Central Government's sanction for SFIO investigation under Section 212(1)(c) Companies Act quashed as arbitrary and illegal

MP HC quashed Central Government's sanction dated 30.11.2021 under Section 212(1)(c) of Companies Act, 2013 for SFIO investigation. Court held the sanction was arbitrary and illegal as Central Government failed to form requisite opinion based on material circumstances. Since company was under CIRP and liquidation proceedings were pending with Section 66 IBC application for recovery, SFIO investigation would constitute double jeopardy. Court found no public interest element existed to warrant investigation and emphasized that mere mechanical ordering without proper opinion formation violates statutory requirements. The sanction lacked reasoning and failed natural justice principles.

---

---

Issues Involved:
1. Legality of the sanction order dated 30.11.2021 issued by the Central Government u/s 212 of the Companies Act, 2013.
2. Existence of material and circumstances indicating prejudice to public interest.
3. Double jeopardy concerning the ongoing proceedings under Section 66 of the IBC.

Summary:

Issue 1: Legality of the Sanction Order Dated 30.11.2021 u/s 212 of the Companies Act, 2013
The petitioners challenged the sanction order dated 30.11.2021 issued by the Central Government u/s 212 of the Companies Act, 2013, which directed an investigation into the affairs of the company by the SFIO. The petitioners contended that the order lacked requisite opinion and material circumstances warranting such an investigation. The court emphasized that an order directing investigation u/s 212 must demonstrate the existence of material/circumstances considered by the government. The court found the sanction order to be non-speaking, evidencing non-application of mind, and passed in a mechanical manner. The court held that the impugned sanction dated 30.11.2021 was perverse and bad in law as it did not give any reasons or show application of mind, thus vitiating the sanction itself.

Issue 2: Existence of Material and Circumstances Indicating Prejudice to Public Interest
The petitioners argued that there was no public interest or prejudice to the public involved in the transactions carried out by the company. The court noted that the Central Government's opinion must be based on relevant material and circumstances. The impugned sanction was based on the liquidator's presentation and the transaction audit report, which did not indicate any prejudice to public interest. The court concluded that there was no material or relevant circumstances to form an opinion that the company's affairs were causing prejudice to public interest, and hence, the sanction order was invalid.

Issue 3: Double Jeopardy Concerning the Ongoing Proceedings under Section 66 of the IBC
The petitioners contended that the ongoing proceedings under Section 66 of the IBC covered the same transactions and cause of action, and initiating an SFIO investigation would amount to double jeopardy. The court observed that the liquidator had already filed an application under Section 66 of the IBC before the NCLT, Mumbai, which was pending adjudication. The court held that the initiation of an SFIO investigation on the same cause of action was unnecessary and could lead to double jeopardy.

Conclusion:
The court quashed and set aside the impugned sanction dated 30.11.2021, any steps taken in furtherance of the sanction, and the Look Out Circulars issued against the petitioners. The petition was allowed with no order as to costs.

---