| S. NO | COURT | CASE NAME & CITATION | RATIO |
| 1. | Supreme Court of India | SFIO v. Rahul Modi CRIMINAL APPEAL NOS. 538-539 .OF 2019 (@ SLP(Crl)Nos.94-95 OF 2019) Order dated 27.03.2019 | Facts: Criminal Appeals challenging common interim order dated 20.12.2018 passed by the Delhi High Court in W.P.(Crl.) Nos.3842 and 3843 of 2018. In exercise of powers conferred by Section 212(1)(c) of the Companies Act, 2013 the Central Government vide an order directed investigation into the affairs of Adarsh Group of Companies and LLPs by officers of Serious Fraud Investigation Office (SFIO) as nominated by Director, SFIO. The said order also specified that “the Inspectors and Investigating Officers shall complete the investigation and submit the report within three months thereof.” The said period mentioned in Clause 6 of the order dated 20.06.2018 came to an end on 19.09.2018, and based on information gathered after investigation, approval was granted by Director, SFIO following which three accused persons namely Rahul Modi, Mukesh Modi and Vivek Harivyasi were arrested on 10.12.2018. They were produced before the Duty Magistrate, District Courts, Gurugram, Haryana on 11.12.2018, then were granted remand for two days and were directed to be produced before the Special Court (Companies Act), Gurugram on 14.12.2018.On 13.12.2018 a proposal was made by SFIO seeking approval of the Central Government for extension of time for completing investigation and submission of investigation report in respect of 57 cases which were at various stages of completion and the period granted for completion of investigation had either expired or was near the expiry. The prayer for extension of custody was opposed by the accused inter alia on the grounds that the period of completion of investigation as stipulated in the order dated 20.06.2018 had expired and as such all further proceedings were illegal. The Special Court through order dated 14.12.2018 granted extension to the SFIO for investigation and the same was challenged by this writ petition read with Section 482 Cr.P.C. by all three accused in Criminal Appeal Nos. 538-539 of 2019.The Writ Petition prayed that as per order dated 20.06.2018 all investigation must have been complete by 19.09.2018 and that investigation carried out after that date was illegal and without any authority of law. Writ of Habeas Corpus was also prayed for, directing release from illegal arrest made on 10.12.2018.The High Court through ad-interim relief directed the release of the accused. The Hon’ble Court had no qualms about the extension of time granted for investigation, but the period specified for the submission of report post investigation had lapsed. At that juncture, the SFIO had neither applied nor obtained the ex post facto extension of the period specified in the said order dated 20.06.2018.The High Court also observed that the illegal detention of the applicants cannot be sanctified by the subsequent remand orders passed by the concerned magistrate and that illegal detention of applicants violate the principles of personal liberty enshrined under Article 21 of the Constitution. The order of the Hon’ble High Court dated 20.12.2019 was challenged by way of this SLP.The Ld. Solicitor General on behalf of SFIO averred that in terms of the 2013 Act, the investigation commenced when the matter was assigned to SFIO under Section 212(1) of 2013 Act and investigation would end on filing report by SFIO after completion of investigation as per Section 212(12) of the Act. The stipulation in Section 212(3) of 2013 Act regarding submission of the report to the Government “within such period as may be specified in the order” is purely directory. Additionally, power of arrest under Section 212(8) of 2013 Act conferred upon Director, Additional Director, and Assistant Director is not circumscribed by any time limit.The Hon’ble Supreme Court while granting leave to appeal held that- Section 212(3) of 2013 Act by itself does not lay down any fixed period within which the report has to be submitted. Even under sub-Section (12) which is regarding “investigation report”, again there is no stipulation of any period. In fact, such a report under sub-Section (12) is to be submitted “on completion of the investigation”. There is no stipulation of any fixed period for completion of investigation which is consistent with normal principles under the general law. For instance, there is no fixed period within which the investigation under Criminal Procedure Code must be completed. If the investigation proceeds for a longer period, under Section 167 of the Code certain rights may flow in favour of the Accused.”“having regard to the scheme of the Act underlined in Chapter XIV (Sections 206 to 229 of the Act) dealing with the matters relating to inspection, inquiry and investigation of the companies in juxtaposition with Chapter XXIX which prescribes the punishment/penalties for commission of various offences specified under the Act, the compliance of sub-section (3) of Section 212 of the Act is essentially directory. If the submission of the learned counsel for the respondents (writ petitioners) that the compliance of sub-section (3) of Section 212 of the Act in relation to the submission of the report be held mandatory is accepted (which I am afraid, I cannot accept) in our view, the very purpose of enacting Section 212 of the Act would get defeated and will become nugatory. Indeed, when I apply the well-known principle of purposive interpretation while interpreting the relevant provisions in juxtaposition and hold that sub-section (3) of Section 212 of the Act is directory in nature, it serves the legislative intent for which Chapter XXIX is enacted.” |
