TaxTMI 
TaxTMI 
2023 (12) TMI 1019
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....d & Others' and all consequent proceedings emanating therefrom. ii. Quash/set aside sanction letter dated 19.05.2022, i.e., F.No. LEGAL 35/15/2022 issued by respondent no. 1/Ministry of Corporate Affairs granting sanction to the Serious Fraud Investigation Office for initiating Prosecution. iii. Quash the complaint dated 19.05.2022 filed by the Serious Fraud Investigation Office before the Court of the learned Additional Sessions Judge - 03 and Special Judge (Companies Act), Dwarka District Courts, Delhi. iv. Set aside summoning order dated 20.09.2022 passed by the learned Special Judge in CC No. 374/2022 titled 'SFIO v. Bhushan Airways Services Private Limited and Others'. v. Restrain the Serious Fraud Investigation Office from carrying out any further investigation into the affairs of Bhushan Power and Steel Ltd. ('BPSL') and Others under order F.No. 5/5/2016-CL-II dated 03.05.2016 issued by the Ministry of Corporate Affairs. Background 2. Briefly stated, the facts of the present case, necessary for adjudication of the present petition, are as under: i. Respondent no. 1/Ministry of Corporate Affairs ('MCA'), in exercise of powers....
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....Submissions on behalf of the Petitioners No Jurisdiction or Legal Sanction/Authority with the SFIO to Investigate Petitioners No. 1 and 2 3. Learned Senior Counsel for the petitioners submitted that as far as petitioners no. 1 and 2 are concerned, the SFIO has no authority to carry out an investigation qua them, either in terms of Section 212(1) or Section 219 of the Act. The said provisions provide as under: "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 section 208; (b) on intimation of a special resolution passed by a company that its affairs are required to be investigated; (c) in the public interest; or (d) on request from any Department of the Central Government or a State Government, the Central Government may, by order, assign the investigation into the affairs of the said company to the Serious Fraud Investigation O....
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....to investigate them. 3.2. It was submitted that the specific use of the words 'prior approval' in Section 219 of the Act indicates that the legislature intended to incorporate a safeguard in order to protect the rights of a person/company and ensure that no investigation is carried out without following the procedure provided for in the said Act. 3.3. Learned Senior Counsel submitted that Section 212(14) of the Act provides for prosecution of a company, its officers or any other persons. It was submitted that to initiate investigation against a company/body corporate, approval is required under Section 212(1), 219(a), 219(b) or 219(c) of the Act, as the case may be and to initiate investigation against an officer of a company or a person, approval under Section 219(d) of the said Act is required. Apart from the aforesaid, there is no other provision in the Act which authorizes an investigation to be carried out by the SFIO and therefore, in absence of such authority in terms of any of the aforesaid provision, the SFIO could not have investigated petitioners no. 1 and 2. Powers of the SFIO are Restricted to Investigate Offences Under the Companies Act Only 4. Learned Sen....
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....nder the Act and is further bound to share all the information gathered by it with the SFIO. It is further clear that the SFIO is duty bound to mandatorily share the information and material it has in respect of offences under any other law with such investigating agency or police authority etc. that is investigating/examining the said offence under any other law. 4.4. It was submitted that a conjoint reading of the aforesaid provisions, thus, makes it clear that the SFIO has the authority to investigate offences under the Act only and in the present case, the SFIO overreached its authority inasmuch as it has carried out an investigation in relation to petitioners no. 1 and 3 qua offences under the IPC as well. In support of the said contention, reliance was placed on Manish Rangari and Others v. Union of India and Anr., 2020 SCC OnLine Bom 3226 and Ashim Maitra and Ors. v. State of West Bengal and Ors., 2008 (3) CHN 143. 4.5. Learned Senior Counsel for the petitioners further submitted that the Act does not expressly provide that the SFIO is empowered to carry out an investigation in relation to offences under the IPC and what has not been expressly provided in a statute can....
