2017 (4) TMI 1197 - HC - Companies Law

Court upholds Ministry order for SFIO investigation under Companies Act based on credible complaints & evidence

Sunair Hotels Limited Versus Union Of India And Anr.

The court upheld the Ministry of Corporate Affairs' order directing an investigation into the Petitioner Company by the SFIO under Section 212(1)(c) of ... Investigation into the affairs of the Petitioner Company in the public interest to be carried out by the Serious Fraud Investigation Office (‘SFIO’) - Held that:- From a perusal of all, it is patently clear that the impugned order is based upon material that has been prima facie demonstrable before this Court. The facts and circumstances summarised in the preceding paragraphs hereinabove, also reveal that the impugned order cannot be said to have been based on any irrelevant or extraneous considerations. In my view, Respondent No.1 has bestowed sufficient attention to the ample material available before it, before passing the impugned order. 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. As 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. 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. In view of the foregoing discussion, the issue raised in the present petition is answered in the negative and against the Petitioner Company. It is 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. In view of the findings of the SFIO, as 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. Issues Involved:1. Legality of the investigation order dated 29.02.2016.2. Adequacy of material for forming the opinion to order an investigation.3. Consideration of the SFIO Report in adjudicating the writ petition.4. Allegations of arbitrary and unjust exercise of power.5. Claims of double jeopardy and extraneous considerations.Detailed Analysis:1. Legality of the Investigation Order Dated 29.02.2016:The writ petition challenges the order dated 29.02.2016 by the Ministry of Corporate Affairs under Section 212(1)(c) of the Companies Act, 2013, directing an investigation into the affairs of the Petitioner Company by the Serious Fraud Investigation Office (SFIO). The petitioner claims the order is illegal, unjust, and arbitrary, contravening settled legal principles. The court examined the material available at the time of the order and found that the Ministry's decision was based on credible complaints and substantial evidence, including fraudulent activities and mismanagement, justifying the investigation in the public interest.2. Adequacy of Material for Forming the Opinion to Order an Investigation:The petitioner argued that there was no sufficient material to warrant the investigation. However, the court noted various complaints and evidence, including fraudulent share allotments, misrepresentation of assets, and fabricated balance sheets, which prima facie justified the Ministry's opinion. The court emphasized that the opinion must be honest and based on sufficient attention to relevant material, which was found to be the case here.3. Consideration of the SFIO Report in Adjudicating the Writ Petition:The court referred to the Supreme Court's directions, which stated that if the SFIO report favored the petitioner, the writ petition might not need further adjudication. However, since the SFIO report revealed numerous violations and fraudulent activities by the Petitioner Company, the court deemed it necessary to consider the report to adjudicate the petition on its merits. The report supported the Ministry's decision to order the investigation.4. Allegations of Arbitrary and Unjust Exercise of Power:The petitioner claimed that the investigation order was based on preconceived notions and extraneous considerations. The court rejected this, finding no evidence of arbitrary or unjust exercise of power. The Ministry's decision was found to be a judicious exercise of discretion, based on credible material and complaints, and aimed at protecting public interest and shareholders' rights.5. Claims of Double Jeopardy and Extraneous Considerations:The petitioner argued that the investigation amounted to double jeopardy, given previous legal proceedings. The court dismissed this claim, noting that the Ministry's decision was based on fresh material and complaints received post-2013. The court also found no basis for the claim that the investigation was driven by extraneous considerations or preconceived notions.Conclusion:The court concluded that the Ministry of Corporate Affairs' order to investigate the Petitioner Company was justified, based on credible material and in the public interest. The SFIO report further substantiated the need for the investigation. Consequently, the writ petition was dismissed, and the investigation order was upheld as lawful and appropriate.