| 2. | Delhi High Court | Neeraj Singal v. Union of India and Ors. | Facts: Petitioner was arrested pursuant to investigation by SFIO [pursuant to order by MCA under Sec 212(1) (c)] into the affairs of Bhushan Steel Limited (BSL) and Bhushan Steel and Power Limited (BSPL). SFIO sought petitioner’s remand to judicial custody as petitioner and his father along with officials of BSL used fraudulent manoeuvres to siphon off funds raised from banks and investors, aiming at personal gain. Judicial remand was extended multiple times as sought by respondents (SFIO) by way of applications in the W.P. (Crl) 2453/2018. Petitioner in the present writ petition with an application for interim relief challenged the constitutional validity of bail provision under Sections 212(6) (ii) and 212(7) Companies Act, 2013 on the ground of them being violative of Articles 14 and 21 of Constitution of India and also Section 212(8) as arbitrary and violative of Articles 14, 20 and 21 of the Constitution, basically challenging the illegality of his arrest. Court held that– with the provision of grant of bail, i.e. Section 212(6)(ii) Companies Act and the provision concerning arrest, i.e. Section 212(8) Companies Act, themselves being challenged, and since those challenges are prima facie not frivolous, the Petitioner should also be able to seek relief incidental to such challenge.As per the respondents, the Petitioner would have to seek regular bail before the Special Court under Section 212(6) and no other provision since he is sought to be proceeded against for commission of the offence under Section 447 of the Companies Act which is cognizable and non-bailable and to which Section 212(6) squarely applies. Where the Petitioner has a prima facie case in his challenge to the constitutional validity of Section 212(6), to relegate him to the Special Court for the purpose of regular bail at this stage would frustrate the very purpose of his filing the present petition. Section 212(6) Companies Act places an erroneous burden on the petitioner. Considering the stringent nature of the section, it is virtually impossible for an accused to contest the averments made in the remand application before the Special Court and make out a case of innocence. The court directs that the Petitioner shall be released on interim bail during pendency of writ petition subject to submission of personal bond and other conditions. Bail to continue till investigation report is filed in Special Court in terms of Section 212(14) read with Section 212(15) of Companies Act, 2013 where Petitioner, if so necessitated, will have to seek regular bail from Special Court subject to further orders in writ petition. |
| 3. | Delhi High Court | Sunair Hotels Limited vs. Union of India & Anr. W.P. (C) 3444/2016 Decided on: 26.04.2017 | Facts: Writ petition instituted under Article 226 of the Constitution of India, seeking to assail the order dated 29.02.2016 (hereinafter referred to as the ‘impugned order’), rendered by the Ministry of Corporate Affairs, Union of India (‘Respondent No.1’); whereby, they, whilst exercising power under the provisions of Section 212(1)(c) of the Companies Act, 2013 (hereinafter referred to as ‘the 2013 Act’) ordered an investigation into the affairs of the Sunair Hotels Limited (Petitioner Company), in the public interest, to be carried out by the Serious Fraud Investigation Office (hereinafter referred to as ‘SFIO’) Main Contention or question to be addressed by the Court/Tribunal: The following reliefs were sought by Sunair Hotels Limited (hereinafter referred to as ‘Petitioner Company’) by way of the present writ petition: “(a) Issue a writ, order or direction in the nature of mandamus, certiorari or any other appropriate writ, order or directions for quashing of the order dated 29.02.2016 passed by the respondent, ordering an investigation into the affairs of the petitioner company, under section 212 (1) (c) of the Companies Act, 2013, to be carried out by the Serious Fraud Investigation Office, as being illegal, unjust, arbitrary, bad in law and in contravention to the settled proposition of law and also contrary to the stand taken by the respondent that the complaints made against the petitioner are in the nature of a private dispute. (b) Issue a writ, order or directions in the nature of mandamus, certiorari or any other appropriate writ, order or directions for quashing of any subsequent