Chapter XIV - Inspection, Inquiry and Investigation
Section 221
Section 221: freezing of assets of company on inquiry and investigation
Section 221 lets the Tribunal (NCLT) stop a company from moving its funds, assets or properties where that is likely to prejudice the company, its shareholders or creditors, or the public interest.
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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) Where it appears to the Tribunal, on a reference made to it by the Central Government or in connection with any inquiry or investigation into the affairs of a company under this Chapter or on any complaint made by such number of members as specified under sub-section (1) of section 244 or a creditor having one lakh amount outstanding against the company or any other person having a reasonable ground to believe that the removal, transfer or disposal of funds, assets, properties of the company is likely to take place in a manner that is prejudicial to the interests of the company or its shareholders or creditors or in public interest, it may by order direct that such transfer, removal or disposal shall not take place during such period not exceeding three years as may be specified in the order or may take place subject to such conditions and restrictions as the Tribunal may deem fit. (2) In case of any removal, transfer or disposal of funds, assets, or properties of the company in contravention of the order of the Tribunal under sub-section (1), the company shall be punishable with fine which shall not be less than one lakh rupees but which may extend to twenty-five lakh rupees and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to three years or with fine which shall not be less than fifty thousand rupees but which may extend to five lakh rupees, or with both.
Introduction
The Tribunal can act on a reference by the Central Government, in connection with an inquiry or investigation under Chapter XIV, or on a complaint by qualifying members under section 244(1), a creditor with one lakh amount outstanding, or any other person with reasonable grounds. It may bar the transfer for up to three years or allow it subject to conditions.
Breach is punishable with heavy fines and imprisonment. Section 221 commenced on 1 June 2016 under S.O. 1934(E). The India Code shows no amendment, and its text matches the 2013 Gazette.
Key takeaways
Who can trigger it
The Central Government, an inquiry or investigation, qualifying members, a creditor with one lakh amount outstanding, or another person with reasonable grounds.
Freeze period
Up to three years, or transfer allowed only on conditions.
Company fine
Not less than one lakh rupees, up to twenty-five lakh rupees, for breach.
Officer liability
Imprisonment up to three years or a fine of fifty thousand rupees to five lakh rupees, or both.
When the Tribunal may freeze assets
Under sub-section (1), where it appears to the Tribunal, on a reference by the Central Government, in connection with an inquiry or investigation under Chapter XIV, or on a complaint by members as specified in section 244(1), a creditor having one lakh amount outstanding against the company, or any other person with reasonable grounds, that removal, transfer or disposal of the company’s funds, assets or properties is likely in a manner prejudicial to the company, its shareholders or creditors, or the public interest, it may order that the transfer, removal or disposal shall not take place for a period not exceeding three years, or may take place subject to conditions and restrictions.
Penalty for breach
Under sub-section (2), the company is punishable with a fine of not less than one lakh rupees, extending to twenty-five lakh rupees, and every officer in default with imprisonment of up to three years or a fine of not less than fifty thousand rupees, extending to five lakh rupees, or both.
Practical preparation
On receiving a freeze order, circulate it to finance and treasury teams; block affected assets in the books and with banks; apply to the Tribunal before any transaction covered by conditions; diarise the expiry of the period.
Investigation provisions are applied case by case by the Central Government, the Tribunal, the Special Court or the inspector; this guide explains the statutory text and is not a substitute for advice on a live matter.
Practical checklist
Do
- Seek the Tribunal’s permission before dealing with frozen assets.
Avoid
- Do not transfer frozen assets through group companies; the order covers removal, transfer or disposal in any manner.
Illustrative example
Hypothetical: a creditor fears asset stripping
A supplier owed more than one lakh rupees sees the company selling its plant to a related entity at a low price.
Complaint
The supplier complains to the Tribunal under section 221(1).
Order
The Tribunal orders that the sale shall not take place for a specified period.
Compliance
The company stops the sale and applies for any permitted conditions.
Outcome
- The asset is preserved while the creditor’s concerns are examined.
Glossary
- Freezing order
- A Tribunal order that funds, assets or properties shall not be removed, transferred or disposed of.
- Officer who is in default
- Defined in section 2(60).
Frequently asked questions
How long can a freeze last?
For such period not exceeding three years as the order specifies.
Can a creditor ask for a freeze?
Yes, a creditor having one lakh amount outstanding against the company can complain to the Tribunal.
Need help applying this provision to your situation?
Contact BizeneedLast updated 12 October 2026