Sections 225 and 226 of the Companies Act 2013: Investigation Expenses and Effect of Winding Up
Sections 225 and 226 form part of Chapter XIV of the Companies Act, 2013, dealing with inspection, inquiry and investigation. Section 225 determines how expenses of an investigation are initially paid and when they may be recovered. Section 226 protects the continuity of an investigation despite specified winding-up related events.
Section 225 - Expenses of investigation
Meaning: Section 225 allocates responsibility for the expenses of an investigation conducted by an inspector appointed by the Central Government under Chapter XIV. The Central Government bears those expenses in the first instance, subject to statutory rights of reimbursement.
Section 225(1): The expenses of, and incidental to, an investigation by an inspector appointed by the Central Government under this Chapter, other than expenses of inspection under section 214, are to be defrayed initially by the Central Government. They may then be reimbursed by the persons specified in the section to the stated extent.
Clause (a): A person convicted in a prosecution, or ordered to pay damages or restore property in proceedings brought under section 224, may be ordered in those proceedings to pay investigation expenses to the extent specified by the court.
Clause (b): A company or body corporate in whose name proceedings are brought may be liable up to the amount or value of sums or property recovered by it as a result of those proceedings.
Clause (c): Unless a prosecution is instituted under section 224 as a result of the investigation, reimbursement may be directed from a company, body corporate, managing director or manager dealt with by the inspector's report, and from applicants for an investigation where the inspector was appointed under section 213, to the extent directed by the Central Government.
Section 225(2): An amount for which a company or body corporate is liable under section 225(1)(b) is a first charge on the sums or property referred to in that clause.
How Section 225 works
- The Central Government pays the investigation expenses at the initial stage.
- Reimbursement depends on the category of person and the circumstances specified in section 225.
- Where recovery is based on section 225(1)(a), the court dealing with the relevant proceedings determines the extent of the investigation expenses payable.
- Section 225(2) gives statutory priority, by way of a first charge, to the liability described in section 225(1)(b).
Section 226 - Winding up does not by itself stop investigation
Meaning: Section 226 is a continuity provision. The occurrence of the events listed in the section does not, merely by itself, prevent an investigation under Chapter XIV from being initiated or require an existing investigation to stop or be suspended.
An investigation may be initiated, and is not to be stopped or suspended merely because an application has been made under section 241, the company has passed a special resolution for voluntary winding up, or another proceeding for winding up is pending before the Tribunal.
If the Tribunal passes a winding-up order in a proceeding covered by the section, the inspector must inform the Tribunal of the pending investigation, after which the Tribunal may pass such order as it considers fit.
A winding-up order does not, by itself, release a director or other employee from the obligation to participate in proceedings before the inspector or from liability resulting from the inspector's findings.
Related provisions
Section 213 concerns investigation into a company's affairs in other cases. Section 214 deals with security for payment of investigation costs and expenses. Sections 223 and 224 deal with the inspector's report and actions that may follow that report. Section 241 concerns applications to the Tribunal in cases of oppression and mismanagement.
Practical summary
Section 225 answers the question of who initially bears investigation expenses and from whom those expenses may later be recovered. Section 226 prevents specified winding-up events from automatically defeating or interrupting an investigation. Together, the provisions help preserve the effectiveness of the statutory investigation mechanism while allocating its financial consequences according to the outcome and circumstances of the investigation.
This page is a general legal information resource. For a proceeding involving investigation, winding up, insolvency or voluntary liquidation, the Companies Act, 2013, the Insolvency and Bankruptcy Code, 2016, applicable rules and regulations, notifications and case-specific orders should be checked in their current form.