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.... vi. Opto Circuit India Ltd. v. Axis Band & Ors., (2021) 6 SCC 707 - Para 14. vii. Nazir Ahmad v. King Emperor, (1936) 38 BOMLR 987. viii. Sunny Abraham v. Union of India, 2021 SCC OnLine SC 1284 - Para 13. ix. Chandra Kishore Jha v. Mahavir Prasad, AIR 1999 SC 3558 - Para 17. x. Institute of Chartered Accountants of India v. L.K. Ratna, (1986) 4 SCC 537 - Paras 2 and 11. xi. State of Punjab and Anr. v. Gurdial Singh and Ors., (1980) 2 SCC 471 - Para 9. xii. Badrinath v. State of Tamil Nadu and Ors., AIR 2000 SC 3243 - Para 27. xiii. State of Kerala v. Puthenkavu N.N.S. Karayogam and Anr., (2001) 10 SCC 191 - Para 9. xiv. C. Albert Morris v. K. Chandrasekaran and Ors., (2006) 1 SCC 228 - Para 42. xv. Upen Chandra Gogoi v. State of Assam and Ors., (1998) 3 SCC 381 - Para 6. xvi. State of Punjab v. Davinder Pal Singh Bhullar, AIR 2012 SC 364 - Para 107. xvii. Yusofalli Mulla v. King Emperor, AIR 1949 PC 264 - Para 14. xviii. Manish Rangari and Others v. Union of India and Anr., 2020 SCC OnLine Bom 3226 - Para 7. xix. State of Punjab v. Baldev Singh, (1999) 6 SCC 172 ....
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....bmitted that first and foremost, it must be noted that Sections 212 and 219 of the Act operate in different fields. It was submitted that Section 212 of the Act enables an investigation into the affairs of a company which can lead to the submission of an Investigation Report under Section 212(12) of the said Act and/or prosecution under Section 212(14). Therefore, the inference that can be drawn is that approval under Section 212(1) of the Act is mandatory to commence an investigation into the affairs of a company. It was submitted that Section 219 enables the SFIO to carry out an investigation into the affairs of any other body corporate (linked to a company qua which proceedings have been initiated in terms of Section 212 of the Act), managing director, manager or employee when it is found that such investigation is necessary for the purposes of the investigation into a company in terms of Section 212 of the Act. It was submitted that therefore, Section 219 of the Act is an ancillary provision and required to be invoked only when an investigation is required to be conducted into a company/individual different from one for which approval has been given in terms of Section 212 of t....
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....tors. In turn, the entry operators transferred the money received from BPSL into entities owned and controlled by Sh. Sanjay Singhal, as 'share application money' or 'share premium'. The money received by these entities was then used for various purposes. One such purpose was infusion of funds back into BPSL as 'promoter equity'. Silver Star Commercial Company Pvt. Ltd./petitioner no. 2 was not found to be a regular recipient and was not found to have been used to infuse funds siphoned from BPSL back into BPSL as 'Promoter equity'. iv. Only one instance of a transaction amounting to Rs. 10 Crores was found involving Silver Star Commercial Company Pvt. Ltd./petitioner no. 2. In 2015-16, monies siphoned from BPSL were transferred to Silver Star Commercial Company Pvt. Ltd./petitioner no. 2 as an unsecured loan from the entry operators and the same was then transferred onwards to another entity controlled and managed by Sh. Sanjay Singhal. Moreover, the money received by Silver Star Commercial Company Pvt. Ltd./petitioner no. 2 was simply forwarded to the aforesaid entity. No instance was found of the said money being infused back into the 'promoter equity' of BPSL. ....
