THE government plans to grant companies right to challenge pending investigations against them under the Companies Act, as it looks to put an end to harassment of firms by investigating agencies.  The ministry of corporate affairs, which is reworking the draft Companies Bill based on the recommendations of the parliamentary standing committee on finance, is considering to allow companies challenge an investigation initiated against them under certain “clearly specified circumstances”, a ministry official said, requesting anonymity.

Clause 194 of the Bill says a company cannot challenge the initiation of an investigation against it before a court, tribunal or any other authority on “any ground whatsoever” until the conclusion of the investigation and submission of report by the registrar of companies (RoC).

Officials in the ministry feel that the strictness of the provision may fail the test of law. The standing committee on finance headed by Yashwant Sinha has asked the ministry to reconsider the clause, “keeping in view its legal tenability” and to ensure that investigation initiated under the said provision do not become a tool of harassment.

“The section may be reconsidered as it may not be legally tenable particularly when the central government has ordered an investigation into the affairs of the company,” the Institute of Company Secretaries of India (ICSI) had said before the committee.

The ministry of corporate affairs is looking to put in place strict deadlines for its field officers to submit their report to make them more accountable. The RoCs, which are spread across the states, act as the primary investigating agencies for the ministry.

The RoCs, however, are severely under-staffed leading to delays in investigations. Under the law, the government can initiate investigation against a company either on a preliminary report of the RoC, or following a special resolution passed by the company itself or in public interest.

The standing committee has further suggested that a specific clause should be introduced to ensure that only a company’s shareholder with a minimum holding or its creditors are allowed to file a complaint leading to a probe. This, it said, will discourage frivolous complaints against companies.

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