1. Where it appears to the Central Government that there is a reason so to do, it may appoint one or more inspectors to investigate and report on matters relating to the company, and its membership for the purpose of determining the true persons—
a. who are or have been financially interested in the success or failure, whether real or apparent, of the company; or
b. who are or have been able to control or to materially influence the policy of the company.
2. Without prejudice to its powers under sub-section (1 ), the Central Government shall appoint one or more inspectors under that sub-section, if the Tribunal, in the course of any proceeding before it, directs by an order that the affairs of the company ought to be investigated as regards the membership of the company and other matters relating to the company, for the purposes specified in sub-section (1 ).
3. While appointing an inspector under sub-section (1 ), the Central Government may define the scope of the investigation, whether as respects the matters or the period to which it is to extend or otherwise, and in particular, may limit the investigation to matters connected with particular shares or debentures.
4. Subject to the terms of appointment of an inspector, his powers shall extend to the investigation of any circumstances suggesting the existence of any arrangement or understanding which, though not legally binding, is or was observed or is likely to be observed in practice and which is relevant for the purposes of his investigation.
Legal Commentary & Landmark Judgments: Section 216
Section 216 empowers the Central Government to appoint inspectors to investigate and report on the true membership and beneficial ownership of a company, unmasking benami controllers.
This statutory framework establishes clear operational guidelines, balancing legal compliance with procedural safeguards.
Section 216 is the statutory mechanism used to pierce the veil of opacity in hostile takeover attempts, round-tripped investments, and foreign funding violations. Coupled with Section 222 (imposition of restrictions on shares), a Section 216 investigation allows the government to freeze voting rights and dividend distributions of benami shareholders while their true identities are forensically established.