate into the affairs of a company,—
(a) on the receipt of a report of the Registrar or inspector under section 208;
(b) on intimation of a special resolution passed by a company that the affairs of the company ought to be investigated; or
(c) in public interest,
it may order an investigation into the affairs of the company.
(2) Where an order is passed by a court or the Tribunal in any proceedings before it that the affairs of a company ought to be investigated, the Central Government shall order an investigation into the affairs of that company.
(3) For the purposes of this section, the Central Government may appoint one or more persons as inspectors to investigate into the affairs of the company and to report thereon in such manner as the Central Government may direct.
Section 213: Investigation into company’s affairs in other cases.
*213. The Tribunal may,—
(a) on an application made by—
(i) not less than one hundred members or members holding not less than one-tenth of the total voting power, in the case of a company having a share capital; or
(ii) not less than one-fifth of the persons on the company’s register of members, in the case of a company having no share capital, and supported by such evidence as may be necessary for the purpose of showing that the applicants have good reasons for seeking an order for conducting an investigation into the affairs of the company; or
(b) on an application made to it by any other person or otherwise, if it is satisfied that there are circumstances suggesting that—
(i) the business of the company is being conducted with intent to defraud its creditors, members or any other person or otherwise for a fraudulent or unlawful purpose, or in a manner oppressive to any of its members or that the company was formed for any fraudulent or unlawful purpose;
(ii) persons concerned in the formation of the company or the management of its affairs have in connection therewith been guilty of fraud, misfeasance or other misconduct towards the company or towards any of its members; or
(iii) the members of the company have not been given all the information with respect to its affairs which they might reasonably expect, including information relating to the calculation of the commission payable to a managing or other director, or the manager, of the company,
order, after giving a reasonable opportunity of being heard to the parties concerned, that the affairs of the company ought to be investigated by an inspector or inspectors appointed by the Central Government and where such an order is passed, the Central Government shall appoint one or more competent persons as inspectors to investigate into the affairs of the company in respect of such matters and to report thereupon to it in such manner as the Central Government may direct:
Provided that if after investigation it is proved that—
(i) the business of the company is being conducted with intent to defraud its creditors, members or any other persons or otherwise for a fraudulent or unlawful purpose, or that the company was formed for any fraudulent or unlawful purpose; or
(ii) any person concerned in the formation of the company or the management of its affairs have in connection therewith been guilty of fraud,
then, every officer of the company who is in default and the person or persons concerned in the formation of the company or the management of its affairs shall be punishable for fraud in the manner as provided in section 447.
The above stated sections are verse taken as it is from the companies act 2013,
Let’s us simplify the language of sec 214 that is :-
1.when an investigation is ordered
2.by central government
3.in the view of sec 210 (1)(b) :-
On intimation of a special resolution passed by a company that the affairs of the company ought to be investigated.
4.or in view of sec 213 (b)
When an application is made to the tribunal or any person otherwise ,if the tribunal is satisfied of the following circumstances :-
a).The business of the company is conducted by the intention of fraud or fraudulent or unlawful purpose
b).The management of the company is involved in misfeasance or misconduct.
c). Lack of transparency in the company with respect to its affairs.
The tribunal may order an inspector to investigate and report it back to the central government.
5.The complainant in the above stated cases has to pay a security not exceeding Rs. 25000 (twenty fives thousand only) or as the tribunal may think fit.
6.for the expenses and cost of investigation
7.and if the report turns out in the favour of the prosecution then the deposited amount has to be returned.
This section is to prevent the loss which may be incurred by the government in case of false accusations.
To make this section easier here is an illustration
A is prosecutor or complaint
B is defendant or opposition
A has made a complaint against b’s company under sec .201(1)(b) or 213(b).
If the court orders the investigation in this case then A has to submit a security amount of Rs.25000 ,which will be refunded in case the inevestigation turns out to be in favour of A.