2023 (12) TMI 321 - HC - Companies Law

Validity of summons issued by the Serious Fraud Investigation Office SFIO - initiation of an investigation under Section 212 of the Companies Act, 2013 - appointment of an Investigating Officer. The challenge is essentially based on the contention of the petitioners that since proceedings under the erstwhile Companies Act, 1956 (2013 Act) had been initiated prior to the enforcement of Section 212 of the 2013 Act, the respondents stand denuded of jurisdiction to initiate proceedings afresh under Section 212. HELD THAT - The powers conferred upon the Central Government to direct an investigation into the affairs of a company was predicated upon the submission of a report by the RoC in terms as contemplated under Section 234(6). On the receipt of such a report, the Union Government stood empowered to commence an investigation into the affairs of a company and to appoint Inspectors in connection therewith. The investigation under Section 212 of the 2013 Act, on the other hand, is not by the Union Government but by the SFIO. It becomes pertinent to note that the SFIO itself came to be constituted pursuant to the provisions contained in Section 211. In fact, even before the said provision came to be engrafted and enforced, the SFIO appears to have been constituted pursuant to the resolution of the Union Government dated 02 July 2003. As is manifest from a conjoint reading of Sections 211 and 212, the power of investigation which was originally exercisable by the Union Government was ultimately and in terms of Sections 211 and 212 placed in the hands of the SFIO. The SFIO is envisaged to be a body duly constituted for the purposes of carrying out investigations into the affairs of companies. Regard must be had to the fact that while the erstwhile provisions empowered the Union to investigate into the affairs of a company through investigators, the new regime saw the constitution of the SFIO and an investigation being undertaken by it in accordance with Sections 212 and 213 of the 2013 Act - the SFIO as an investigating arm of the Union was not even envisaged or contemplated under the 1956 Act. The continuance of Sections 234 and 235 till their ultimate repeal would thus be liable to be viewed as regulating the investigating power of the Union Government through Investigators only. The Union Government in terms of the 2013 Act is now empowered to commence an investigation into the affairs of a company either on the receipt of a report of a Registrar or on intimation of a special resolution passed by a company or in public interest. The SFIO is a specialized body which has come to be established for the purposes of investigating frauds relating to companies. SFIO as an independent investigating arm was not even contemplated under Sections 234 or 235 of the 1956 Act. As is evident from a reading of those provisions, the power to investigate as embodied in Section 235 was one liable to be exercised only by the Union Government itself albeit acting through Inspectors that it may have appointed - Since the SFIO itself came to be constituted only pursuant to the provisions of Section 211, the investigation by that body was in no manner trammelled or eclipsed by the continued existence of Sections 234 and 235 of the 1956 Act. The investigation which commenced pursuant to the order of 14 December 2018 passed by the SFIO, was thereafter modified in terms of the corrigendum dated 06 November 2019, when AIRL was deleted from that investigation. The position which therefore emerges is that the investigation as envisaged under Section 235 had commenced only against AIRL and it is the said investigation alone which would fall within the safe harbour as constructed in terms of Section 212(16). 50. Since the investigation which commenced on 05 November 2012 cannot possibly be countenanced as extending to the other writ petitioners, the challenge as laid, cannot be sustained. Petition dismissed.

Summary

Issues Involved:

1. Jurisdiction of SFIO to initiate investigation under Section 212 of the Companies Act, 2013.
2. Validity of proceedings initiated under the Companies Act, 1956 after the enactment of the Companies Act, 2013.
3. Applicability of previous court orders restraining actions under the 2013 Act.
4. Scope of investigation against individual companies versus group companies.

Summary:

1. Jurisdiction of SFIO to initiate investigation under Section 212 of the Companies Act, 2013:
The petitioners challenged the summons issued by SFIO, arguing that since proceedings under the Companies Act, 1956 were initiated before the enforcement of Section 212 of the 2013 Act, the respondents lacked jurisdiction to initiate fresh proceedings under the 2013 Act. The court found that the SFIO, constituted under Section 211 of the 2013 Act, was empowered to investigate frauds relating to companies and that the investigation by SFIO under Section 212 was not trammelled by the continued existence of Sections 234 and 235 of the 1956 Act. The court held that the SFIO's power to investigate was independent and not eclipsed by the 1956 Act.

2. Validity of proceedings initiated under the Companies Act, 1956 after the enactment of the Companies Act, 2013:
The petitioners contended that the provisions of the 1956 Act prevailed until January 30, 2019, and thus, no proceedings under Section 212 of the 2013 Act could have been initiated. The court rejected this argument, stating that Sections 211 and 212 of the 2013 Act came into force on April 1, 2014, and empowered the SFIO to commence investigations. The court clarified that the SFIO's investigation powers under the 2013 Act were not affected by the continued existence of the 1956 Act until its repeal.

3. Applicability of previous court orders restraining actions under the 2013 Act:
The petitioners argued that previous court orders in related litigation restrained the respondents from initiating any proceedings under the 2013 Act. The court found that the earlier orders and judgments pertained specifically to Alchemist Infra Realty Limited (AIRL) and did not extend to other group companies. The court noted that the investigation against AIRL was confined to the 1956 Act, but this did not preclude the SFIO from investigating other group companies under the 2013 Act.

4. Scope of investigation against individual companies versus group companies:
The petitioners claimed that the investigation initiated prior to the enforcement of Section 212 was intended to cover all group companies. The court disagreed, stating that the investigation reports and orders clearly indicated that the investigation was confined to AIRL alone. The court emphasized that the investigation against the group companies commenced only with the order dated December 6, 2018, and the subsequent corrigendum excluding AIRL from the investigation. The court concluded that the investigation under Section 235 of the 1956 Act was specific to AIRL and did not extend to other group companies.

Conclusion:
The court dismissed the writ petition, upholding the jurisdiction of the SFIO to investigate the affairs of the Alchemist Group of Companies under Section 212 of the Companies Act, 2013, and clarifying that the investigation against AIRL was confined to the 1956 Act. All pending applications were disposed of accordingly.