AI Drafter 
TaxTMI 
TaxTMI 
2019 (3) TMI 1411
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....vestigation (SFIO) as nominated by Director, SFIO. The relevant part of the Order dated 20.06.2018 was as under:- "Whereas the Central Government is empowered under Section 212(1)(c) of the Companies Act, 2013 (the Act) to order investigation into the affairs of a company in public interest by the Serious Fraud Investigation Office (SFIO). 2. And whereas the Central Government is also empowered to order investigation into the affairs Limited Liability Partnerships (LLPs) under Section 43 (2) & (3) (c) (i) of the Limited Liability Partnership Act, 2008. 3. AND whereas on the basis of opinion formed by the Central Government, it has been decided to investigate the affairs of following companies:- S N O CIN COMPANY / LLP NAME NEW ADDRES S REGIO N PAN_ NUMBER STATU S 1. U45201HR2000PLC045 738 ADARSH BUILDESTA TE LIMITED 1ST FLOOR, BLOCK- B, VATIKA ATRIUM GOLF COURSE ROAD, SECTOR- 53 GURGAO Haryana AAJCA190 7A &nb....
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....powers available to them under the Companies Act, 2013: 1. Shri P.C. Maurya, Addl. Director 2. Shri Prashant Baliyan, Deputy Director 3. Shri G. L. Meena, Sr. Asst. Director 4. Shri Kumar Gautam, Asst. Director 4. And further, in exercise of powers conferred under Section 212(4) of the Companies Act, 2013, Sh. Prashant Baliyan, Dy. Director is appointed as Investigating Officer to carry out the above noted investigation. The Investigating Officer shall have the powers of Inspector as enumerated under Section 217 of the Companies Act, 2013. As per the investigation order, following issues are specifically to be examined along with other issues which may come across during the investigation: (i) To ascertain and unearth rotation of funds or identification of quantum of diversion of funds or siphoning including beneficiaries thereof; (ii) To identify instances of mismanagement, negligence or fraud; (iii) To ascertain the role of auditors, KMPs or independent directors or any other person in the alleged fraud; (iv) To examine role of any other entity used as conduit in the alleged fraud; and (v) T....
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....ill the investigation has not been completed because some part of investigation needs personal involvement. This case prima facie attracts Section 447 of Companies Act, which certainly makes this offence cognizable and no bailable. The main grounds for which the investigation is to be conducted in custody is ascertainment of further trail qua withdrawn money and to locate the beneficiaries. In addition to this, identification of properties and explanation about loans and advances mentioned in the books of accounts can only be given by accused but they have not come up with any such explanations till now. Even the persons who are in custody are not going to facilitate the investigation in proper manner so that the real facts can be established. These grounds definitely require detained and comprehensive investigation so it would be proper to grant the custody of these accused to SFIO for three days. Accused be produced before the Special Court under Companies Act on 14.12.2018. Copy of this order be handed over to the IO and accused as they have requested. Custody of all three accused namely Mukesh Modi, Rahul Modi and Vivek Harivyasi is given to SFIO for three days. File be sent to....
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.... Central Government. And thus the issue of filing a report before the court after arrest is mandatory but doing so before the arrest of the accused is not a time bound exercise that too violation of which can be legal impediment for further investigation." The proposal was accepted vide order dated 14.12.2018 passed by the Central Government in respect of the Group and extension was granted upto 30.06.2019. 8. On 17.12.2018 Writ Petition (Criminal) Nos.3842 & 3843 of 2018 were filed under Articles 226 & 227 of the Constitution of India read with Section 482 of Cr.P.C. by Rahul Modi and Mukesh Modi respectively in the High Court of Delhi. It was submitted that with the expiry of period within which the investigation had to be completed in terms of order dated 20.06.2018, all further proceedings including the arrest of the respondents were illegal and without any authority of law. The Writ Petitions therefore prayed for declaration that the investigation carried out after 19.09.2018 was illegal and without jurisdiction and also prayed for Writ of Habeas Corpus directing release from illegal arrest made on 10.12.2018. The prayers in both the petitions were almost identical and w....
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....il and confront them with the subsequent evidence and events and to investigate the matter further as per the disclosures made by the accused to unearth real facts of siphoning of the huge money, in view of this investigations in the order dated 14.12.2018. As such, finding the request to be genuine and the plea of custodial interrogation to be necessary for the logical end of the entire investigations, the application in hand is allowed and all the three accused persons are remanded to further custody of the SFIO till 21.12.2018 upto 2.00 p.m." 10. The Writ Petitions came up before the High Court on 20.12.2018. The High Court issued notice making it returnable on 31.01.2019. The High Court thereafter proceeded to consider whether immediate release of the respondents by way of ad interim relief was called for. Both the sides were heard and the issues which arose for consideration in the Writ Petitions were framed as under: "a) Whether the ex post facto extension granted on behalf of the Competent Authority is valid in law; and b) Whether the vested rights created in favour of the applicants, in the interregnum, when there was purportedly no legal sanction to ca....
