2024 (2) TMI 976 - HC - Companies Law

Government can transfer company investigation to SFIO under Section 212 during ongoing Section 210 proceedings

Exalogic Solutions Private Limited Versus The Director, Serious Fraud Investigation Office, Union Of India,

The Karnataka HC dismissed a petition challenging the transfer of investigation from Section 210 to SFIO under Section 212 of the Companies Act, 2013. The ... Legality of SFIO Investigation - Alleged incorrect address mentioned in Form No.10 filed by the petitioner/Company with Registrar - Invocation of Section 12 of Companies Act, 2013 for the alleged non-maintenance of the registered office at the address mentioned in Form No.10 filed before the Registrar - HELD THAT:- Once investigation has commenced under Section 210, the statute does not render the Government of India powerless, to assign the investigation under Section 212 to the SFIO. It neither results in duplication of investigation, nor takes away any right of the petitioner. Sub-section (2) clearly mandates that once the SFIO is entrusted with investigation under Section 212, any other investigation already initiated shall not be proceeded further and further, those agencies who are/were conducting any investigation, shall transfer all the relevant documents and records in respect of those offences to the SFIO. The powers of SFIO is statutorily determined from sub-section (3) to sub-section (17) of Section 212 and for conduct of investigation there is procedure in place which need not require elaboration at this juncture. The submission of the learned senior counsel for the petitioner is that when the proceedings under Section 210 are underway, assignment of investigation to the SFIO cannot take place. The strength on which the said submission is made is that there should a report under Section 210, as is directed, and only then the investigation can be handed over to the SFIO. The effect of such submission is that handing over of investigation to the SFIO, should precede a final report under Section 210. This submission is sans countenance as it travels on a slippery slope. Section 210 does speak of a report, the report can be either interim or final it need not be the final report only - It is entrusted to the SFIO which is created under the Act, i.e., in terms of Section 211 with elaborate functions under Section 212. The protection to any Company from duplication of proceedings is kept tight under sub-section (2) of Section 212 and above all, and after all, it is investigation. A bleak attempt is made by the learned senior counsel to submit that the phrase ‘interim report’ is found only in sub-section 11 of Section 212, and nowhere in Section 210 suffers from want tenability, as observed hereinabove, the report under Section 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. Investigation is for the purpose of unearthing the alleged unethical activities of any Company, in the case at hand, the petitioner/Company. The Apex Court, in plethora of cases, has observed that with the advancement of technology, economic offences have become a real threat to the functioning of the financial system of the country. Those offences become a great challenge for Investigating Agencies to detect and comprehend intricate nature of transactions, as also the role of persons involved therein. No reasons provided to invoke Section 212 of the Act - non-application of mind - HELD THAT:- The statement of objections are, in defence of interim report necessitating assignment of investigation. If the Union of India has thought it fit to entrust the investigation to the SFIO, owing to certain factors which have emerged while conduct of investigation under Section 210 and in public interest, this Court in exercise of its jurisdiction under Article 226 of the Constitution of India would not by a stroke of pen, annul such opinion of the Union of India, unless it is contrary to the statute or the action is demonstrably arbitrary. Neither of the two is present in the case at hand, as the projection of the two, by the learned senior counsel for the petitioner is sans acceptance. Therefore, there is no warrant to interfere at this stage. Insofar as the judgments relied on by the leaned senior counsel in support of his submissions in the case of MODERN DENTAL COLLEGE AND RESEARCH CENTRE v. STATE OF MADHYA PRADESH [2016 (5) TMI 1366 - SUPREME COURT] and in the case of UTTAM DAS CHELA SUNDER DAS v. SHIROMANI GURDWARA PRABANDHAK COMMITTEE [1996 (5) TMI 431 - SUPREME COURT] are inapplicable to the facts situation at this juncture. Reliance is placed on paragraph 60 of the judgment of the Apex Court in the case of MODERN DENTAL COLLEGE AND RESEARCH CENTRE which deals with doctrine of proportionality. It is the submission that the statute should be used only for the designated proper purpose. In the considered view of the Court, the statute is used for the designated proper purpose. Proportionality is not what can be considered at this stage of the proceedings. The stage, as observed in the course of the order, is conduct of investigation and the Apex Court is clear that investigation process should not be interdicted or annihilated unless the grounds projected are in support of such interdiction - the judgments relied on would not lend any support to the submissions of the learned senior counsel for the petitioner, in any manner. The action impugned does not suffer from any statutory aberration and therefore, the petition does not deserve any entertainment. Petition dismissed. Issues Involved:1. Whether the investigation under Section 210 of the Companies Act, 2013 can be transferred to the SFIO under Section 212 during its pendency.2. Whether the formation of opinion under Section 212 is necessary and if it was formed in this case.3. Whether the petitioner was served with the order initiating investigation under Section 210 or assigning it to the SFIO under Section 212, and if this constitutes a violation of natural justice.Summary:Issue 1: Investigation Transfer from Section 210 to SFIO under Section 212The petitioner argued that the SFIO could not be assigned the investigation under Section 212 of the Companies Act, 2013 while the proceedings under Section 210 were still ongoing. The Court held that the statute does not render the Government powerless to assign the investigation to SFIO during the pendency of proceedings under Section 210. It was noted that the report under Section 210 could be either interim or final, and if necessary, the investigation could be handed over to SFIO, a multi-disciplinary body created under the Act. The Court found no duplication of investigation or violation of the petitioner's rights, as Section 212(2) mandates that any other investigation shall cease once SFIO is assigned.Issue 2: Formation of Opinion under Section 212The petitioner contended that the basis of invoking Section 212 should be the formation of an opinion that it is necessary to have the investigation concluded by SFIO, and that no such opinion was formed in this case. The Court rejected this argument, stating that the interim report from the Inspectors under Section 210 necessitated the assignment to SFIO due to the grave nature of the alleged offences involving Rs. 135 crores. The Court emphasized that the decision to assign the investigation to SFIO was made in public interest and did not suffer from non-application of mind.Issue 3: Service of Orders and Violation of Natural JusticeThe petitioner claimed that they were not served with the order initiating the investigation under Section 210 or the assignment to SFIO under Section 212, constituting a violation of natural justice. The Court dismissed this claim, noting that at the stage of investigation, the principles of natural justice do not mandate that the appointment of an Investigating Officer or the assignment of investigation be made known to the person being investigated. The Court found no statutory aberration in the actions of the Union of India and concluded that the petition did not warrant any interference.Conclusion:The Court rejected the petition, upholding the assignment of the investigation to SFIO under Section 212 of the Companies Act, 2013, and found no violation of statutory provisions or principles of natural justice in the process.