2025 (11) TMI 1644 - HC - Companies Law

Investigation Report Not Subject To Prior Judicial Scrutiny; Authority Retains Exclusive Power To Decide On Prosecution Under Statute

Serious Fraud Investigation Office Versus Assotech Limited in Liquidation & Anr.

HC allowed the appeal filed by the investigative agency and set aside the Single Judge's order dated 23.04.2024. It held that the direction making the ... Direction of initiation of an investigation into the affairs of a company by the Appellant/Serious Fraud Investigation Office [SFIO], by subsequent orders - such investigation would intedict the natural progression of such an Order of investigation, which is statutorily provided for, by passing the Order or not - HELD THAT:- The direction by the learned Single Judge that the report would be subject to the scrutiny of the Court and post which, it would be the Court’s prerogative to pass any direction for launch of prosecution as against the Respondents, is clearly contradictory to the statutory mandate as also an arrogation of the statutory power by the Court, which, as is evident is clearly impermissible and against the law. It has been consistently held that Courts cannot arrogate to themselves power that statutorily is to be exercised by the mandated or designated authority. The learned Single Judge, in the present case, while passing the Order dated 04.04.2024, was well cognizant of this aspect and it is in that context that paragraph 7 of the said Order clearly and fairly states that the Appellant shall proceed as per law - This position, however, seems to have changed in the subsequent order dated 23.04.2024, which is impugned herein. It is reiterated once again that the bullet once fired would have to necessarily find its target on the basis of the procedure as set down under the statute and cannot, by way of an Order of the Court, be either diverted or sought to be interdicted. This Court is of the considered view that the Impugned Judgment dated 23.04.2024 is unsustainable in law. The directions issued therein by the learned Single Judge not only travel beyond the scope of the Act but also seek to expropriate powers that find no place in the statutory framework. Accordingly, the Impugned Judgment dated 23.04.2024 is set aside. Appeal disposed off. 1. ISSUES PRESENTED AND CONSIDERED 1.1 Whether delay of 48 days in filing the appeal deserved condonation under Section 5 of the Limitation Act, 1963. 1.2 Whether delay of 48 days in re-filing the appeal deserved condonation under Section 5 of the Limitation Act, 1963. 1.3 Whether, after directing investigation by the Serious Fraud Investigation Office into the affairs of a company, the Court in company jurisdiction could restrain or condition the statutorily contemplated consequences of such investigation, particularly the initiation of prosecution, pending its own consideration of the SFIO report. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Condonation of delay in filing the appeal Legal framework (as discussed): 2.1 The Court considered the application under Section 5 of the Limitation Act, 1963 seeking condonation of 48 days' delay in filing the appeal. Interpretation and reasoning: 2.2 The Court noted that sufficient reasons for the delay had been stated in the application. 2.3 It was also recorded that counsel for the respondents did not oppose the application. Conclusions: 2.4 The delay of 48 days in filing the appeal was condoned, and the application was disposed of. Issue 2: Condonation of delay in re-filing the appeal Legal framework (as discussed): 3.1 The Court considered the application under Section 5 of the Limitation Act, 1963 seeking condonation of 48 days' delay in re-filing the appeal. Interpretation and reasoning: 3.2 The Court again noted the sufficient reasons set out in the application. 3.3 It was further noted that the application was not opposed by counsel for the respondents. Conclusions: 3.4 The delay of 48 days in re-filing the appeal was condoned, and the application was disposed of. Issue 3: Power of the Court to restrict or condition the statutory consequences of an SFIO investigation Legal framework (as discussed): 4.1 The Court analysed the scheme of the Companies Act, 2013, particularly Sections 210 and 212, as a complete code governing investigation into the affairs of a company. 4.2 Section 210(2) was noticed as creating a statutory mandate to give effect to an order of investigation passed by the Court by causing investigation into the affairs of the company. 4.3 Section 212 was treated as prescribing the procedure for investigation by the SFIO, including the submission of a report to the Central Government under Section 212(12) and the taking of appropriate action, including prosecution, by the Central Government under Section 212(14). 