INSPECTION OF COMPANIES

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The Government in the Department of Company Affairs (DCA) carried out inspection of the books of accounts of 199 companies during the first nine months of 2001-2002 ending December 2001. This has been stated in the Annual Report of the DCA for 2001-2002. During 2000-2001, the books of accounts of 221 companies were inspected under Section 209A of the Companies Act, 1956. During 1999-2000, inspection of the books of accounts of 230 companies was carried out. In 1998-99, the DCA carried out inspection of the books of accounts of 255 companies.

The information brought out in the inspection reports, was made use of for considering action under the provisions of the Companies Act. Prosecutions were launched on the basis of findings in the inspection reports. Besides, cases involving non-compliance of the Companies Act, 1956 including inadequate maintenance of statutory records noticed during such inspection were taken up with the companies for necessary remedial action. In addition, information of interest to other Government Departments and agencies as brought out in the inspection reports were communicated to them for suitable action.

During 2001-2002, Securities and Exchange Board of India (SEBI) investigated the affairs of various companies involved in stock market scam 2001. Based on the preliminary investigation report of SEBI, the DCA ordered inspection under Section 209A of the Companies Act of books of accounts and other relevant records of 98 companies. Prosecutions of a number of companies and their directors and officers in default were ordered for violation of the various provisions of the Companies Act as reported in the inspection reports. Extracts of the reports were sent to SEBI, Reserve Bank of India (RBI), Income Tax Authorities and other Government agencies for action as deemed appropriate at their end.

During the year, the Government set up a Joint Parliamentary Committee (JPC) to investigate the stock market scam. Members of JPC raised questions on affairs of various companies including Chetan Parekh Group Companies and Shankar Sharma Group Companies. The DCA replied to the questions raised by the JPC.

The inspection of companies under Section 209A of the Companies Act were mainly ordered on the basis of the complaints received in the DCA or in its field offices about mismanagement, delay in transfer of shares or debentures, delay in issue of dividend warrants, suggestions of the regional directors due to qualifications in the auditors’ report, other violation or irregularities noticed on scrutiny of documents filed in the offices of Registrar of Companies, reference received from other Government departments and agencies pointing out violation of provisions of the Companies Act or other irregularities.