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....n extension of time, from the Competent Authority, to carry out further investigation under the mandate of the provisions of Section 212 of the said Act, only on 13.12.2018, admittedly two and half months after the period granted to them by the Competent Authority for the said purpose, had come to an end by efflux of time. 24. There is also no quarrel with the circumstance that, the ex post facto extension granted by the Competent Authority, retrospectively, was granted only on 14.12.2018. It is, therefore, prima facie axiomatic that, when the applicants were arrested by the SFIO on 10.12.2018, the period specified in the said order dated 20.06.2018 for the submission of the report, post investigation, had already elapsed. It is further relevant to state that, at that juncture the SFIO had neither applied nor obtained the ex post facto extension of the period specified in the said order dated 20.06.2018. 25. It is, in these circumstances, read in conjunction with the norms set out by the SFIO itself, warranting investigation to be completed within the timeframe, stipulated by the Central Government, that we are of the considered view that the order of arrest suffe....
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....or General submitted inter alia: (a) In terms of the provisions of 2013 Act, the investigation commenced when the present matter was assigned to SFIO under Section 212(1) of 2013 Act and the investigation would end on filing of a report by SFIO after completion of investigation, as per Section 212(12) of the Act. It would be incorrect to assume that the mandate to investigate or power to arrest would come to an end on completion of three months from 20.06.2018. (b) The stipulation in Section 212(3) of 2013 Act regarding submission of the report to the Central Government "within such period as may be specified in the order" is purely directory. (c) Power of arrest under Section 212(8) of 2013 Act conferred upon the Director, Additional Director and Assistant Director is not circumscribed by any time limit and so long as the conditions stipulated in said sub- section are satisfied, such power of arrest can be validly exercised. (d) The Habeas Corpus Petition was not maintainable in the High Court of Delhi as after their arrest the original Writ Petitioners were produced before the Judicial Magistrate, Gurugram on 11.12.2018 and were remanded to custody under a judicial or....
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....in New Delhi and were kept in custody in SFIO office in New Delhi and as such the High Court of Delhi had jurisdiction to consider the Writ Petitions and grant relief as prayed for. (f) In the absence of any extension for further investigation, the power of arrest could not have been exercised on 10.12.2018. Any further extension cannot validate the act of initial arrest. Such arrest being unsupported by any valid mandate, was an act of illegality which violated Article 21 calling for interference by the High Court. 16. The basic facts in the present matter can be summed up:- a) The investigation was assigned to SFIO vide Order dated 20.6.2018. This Order did stipulate in para 6 that the Inspectors should complete their investigation and submit their report to the Central Government within three months. b) The period of three months expired on 19.09.2018. c) The proposal to arrest three accused persons was placed before the Director, SFIO and after being satisfied in terms of requirements of Section 212(8) of 2013 Act approval was granted by Director, SFIO on 10.12.2018. d) After they were arrested on 10.12.2018, the accused were produced b....
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....ate of Punjab (1952) SCR 395, Ram Narayan Singh vs. State of Delhi (1953) SCR 652, A.K. Gopalan vs. Govt. of India (1966) 2 SCR 427, Pranab Chatterjee vs. State of Bihar and Another. (1970) 3 SCC 926, Talib Hussain vs. State of Jammu and Kashmir (1971) 3 SCC 118, Col. Dr. B. Ramachandra Rao vs. State of Orissa and Others. (1972) 3 SCC 256. These decisions were considered in Kanu Sanyal vs. District Magistrate, Darjeeling and Others (1974) 4 SCC 141, as under: Re: Grounds A and B. 4. These two grounds relate exclusively to the legality of the initial detention of the petitioner in the District Jail, Darjeeling. We think it unnecessary to decide them. It is now well settled that the earliest date with reference to which the legality of detention challenged in a habeas corpus proceeding may be examined is the date on which the application for habeas corpus is made to the Court. This Court speaking through Wanchoo, J., (as he then was) said in A.K. Gopalan v. Government of India (1970) 3 SCC 926: "It is well settled that in dealing with the petition for habeas corpus the Court is to see whether the detention on the date on which the application is made to the....