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....accommodation entries for the same and transferred those funds to entities controlled and managed by Sh. Sanjay Singhal. • One such entity which received funds from entry operators in the aforesaid manner was Decor Investment and Finance Ltd. Funds were received by Decor Investment and Finance Ltd. consistently between 2011-2012, 2012-2013 and 20132014 and recorded as infusion of share capital or as share premium. • These funds were then infused into BPSL as promoter contribution. • Silver Star Commercial Company Pvt. Ltd. received INR 10 Crores as an unsecured loan from various entry operators in FY 2015-2016. These entry operators had, in turn, received monies from BPSL (which were then accounted for as "Advances to Suppliers" and "Capital Advances"). • While the initial purpose of the unsecured loan of INR 10 Crores was for purchase of property, it appears that the amount of INR 10 Crores was transferred onward to BSN Enterprises and an unsecured loan. 6. Involvement in Fraud • Used as a vehicle to facilitate the round tripping of funds from BPSL. • Fun....
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....as drawn to Sections 212(2) and 436(2) of the Companies Act, which provide as under: "212. Investigation into affairs of Company by Serious Fraud Investigation Office.- *** *** *** (2) Where any case has been assigned by the Central Government to the Serious Fraud Investigation Office for investigation under this Act, no other investigating agency of Central Government or any State Government shall proceed with investigation in such case in respect of any offence under this Act and in case any such investigation has already been initiated, it shall not be proceeded further with and the concerned agency shall transfer the relevant documents and records in respect of such offences under this Act to Serious Fraud Investigation Office." "436. Offences triable by Special Courts.- *** *** *** (2) When trying an offence under this Act, a Special Court may also try an offence other than an offence under this Act with which the accused may, under the Code of Criminal Procedure, 1973 (2 of 1974) be charged at the same trial." 8.1. Learned Senior Panel Counsel submitted that the aforesaid provisions are to be constructed harmoniously, i....
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....ll the contentions raised by the learned (senior) counsels for the parties coupled with the documents on record, in the considered opinion of this Court, the impugned FIR is liable to be quashed and transferred to the SFIO as the proceedings thereunder are not maintainable in the eyes of law." 8.3. In support of the aforesaid contention, learned Senior Panel Counsel for the SFIO further placed reliance on a judgment dated 31.08.2021 passed by a learned Single Judge of the Hon'ble High Court of Judicature at Madras in CRL.OP. 3730/21 titled 'Ravi Parthasarathy and Others v. State and Another' (Paras 62, 65, 74, 75 and 112). Reliance was further placed on Serious Fraud Investigation Office v. Rahul Modi and Anr. Etc., 2019 INSC 408 (Para 29). Rejoinder on behalf of the Petitioners 9. Learned Senior Counsel for the petitioners submitted that Section 219(d) of the Act provides for a requirement of approval in relation to 'any person', which will include any person related to a company for which prior approval has been given under Section 212 of the Act and therefore, in order to investigate R.K. Gupta/petitioner no. 1, approval was required. 10. Learned Senior Counsel submi....
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....t of Punjab and Haryana in Raj Kumar Modi v. Serious Fraud Investigation Office, 2019:PHC:133009, and the same was rejected. 14. Attention of this Court was drawn to Section 212(13) of the Act, according to which on directions of the Central Government, SFIO can prosecute a company and its officer or employees or any other person 'directly or indirectly connected with the affairs of the company'. It was pointed out that there is no stipulation for requirement of a prior approval under Section 212(1) or Section 219 of the Act for investigation with respect to any other person 'directly or indirectly connected with the affairs of the company'. 15. So far as petitioner no. 2 is concerned, learned Senior Panel Counsel submitted that prior approval under Section 219 of the Act is only required with regard to affairs of the company. It was submitted that investigation by SFIO is 'affairs centric'. It was submitted that in the facts and circumstances of the present case, SFIO took a conscious decision not to investigate into the affairs of petitioner no. 2. It was submitted that since the affairs of petitioner no. 2 were not investigated, there was no requirement for approval under ....
