2022 (8) TMI 935 - SC - Companies Law

Jurisdiction - power of High Court in issuing extra-ordinary directions - Investigation under the provisions of Section 212 and Section 219 of the Companies Act, 2013 in respect of several corporate entities in the Sahara group - whether the High Court was justified in passing an interim direction staying the operation of the two orders dated 31 October 2018 and 27 October 2020 and interdicting all subsequent actions including the issuance of look-out circulars? HELD THAT - The first reason which has weighed with the High Court in regard to the construction of Section 212(3) is ex facie contrary to the law, as has been laid down by a two judge Bench of this Court in SFIO vs Rahul Modi 2019 (3) TMI 1411 - SUPREME COURT . While elaborating upon the provisions of Section 212(3), this Court has held that the statute does not contain any specific prescription of time and the reference to the completion of the investigation within a stipulated period is directory and not mandatory. This Court in Neeharika Infrastructure Pvt. Ltd. vsState of Maharashtra and Others 2021 (4) TMI 1244 - SUPREME COURT cautioned the High Courts against passing blanket interim orders directing no coercive steps to be taken by the investigating authorities as that might hamper the investigation at an early stage. Having due regard to the material which has been placed on record, it cannot be said that the Union Government had not indicated reasons for the exercise of its jurisdiction under Section 212 and Section 219 - At this stage, the Union Government was only ordering an investigation and it would be inappropriate to place a burden of recording elaborate reasons when the purpose of the investigation is to ensure that a full enquiry into the affairs of the companies is carried out. The High Court was not justified in staying the investigation and in passing the consequential directions which have been passed in the impugned orders at the interlocutory stage - Appeal allowed.

Summary

Issues Involved:

1. Legality of the orders dated 31 October 2018 and 27 October 2020 by the Union Ministry of Corporate Affairs authorizing investigations under Sections 212 and 219 of the Companies Act, 2013.
2. Justification of the High Court's interim order staying the operation of the above-mentioned orders.
3. Applicability of Section 212(3) of the Companies Act, 2013.
4. Applicability of Section 219 of the Companies Act, 2013, concerning the investigation of related companies.
5. Requirement for the Union Government to furnish reasons for ordering investigations.

Detailed Analysis:

1. Legality of the Orders Dated 31 October 2018 and 27 October 2020:
The appeals arise from the orders of the Division Bench of the High Court of Delhi, which stayed the operation of the orders dated 31 October 2018 and 27 October 2020 by the Union Ministry of Corporate Affairs. These orders authorized investigations under Sections 212 and 219 of the Companies Act, 2013, into several corporate entities within the Sahara group. The High Court had also stayed all subsequent actions, including coercive proceedings and look-out notices, against the petitioners and their associates.

2. Justification of the High Court's Interim Order:
The High Court's interim order was based on three reasons:
- The period of three months stipulated in the order dated 31 October 2018 for the investigation had expired.
- The order dated 27 October 2020 appeared contrary to Section 219 as the six companies were neither subsidiaries nor holding companies of the three companies initially investigated, nor managed by the same Managing Director.
- The orders did not furnish reasons for the Central Government's decision to order the investigations.

3. Applicability of Section 212(3) of the Companies Act, 2013:
The Solicitor General argued that Section 212(3) is directory, not mandatory, as held in *Serious Fraud Investigation Office vs. Rahul Modi (2019) 5 SCC 256*. The Supreme Court reaffirmed that the statute does not prescribe a fixed period for completing investigations, and the reference to a stipulated period is purely directory. The High Court's reliance on this provision to stay the investigation was thus contrary to established law.

4. Applicability of Section 219 of the Companies Act, 2013:
The High Court noted that the six companies investigated under the order dated 27 October 2020 were neither subsidiaries nor holding companies of the initially investigated companies, nor managed by the same Managing Director. However, the Supreme Court clarified that the investigation was justified under Section 219(c), which allows for investigating any body corporate whose Board of Directors comprises nominees of the company or acts according to the company's directions. The Union Government had invoked this provision, making the High Court's stay on this ground unwarranted.

5. Requirement for the Union Government to Furnish Reasons:
The Supreme Court observed that while ordering an investigation, the Union Government is not required to provide elaborate reasons. The purpose of the investigation is to conduct a full inquiry into the company's affairs, and detailed reasons are not necessary at this preliminary stage. The High Court's third reason for staying the investigation was deemed specious.

Conclusion:
The Supreme Court found that the High Court was not justified in staying the investigation and passing consequential directions at the interlocutory stage. The appeals were allowed, and the High Court's orders dated 13 December 2021 and 5 January 2022 were set aside. The Supreme Court requested the High Court to expedite the disposal of the pending writ petitions, preferably within two months after the summer vacation. Pending applications were disposed of.