2018 (12) TMI 1857 - HC - Companies Law

Serious allegations of diversion and rotation of funds of a large amount and directed the Serious Fraud Investigation Office (SFIO) to investigate the prima-facie allegations which have been referred to in the gist of the report - main contention of the learned counsel for the appellants is that the impugned order directing an investigation by the SFIO could not have been passed in the exercise of contempt jurisdiction by the learned Single Judge - HELD THAT - The facts of the present case demonstrate that the learned Single Judge judiciously exercised the power and passed the impugned order. There is prima facie stated to be sufficient material on record for passing the direction to investigate prima facie allegations which have been referred to in the gist of the report. This Court would wish to clarify here that the learned Single Judge in the impugned order has only stated that prima facie serious allegations of diversion and rotation of funds of a large amount has been disclosed and directed the SFIO to investigate the prima facie allegations which does not mean that the Court in any manner has given its verdict on the same and/or expressed any final opinion about the same. The learned Single Judge so far as the investigation is concerned has also directed that the investigation shall be conducted as per law and following the due process of law under the Act and the Rules thereunder and the SFIO shall certainly submit the report and shall suggest the future course of action after giving an opportunity of hearing to both the parties. As per Section 211 the Central Government has the power to direct the investigation by the SFIO. This is further clear from Section 212(1) which states that the investigation by the SFIO is conducted at the instance of the Central Government. The investigation is conducted where the Central Government is of the opinion that it is necessary to conduct an investigation into the affairs of the company and it also specifically enlists the cases under which such investigation can be ordered - Upon completion of the investigation by the officers of SFIO the report also has to be submitted to the Central Government. The Court has the power while dealing with the matter under the Contempt of Courts Act to order for an investigation of the matter which comes in the knowledge of the Court regarding any violation breach of law etc. and such a power stands derived from the Constitution itself hence the submission of the learned counsel for the appellants that the Court cannot pass any direction for investigation while dealing with the contempt petition is absolutely untenable in law hence the same is rejected. The impugned order passed by the learned Single Judge in view of the facts and circumstances of the case has been passed fully within the precincts of the power of the Court and the direction for investigation by the SFIO into the prima facie allegations which have been referred to in the gist of the report is just and proper - However in view of the intent of Section 211 and Section 212(1) of the Companies Act 2013 the order requires little modification and is modified to the extent that the impugned order of the Court shall be communicated to the Central Government which shall examine the same and may direct the investigation in terms of Section 211 of the Act. The Central Government shall communicate the decision taken in this regard as expeditiously as possible to the Court. Application disposed off.

Summary

Issues Involved:
1. Legitimacy of the order directing the Serious Fraud Investigation Office (SFIO) investigation.
2. Authority of the court to direct an investigation while dealing with a contempt petition.
3. Compliance with the Companies Act, 2013, specifically Sections 211 and 212.

Issue-wise Detailed Analysis:

1. Legitimacy of the Order Directing SFIO Investigation:
The appellants challenged the impugned order dated 22.09.2016 by a learned Single Judge, which directed the SFIO to investigate serious allegations of diversion and rotation of funds. The appellants argued that such an order could not have been passed in the exercise of contempt jurisdiction. They cited judgments from the Supreme Court, including V.M. Manohar Prasad vs. N. Ratnam Raju and Sudhir Vasudeva vs. M. George Ravishekaran, to support their contention.

2. Authority of the Court to Direct an Investigation While Dealing with a Contempt Petition:
The court emphasized that constitutional courts have the jurisdiction to direct investigations if it comes to their knowledge that there is a breach, violation, or crime committed by any individual or body corporate. This power is inherent in the High Court and can be exercised under Article 226 or Article 32 of the Constitution of India. The court cited several Supreme Court cases, such as Zahira Habibullah Sheikh vs. The State of Gujarat and Vinay Tyagi vs. Irshad Ali, to substantiate this authority. The court clarified that the impugned order was not an order of punishment but a communication to the SFIO to investigate prima facie allegations as per law.

3. Compliance with the Companies Act, 2013:
The appellants referred to Sections 211 and 212 of the Companies Act, 2013, which outline the establishment and functioning of the SFIO. According to Section 211, the Central Government has the power to direct the SFIO to investigate frauds relating to a company. Section 212 further specifies that such investigations are conducted at the instance of the Central Government. The court acknowledged these provisions and modified the impugned order to ensure compliance with the statutory requirements. The modified order directed that the impugned order be communicated to the Central Government, which would then examine and potentially direct the SFIO to conduct the investigation.

Conclusion:
The court concluded that the learned Single Judge judiciously exercised the power to direct an investigation by the SFIO. The direction was based on prima facie material indicating serious allegations of fund diversion and rotation. The court clarified that the investigation would be conducted as per law, following due process, and the SFIO would submit its report after giving both parties an opportunity to be heard. The court modified the impugned order to ensure that it complied with the intent of Sections 211 and 212 of the Companies Act, 2013, by directing the Central Government to examine and potentially order the investigation. The Letters Patent Appeals (LPAs) were disposed of accordingly, with all pending applications also disposed of, and parties bearing their own costs.