act done by the respondents on the basis of the impugned order dated 29.02.2016 and to produce all record in connection with and on the basis of which impugned order dated 29.02.2016 has been passed.” “The main issue that arises for consideration is, whether the formation of the opinion by Respondent No.1/Ministry of Corporate Affairs, Union of India, to order an investigation by the SFIO into the affairs of the Petitioner Company, in the public interest, is bad in law on account of the insufficiency/inadequacy of the material that forms the basis of the said opinion.” Legal Position enunciated by the Hon’ble Court: Discretionary power has been conferred upon the Central Government under the relevant provisions of the Act, to order an investigation into the affairs of the company; The object of vesting such a power upon the Central Government, under the Statute, is to enable the Central Government to assume the power to step in where there is reason to suspect that a company may be conducting its affairs in a manner prejudicial to the interests of its shareholders or the public at large. However, the discretionary power must not be exercised by the Central Government, in a manner that, by reason of misconstruction of the statute or other reason, would lead to frustrating the object of the statute conferring the discretion. In order to exercise this discretion reasonably and lawfully, the Central Government is required to formulate an opinion that an investigation into the affairs of the company is necessary; The opinion must be an honest opinion, rendered after bestowing sufficient attention to the relevant material/circumstances available before the Central Government; andThe opinion must not be based on a wholly irrelevant or extraneous consideration.The materials/circumstances based on which the opinion to order an investigation has been rendered, have to prima facie, show that the inferences drawn from the facts in the materials/circumstances led to conclusions of certain definiteness. In other words, the existence of material for formation of an opinion is a sine qua non and the same must be prima facie demonstrable, in case the opinion is challenged before a Court of law.The opinion formulated is not required to be a conclusive proof of the fact that the conduct of the affairs of the company is prejudicial to the public interest, interest of the shareholders, members or any other persons, or contrary to the provisions of law.Investigation under the relevant provisions of the Act, is exploratory in nature, and in the nature of a fact-finding, and must be ordered only on satisfactory grounds.Since investigation is an inroad into the functioning of a company, it has to be ordered after the facts and circumstances in the material available with the competent authority necessitate such an investigation.Courts can consider the materials/circumstances on the basis of which the opinion to order an investigation is rendered; to ascertain whether the facts necessitating the investigation, in fact, existed, or whether extraneous considerations have weighed on the opinion formed by the Central Government.Whilst considering a challenge to an opinion of a competent authority directing an investigation into the affairs of a company, the Court has to exercise caution, inasmuch as, the Court cannot sit in appeal over the opinion and cannot substitute its opinion for that of the competent authority of the Central Government The said impugned opinion of the Central Government was based on the following grounds: a) Various complaints alleging mismanagement of the Petitioner Company, inter alia, made by VLS, in its capacity of a shareholder of the Petitioner Company, and various Members of Parliament at the relevant time. b) The fraudulent allotment of shares of the Petitioner Company. c) Fraudulently showing government-owned land taken on lease, as a fixed asset in the balance sheet of the Petitioner Company. d) The fraudulent manner in which the rights to develop the land were acquired by the Petitioner Company from another company, for a consideration of Rs.21 crores. The rights were initially transferred to the latter, free of cost by the former, and subsequent upon acquiring the rights back, the land under lease was shown as a fixed asset in balance sheet of the Petitioner Company for the financial year 1994-1995. e) The manner in which the said liability in the sum of Rs.21 Crores, qua the rights to develop the land under lease, was discharged i.e., by rotating a meagre sum of Rs.1 crore, twenty times, between multiple companies and persons in a short span of 06 days. f) Preparation of fabricated balance sheets in order to defraud the shareholders, banks, financial institutions and the public at large. g) Creation of two fictious assets that have been pledged as security to the Bank in order to obtain loan. h) Stealing of official files prepared by the Ministry of Corporate Affairs pertaining to the Petitioner Company j) The Inspection Report, concluding the inspection conducted into the affairs of the Petitioner Company under the provisions of section 209A, Companies Act 1956, also, brought to light various contraventions and violations committed by the Petitioner Company and its Directors, punishable under the 1956 Act. Held: “62. The ground on which investigation was found to be warranted is ‘public interest’, within the meaning of the provisions of section 212 of the 2013 Act. The Black’s Law Dictionary, Sixth Edition, defines the expression ‘public interest’ to mean something in which the public, the community at large, has some pecuniary interest, or some interest by which their legal rights or liabilities are affected. 