As one of the major stakeholders of a company, shareholders are provided with certain rights under the Companies Act, 2013 (“Act”). These rights include voting rights, ownership rights, right to appoint proxies, right to dividends, right to speak at meetings, right to transfer shares, right to convene extraordinary general meeting, etc.
However, the focus of this article is the ‘shareholders’ right to inspection of registers and records’ maintained by the company from a statutory and contractual perspective.
The Statutory Right of Inspection
1. Registers and reports open for inspection by shareholders
In addition to the aforementioned rights, the Act provides shareholders with the right to inspect various registers and reports maintained by its company. Shareholders can also avail copies of such registers and reports upon the payment of the fees as prescribed under the articles of associates (“AOA”) of the company. In this regard, it may be noted that the Act obligates a company to provide copies of such registers and reports to its shareholder, if requested for, within a fixed timeline. Further, if the company fails to provide such copies within the stipulated timeline, the company shall be liable to pay a penalty as mentioned under the terms of the Act.
The following is the list of registers and reports towards which shareholders have the right to inspection under the Act:
2. Registers of members
As per Section 88 of the Act, every company is obligated to maintain the registers of: (i) members indicating the class of equity and preference shares held by each member; (ii) debenture-holders; and (iii) other security holders. In accordance with Rule 14 of the Companies (Management and Administration) Rules, 2014 (“Rules”), shareholders are entitled to the right to inspection of such registers maintained by the company.
For a better understanding of the topic at hand, it is significant to first comprehend the term “member” as mentioned in Section 88 of the Act. The Act defines “member” as (i) the subscriber to the memorandum of associations of the company; (ii) every person that has agreed to become a member of the company in writing; and (iii) every person holding shares of the company. Therefore, it is clear that the term “member” of the company would refer to and be inclusive of the shareholders of such company. 
3. Annual return prepared by the company
Section 92 of the Act obligates every company to prepare an annual return comprising of crucial information of the company, including without limitation, the registered office, principal business operations, information relating to shares, debentures, other securities, promoters, directors and key managerial personnel of the company etc., and such annual return can be inspected by the shareholders of the company. According to Rule 14 of the Rules, shareholders have inspection rights over the annual return prepared under Section 92 of the Act.
4. Minutes of general meetings of the company
Section 119 of the Act states that the shareholders shall have the right to inspect the books containing the minutes of the proceedings of any general meeting of the company or of a resolution passed. However, this right of inspection is subject to reasonable restrictions placed either by the AOA of the company or in the general meeting of the company. 
5. Inspection of audited financial statement of the company
Although only the board of directors of the company have the right to inspect the books of accounts of the company under Section 128 of the Act, shareholders may inspect audited financial statements and every other ancillary document relating to the financial statements of the company.
6. Register of directors and key managerial personnel of the company
Section 170 of the Act provides for maintenance of the register of directors and key managerial personnel along with the details of the securities held by each person, may it be in the company, its holding, subsidiary, subsidiary of company’s holding company or associate companies. The said register may be inspected by the shareholders and if the company refuses any such inspection or fails to provide the member with a copy of the required register within 30 days from the receipt of the request, the member shall have the right to approach the Registrar to avail such copies. 
7. Register of loans and investments of the company
According to Section 186(9) of the Act, if the company is giving loan or a guarantee or providing security or making an acquisition the Company is required to maintain a register containing such particulars and the said register shall be open for inspection by the member at the registered office of the company. 
8. Register of contracts or arrangements in which directors are interested
As per Section 189, shareholders have the right to inspect the registers maintained by the company to record the details of all contracts and arrangements involving particulars of (i) the directors’ concern or interest in “any company or companies or bodies corporate, firms, or other association of individuals which shall include the shareholding”;  and (ii) related party transactions as dealt with under Section 188.
9. Inspection of register of contract or memorandum executed with directors
Section 190 provides that if a contract of service or memorandum of understanding has been executed in writing by the company with its managing or whole-time director, a copy of such contract or memorandum shall be made available, at the registered office of the company, for inspection by any member.
