By Smriti Wadehra, (corplaw@vinodkothari.com).

The Companies Act, 2013 (‘Act’) empowers the Central Government to inspect the books of accounts of a company, to direct special audit, to order investigation into the affairs of a company and to launch prosecution for violation of the Act. These inspections are designed to ensure that the companies conduct their affairs in accordance with the provisions of the Act, and there is no mismanagement which may adversely affect the interest of the stakeholders. It further also keeps a check on any unfair practices prejudicial to public interest that is being resorted to by any company or a group of companies.

In light of this and the rise in financial crime, the need for a specialised agency to do cutting edge investigation and ensure quick closure of cases was necessitated. Accordingly, section 212 was introduced in the Act, however, the provisions of section relating to Serious Fraud Investigation Office (SFIO), was notified only on 1st April, 2014 except sub-section (8) to (10). SFIO is a multi-disciplinary organisation, consisting of experts, for detecting and prosecuting or recommending for prosecution of white collar crimes and frauds.

The main intent of SFIO is to prosecute corporates liable for corporate offence under the Act. Since, the definition of offence was not very clear and references were provided to various sections of the Act, there was a need to clear the ambiguity in this regard. In this regard, Companies (Amendment) Act, 2015 substituted the references to the section of offences with “Offences covered under section 447 of the Act”[1].


Ministry has recently come out with a notification G.S.R. 1062(E)[2] dated 24th August, 2017 making the provisions of section (8) to (10) of section 212, applicable and bestowing the power to arrest on the Act. The provisions of the section specifically lays down that every Director, Additional Director or Assistant Director of SFIO, authorised by the Central Government may by general or special order, if it has reasons to believe on the basis of material in his possession that any person under investigation is guilty of any offence punishable under sections referred to in sub-section (6), may arrest such person and shall, as soon as may be, inform him of the grounds for such arrest. Further, the provisions of Sub-section (9) and (10) of the section, provides light on the procedure of conducting such arrest by the Director and rules as mentioned below. These rules shall come into force from the date of their publication in Official Gazette i.e. 24th August, 2017.


  • The Director, Additional Director or Assistant Director, while exercising powers under sub-section (B) of section 212 of the Act, shall sign the arrest order together with personal search memo in the Form appended to these rules and shall serve it on the arrestee and obtain written acknowledgement of service.
  • The Director, Additional Director or Assistant Director shall forward a copy of the arrest order along with the material in his possession and all the other documents including personal search memo to the office of Director, SFIO in a sealed envelope with a forwarding letter after signing on each page of these documents, so as to reach the office of the Director, SFIO within twenty four hours through the quickest possible means.
  • An arrest register shall be maintained in the office of Director, SFIO and the Director or any officer nominated by Director shall ensure that entries with regard to particulars of the arrestee, date and time of arrest and other relevant information pertaining to the arrest are made in the arrest register in respect of all arrests made by the arresting officers. Entry shall be made immediately on receipt of documents.
  • The provisions of the code of criminal Procedure, 1973(2 of 1974), relating to arrest shall be applied mutatis mutandis to every arrest made under this Act
  • Arrest order together with supporting papers shall be preserved for a period of five years from:

(i) Date of judgement or final order of Trial court (in cases where judgement has not impugned in appellate court),OR

(ii) Date of disposal of the matter before appellate court (in case the judgement is impugned)



Although it was difficult to prevent white-collar crime or corporate crimes, it wasn’t necessarily difficult to commit the same. This is the reason why the evolution of SFIO was important. SFIO has emerged with the main object of improving work practices among the corporates by imposing corporate criminal liability. If an individual who has committed a crime cannot be identified and there is no mechanism for corporate prosecution, the harmful practices would continue unbated. To avoid such a situation, SFIO acts as a corporate watchdog for critical research into corporate power and its doings. To conclude, we can say that corporate crimes are much in vogue today, and so are the methods to tackle them.

[1] http://www.mca.gov.in/Ministry/pdf/AmendmentAct_2015.pdf

[2] http://www.mca.gov.in/Ministry/pdf/companiesArrestsconnectionSFIORule_25082017.pdf

Hundreds of LLPs may be vanishing soon

By Sandeep Kumar Mishra, (corplaw@vinodkothari.com)


After issuing of show cause notices[1] (SCNs) for striking of names of more than 3 lakh non-operating companies, the Registrar has now taken the same action for LLPs. It seems that government has decided to heavily come down on existence of non-operative Limited Liability Partnerships (‘LLPs’) or say fake firms which are causing significant buzz all over in the corporate sector. The Finance Minister had already indicated through his bold statement that actions will be initiated against the body corporate which have been strictly meant for the purpose of circulation of black money and are not carrying any business activity. It now seems that the Registrar of Companies  (RoC) Kolkata, have given the non-operative firm an ultimatum to either make the compliances and start doing the business activity for which they were formed or else be ready to pack up for ever.

