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2021 (2) TMI 257 - HC - Companies LawInvestigation of affairs of the petitioner/ CSITA by the SFIO - opinion not formed as envisaged under Section 210 of Companies Act - section 212 of Companies Act, 2013 - HELD THAT - The said order is on the basis of the report of the Registrar of Companies dated 13.12.2017 filed under section 208, which was filed, without conducting any inspection or enquiry as provided under Section 206 / 207 and hence, the said report cannot be construed as a report under Section 208 of the Act, 2013. That apart, an opportunity of being heard as contemplated under Section 206(4) was not provided to the petitioner / CSITA, before filing the report dated 13.12.2017. It is also contended that the petitioner / CSITA has not been served with a copy of the report dated 13.12.2017, which is in violation of the principles of natural justice. Hence, it is prayed to allow the writ petitions by setting aside the report of the Registrar of Companies and the order passed by the Central Government and the consequential summons. Various complaints were received raising allegations against the petitioner / CSITA, which prompted the Central Government to order inspection of the Books of Accounts of the company on 08.08.2011 under Section 209A of the Companies Act, 1956 and the said inspection was conducted and a report pointing out various violations of the provisions of the 1956 Act, was submitted on 29.08.2012 to the Central Government, which inturn, instructed to launch prosecutions against the petitioner and its officers before the Economic Offences Court, Chennai. Subsequently, an inquiry under section 206(4) of the Companies Act, 2013 was conducted on 05.10.2015 and the Registrar of Companies, after completion of the inquiry, filed a report dated 12.01.2016 under Section 208 of the Act, 2013. Based on the same, the Central Government ordered investigation into the affairs of the petitioner by Serious Fraud Investigation Office (SFIO) under Section 212 of the Act, 2013, on 10.06.2016. The said order was challenged in W.P.No.38841/2016 before the High Court of Hyderabad. The High Court of Hyderabad, after detailed analysis, set aside the said order and remanded the matter to the Central Government for fresh consideration to exercise its power under Section 212, basing on the report dated 10.06.2016 of the Registrar of Companies, within three weeks from the date of receipt of a copy of the order. Whether the report dated 13.12.2017 submitted by the Registrar of Companies under Section 208 of the Act, 2013, is valid in law? - HELD THAT - The principle of natural justice has twin ingredients; firstly, the person who is likely to be adversely affected by the action of the authorities should be given notice to show cause thereof and granted an opportunity of hearing; and secondly, the orders so passed by the authorities should give reason for arriving at any conclusion showing proper application of mind. Violation of either of them could in the given facts and circumstances of the case, vitiate the order itself. Applying the same to the facts of the present case, the report filed by the Registrar of Companies on 13.12.2017, without complying with the provisions of section 206, sans merit. However, considering the nature of the allegations raised against the petitioner / CSITA, this Court is not inclined to quash the same, but, in the interest of justice, is inclined to treat the said report as notice under Section 206(4), to which, the petitioner / CSITA shall file its detailed explanation / objections along with documentary evidence, within a given time. Upon receipt of the same, the Registrar of Companies shall also file a consolidated report under section 208 to the Central Government in a time bound manner. Whether the order dated 07.05.2018 passed by the Central Government assigning the investigation of the petitioner / CSITA to the SFIO, is in consonance with the provisions of Section 212 of the Act, 2013? - HELD THAT - Though it is contended on the side of the respondents that the Central Government has formed the requisite opinion before passing the order under section 212(1)(a) and (c) of the Act, 2013, the perusal of the noting proceedings circulated by the respondent officials, would not whisper anything about the opinion as contemplated under section 210 of the Act, 2013. It contains only the communications between the Central Government and the Registrar of Companies through Regional Director (SR), Chennai. Though the minutes of the Oversight Committee meeting held on 17.04.2018 reveal that upon considering the report of the Registrar of Companies and the direction of the High Court of Hyderabad, in view of the provisions of Section 212(1)(a) and (c) of the Act, 2013, a recommendation was made to investigate the affairs of the company by the SFIO, the mandate of the law under section 210, to form an opinion for ordering such investigation, was not complied with by the Central Government, before passing the impugned order dated 07.05.2018. Though it was argued on the side of the respondents that the report dated 13.12.2017 is in continuance of the earlier report dated 12.01.2016, which holds the field and no inspection / enquiry as per the provisions of law, is required, it was clearly stated in paragraph no.2 of the impugned order that the issues highlighted in the report of the Registrar of Companies, Chennai dated 13.12.2017 necessitated the Central Government to consider the order of investigation in public interest. That apart, the impugned order contains the mere extracts of the allegations referred to in the report of the Registrar of Companies and the same cannot be treated as sufficient compliance by the Central Government for exercising its drastic power. It is noteworthy to mentioning that already, the High Court of Hyderabad vide order dated 16.11.2017 in WP.No.38841 of 2016, set aside the order dated 10.06.2016 and remanded the matter to the Central Government for fresh consideration to exercise of its jurisdiction under Section 212 of the Act, 2013, on the ground that the order does not reflect forming opinion on the necessity for investigation by SFIO under Section 210. Despite the same, the Central Government passed the order dated 07.05.2018 without forming