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2026 (4) TMI 1679
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....ar B. Dighe, Mr. Kartik Garg, Mr. Adarsh Vyas, Mr. Pradeep Yadav and Ms. Rama Gupta in all Writ Petitions. JUDGMENT:- (PER BHARATI DANGRE, J) 1. The five Writ Petitions before us revolve around the investigation directed by the Ministry of Corporate Affairs, and since all the Writ Petitions before us raise challenge to the order dated 7/1/2019, passed in exercise of power conferred under Section 212(1)(a) of the Companies Act, 2013 as the Central Government expressed an opinion that the affairs of the mentioned companies need to be investigated and directed investigation into the affairs of (i) Birla Cotsyn Limited, (ii) Birla Shloka Edutech Limited, and (iii) Zenith Birla Limited, to be carried out by the Serious Fraud Investigation Office (SFIO), as may be designated by its Director. The order directed the Inspectors to complete the investigation by exercising the powers available under the Companies Act 2013 and submit a report to the Central Government within a period of three months from the date of issuance of the order. 2. To begin with, we would refer to the petitioners in the five petitions. Writ Petition No. 3447/2022 is filed by Zenith Steel and Pipe Indus....
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....ated as an undertaking given to the Court. Writ Petition No. 4940/2022 is admitted by order dated 22/1/2026. 4. The impugned order served upon all the petitioners reads thus:- ORDER "Whereas the Central Government is empowered under section 212 of the Companies Act, 2013 (the Act) to order investigation into the affairs of any company upon receipt of a report from Registrar of Companies u/s 208 of the Act and to appoint one or more competent persons as inspectors to investigate the affairs of the company. 2. AND whereas RoC, Mumbai, vide his report dated 27th September, 2018, submitted to the Central Government under section 208 of the Companies Act,2013 has recommended investigation into the affairs of the companies namely Birla Cotsyn Limited, Birla Shloka Edutech Limited and Zenith Birla Limited. 3. Now, therefore, in exercise of powers conferred under Section 212 (1)(a) of the Act, the Central Government has formed an opinion that the affairs of the above referred companies need to be Investigated and hereby orders investigation into the affairs of 1.Birla Cotsyn Limited, 2 Birla Shloka Edutech Limited and 3. Zenith Birla Limited, to be....
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.... the affairs of the Company by SFIO, would submit that the Chapter consists of a Scheme involving various provisions, and it is only in the set out circumstances, the Central Government may order investigation into the affairs of the Company by the SFIO. According to him, it is only in the contingencies provided, it is permissible for the Central Government to investigate into the affairs of the Company and one of the contingency prescribed is, on receipt of the report of the Registrar or Inspector u/s. 208 or in public interest. According to Mr. Chinoy, the report referred to in Section 208 is the report of the Registrar or Inspector who, after inspection of the books of accounts or conduct of an enquiry under section 206 and the other books and papers of the Company u/s. 207, submit it in writing to the Central Government along with such documents, if any, and it may include a further recommendation that further investigation into the affairs of the Company is necessary. According to Mr. Chinoy, Section 208 inspection report, make a reference to Sections 206 and 207 of the Companies Act 2013 and according to him, Section 206 is the power of the Registrar to call for informa....
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....stent default by the Companies, amongst which two Companies (Birla Power and Zenith Birla), were subject to inspection in the past and reports were submitted, whereas the rest other two have been under enquiry by the RoC Mumbai, for long time, but the reports were awaited. The report, according to Mr. Chinoy therefore, refer to four companies, (a) Birla Power Solutions Ltd, (presently, under liquidation) (b) Birla Cotsyn India Ltd (c) Birla Shloka Edutech Limited and (d) Zenith Birla India Ltd. According to him, the report with regards to Zenith Birla refer to 636 complaints and it make reference to the inspection conducted way back in 2012. The report express that the Company should be taken out of watch-list and fresh inspection u/s. 206(5) may be considered, as inspection was conducted way back and the Company has started drifting/defaulting in repayment from 2014 onwards. It is therefore specifically observed in the report that the inspection was conducted covering a period when there were no defaults on repayment. However, since the default in payment of deposits was notified for more than one year, the necessary action is contemplated....
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....tingencies and Mr. Chinoy's emphasis is upon contingency (a) and (c), when an investigation can be ordered into its affairs. However, with reference to Section 211, it is his submission that the Central Government is empowered to order an investigation into the affairs of the Company by SFIO, once again on receipt of the report of the Registrar or Inspector u/s. 208 or on an intimation of Special Resolution passed by the Company that it's affairs are to be investigated or in public interest or on request by any Department of Central Government or State Government. With regard to the establishment of SFIO u/s. 211, according to Mr. Chinoy, its establishment is for investigating frauds relating to the Company, but in absence of any fraud, the SFIO shall not exercise it's jurisdiction, and 'fraud' has a definite connotation, which necessarily involve an intention, and merely because there is default in payment of the amount or interest, would not warrant investigation by SFIO. Mr. Chinoy would rely upon the decision of the Division Bench of this Court in case of Parmeshwar Das Agarwal Vs. Additional Director (Investigation) Serious Fraud Investigation Office & Ors 2016 SCC Onlin....
