Company wins challenge to Section 206(4) order requiring document disclosure without establishing fraud linkage

The Bombay HC set aside an order passed under Section 206(4) of the Companies Act 2013 requiring a company to furnish details and documents. The court held that such orders must establish a prima facie case showing how the requested information relates to fraudulent or unlawful business conduct. The impugned order lacked this essential linkage and contained no findings of fraudulent activity. The respondent's own affidavit clarified no fraud was alleged, making compliance with mandatory preconditions under Section 206(1)-(3) necessary. The court ruled the order was issued without jurisdiction and could not be sustained.

---

---

Issues:
Challenge to the order passed under Section 206(4) of the Companies Act 2013.

Analysis:
1. The petition challenged an order dated 4th October 2018 under Section 206(4) of the Act, requiring the petitioner to provide details, documents, and information. The petitioner argued that the order lacked the necessary determination and basis for issuing it.

2. The respondent admitted in the affidavit that preconditions under Section 206(1) and (3) were not met but justified issuing the order directly under Section 206(4) for gathering information, without alleging fraud against the petitioner.

3. Section 206 of the Act empowers the Registrar to call for information, inspect books, and conduct inquiries. The petitioner contended that the impugned order did not indicate any scrutiny of documents or the need for further information as required by the Act.

4. The petitioner argued that the impugned order failed to specify any complaints or reasons for initiating proceedings, and the basis for the order against the petitioner was misconceived, referring to an incorrect entity.

5. The petitioner further contended that the order was based on a newspaper report involving a former employee, lacking proper application of mind or enquiry by the respondent, rendering the order legally flawed.

6. The Court held that the impugned order did not establish a prima facie case linking the information sought to fraudulent or unlawful business practices. Compliance with preconditions under Section 206(1) to (3) was deemed mandatory, making the order without jurisdiction.

7. Consequently, the Court allowed the petition, issuing a Writ of Certiorari to quash the impugned order under Article 226 of the Constitution of India, as it failed to meet the necessary legal requirements.

8. The judgment emphasized the importance of adhering to statutory procedures and establishing a clear linkage between the information sought and the alleged fraudulent or unlawful activities before issuing orders under Section 206(4) of the Act.

---