Investigations in Public Interests and Ownership Under Companies Act

Investigations in Public Interests and Into Ownership Under Companies Act: An Overview

Recently, the Ministry of Corporate Affairs (“MCA”) launched an investigation into the affairs of Hero MotoCorp Limited under Section 210(1)(c) read with Section 216 of the Companies Act, 2013 (“2013 Act”). This development makes it germane to understand what these powers entail and the consequences thereof.

Necessary In Public Interest

Section 210(1)(c) of the 2013 Act permits the Central Government (through MCA) to investigate any company if such inquiry is found necessary in public interest. Section 210 of the 2013 Act corresponds to Section 235 of the Companies Act, 1956 (repealed) (“1956 Act”). However, public interest as a ground for investigation was introduced under the 2013 Act.

The 2013 Act uses the term ‘public interest’ in several provisions for instance: Section 212 (investigation by SFIO), Section 237 (amalgamate companies in public interest), etc. Obviously, the 2013 Act does not define the term, possibly because, the understanding of public interest is fluid and takes colour from the context in which it is used. In a generic sense, public interest would reflect the interest and welfare of the public at large as against handful of individuals.

Calcutta High Court recently in Shree Radhe Tea Plantation Private Limited and Anr v. Registrar of Companies, West Bengal 2022 SCC OnLine Cal 3620 read down the provisions under Chapter XVI of the Act and stated that sections 206 to 210 form a sequence of steps to be taken by the Registrar of Companies before submitting a report to the central government for further investigation. As per the court, the stage of filing a report only comes after inspection of books or conducting inquiry under section 206 and 207 of the 2013 Act, and this sequence culminates at section 210, wherein, the central government may investigate if it is of the opinion that it is necessary to investigate if any of the conditions under Section 210 (a) –(c) are met.

Determining Ownership

Section 216 of the 2013 Act empowers MCA to appoint an inspector to investigate on matters relating to the membership of a company, for determining true persons: (a) who are or have been financially interested in the company; or (b) who are or have been able to control or to materially influence the policy of the company; or (c) who have or had beneficial interest in shares of a company or who are or have been beneficial owners or significant beneficial owner of a company.

Section 216 of the 2013 Act corresponds to Section 247 of the 1956 Act but with two deviations: (a) absence of any discretionary powers of the central government to disclose the contents of any investigation report; and (b) who will bear the expenses for such an investigation.

The central government also has the power to limit the investigation to particular shares and debentures. The inspector appointed under Section 216 has also been given wide powers of investigation any arrangement which is relevant to the investigation. Section 216 serves as an extension to the investigation procedure in the 2013 Act and enables deeper probe on the members of the Company.

Actions That May Be Taken As Per The Inspector’s Report

Based on the report received by the central government from the inspector as per section 223 of the 2013 Act, the central government has the power to pass the following orders under or undertake the following actions under Section 224 (Actions to be taken in pursuance of the Inspector’s Report) of the 2013 Act;

  • Prosecute such persons for the offence committed for which he is criminally liable.
  • The Central government can file a petition in the NCLT for winding up of the company, an application for oppression and mismanagement or both.
  • If the central government deems it in public interest to do so, bring proceedings of winding up in the name of the company if the company is being investigated for recovery of damages for fraud, misfeasance or other misconduct or for recovery of any property from the company which has been misapplied or wrongfully retained.
  • In case a key managerial person or officer has taken undue advantage of the fraud that has taken place, the central government may file an application before the NCLT to hold such personnel personally liable without any limitation of liability.

Judicial Check On The Investigation Process

While the central government has been given extensive powers related to investigation under the 2013 Act, the courts have acted as a counter balance and exercised judicial review in order to ensure fair and reasonable proceedings through its judgements on corresponding provisions in the Companies Act, 1956. The Supreme Court in Rohtas Industries Ltd. v. S.D. Agarwal, (1969) 1 SCC 325 reversed the order of Patna High Court and held that circumstances which give rise to an investigation by the central government are open to judicial review. The court also held that the power of investigation has been conferred on the central government on the faith that it will be exercised in a reasonable manner.

Following the verdict in Rohtas industries judgements, the supreme court in Sri Ramdas Motor Transport Ltd. v. Tadi Adhinarayana Reddy, (1997) 5 SCC 446 further emphasised on the fact that the central government should exercise its powers to appoint an inspector only after proper preliminary scrutiny by the registrar or company law board. The court noted that an investigation may seriously damage a company and should not be ordered without proper material gathered under the Companies Act.

Concluding Remarks

The MCA has been given wide powers under the 2013 Act to conduct investigations on companies that they think reasonably fall within the ambit of conditions laid out in Section 210 (a) – (c). This caution of lawmakers comes from a place where they want to protect the interest of the shareholders and avoid situations like Satyam Computers, Ranbaxy, etc. However, such wide powers have been limited by the aforementioned judicial pronouncements which have ensured that proper procedure is assumed during such investigations and that the investigation is conducted only after obtaining material evidence of lapses. This ensures that interest of the government as well as businesses are kept in mind while initiating any investigation.

While the Hero MotoCorp Limited has issued a letter on June 17, 2023 stating that they have received a communication from the MCA seeking certain information from the company. However, since very few details have been revealed, it remains to be seen how this situation may reveal itself to the public and what impact it will have on the company and its shareholders.


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