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....s, therefore, unnecessary to examine the legality or otherwise of the detention of the petitioner in the District Jail, Darjeeling. The only question that calls for consideration is whether the detention of the petitioner in the Central Jail, Vizakhapatnam is legal or not. Even if we assume that grounds A and B are well founded and there was infirmity in the detention of the petitioner in the District Jail, Darjeeling, that cannot invalidate the subsequent detention of the petitioner in the Central Jail, Vizakhapatnam. See para 7 of the judgment of this Court in B.R. Rao v. State of Orissa. The legality of the detention of the petitioner in the Central Jail, Vizakhapatnam would have to be judged on its own merits. We, therefore, consider it unnecessary to embark on a discussion of grounds A and B and decline to decide them." The law is thus clear that "in Habeas Corpus proceedings a Court is to have regard to the legality or otherwise of the detention at the time of the return and not with reference to the institution of the proceedings". In Kanu Sanyal8 the validity of the detention of the petitioner in District Jail, Darjeeling was therefore not considered by this Court and it....
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....2, para 48) "48. ... It is settled by Constitution Bench decisions that a petition seeking the writ of habeas corpus on the ground of absence of a valid order of remand or detention of the accused, has to be dismissed, if on the date of return of the rule, the custody or detention is on the basis of a valid order." 23. Keeping in view the aforesaid concepts with regard to the writ of habeas corpus, especially pertaining to an order passed by the learned Magistrate at the time of production of the accused, it is necessary to advert to the schematic postulates under the Code relating to remand. There are two provisions in the Code which provide for remand i.e. Sections 167 and 309. The Magistrate has the authority under Section 167(2) of the Code to direct for detention of the accused in such custody i.e. police or judicial, if he thinks that further detention is necessary. 24. The act of directing remand of an accused is fundamentally a judicial function. The Magistrate does not act in executive capacity while ordering the detention of an accused. While exercising this judicial act, it is obligatory on the part of the Magistrate to satisfy himself whether ....
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....committed to jail custody by virtue of an order that suffers from the vice of lack of jurisdiction or absolute illegality, a writ of habeas corpus cannot be granted. It is apposite to note that the investigation, as has been dealt with in various authorities of this Court, is neither an inquiry nor trial. It is within the exclusive domain of the police to investigate and is independent of any control by the Magistrate. The sphere of activity is clear cut and well demarcated. Thus viewed, we do not perceive any error in the order passed by the High Court refusing to grant a writ of habeas corpus as the detention by virtue of the judicial order passed by the Magistrate remanding the accused to custody is valid in law." B) In Saurabh Kumar vs. Jailor, Koneila Jail and another (2014) 13 SCC 436 the issue was dealt with in para 13 of the leading Judgment as under:- 13. It is clear from the said narration of facts that the petitioner is in judicial custody by virtue of an order passed by the Judicial Magistrate. The same is further ensured from the original record which this Court has, by order dated 9-4-2014, called for from the Court of the Additional Chief Judicial Magistr....
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...., admittedly, when the writ petition for issuance of a writ of habeas corpus was filed by the respondent on 18-3-2018/19-3-2018 and decided by the High Court on 21-3-2018 her husband Rizwan Alam Siddiquee was in police custody pursuant to an order passed by the Magistrate granting his police custody in connection with FIR No. I-31 vide order dated 17-3-2018 and which police remand was to enure till 23-3-2018. Further, without challenging the stated order of the Magistrate, a writ petition was filed limited to the relief of habeas corpus. In that view of the matter, it was not a case of continued illegal detention but the incumbent was in judicial custody by virtue of an order passed by the jurisdictional Magistrate, which was in force, granting police remand during investigation of a criminal case. Resultantly, no writ of habeas corpus could be issued. 11. Reverting to the prayer for expunging the scathing observations made in the impugned judgment, in particular paras 4-6, reproduced earlier, it is submitted that the said observations were wholly unwarranted as the Deputy Commissioner of Police concerned who was present in Court, could not have given concession to release....
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....idered by the High Court and the Order was passed by it, not only were there orders of remand passed by the Judicial Magistrate as well as the Special Court, Gurugram but there was also an order of extension passed by the Central Government on 14.12.2018. The legality, validity and correctness of the order or remand could have been challenged by the original Writ Petitioners by filing appropriate proceedings. However, they did not raise such challenge before the competent Appellate or Revisional Forum. The orders of remand passed by the Judicial Magistrate and the Special Court, Gurugram had dealt with merits of the matter and whether continued detention of the accused was justified or not. After going into the relevant issues on merits, the accused were remanded to further police custody. These orders were not put in challenge before the High Court. It was, therefore, not open to the High Court to entertain challenge with regard to correctness of those orders. The High Court, however, considered the matter from the standpoint whether the initial Order of arrest itself was valid or not and found that such legality could not be sanctified by subsequent Order of remand. Principally, ....
