Chapter XIV - Inspection, Inquiry and Investigation
Section 224
Section 224: actions to be taken in pursuance of inspector’s report
Section 224 sets out what the Central Government can do once an inspector’s report under section 223 is received: prosecute offenders, petition for winding up or seek relief under section 241, bring proceedings in the company’s name, and ask the Tribunal for disgorgement where fraud is reported.
On this page
Need advice on Section 224?
This article is for general information. Refer to the Companies Act, 2013 official text for the official provisions. If you need professional advice for your situation, contact Bizeneed.
Statutory text
Bare law
(1) If, from an inspector’s report, made under section 223, it appears to the Central Government that any person has, in relation to the company or in relation to any other body corporate or other person whose affairs have been investigated under this Chapter been guilty of any offence for which he is criminally liable, the Central Government may prosecute such person for the offence and it shall be the duty of all officers and other employees of the company or body corporate to give the Central Government the necessary assistance in connection with the prosecution. (2) If any company or other body corporate is liable to be wound up under this Act or under the Insolvency and Bankruptcy Code, 2016 and it appears to the Central Government from any such report made under section 223 that it is expedient so to do by reason of any such circumstances as are referred to in section 213, the Central Government may, unless the company or body corporate is already being wound up by the Tribunal, cause to be presented to the Tribunal by any person authorised by the Central Government in this behalf—(a) a petition for the winding up of the company or body corporate on the ground that it is just and equitable that it should be wound up; (b) an application under section 241; or (c) both. (3) If from any such report as aforesaid, it appears to the Central Government that proceedings ought, in the public interest, to be brought by the company or any body corporate whose affairs have been investigated under this Chapter—(a) for the recovery of damages in respect of any fraud, misfeasance or other misconduct in connection with the promotion or formation, or the management of the affairs, of such company or body corporate; or (b) for the recovery of any property of such company or body corporate which has been misapplied or wrongfully retained, the Central Government may itself bring proceedings for winding up in the name of such company or body corporate. (4) The Central Government, shall be indemnified by such company or body corporate against any costs or expenses incurred by it in, or in connection with, any proceedings brought by virtue of sub-section (3). (5) Where the report made by an inspector states that fraud has taken place in a company and due to such fraud any director, key managerial personnel, other officer of the company or any other person or entity, has taken undue advantage or benefit, whether in the form of any asset, property or cash or in any other manner, the Central Government may file an application before the Tribunal for appropriate orders with regard to disgorgement of such asset, property, or cash, as the case may be, and also for holding such director, key managerial personnel, officer or other person liable personally without any limitation of liability.
Introduction
The section came into force in parts. Sub-sections (1), (3) and (4) commenced on 1 April 2014 (S.O. 902(E)); sub-section (5) on 1 June 2016 (S.O. 1934(E)); and sub-section (2) on 15 December 2016 (S.O. 3677(E)).
Sub-section (2) was amended by the Insolvency and Bankruptcy Code, 2016 (s. 255 and the Eleventh Schedule, in force 15 November 2016 under S.O. 3453(E)) to cover a company liable to be wound up under the Code as well as under the Act.
Key takeaways
Prosecution
If the report shows that any person is guilty of an offence, the Central Government may prosecute, and the company’s officers and employees must assist.
Winding up or oppression relief
The Central Government may have a petition for winding up on the just and equitable ground, an application under section 241, or both, presented to the Tribunal.
Proceedings in the company’s name
For fraud, misfeasance or misconduct, or to recover misapplied property, the Central Government may bring proceedings in the name of the company, and the company indemnifies it for the costs.
Disgorgement
Where the report finds fraud and undue benefit, the Central Government may seek disgorgement and personal liability without limitation.
Prosecution
Under sub-section (1), if an inspector’s report under section 223 shows that any person, in relation to the company or any other body corporate or person whose affairs were investigated, is guilty of an offence for which he is criminally liable, the Central Government may prosecute that person. All officers and other employees of the company or body corporate must give the Central Government the necessary assistance in the prosecution.