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....4/9/2022 from the Inspector, SFIO, as the Central Government had assigned the investigation of the affairs of Birla Cotsyn Limited, along with 2 other companies, to the SFIO. Inviting our attention to the report dated 27/9/2018 with reference to Birla Cotsyn, Mr. Kadam would submit that the report make reference to 125 complaints registered against the Company since 2013, the complaints pertaining to default in repayment of principal and interest. Surprisingly, according to Mr. Kadam, the report make reference to the CLB orders for rescheduling the payment of deposits, but this is not based on any enquiry, but the Registrar has picked up various orders from the website, to arrive at a conclusion that the Company has not repaid the depositors in compliance with the order passed by the CLB. Based on the admitted default which was persisting for more than one year, and since the Directors of the Company were disqualified u/s.164(2)(b) of the Act, the report categorically record thus:- "The RoC, Mumbai was asked to conduct an inquiry in case of Birla Cotsyn, but the detail inquiry has not yet been completed. However, this report on deposit related activities, and default is....
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....h the nexus to the circumstances and material before it, and no such nexus is prima facie evident from the impugned order read with the Registrar's report. 13. Opposing the submissions advanced on behalf of the petitioners, Mr. Anil Singh, has attempted to justify the impugned order, and by way of preliminary objection, he would submit that the Company i.e. Birla Cotsyn limited (presently in liquidation) has not challenged the order passed by the Central Government directing investigation into the affairs of the Company, but, it is the Chief Financial Officer and three other individuals in their individual capacity who have approached this Court, upon they being summoned in relation to the investigation into the affairs of the Company. He therefore has raised serious objection about the petitioners Mr. Satya Madhur, Vipin Dilip Kumar Varkhawat and Yashovardhan Birla in approaching this Court when the Company has not challenged the order dated 7/1/2019. Apart from this, he would submit that out of three companies against whom the investigation is directed, only Zenith Steel Pipes and Industries has chosen to file a Writ Petition, whereas the other two Companies, Birla Cotsyn ....
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....aharshtra (2003) 2 SCC 649, Mr. Singh has submitted that quashing of the summons at this stage, would impinge upon the investigating powers of the SFIO, as the Courts are not expected to a charter the course of action upon the Investigating Agency, as it is the sole prerogative of the Investigating Officer when he is investigating a crime. Submitting that economic offences constitute a class by themselves being crime against Society based on deep rooted conspiracy, Mr. Singh would would invoke the principle laid down in Y.S. Jagan Mohan Reddy Vs. CBI (2013) 7 SCC 439, where it is held that economic offences constitute a class apart and need to be visited with different approach, as they involve deep rooted conspiracies and huge loss of public funds need to be viewed seriously. And it is to be considered as grave offence affecting the economy of the country as the whole, posing serious threat to the financial health of the country. It is also the submission of Mr. Singh, that the investigation ought not to be thwarted at the initial stage, as it is the prerogative of the Investigating Officer to arrive at truth by conducting a fair, unbiased, and proper investigation. It is....
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....fairs ordered SFIO to investigate into its affairs by order dated 14/10/2016, and upon the investigation being conducted, the report was submitted to MCA on 28/1/2022. The SFIO therefore, initiated prosecution, and the Special Court took cognizance. According to Mr. Singh, the report dated 27/9/2018 by the Registrar came at a time when SFIO was already investigating into the affairs of BPSL. He would submit that the report dated 27/9/2018 has specifically made out a case against each company, and this report, according to him, has to be considered along with the material in form of (i) action taken by the Official Liquidator, Mumbai against BPSL (ii) Review Report submitted by RoC and (iii) orders passed by CLT/NCLT. Mr. Singh would specifically submit that perusal of the report would reveal persistent default in repayment of public deposit and interest thereon since 2013 and this was common for all the companies of Yash Birla Group, who were found to be engaged in persistent default resulting into large number of complaints being filed. The CLB/NCLT had passed orders from time to time, granting time to clear the default, but there was no complia....
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....e 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 the 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. 2. For completion of investigation, sub-section (12) of Section 212 does not contemplate any period. 3. Under sub-section (1) of Section 212 there could be interim reports as and when directed." In the wake of the aforesaid submission, Mr. Singh sincerely urged that the petitions filed by the petitioners, being without any merit and substance are liable to be dismissed, as invocation of the jurisdiction of this Court by the petitioners is nothing but abuse of process of law and they should be dealt with by stern hand. 16. In light of the counter s....