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....4.12.2018. Accordingly the accused were produced before the Special Court, Gurugram, who thereafter remanded them to custody first till 18.12.2018 and later till 21.12.2018. The Special Court, Gurugram would be competent to deal with the matter in terms of Section 436. Learned counsel for the writ petitioners, however, contend that since the accused were arrested in Delhi, were kept in custody in Delhi, and the SFIO office being in Delhi, the High Court of Delhi was competent to entertain and consider the writ petitions so preferred by the writ petitioners. Reliance was placed by them on the decision of this Court in Navinchandra N. Majithia v. State of Maharashtra and others (2000) 7 SCC 640. 22. In Navinchandra Majithia (2000) 7 SCC 640, all the transactions between the parties had occurred within the jurisdiction of the High Court of Bombay. However, a complaint was filed against the petitioner at Shillong pursuant to which investigation was taken up by Shillong Police. It was submitted that such investigation was wholly incorrect and unjustified and a writ petition was preferred in the High Court of Bombay seeking quashing of the complaint so filed at Shillong or in the alte....
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.... of the alleged crime asseverated in the complaint had taken place in Mumbai and especially because the fundamental grievance was the falsity of the complaint filed in Shillong, the writ jurisdiction of the Bombay High Court was unquestionably available. The infusion of the concept of "cause of action" into the criminal dispensation has led to subsequent confusion countenanced in High Courts. It seems to us that K. Bhaskaran v. Sankaran Vaidhyan Balan and another (1999) 7 SCC 510 : 1999 SCC (Cri) 1284, , allows multiple venues to the complainant which runs counter to this Court's preference for simplifying the law. Courts are enjoined to interpret the law so as to eradicate ambiguity or nebulousness, and to ensure that legal proceedings are not used as a device for harassment, even of an apparent transgressor of the law. Law's endeavour is to bring the culprit to book and to provide succour for the aggrieved party but not to harass the former through vexatious proceedings. Therefore, precision and exactitude are necessary especially where the location of a litigation is concerned." 24. It is true that the decision in Dashrath Rupsingh Radhod 15 was in the context of a criminal c....
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....rket; (vi) information technology; (vii)law; or (viii) such other fields as may be prescribed. (3) The Central Government shall, by notification, appoint a Director in the Serious Fraud Investigation Office, who shall be an officer not below the rank of a Joint Secretary to the Government of India having knowledge and experience in dealing with matters relating to corporate affairs. (4) The Central Government may appoint such experts and other officers and employees in the Serious Fraud Investigation Office as it considers necessary for the efficient discharge of its functions under this Act. (5) The terms and conditions of service of Director, expert, and other officers and employees of the Serious Fraud Investigation Office shall be such as may be prescribed. 212. Investigation into affairs of Company by Serious Fraud Investigation Office. - (1)Without prejudice to the provisions of section 210, where the Central Government is of the opinion, that it is necessary to investigate into the affairs of a company by the Serious Fraud Investigation Office - (a) on receipt of a report of the Registrar or inspector under secti....
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....ction (1) of section 251, sub-section (3) of section 339 and section 448 which attract the punishment for fraud provided in section 447". [offence covered under section 447] of this Act shall be recognizable and no person accused of any offence under those sections shall be released on bail or on his own bond unless- (i) the Public Prosecutor has been given an opportunity to oppose the application for such release; and (ii) where the Public Prosecutor opposes the application, the court is satisfied that there are reasonable grounds for believing that he is not guilty of such offence and that he is not likely to commit any offence while on bail: Provided that a person, who, is under the age of sixteen years or is a woman or is sick or infirm, may be released on bail, if the Special Court so directs: Provided further that the Special Court shall not take cognizance of any offence referred to this sub-section except upon a complaint in writing made by - (i) The Director, Serious Fraud Investigation Office; or (ii) Any officer of the Central Government authorised, by a general or special order in writing in this behalf by that Gover....