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.... but is only permissible inference in the absence of an indication to the contrary...." In the present case, it is reasonable to construe the aforesaid clauses (a), (b) and (c) of Section 219 of the Act as constituting a distinct category or class, i.e., 'related companies'. The language and the object behind the aforesaid clauses is with respect to investigation of affairs of a company other than the company for which investigation has been ordered under Section 212 of the Act. In that context, clause (d) of Section 219 of the Act will apply to a 'Managing Director' or 'Manager' or 'Employee' of the company referred to in clauses (a), (b) and (c) of the said Section. 18. If the argument of the learned Senior Counsel for the petitioners is accepted to the extent that Section 219(d) of the Act would apply to the Managing Director, Manager or employee of the company, for whom approval has been given under Section 212 of the Act, then in case if the inspector, if after approval being given with regard to investigation of the 'related' companies mentioned under Section 219(a), (b) or (c), comes across role of Managing Director, Manager or employee of the said 'related' companies,....
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.... Kolkata and Delhi. The funds siphoned off from BPSL were used to purchase immovable property from BPSL at Flat No. 109 to 112 at International Trade Tower, Nehru Place, New Delhi by Shree Ankleshwar Commercial Company Pvt Ltd. The directors of Shree Ankleshwar are/were employee of BPSL/Sanjay Singal. This company is found to be managed and controlled by Sanjay Singal which he has also admitted on oath. Similarly, Silver Star Commercial Company Pvt. Ltd. is also managed and controlled by San jay Singal. From the examination of balance sheet as on 31.03.2017 (Note-17.12), the company has taken unsecured loan from Corporate bodies for purchase of immovable property and the payment was made as advance directly to third party on its behalf. The company has shown receipt of loan of Rs. 10 crore during F.Y. 2015-16, details of which are as under: Name of the party Loan Taken by Silver-Star Commercial (amt in crore) Bhima Agencies Pvt. Ltd. 0.20 K.G. Finvest Pvt. Ltd. 1.00 Rootstar Merchandise Pvt. Ltd. 3.00 Sarvottam Securities Pvt. Ltd. 4.00 Wincliff Technologies Pvt. Ltd. 0.80 Jagdhara Dealcom Pvt. Ltd. 1.00 Total 10.00 ....
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....IR 1950 PC 26] These no doubt relate to the illegality of arrest in the course of investigation while we are concerned in the present cases with the illegality with reference to the machinery for the collection of the evidence. This distinction may have a bearing on the question of prejudice or miscarriage of justice, but both the cases clearly show that invalidity of the investigation has no relation to the competence of the Court. We are, therefore, clearly, also, of the opinion that where the cognizance of the case has in fact been taken and the case has proceeded to termination, the invalidity of the precedent investigation does not vitiate the result, unless miscarriage of justice has been caused thereby." It could thus be seen that this Court has held that the cognizance and the trial cannot be set aside unless the illegality in the investigation can be shown to have brought about miscarriage of justice. It has been held that the illegality may have a bearing on the question of prejudice or miscarriage of justice but the invalidity of the investigation has no relation to the competence of the court. 23. It will also be apposite to note the following....
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....assed, took place in a wrong Sessions Division, district, sub-division or other local area, unless it appears that such error has in fact occasioned a failure of justice.' This provision even saves a decision if the trial has taken place in a wrong Sessions Division or sub-division or a district or other local area and such an error could only be of some consequence if it results in failure of justice, otherwise no finding or sentence could be set aside only on the basis of such an error." 24. This Court in Union of India v. Prakash P. Hinduja [Union of India v. Prakash P. Hinduja, (2003) 6 SCC 195 : 2003 SCC (Cri) 1314], while relying on the judgment of this Court in H.N. Rishbud [H.N. Rishbud v. State of Delhi, (1955) 1 SCR 1150 : AIR 1955 SC 196 : 1955 Cri LJ 526] , has observed thus : (Prakash P. Hinduja case [Union of India v. Prakash P. Hinduja, (2003) 6 SCC 195 : 2003 SCC (Cri) 1314] , SCC p. 210, para 21) "21. ... The Court after referring to Parbhu v. King Emperor [Parbhu v. King Emperor, 1944 SCC OnLine PC 1 : (1943-44) 71 IA 75 : AIR 1944 PC 73] and Lumbhardar Zutshi v. R. [Lumbhardar Zutshi v. R., 1949 SCC OnLine PC 64 : (1949-50) 77 IA 62 : A....