63. In view of the facts and circumstances as have been elaborated in the preceding paragraphs, the argument that the impugned order be set aside, since no public interest has been made out, is baseless, devoid of merit and thus rejected. 64. Therefore, the opinion formed by Respondent No.1, to order an investigation by the SFIO into the affairs of the Petitioner Company, in the public interest, does not warrant any interference. 65. In view of the foregoing discussion, the issue raised in the present petition is answered in the negative and against the Petitioner Company. In my view, the impugned order does not suffer from any infirmity, much less a conclusion that it was bad in law on account of inadequacy or insufficiency of material. 66. Before I part with this order, I consider it necessary to refer to the report dated 31.10.2016, submitted by the SFIO. A bare reading of the said report would show that the affairs of the Petitioner Company have been conducted in a manner prejudicial to the public interest, in addition to that of the shareholders. 67. In view of the findings of the SFIO, I am satisfied that the recommendation contained therein, warranting prosecution for the offences punishable under the relevant provisions of the 1956 Act, 2013 Act and the IPC, cannot be said to be without any justification. 68. The present writ petition is accordingly dismissed without any order as to costs. All pending applications also stand disposed of.” |
| 4. | Delhi High Court | Vikas Agarwal v. Serious Fraud Investigation Office CRL.M.C. 647/2019 & CRL. M.A. 2713/2019 Decided on: 06.02.2019 | Facts: Impugned order dated 24.01.2019 of the trial court summoning the petitioner for commission of offence under Sections 418/120B of IPC and under Section 447 of the Companies Act, 2013.Petitioner submitted that the only allegation leveled against petitioner, as noticed in the impugned order, is that petitioner who is arrayed as A-27 with his co-accused A-24, A-25 & A-26, were partners in the mining firm which was indulging in illegal mining activities and were part of a larger conspiracy. It is alleged against petitioner and his co-accused that they had provided unsecured loan to the Trust.Submission advanced on behalf of petitioner- that any prosecution under the Companies Act, 2013 is to be confined to the Companies only and not to private individuals. The fraud under Section 447 of the Companies Act, 2013 is in relation to the affair of the company and not in respect of any individual. Hence the impugned order qua petitioner is liable to set aside, as the trial court has no jurisdiction to summon the petitioner. Ld. Standing counsel for the respondent- As per Section 447 of the Companies Act, 2013 the definition of ‘fraud’ includes any person who connives in any manner to deceive or to gain undue advantage from any company and so the trial court has the jurisdiction to summon petitioner and in any case, petitioner has efficacious remedy to raise the pleas taken herein before the trial court at the charge stage. Also submitted that at the summoning stage, in-depth examination of the case is not required to be undertaken. As per the learned standing counsel, Sanction for prosecution of petitioner has been granted after satisfying that a prima facie case for prosecution of petitioner is made out. Held: “Upon hearing and on perusal of impugned order, material on record and the relevant provisions of the Companies Act, I find that the definition of fraud provided in the explanation to Section 447 of the Companies Act, 2013 makes it clear that the prosecution is to relate to the companies in the first instance and also to other persons who have in any manner connived in commission of the offence to gain undue advantage. A bare perusal of Section 212 of the Companies Act, 2013 reveals that there is no bar of limitation to proceed under Sections 212 or 447 of the Companies Act, 2013. What is the larger conspiracy cannot be prejudged at this initial stage and is required to be examined at trial. At the summoning stage, limited scrutiny is required to be undertaken. Upon doing so, I find no illegality or infirmity in the impugned order. This Court finds that the trial court has jurisdiction to proceed against petitioner, as sanction for the prosecution has already been taken. In the considered opinion of this Court, trial court does not lack the jurisdiction to proceed against petitioner.” |
