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Navdeep Kaur
| Updated: 04 Apr, 2020 | Category: Compliances, Event Based Compliances

Right to Inspect by Members of the Company

Right to Inspect

The companies act, 2013, has given many powers and rights to shareholders, directors, debenture holders, etc.  The persons on the key managerial position, such as directors and other officials, have been given a statutory position and certain rights. Further certain rights have also been provided to various members of the company, which also includes the director’s liability to maintain statutory financial records and register of the company as per the provisions of section 170 of the companies at, 2013. In order to maintain transparency in the company, members have also given right to inspect and take extract of such records and register. This is in order to follow and maintain corporate governance provisions.

What is the definition of term ‘Member’?

The term ‘Member’ has been defined under section 2 (55) of the companies act, 2013 as:

 “member,” in relation to a company, means—

  • the subscriber to the memorandum of the company who shall be considered to have agreed to become a member of the company, and on its registration, shall be entered as member in its register of members;
  • every person who agrees in writing to become a member of the company and that’s name is entered in the register of members of the company;
  • every entity holding shares of the company and whose name is entered as a beneficial owner in the records of a depository;”

So any person who is agreed to be a member of the company by entering his/her name in writing into Register of Members of the company and holds certain shares of the company is deemed to be a member of the company.

What are the provisions under which company records are maintained and kept?

As per the provisions of the companies act, 2013, directors of the company have been assigned duty to maintain financial records such as registers, index, debenture holders of the members at registered office of the company as per section 163 of the companies act, 2013. And further, those records are open for inspection during normal business hours. Some nominal charges can be imposed for inspecting files of the company and getting extracts of the same.

As per extracts of Section 163(3) of the companies act, 2013:

“Any such member, debenture holder or another person may-

  • make extracts from any register, index, or copy referred to in sub-section (1) without fee or additional fee, as the case may be; or
  • require a copy of any such register, index, or copy or of any part thereof, on payment of 1 such sum as may be prescribed for each one hundred words or fractional part there of required to be copied.”

What are the various provisions under which member’s right to inspect various companies register are defined?

In order to maintain corporate transparency and governance, certain rights of members in order to inspect records and register maintained by directors of the company are defined under Section 171 of the companies, 2013.

As per section 171 of the companies act, 2013, certain right of members to inspect records has been mentioned. According to which:

  • Any register which is maintained by key managerial personnel of the company under Section 170 is open for examination and inspection by members. This inspection can be done during normal business hours of the company. Further members also have leverage to inspect and take extracts and copy of the said records free of any cost within a period of 30 days.
  • All financial records of the company erstwhile open for inspection to all public during annual general meeting as per section 304 of companies act, 1956, which has now been replaced with section 171 of companies act 2013. Wherein rights in order to inspect records that were available to all public before are now available to only members and persons who attend AGM, i.e., Annual general meeting of the company.
  • Member cannot be denied to provide said copies applied for inspecting. In case of failure, a concerned person can file application to authority and ask for urgent delivery or supply of copies of records.

Is there any fee prescribed for getting inspection copies?

Any member of the company has the privilege to do inspection of records of the company free of cost and further to get copies or extract of the same free of cost. But any other person other than member of the person who attends annual general meeting of the company can inspect and get copies free of cost at a nominal rate of Rs. 10 as per Rule 21A of the companies (central govt) general rules and prescribed forms.

Prescribed timeline for getting copies of records:

Any person who applied for extracts or copies of records from company that company is liable to furnish such record copies to the person within 10 working days from the date of request of furnishing copies as per section 163(4) of the companies act, 2013[1].

Penalty amount in case of refusal to furnish copies of records by company

If company denies or fails to provide such copies as requested, in that scenario, such company or any defaulting office of the company can be penalized up to amount of Rs. 500 per day for entire defaulting period.

Remedy In case of refusal by company to furnish record copies:

Any person who is aggrieved by company or its official can approach NCLT, i.e., National Company Law Tribunal of jurisdiction where companies registered office is present. The concerned tribunal may pass such order to order defaulting company to allow aggrieved person to furnish such companies as required or as the case may be. Such a petition can be filed under Section 163(6) of the companies act before NCLT or the tribunal.

Conclusion:

Transparency to records of the company is important in order to maintain corporate governance. And members play an important role in the same by accessing the information and keeping a record of such transactions and records of the company. Under new laws of companies act of 2013, many pragmatic provisions have been laid down comparatively erstwhile companies act of 1956, which have duly exercised positive role in corporate governance and transparency thereon.

Read our article:Appointment of Additional Director in a Company as per Companies Act, 2013

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Navdeep Kaur

Navdeep is working as legal counsel in Enterslice group companies having more than 4 years of experience. She has expertise in legal, corporate and regulatory matters.

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