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....inst the company and its officers or employees, who are or have been in employment of the company or any other person directly or indirectly connected with the affairs of the company. (15) Notwithstanding anything contained in this Act or in any other law for the time being in force, the investigation report filed with the Special Court for framing of charges shall be deemed to be a report filed by a police officer under section 173 of the Code of Criminal Procedure, 1973 (2 of 1974). (16) Notwithstanding anything contained in this Act, any investigation or other action taken or intimated by Serious Fraud Investigation Office under the provisions of the Companies Act, 1956 (1 of 1956) shall continue to be proceeded with under the Act as if this Act had not been passed. (17) (a) In case Serious Fraud Investigation Office has been investigating any offence under this Act, any other investigating agency, State Government, police authority, income-tax authorities having any information or documents in respect of such offence shall provide all such information or documents available with it to the Serious Fraud Investigation Office; (b) The Serious Fr....
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...., on receipt of a report of the Registrar or any other investigating or regulatory agency, there are sufficient reasons that the affairs of the limited liability partnership ought to be investigated." 26. Reading of the provisions of 2013 Act shows that certain Sections in Chapter XXIX prescribe punishment for offences such as fraud, false statement, false evidence and withholding of property under Sections 447, 448, 449 and 452 respectively. The punishment for fraud involving an amount of at least Rs. 10 lakhs or 1 per cent of the turnover of the Company, is imprisonment for a term which may extend to 10 years. The offence of fraud in relation to the affairs of a Company is considered to be a grave offence and the writ petitioners were allegedly guilty of such offence. Chapter XIV of 2013 Act deals with Inspection, Inquiry and Investigation. Under Section 210, investigation into the affairs of a Company can be undertaken. Section 211 contemplates establishment of Serious Fraud Investigation Offence (SFIO) which is to be headed by a Director and is to consist of Experts with ability, integrity and experience in fields like Banking, Corporate Affairs, Taxation, Forensic Audit, Ca....
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....consider whether the period within which a report is contemplated to be submitted to the Central Government under sub-Section (3) is mandatory and what is the scope and extent of such stipulation. It must also be stated here that the provisions of Section 43(2) of 2008 Act do not postulate any such period and the assignment in the present case to SFIO was under the concerned provisions of 2013 Act as well as under 2008 Act. 28. Section 212(3) of 2013 Act by itself does not lay down any fixed period within which the report has to be submitted. Even under sub-Section (12) which is regarding "investigation report", again there is no stipulation of any period. In fact such a report under sub-Section (12) is to be submitted "on completion of the investigation". There is no stipulation of any fixed period for completion of investigation which is consistent with normal principles under the general law. For instance, there is no fixed period within which the investigation under Criminal Procedure Code must be completed. If the investigation proceeds for a longer period, under Section 167 of the Code certain rights may flow in favour of the Accused. But it is certainly not the idea that ....
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....estigation was handed over to CBI, could not be recalled or rescinded by the State Government and it is the CBI which would be competent to complete investigation. ). If that be so, can such power stand curtailed or diminished if the investigation is not completed within a particular period. The Statute has not prescribed any period for completion of investigation. The prescription in the instant case came in the order of 20.06.2018. Whether such prescription in the Order could be taken as curtailing the powers of SFIO is the issue. 30. It is well settled that while laying down a particular procedure if no negative or adverse consequences are contemplated for non-adherence to such procedure, the relevant provision is normally not taken to be mandatory and is considered to be purely directory. Furthermore, the provision has to be seen in the context in which it occurs in the Statute. There are three basic features which are present in this matter:- 1. Absolute transfer of investigation in terms of Section 212(2) of 2013 Act in favour of SFIO and upon such transfer all documents and records are required to be transferred to SFIO by every other Investigating Agency. ....
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....tely erred in proceeding on that premise and in passing the order under appeal. 31. These appeals therefore deserve to be allowed and the Order under appeal must be set aside. Since the writ petitioners were directed to be released on bail, by way of interim relief, we direct as under:- (a) The Order dated 20.12.2018 passed by the High Court in W.P. (Crl.) No.3842 of 2018 and in W.P. (Crl.) No.3843 of 2018 is set aside. (b) The writ petitioners namely Rahul Modi and Mukesh Modi are directed to surrender and remain present on 01.04.2019 at 11.00 a.m. before the Special Court, Gurugram. The Special Court may then consider the matter on merits and whether the accused are required to be remanded to custody. (c) In case, said writ petitioners do not appear on the day and at the time stipulated above, the personal bonds executed by them and the surety bonds shall stand forfeited and the appellant shall be at liberty to arrest said writ petitioners. (d) The writ petitioners shall file affidavits of compliance in this Court by 08.04.2019. 32. Transfer Petition (Crl.) No.35 of 2019 was filed by Serious Fraud Investigation Office (SFIO) and Deputy Director, SFIO (Original R....