Central Govt. Can Assign Probe to SFIO Based on Interim Report of Inspectors u/s 210 of CA 2013 | HC

Case Details: Exalogic Solutions (P.) Ltd. v. Director, Serious Fraud Investigation Office - [2024] 159 taxmann.com 556 (HC - Karnataka)

Judiciary and Counsel Details

• M. Nagaprasanna, J.
• Arvind Datar, Sr Adv. Manu Prabhakar Kulkarni, Mrinalshankar, Dharmendra Chatur & Isha Prakash, Advs. for the Petitioner
• K. Arvind Kamath & H. Shanthi Bhushan, Advs. for the Respondent.

Facts of the Case

In the instant case, the question was placed before the High Court whether the Central Government can assign a probe to the Serious Fraud Investigation Office (SFIO) based on the interim report of inspectors u/s 210 of the Companies Act, 2013.

The director of the petitioner co. challenged the investigation by the SFIO against the company. The Senior Advocate appearing on behalf of the petitioner co. contended that an inquiry and investigation have begun against the co. after the issuance of notice u/s 206(4) of the Companies Act, 2013.

The same resulted in an order being passed u/s 210 which deals with the investigation into affairs of the Company. The documents sought by the competent officer u/s 210 have been submitted and all necessary documents, the proceedings are yet to conclude.

Further, he contended that during the pendency of the proceedings u/s 210, the SFIO could not have been assigned with the investigation u/s 212 of the Act. Moreover, only after a report is made u/s 210 of the Act, it can perhaps lead to the commencement of proceedings u/s 212 of the Act, as the circumstances that would warrant investigation by the SFIO are only four that are listed in clauses of section 212(1) of the Act.

He also argued that the basis of invoking the power u/s 212 of the Act should be the formation of an opinion that is necessary to have the investigation concluded into the affairs of the company, however in this case, there was no such opinion formed.

The High Court observed that Section 210 does speak of a report, the report can be either interim or final, and it need not be the final report only. During an investigation u/s 210, if the inspectors, out of serendipity come across information that would prima facie touch upon skullduggery and thereon necessity emerges to assign the investigation to a multi-disciplinary body like the SFIO, created under the Act, the Court cannot put shackles on the hands of the Central Government for such assignment.

The High Court, further observed that the contention of the petitioner that the phrase ‘interim report’ is found only in sub-section 11 of Section 212, and nowhere in Section 210 suffers from want tenability. The report u/s 210, can either be interim or final. The said report will not result in any penalty being imposed straight away against any company. It is for the purpose of investigation.

The High Court noted that the investigation is to unearth the alleged unethical activities of any company, in the case at hand, the petitioner/Company. The Apex Court, in the plethora of cases, has made observations on the seriousness of economic offences and said “It is therefore, to unearth such intricate or minute details about the transactions it becomes necessary to hand it over to a multi-disciplinary body, like the SFIO.

High Court Held

The High Court held that the multidisciplinary body would bring about multi-departmental correspondence to arrive at any finding. Therefore, no fault can be found with the action of the Union of India, in entrusting the investigation to the SFIO.

Further, the High Court held that if the Union Government has thought it fit to entrust the investigation to the SFIO, owing to certain factors which have emerged while conducting of investigation u/s 210 and in the public interest, the Court cannot in the exercise of its jurisdiction under Article 226 of the Constitution of India, annul such opinion, unless it is contrary to the statute or the action is demonstrably arbitrary.

In view of the above, once an investigation has commenced u/s 210 of the Companies Act, 2013, the statute does not render the Government of India powerless to assign the investigation to the SFIO u/s 212 of the Act. It neither results in duplication of investigation nor takes away any right of the petitioner.