4.4 The Court relied upon the principles laid down in State of Bihar v. J.A.C. Saldanha and King Emperor v. Khwaja Nazir Ahmad distinguishing the roles of the executive (investigation and prosecution) and the judiciary (adjudication). 4.5 The Court invoked the doctrine that when a statute prescribes that a particular act must be done in a particular manner, it must be done in that manner or not at all, as articulated in Taylor v. Taylor, Nazir Ahmad v. Emperor, and consistently reaffirmed by the Supreme Court (including in Dhanajaya Reddy, Public Interest Foundation and other decisions cited). Interpretation and reasoning: 4.6 The appeal challenged the direction in paragraph 7 of the impugned order whereby the SFIO was directed to refrain from launching any prosecution against the ex-management/directors until the Court considered the SFIO report and passed appropriate directions. 4.7 The Appellant contended that once the Court had ordered an SFIO investigation, the statutory scheme under Sections 210 and 212 mandated that the SFIO investigate and report to the Central Government, which alone could decide upon prosecution; any judicial restriction on such prosecution would be contrary to the statute. 4.8 The respondents' counsel conceded there was no express statutory provision or binding precedent authorising the Court to interdict the natural consequences of an investigation, but argued that the series of orders showed a consistent judicial intent that the SFIO report and ensuing action remained subject to the Court's oversight and control. 4.9 The Court rejected this contention, holding that accepting it would amount to creating a new jurisprudence allowing Courts to prescribe a procedure distinct from and in derogation of the statutory scheme, which is impermissible. 4.10 The Court reasoned that permitting such an approach would effectively subordinate the comprehensive scheme under Section 212 to judicial directions, reducing the SFIO to an investigating agency for the Court, contrary to legislative intent. 4.11 The Court held that the direction in the impugned order, making launch of prosecution contingent on prior scrutiny and permission of the Court, was an arrogation of statutory power reserved to the designated authorities under the Act and was impermissible. 4.12 Applying the principles from Saldanha and Khwaja Nazir Ahmad, the Court emphasised that investigation and prosecution are executive functions and, once an investigation has commenced and is carried out in accordance with the statute, Courts have no role in controlling or supervising the decision to prosecute, except in statutorily permissible circumstances. 4.13 The Court noted that the earlier order dated 04.04.2024 had properly directed that the SFIO 'shall proceed as per law', consistent with the statutory scheme, but the subsequent impugned order departed from this position. 4.14 The Court found an internal contradiction in paragraph 7 of the impugned order: the first part required adherence to the Companies Act, 2013 ('not de hors the provisions of the Companies Act, 2013'), while the second part effectively created an additional, non-statutory precondition for prosecution (prior consideration and direction by the Court). 4.15 The Court reiterated that 'the bullet once fired' (i.e., once investigation is ordered) must follow the statutory trajectory; Courts cannot divert or interdict the statutory process by judicial orders. 4.16 Invoking the 'particular manner' doctrine, the Court held that the Act having laid down the manner in which investigation and subsequent prosecution are to be carried out (through the SFIO and Central Government), any attempt by the Court to prescribe a different route or interpose itself at the prosecution stage was contrary to law and rendered the statutory provisions nugatory. Conclusions: 4.17 The Court held that the provisions of the Companies Act, 2013 unambiguously entrust the Central Government, acting on the SFIO report, with the power to decide on prosecution; Courts cannot, in absence of express statutory sanction, impose restrictions or conditions on the initiation of such prosecution. 4.18 The impugned direction requiring the SFIO to refrain from launching prosecution until the Court considered its report and issued directions was found to be beyond the scope of the Act and unsustainable in law. 4.19 The impugned judgment dated 23.04.2024 was accordingly set aside. 4.20 The appeal and all pending applications were disposed of, with no order as to costs.