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....n the Company to furnish any information or explanation, if there is failure to do so, the Company and every Officer who is in default is liable for punishment as prescribed in sub-section (7). 17. Section 207 in the Scheme of the Chapter, pertain to conduct of inspection and enquiry and when the Registrar had called for the books of accounts and other papers, under Section 206 and since a corresponding obligation is cast upon the Director/Officer or other employee of the Company to furnish such documents, and furnish such statement/ information or explanation, as required, they are expected to render all assistance to the Registrar or Inspector in connection with such inspection. The Registrar or Inspector making an inspection or enquiry is vested with the powers of the Code of Civil Procedure, as set out in sub-section (3) of Section 207. The most pertinent section in the Scheme is Section 208 which reads thus :- "208. Report on inspection made The Registrar or inspector shall, after the inspection of the books of account or an inquiry under section 206 and other books and papers of the company under section 207, submit a report in writing to the Central G....
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....tion Office is headed by Director and consists such number of experts from various fields to be appointed by the Central Government and this include the Officers from the field of Banking, Corporate affairs/taxation, forensic audit, capital market, information technology, law or such other fields as may be prescribed. 21. Section 212 is a specific provision which relate to Investigation into affairs of the Company by SFIO and this provision exist, without prejudice to the provision of Section 210 and as it prescribe that where the Central Government is of the opinion that it is necessary to investigate into the affairs of the Company by SFIO in the contingencies set out therein:- (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, then, the Central Government may by order, assign the investigation to SFIO and its Directors and such Inspectors may be designated for carrying out such investigatio....
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....nd such report may include a recommendation that further investigation into the affairs of the Company is necessary. 24. The report u/s.208 necessarily is preceded by the Inspection of the books of accounts u/s.206 and other books and paper of the Company u/s.207, when the Registrar deemed it appropriate to carry an enquiry. What is urged before us is the absence of the conduct of such an enquiry by the Registrar or collation of such information by him by affording an opportunity to the Company or those who are in helm of the affairs of the Company. Under Section 206, when on scrutiny of the document filed by any Company or information received, the Registrar deem it necessary to obtain further explanation, he may issue a notice and upon receipt of such notice, the Company and its Officers are duty bound to furnish such information or explanation to the best of their knowledge and power. However, if no such information is furnished, Registrar himself, on examination of the documents with him, or documents furnished to him, must scrutinize the same and arrive at a conclusion recording about the unsatisfactory state of affairs existing in the Company and that the Company had....
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....ing in repayment of deposits, but the Registrar of Companies clearly express that the Company should be taken out of the watch list and fresh inspection under section 206(5) shall be carried as the earlier inspection was conducted, covering a period when there are no defaults on account of the repayment of deposits. Surprisingly, the report relied upon certain orders of CLB from the website, to conclude that there is a default on part of the Company. 26. One of the pertinent basis of the Report highlighted in paragraph no. 14, is SFIO is already conducting investigation into the affairs of Birla Power Solutions Limited, and therefore it is proposed that the other Yash Birla group of Companies, i.e. that is Birla Cotsyn Limited, Birla Shloka Edutech Limited and Zenith Birla Limited, shall also be assigned for investigation to SFIO on account of default of repayment of deposits. 27. It is also pertinent to note that the assignment of investigation to SFIO is for investigation into frauds relating to a Company and the power of the SFIO to investigate, is conferred without prejudice to the provision contained in Section 210, where the investigation into the affairs of the Comp....
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....f a company or any body corporate, includes any act, omission, concealment of any fact or abuse of position committed by any person or any other person with the connivance in any manner, with intent to deceive, to gain undue advantage from, or to injure the interests of, the company or its shareholders or its creditors or any other person, whether or not there is any wrongful gain or wrongful loss; (ii) "wrongful gain" means the gain by unlawful means of property to which the person gaining is not legally entitled; (iii) "wrongful loss" means the loss by unlawful means of property to which the person losing is legally entitled. 28. Reading the aforesaid provision would make it evidently clear that 'fraud' is something more than a default and in relation to affairs of a company, it would include any act omission, concealment or any fact or abuse of position committed by any person with connivance in any manner, with intent to deceive, to gain undue advantage from, or to affect the interest of the company, its shareholders, or its creditors or any other person. Fraud necessarily involve a mental element, mens rea, and an act which amounts to fraud is punishable b....
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....tors to furnish information or explanation, nor had the Registrar issued any order u/s. 206(4) of the Company informing it of the allegations and calling an explanation or information. In fact, the report dated 27/9/2018 purported to be prepared u/s.208, is not based on any inspection or enquiry conducted u/s.206. In fact, in the Report, it is categorically mentioned that the last inspection was conducted in 2012 and the Company started defaulting in making the payment since 2014 and in fact, the Registrar of Companies itself has recommended a fresh inspection u/s.206. The report clearly record that the default has surfaced in the wake of the orders passed by CLB for repayment of deposits and these notices are picked up from the website. Hence, we are of the view that the report dated 27/9/2018 purported to be made by the Registrar u/s.208 is ex-facie illegal, as it failed to conform to the requirements and stipulations in the scheme of the Companies Act, 2013. The order dated 7/1/2019 based upon the said report, also therefore, cannot sustain and deserve to be quashed and set aside along with the summons/notices issued to the petitioners, being Directors of the Birla Cotsyn ....