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.... which provide as under: "4. Trial of offences under the Indian Penal Code and other laws.- (1) All offences under the Indian Penal Code (45 of 1860) shall be investigated, inquired into, tried, and otherwise dealt with according to the provisions hereinafter contained. (2) All offences under any other law shall be investigated, inquired into, tried, and otherwise dealt with according to the same provisions, but subject to any enactment for the time being in force regulating the manner of place of investigating, inquiring into, trying or otherwise dealing with such offences." "154. Information in cognizable cases.-(1) Every information relating to the commission of a cognizable offence, if given orally to an officer in charge of a police station, shall be reduced to writing by him or under his direction, and be read over to the informant; and every such information, whether given in writing or reduced to writing as aforesaid, shall be signed by the person giving it, and the substance thereof shall be entered in a book to be kept by such officer in such form as the State Government may prescribe in this behalf:..." 23. It was pointed out that petitioner....
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....t, the NSEL and others are already facing prosecution before the learned Metropolitan Magistrate, Girgaon, Mumbai on complaints filed by the Registrar of Companies. This factual position has not been disputed by the other side. That being so, the subsequent prosecution of the NSEL and others for the same underlying transactions appears to be in breach of the embargo against "double jeopardy" under Article 20(2) of the Constitution of India and Section 300 of the Cr. P.C. (d) Further, prima facie, I find merits in the submission of the learned Counsel for the applicants that once the Honourable Supreme Court, vide its Judgment dated 30/04/2019 in Civil Appeal No. 4476 of 2019 in 63 Moons Technologies Ltd. (supra) has held that there is no public interest involved in recovery of the dues of the traders who allegedly lost monies due to counter party defaults on the exchange platform of the NSEL, the entire jurisdictional basis of the SFIO investigation, which was ordered by the Central Government in the purported "public interest" vide its Order dated 28th October 2016, has ceased to exist. In view thereof, the SFIO Investigation Report dated 31st August 2018 and the subject ....
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....igating 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 Fraud Investigation Office shall share any information or documents available with it, with any investigating agency, State Government, police authority or income-tax authorities, which may be relevant or useful for such investigating agency, State Government, police authority or income-tax authorities in respect of any offence or matter being investigated or examined by it under any other law." 26. For the purpose of adjudication of the present issue, the relevant provisions of the Act as well as the CrPC have to be read harmoniously. Under Section 438 of the Act, it is provided that the CrPC shall apply to the proceedings before the learned Special Court. The said provision provides as under: "438. Application of Code to proceedings before Special Court.-Save as otherwise provided in this Act, the provisions of the Code of Criminal Procedure, 1973 (2....
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....of the Act to try offences other than those under the Act, then the power of the SFIO to investigate into such offences cannot be restricted. If during course of investigation under the present Act, the concerned Investigating Officer comes across commission of offences punishable under the IPC or any other law relating to the transactions being investigated, then the same cannot give rise to distinct proceedings. Such investigation can be carried out under Section 4(1) of the CrPC. If the report which is subsequently filed is to be treated as a police report under Section 173(2) of the CrPC, then the officer, as explained hereinabove, is to be considered to be vested with powers of an 'officer in charge of a police station'. 28. From a conjoint and harmonious reading of the aforesaid provisions of the CrPC and the present Act, it cannot be said that the SFIO is barred from investigating an offence under the IPC. Further Investigation by the SFIO 29. In line with the aforesaid observation, the contention of learned Senior Counsel for the petitioner that there can be no further investigation and supplementary chargesheet once an investigation report is filed by the SFIO is ....