Looking at the long list of LLPs which have been issued SCNs under section 75 of Limited Liability Partnership Act, 2008 (the “Act”); it is evident that these LLPs have failed to comply with the provisions of the Act. These LLPs are required to either furnish reason for non-compliance or get struck down from the Register of Companies being maintained by the RoC.

Provisions of law

Section 75 of the Act read with rule 37(1) of Limited Liability Partnership Rules, 2009 (‘LLP Rules’) provides that –

(a) where the Registrar has reasonable cause to believe that an LLP is not carrying on any business or operation for a period of two years or more; or

(b) where the LLP is not carrying out business for a period of one year or more and has made an application in Form 24 to the Registrar, with the consent of all partners of the limited liability partnership for striking off its name from the register

the Registrar shall send a SCN to such LLP and all its partners, of his intention to strike off the name of the limited liability partnership from the Register and at the same time request the recipients to send their representations along with copies of the relevant documents, if any, within a period of one month from the date of the SCN.  However, such SCN shall not be given where the LLP has made an application for striking off its name.

Provided further that where the limited liability partnership is regulated under a special law, the above application for removal of its name shall be accompanied by approval of the regulatory body constituted or established under that law.

Registrar my struck off name of limited liabilities partnership firm from register of Limited liabilities partnership maintain by ROCs, after giving reasonable opportunity of being heard—

Curing step taken by the ROCs

Recently, RoC of West Bengal, Shillong and Odisha has sent SCN to hundreds of LLPs.  This bold step taken by the government is giving clear indication to the Partner/Promoter of LLPs, who device such mechanism merely for circulation of fund under shadow concept separate legal entity of body corporate. Either to comply with provision of law in true sprite in letter or cease to be perpetual existence as separate legal entity. With these SCNs coming, now LLPs are rushing to professionals to seek advisory on the response to be submitted, If such LLPs accept their default and agree for being struck down then the designated directors shall be held liable for the non-compliances made so far and on the other side if someone wants to revive the LLPs then the burden of making the defaults good shall be nothing less than incurring huge expenses.

A critical question mark on the fate of creditors and stakeholders

With the SCNs flowing in, the names of most of the LLPs will get struck off, either willingly or unwillingly at the hands of the RoCs. However, one needs to understand the fate of creditors and other stakeholders holding any interest in such LLPs.


With the wide spread epidemic of non-operative and bogus LLPs encompass in the Indian corporate sector taking shadow of concept of separate legal entity for circulation of  fund and deriving tax benefit, Now the ROCs have come up with a well devised mechanism to cure the same from its root. At this moment, we await to see what shall be the next step of the ROCs against the response being submitted by the LLPs which more or less shall be over by the end of this month as all of the LLPs are given just one month time to respond to the SCNs. To sum up, ROCs have turned the tables in the game, better late than never.

Further we have analyzed similar issue pertaining to strike off of more than 3 lakh companies from register of companies maintained by ROCs


[1] http://www.icai.org.in/LLP%20Rules.pdf




MCA Clarification on IFC Reporting in Auditor’s Report for Private Companies

MCA vide its General Circular No. 08/2017 dated July 25, 2017[1] has issued a clarification regarding applicability of exemptions provided to private companies. Till now MCA has issued two notifications viz., Notification No. GSR 464(E) dated June 05, 2015[2]and Notification No. GSR 583(E) dated June 13, 2017[3] providing various exemptions to the private companies. Some of the major exemptions are as follows: Read more

MCA clarifies on AC and NRC constitution

MCA vide its notification dated July 13, 2017[1] came up with the Companies (Meetings of Board and its Powers) Second Amendment Rules, 2017 (hereinafter referred to as “MBP Second Amendment Rules, 2017) substituting provisions of rules 3 and 6 of the Companies (Meetings of Board and its Powers) Rules, 2014 (hereinafter referred to as “MBP Rules, 2014). This notification shall come into force from the date of publication in the Official Gazette. Read more