- India Code — consolidated Companies Act, 2013, section 224
- eGazette — Insolvency and Bankruptcy Code, 2016 (No. 31 of 2016)
- eGazette — MCA notification S.O. 3453(E), 15 November 2016 (IBC section 255 in force)
- eGazette — MCA notification S.O. 902(E), 26 March 2014 (commencement from 1 April 2014)
- eGazette — MCA notification S.O. 1934(E), 1 June 2016 (commencement)
- eGazette — MCA notification S.O. 3677(E), 7 December 2016 (commencement from 15 December 2016)
Winding up petition or section 241 application
Sub-section (2) applies where the company or body corporate is liable to be wound up under the Act or under the Insolvency and Bankruptcy Code, 2016, and the report makes it expedient to act because of circumstances referred to in section 213. Unless the company is already being wound up by the Tribunal, the Central Government may cause any person it authorises to present to the Tribunal (a) a petition for winding up on the ground that it is just and equitable, (b) an application under section 241, or (c) both.
Proceedings in the company’s name and indemnity
Under sub-section (3), if the report shows that proceedings ought, in the public interest, to be brought by the company or body corporate for damages for fraud, misfeasance or other misconduct in its promotion, formation or management, or to recover property misapplied or wrongfully retained, the Central Government may itself bring proceedings in the name of the company or body corporate. The section’s wording refers to "proceedings for winding up" here; read it together with the clauses that describe the purpose of the proceedings.
Sub-section (4) requires the company or body corporate to indemnify the Central Government against costs and expenses of proceedings brought under sub-section (3).
Disgorgement where fraud is found
Under sub-section (5), where the inspector’s report states that fraud has taken place and that a director, key managerial personnel, other officer or any other person or entity has taken undue advantage or benefit, whether as an asset, property or cash or otherwise, the Central Government may apply to the Tribunal for orders for disgorgement of that asset, property or cash, and for holding that person personally liable without any limitation of liability.
Practical preparation
If a report has been submitted on your company, map each finding to the possible actions in sub-sections (1) to (5); preserve documents and keep employees available to assist any prosecution; ring-fence assets that may be the subject of a disgorgement application; and take advice on exposure of individual directors and officers.
Procedure, forms, fees and timelines for applications under this provision are set out in rules made under the Act and in the Tribunal’s procedure; check the current text of those rules, and any exemption notification for your class of company, before relying on this guide.
Practical checklist
Do
- Co-operate with the Central Government in any prosecution; sub-section (1) makes assistance a duty of officers and employees.
- Budget for the indemnity in sub-section (4) if proceedings are brought in the company’s name.
Avoid
- Do not assume limited liability protects an individual where fraud is found; sub-section (5) allows personal liability without limitation.
Illustrative example
Hypothetical: report finds diversion of funds
An inspector’s report states that a director diverted company funds to a related firm through fictitious invoices.
Prosecution
The Central Government may prosecute the director for the offences disclosed, with officers and employees bound to assist.
Recovery
It may bring proceedings in the company’s name to recover the diverted money, at the company’s cost under sub-section (4).
Disgorgement
It may also apply to the Tribunal for disgorgement and personal liability of the director.
Outcome
- Several actions under section 224 can run side by side; each depends on what the report actually finds.
Glossary
- Just and equitable ground
- A ground for winding up based on the overall fairness of continuing the company, rather than a specific default.
- Misfeasance
- Improper performance of a lawful act, especially breach of duty by a director or officer causing loss to the company.
- Disgorgement
- An order to give up a gain or benefit obtained wrongfully.
Frequently asked questions
Can the Central Government start winding up after an investigation?
Yes. Under sub-section (2), it may have a winding up petition on the just and equitable ground, an application under section 241, or both, presented to the Tribunal, unless the company is already being wound up by the Tribunal.
Who pays for proceedings brought in the company’s name?
Sub-section (4) requires the company or body corporate to indemnify the Central Government against the costs and expenses.
Can a director be made personally liable?
Under sub-section (5), where the report states that fraud has taken place and the director took undue advantage or benefit, the Central Government may seek disgorgement and personal liability without any limitation of liability.
Need help applying this provision to your situation?
Contact BizeneedLast updated 12 October 2026