Nature of the statutory right of inspection granted to shareholders
Pursuant to the above discussion, it is clear that the shareholders are neither required to hold a minimum number of shares nor are they required to meet a specific percentage of shareholding for them to be entitled for exercising its right of inspection under the Act. In this regard, it is pertinent to state that all shareholders of the company are to be treated in the same capacity, irrespective of their shareholding data and that the right of inspection granted to shareholders under the Act is equal and wide.
Further, it is observed that the Act does not lay down any grounds on which a shareholder can inspect company registers and other documents. Therefore, it is understood that shareholders of the company may inspect any register or document, as provided by the provisions of the Act and/or other transactional documents, without the requirement of stating the purpose of such inspection. In fact, it is pertinent to note that the company shall be liable to pay a penalty, as per the relevant provisions of the Act, if the company refuses a shareholder his right of inspection as mentioned under the Act.
However, the company may refuse the right of inspection to the shareholder if the documents and information requested for by the shareholder are readily available to the public, especially on the website of the Ministry of Corporate Affairs, Government of India.  The rationale behind this is that the ‘right to inspection’ was incorporated in the Act to facilitate transparency and good governance of the company. Moreover, the objective behind providing inspection rights to shareholders is to grant control to them, as beneficial owners, over the company with the view that shareholders have a better understanding of how their investments are being utilised by the company. In consideration of the aforesaid, it is significant that by, demanding copies of documents that are already available to the public, shareholders do not exploit their right to inspection.
The Contractual Right of Inspection
Apart from the aforementioned statutory inspection rights that the shareholders are entitled to under the Act, shareholders are often granted the right to inspection with regards to other aspects as well. In fact, ‘the shareholders’ right to information and inspection’ is a standard clause under shareholders’ agreements, whereby, companies grant shareholders with the right to inspection, as provided under the Act and otherwise.
In addition to the incorporation of mandatory rights of inspection, a company may grant its shareholders with other rights of inspection as mentioned below:
- unaudited quarterly financial statements, including cash flow statements of each financial quarter;
- operational reports or management information system reports of the company;
- annual budget and annual business plans of the company;
- cancellation of any material contracts executed by the company; or
- quarterly progress reports of the company.
The company has the sole discretion to provide the aforementioned inspection rights and/or any other similar rights to its shareholders. The inclusivity of such inspection rights is purely based on the transaction and mutual understanding between the company and its investors.
Shareholders form the financial backbone of a company as they invest in companies based on its future potential, in consideration of which shareholders are granted the right to inspection. This right of inspection aims to balance the scale of information asymmetry between the company and its shareholders. It provides shareholders with a way to access necessary documentation and information relating to the company to monitor the company’s performance and evaluate its financial status. Further, it enables shareholders to determine whether the management of the company is fairly conducting its activities and provides a medium to address any agency problems in the company.
It may be noted that a company may face any of the three main agency problems: conflicts between: (i) shareholders and the management; (ii) majority and minority shareholders; and (iii) shareholders and other stakeholders of the company such as suppliers, employees, customers and creditors of the company. The right to inspection may allow shareholders to gauge the factuality of any problem at hand and find suitable solutions for the same, irrespective of such solution being to oust a corrupt management thereby ceasing oppression and mismanagement in the company, or to pursue appropriate legal actions against the wrongdoer.
 The Companies Act, 2013, § 2(55).
 Id., § 119(2).
 Id., § 171.
 Id., § 186(10).
 Id., § 184(1).  Anil Kumar Poddar v. Bonanza Industries Limited,  132 SCL 47 (CLB – Mumbai); Phillips Carbon Black Ltd. & Ors. v. Anil Kumar Poddar & Anr.,  163 COMP CASE 181 (Calcutta).
Author: Megha Sugandhi, Associate.
Disclaimer: The content of this article is intended to provide a general guide to the subject matter and that the same shall not be treated as legal advice. For any queries, the author can be reached at firstname.lastname@example.org