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2020 (9) TMI 131 - HC - Companies LawInitiation of Inquiry - case of the respondents is that the inquiry or investigation under Section 212 of the Act, will in no way affect the functioning of the company or its employees and its reputation, as contended by the petitioner - company. Whether the inquiry initiated by the Central Government and the report dated 24.02.2020 submitted by the 5th respondent - Registrar of Companies, is in conformity with Section 206(4) of the Act? - HELD THAT - Since the petitioner submitted a detailed reply dated 03.02.2020, and it has also invited an order of this court dated 14.02.2020 in W.P.No.3143 of 2020, directing the respondents to proceed with the inquiry under Section 206(1) of the Act by duly taking into consideration the explanation submitted by the petitioner - company on 03.02.2020, and the 5th respondent in compliance with the directions of this court submitted inquiry report under Section 208 by duly considering the detailed reply submitted by the petitioner; the said report cannot be challenged on the ground of denial of opportunity of being heard, or procedure envisaged under Section 206(4) is not followed - the issue is answered in the affirmative, in favour of the respondents. Whether the opinion formed by the 2nd respondent for ordering investigation into the affairs of the petitioner - company, is in consonance with Section 212(1) (a) and ( c ) of the Act? - HELD THAT - The 5th respondent initiated inquiry under Section 206 of the Act and issued notices and the petitioner also filed a detailed reply dated 03.02.2020 and at during that stage, the 2nd respondent vide order dated 10.01.2020 directed the 5th respondent to conduct full-fledged inquiry under Section 206(4) of the Act and submit report. And this court vide order dated 14.02.2020 directed the respondents to conclude the inquiry under Section 206(1) of the Act by duly taking into consideration the reply submitted by the petitioner on 03.02.2020. Accordingly, the 5th respondent, by considering the reply of the petitioner dated 03.02.2020, concluded the inquiry under Section 206(4) of the Act and submitted report dated 24.02.2020, and this court, while considering the first issue, held that initiation of inquiry by Central Government and report submitted by 5th respondent are in conformity with sub-section (4) of Section 206 of the Act. The said report formed the basis for passing the impugned order dated 27.02.2020, ordering investigation by SFIO into the affairs of the company, and the investigation is also ordered in public interest. There are prima facie circumstances justifying the action taken by the 2nd respondent in forming opinion with regard to necessity for ordering investigation into the affairs of by the company by SFIO, as large public interest is involved - issue is answered in the affirmative. Petition dismissed.
Issues Involved:
1. Conformity of the inquiry initiated by the Central Government and the report submitted by the Registrar of Companies (ROC) with Section 206(4) of the Companies Act, 2013. 2. Validity of the opinion formed by the Central Government for ordering an investigation into the affairs of the petitioner company under Section 212(1)(a) and (c) of the Companies Act, 2013. Detailed Analysis: Issue 1: Conformity with Section 206(4) of the Act The inquiry initiated by the Central Government and the report submitted by the ROC were examined under the provisions of Sections 206, 207, and 208 of the Companies Act, 2013. Section 206(1) allows the Registrar to call for information if further explanation or documents are deemed necessary. Under Section 206(3), if the Registrar finds the information inadequate or unsatisfactory, he can call for further documents. Section 206(4) allows the Registrar to conduct an inquiry if there is suspicion of fraudulent or unlawful activities. The petitioner argued that the Central Government's letter dated 10.01.2020, which approved a full-fledged inquiry under Section 206(4), lacked recorded reasons for satisfaction, making it fatal to the respondents' case. However, the court found that Section 206(4) does not require recording reasons, only that the Central Government should be satisfied based on the circumstances. The court noted that the ROC followed the procedure by issuing notices and considering the petitioner's detailed reply dated 03.02.2020. The ROC's report dated 24.02.2020 was submitted in compliance with the court's directions in W.P.No.3143 of 2020, which required the ROC to consider the petitioner's explanation. The court concluded that the ROC's report was in conformity with Section 206(4) and rejected the petitioner's contention of procedural violation. Issue 2: Validity of the Opinion for Ordering Investigation under Section 212(1)(a) and (c) Section 212(1) of the Companies Act, 2013, allows the Central Government to order an investigation by the Serious Fraud Investigation Office (SFIO) based on a report from the Registrar or inspector, public interest, or a request from any government department. The petitioner contended that the Central Government did not independently apply its mind and solely relied on the ROC's report dated 24.02.2020, making the impugned order unsustainable. The court examined the impugned order and found that the Central Government, considering the ROC's report and the Oversight Committee's recommendations, formed an opinion that the affairs of the petitioner company needed investigation due to the serious nature of the alleged fraud and public interest involved. The court noted that the ROC's report highlighted significant allegations, including unauthorized pledging of client securities and diversion of funds, justifying the need for investigation. The court referred to precedents, including judgments from the High Courts of Bombay and Delhi, which emphasized that the formation of an opinion for ordering an investigation must be based on prima facie circumstances and satisfactory grounds. The court found that the Central Government's decision was based on sufficient material and was in consonance with Section 212(1)(a) and (c). The court also addressed the petitioner's argument that the investigation should await the conclusion of SEBI's inquiry. The court pointed out that the authorities under the Companies Act and SEBI are different, and Section 212(2) mandates that no other investigating agency shall proceed with an investigation once SFIO is assigned the case. Conclusion The court concluded that the inquiry and the ROC's report were in conformity with Section 206(4) of the Act and that the Central Government's opinion for ordering an investigation under Section 212(1)(a) and (c) was valid. The writ petitions were dismissed, confirming the impugned order dated 27.02.2020 and allowing the investigation by SFIO to proceed. The court clarified that its decision was limited to the jurisdictional aspects and did not address the merits of the allegations, which are subject to the investigation's outcome.
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