an opinion as envisaged under section 210, but merely relying upon the report dated 13.12.2017. Such attitude on the part of the respondents cannot be countenanced. According to Merriam Webster s Dictionary of Law, the word 'opinion' means a belief stronger than impression and less strong than positive knowledge - he words 'is of the opinion' 'that it is necessary to investigate' impose a jurisdictional duty on Central Government to form opinion on the necessity of investigation by SFIO. Therefore, in the considered view of this Court, the Central Government is required to form an opinion, as prescribed in the provisions of Section 210 for exercising the power under section 212, as observed by the High Court of Hyderabad. The allegation against the evangelical department is that they are not doing worship for the well being of the company and its beneficiaries and stakeholders. Instead, it is doing misappropriation and illegalities by selling most of the properties belonging to the Association. It is also placed on record that due to non-submission of accounts, the beneficiaries / donars to the CSITA could not get IT exemption. Such activities cannot be permitted to be sustained, having due regard to the object of the institution, which is to preach and propagate the religion of Christianity to the world and uplift the members of the CSI. Mere preaching from the church pulpits about Christian holiness and Stewardship does not work, when it comes to managing the finance and properties of the church in the most ethical way. The corporate morality and the biblical ethics reflected in the character of God are to be combined to form a base for maintaining the CSITA s corporat Be it noted, the files circulated by the official respondents would reveal that the proceedings was initiated against the petitioner/ CSITA for the alleged misappropriation, mismanagement, fraud etc., in the year 2011. Since then, the respondent authorities have been simply exchanging the communications from one office to another, without complying with the statutory provisions, within a reasonable time - Taking note of the serious nature of the allegations raised, the inordinate and undue delay caused by the respondent authorities, cannot be simply wished away. Hence, this Court directs the respondent authorities to take action against the erring officials, departmentally. The petitioner / CSITA shall submit its detailed explanation/ objections along with documentary evidence to the report of the Registrar of Companies dated 13.12.2017, which is impugned in WP.No.32587 of 2019, treating it as a show cause notice under Section 206(4) of the Act, 2013, within a period of two weeks from the date of receipt of a copy of this order and thereafter, appear for enquiry between 17.02.2021 - 22.02.2021 - Petition disposed off.
Issues Involved:
1. Validity of the report dated 13.12.2017 submitted by the Registrar of Companies under Section 208 of the Companies Act, 2013. 2. Validity of the order dated 07.05.2018 passed by the Central Government assigning the investigation of the petitioner to the Serious Fraud Investigation Office (SFIO). 3. Compliance with statutory provisions and principles of natural justice. Issue-Wise Detailed Analysis: Issue 1: Validity of the report dated 13.12.2017 submitted by the Registrar of Companies under Section 208 of the Companies Act, 2013. The petitioner contended that the report dated 13.12.2017 cannot be treated as a report under Section 208 unless it is preceded by an inspection or enquiry as provided under Sections 206 and 207. The report contained new allegations and was not served on the petitioner, violating principles of natural justice. The respondents argued that the report was in continuation of an earlier report dated 12.01.2016, and no fresh inspection or enquiry was required. The Court noted that Section 206(4) mandates issuance of notice and opportunity of hearing, which was not complied with in the report dated 13.12.2017. The report contained new allegations, and the petitioner was not provided with a copy until directed by the Court. The failure to comply with Section 206(4) vitiates the report, but considering the serious allegations, the Court treated the report as a notice under Section 206(4) and directed the petitioner to file a detailed explanation. Issue 2: Validity of the order dated 07.05.2018 passed by the Central Government assigning the investigation of the petitioner to the SFIO. The petitioner argued that the order dated 07.05.2018 was passed without forming an opinion as required under Section 210, and it was based on the report dated 13.12.2017, which was not valid. The respondents contended that the order was passed after thorough analysis and in public interest. The Court found that the Central Government did not form the requisite opinion as mandated under Section 210 before passing the order. The order merely relied on the report dated 13.12.2017 without establishing circumstances or material enough for exercising such power. Despite a previous direction from the High Court of Hyderabad to form an opinion, the Central Government failed to comply. Compliance with statutory provisions and principles of natural justice: The Court emphasized the importance of following statutory provisions and principles of natural justice. It highlighted that the Registrar of Companies must issue notice and provide an opportunity of hearing before filing a report under Section 208. The Central Government must form an opinion as required under Section 210 before ordering an investigation by the SFIO. Conclusion: 1. The petitioner shall submit a detailed explanation/objections to the report dated 13.12.2017, treating it as a show cause notice under Section 206(4), within two weeks. 2. The Registrar of Companies shall consider the explanation and submit a consolidated report under Section 208 to the Central Government within two weeks. 3. The Central Government shall form an opinion independently and proceed in accordance with Sections 210 and 212 within three weeks. 4. The order dated 07.05.2018 and the consequential summons do not survive. 5. The respondent authorities shall take action against officials responsible for delays. The writ petitions were disposed of in these terms.
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