Section 221 of the Companies Act, 2013
Section 221 of the Companies Act, 2013 – Freezing of Assets of Company on Inquiry and Investigation
Purpose:
Section 221 empowers the Tribunal (NCLT) to freeze the assets of a company if it appears that the assets may be dissipated, disposed of, or misused during an ongoing inquiry, inspection, or investigation.
Key Provisions:
🔍 When Does it Apply?
During any investigation, inspection, or inquiry under Chapter XIV (Inspection, Inquiry and Investigation), if it appears that:
The company or its management may dispose of assets,
Or may cause damage to investors or creditors,
🧊 Tribunal’s Power to Freeze Assets:
The Tribunal may, by order:
Freeze the transfer, removal, or disposal of funds, securities, or other assets of the company.
It can also restrict persons (like directors or key managerial personnel) from dealing with such assets.
⏳ Duration of the Order:
The order to freeze assets can remain in force for a period not exceeding 3 years.
👥 Application Can Be Made By:
Central Government, or
Investigator or Inspector appointed under the Act.
Objective:
To protect the interests of shareholders, creditors, and the public by preventing the misuse or illegal transfer of company assets during the course of regulatory scrutiny.
Example:
If a fraud is suspected in a company and the promoters are trying to transfer funds to personal accounts or foreign entities, the government or inspector can apply to NCLT under Section 221 to freeze such assets, ensuring they are preserved for legal action or recovery.
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