2024 (4) TMI 1352 - HC - Companies Law

Agency-registered FIR over alleged company fraud under s447: territorial jurisdiction upheld, but unauthorised probe quashed

The dominant issues were (i) territorial jurisdiction to entertain a petition under s 482 CrPC to quash an FIR registered outside the place of occurrence, ... Territorial jurisdiction to examine the validity of the impugned FIR - power to investigate the aforesaid offences in view of specific provision contained in Section 212 of the Companies Act, 2013. The offences alleged to have been committed within the State of Tamil Nadu, whether this Court has territorial jurisdiction to examine the validity of the impugned FIR? - HELD THAT:- The High Court of Madras in the case of Ilanahai [2015 (1) TMI 1487 - MADRAS HIGH COURT] has ruled that prior to introduction of Clause (2) of Article 226, the jurisdiction was based only on the situs of the person or authority concerned against whom writ or order is to be issued. The jurisdiction was extended beyond territorial limit by introduction of Clause (2) to Article 226 based on the cause of action. However, the parliament did not think it appropriate, similarly to amend Section 482 of Cr. PC so as to add provision like Clause (2) of Article 226 extending the inherent power of the High Court under Section 482 beyond the territorial limits of the said High Court based on the fact that the part of the offence is committed outside the territorial limits of the said High Court. Therefore, the power under Section 482 for the purpose of quashing the FIR is concerned, the only criteria is the situs of the authority who has registered the case and not the place of commission of the crime either in full or part. It was further ruled that cause of action is foreign to criminal law. This Court has jurisdiction to examine the validity of the FIR registered by the respondent - CBI which is located within the jurisdiction of this Court. Therefore, the contention of the learned counsel for the respondent that the present petition is not maintainable for want of territorial jurisdiction is not acceptable. Whether the respondent/CBI is directed of its power to investigate the aforesaid offences in view of specific provision contained in Section 212 of the Companies Act, 2013? - HELD THAT:- Section 465 of the Act, 2013 deals with repeal of certain enactment and savings and Clause (5) states that any prosecution instituted under the Action repealed enactment and pending immediately before the commencement of any Court, shall subject to the provisions of this Act continue to be heard and disposed of by that Court - In the instant case, the investigation commenced after the enactment of Act, 2013, and for investigating offences committed during repealed Act, and under the subsequent enactment, the investigation typically follows the provisions of the new enactment unless there are specific transitional provisions stated in the new enactment. Although the CBI has invoked Section 13(2) read with Section 13(1)(d) of the Prevention of Corruption Act, there is no allegation in the first information report that the accused in connivance with the Bank Officials who come under the ambit of public servants as defined under the Prevention of Corruption Act misused funds, source of capital, manipulation in project award, accounting manipulation, and diversion of funds. In the absence of essential elements to constitute the offences under PC Act, the contention of the learned counsel for the CBI that the SFIO cannot investigate the offences under the PC Act is not acceptable, when there is no allegation to investigate the offence under PC Act. The registration of the FIR by the CBI for the allegations which constitute an offence under Section 447 of the Act, 2013 and the subsequent investigation stands vitiated for want of authority. The impugned proceedings is hereby quashed - petition allowed. 1. ISSUES PRESENTED AND CONSIDERED 1. Whether the High Court could exercise jurisdiction under Section 482 Cr.P.C. to examine and quash FIRs registered by a CBI unit located within its territorial jurisdiction, even though the alleged offences and the accused's residence were within another State. 2. Whether, in view of the Central Government having entrusted investigation of the same allegations to the SFIO under Section 212 of the Companies Act, 2013 and an SFIO complaint already being filed before the competent Special Court, the CBI's registration and investigation of FIRs based on those allegations was without authority and therefore liable to be quashed. 3. Whether invocation of offences under the Prevention of Corruption Act in the FIRs could sustain CBI jurisdiction when the FIRs did not contain allegations satisfying the essential elements of such offences. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Territorial jurisdiction under Section 482 Cr.P.C. to test validity of FIR Legal framework: The Court examined the scope of Section 482 Cr.P.C. as it relates to territorial jurisdiction for quashing an FIR. Interpretation and reasoning: Although the alleged offences and the petitioner's residence were within Tamil Nadu, the FIRs were registered by the CBI office at Bengaluru, which fell within the territorial jurisdiction of this Court. The Court accepted the reasoning that, for purposes of Section 482 Cr.P.C. petitions seeking quashing of FIRs, the relevant criterion is the situs of the authority that registered the case, and not where the crime was committed (in full or part). The Court further accepted that 'cause of action' principles applicable to Article 226 were not incorporated into Section 482 Cr.P.C. Conclusion: The Court held it had territorial jurisdiction to examine the validity of the impugned FIRs because the registering CBI office was located within its jurisdiction, and rejected the objection to maintainability on territorial grounds. Issue 2: Effect of Section 212 Companies Act, 2013 and SFIO entrustment on CBI FIRs/investigation Legal framework: The Court considered Sections 447 and 212 of the Companies Act, 2013 (including the special treatment for fraud offences and the statutory investigation mechanism), and noted the savings/transitional provision in Section 465 concerning continuation and manner of investigations/prosecutions after enactment. Interpretation and reasoning: The Court found that, on the face of the FIR allegations (misappropriation, manipulation of accounts, fictitious accounts, diversion and conversion of company property through related-party transactions), the conduct alleged against the petitioner (as promoter/director facilitating such acts) amounted to 'fraud' as contemplated under Section 447 of the Companies Act, 2013. Since the investigation commenced after the 2013 Act came into force, the Court proceeded on the basis that investigation into such offences would typically follow the new enactment's provisions, absent contrary transitional provisions. The Court further treated as decisive the fact that the Central Government had already entrusted investigation into the same allegations to the SFIO, that the SFIO had completed investigation, submitted its report, and filed a complaint before the Special Court constituted under the Companies Act, 2013. In that context, the Court concluded that the SFIO mechanism governed the matter, and the CBI's registration of FIRs and continuation of investigation on the same foundational allegations was unauthorized. Conclusion: The Court held that the CBI's registration of the FIRs and the ensuing investigation, insofar as they related to the petitioners and were founded on allegations constituting an offence under Section 447 of the Companies Act, 2013 for which SFIO had already been entrusted and had proceeded before the Special Court, were vitiated for want of authority; consequently, the FIR proceedings against the petitioners were quashed. Issue 3: Invocation of Prevention of Corruption Act offences in the FIRs Legal framework: The Court evaluated whether the FIRs disclosed the necessary allegations to constitute offences under Section 13(2) read with Section 13(1)(d) of the Prevention of Corruption Act. Interpretation and reasoning: Although the FIRs included Prevention of Corruption Act provisions, the Court found no allegation that the accused acted in connivance with bank officials (public servants) or that the factual ingredients necessary to constitute the Prevention of Corruption Act offences were pleaded. Given the absence of such foundational allegations, the Court rejected the contention that CBI jurisdiction could be maintained on the basis that SFIO could not investigate Prevention of Corruption Act offences, because there was, in substance, no Prevention of Corruption Act offence alleged to investigate. Conclusion: The Court held that mere invocation of Prevention of Corruption Act provisions did not sustain the CBI FIRs where the FIRs lacked essential allegations to constitute those offences, and this did not prevent quashing for lack of authority in light of SFIO's entrusted investigation and pending complaint. Relief consequential to the determinations The Court quashed both FIR proceedings insofar as they related to the petitioners and permitted the CBI to place the information/documents collected during its investigation before the SFIO in the pending proceeding before the Special Court.