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TMI Blog2024 (2) TMI 976X X X X Extracts X X X X X X X X Extracts X X X X ..... ences to the SFIO. The powers of SFIO is statutorily determined from sub-section (3) to sub-section (17) of Section 212 and for conduct of investigation there is procedure in place which need not require elaboration at this juncture. The submission of the learned senior counsel for the petitioner is that when the proceedings under Section 210 are underway, assignment of investigation to the SFIO cannot take place. The strength on which the said submission is made is that there should a report under Section 210, as is directed, and only then the investigation can be handed over to the SFIO. The effect of such submission is that handing over of investigation to the SFIO, should precede a final report under Section 210. This submission is sans countenance as it travels on a slippery slope. Section 210 does speak of a report, the report can be either interim or final it need not be the final report only - It is entrusted to the SFIO which is created under the Act, i.e., in terms of Section 211 with elaborate functions under Section 212. The protection to any Company from duplication of proceedings is kept tight under sub-section (2) of Section 212 and above all, and after all, it is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mission that the statute should be used only for the designated proper purpose. In the considered view of the Court, the statute is used for the designated proper purpose. Proportionality is not what can be considered at this stage of the proceedings. The stage, as observed in the course of the order, is conduct of investigation and the Apex Court is clear that investigation process should not be interdicted or annihilated unless the grounds projected are in support of such interdiction - the judgments relied on would not lend any support to the submissions of the learned senior counsel for the petitioner, in any manner. The action impugned does not suffer from any statutory aberration and therefore, the petition does not deserve any entertainment. Petition dismissed. - HON'BLE MR. JUSTICE M. NAGAPRASANNA For the Petitioner (By Sri Arvind Datar, Sr. Advocate A/W Sri Manu Prabhakar Kulkarni, Sri Mrinalshankar, Sri Harmendra Chatur And Smt. Isha Prakash, Advocates) For the Respondents (By Sri K. Arvind Kamath, Addl. Solicitor General A/W Sri H. Shanthi Bhushan, DSGI) ORDER The petitioner is before this Court seeking a direction to call for records a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of certain transactions between the petitioner and another company in the name and style of Cochin Minerals and Rutile Limited ( CMRL for short). The petitioner was directed in the communication to furnish various documents and details and annual reports, audited bank statements for the years 2014-15 to 2019-20 of the transactions of the aforesaid Companies. The petitioner, in response to the said communication, is said to have furnished all the documents sought for, which results in another communication being issued by the Registrar alleging that the copy of the trial balance furnished by the petitioner was not proper and further directed submission of several documents. It is said that the petitioner has from time to time furnished all the documents that were being sought by the Registrar through several communications. 4. On 24-06-2022, the Registrar issues a notice directing the petitioner to appear in person at the office of the Registrar. The petitioner is said to have represented through various representations along with all the documents and clarifications after which the Registrar had again directed the petitioner to be personally present on the next date of heari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otice directed the petitioner to provide details of several documents that were sought in the said notice. The petitioner, on the said date, replies seeking extension of time upto 15-02-2024, and has filed the subject writ petition on 08-02- 2024. 7. Heard Sri Arvind Datar, learned senior counsel along with learned counsels Sri Manu Prabhakar Kulkarni, Sri Mrinal Shankar, Sri Dharmendra Chatur and Smt Isha Prakash appearing for the petitioner and Sri K.Arvind Kamath, learned Additional Solicitor General of India along with Sri H.Shanthi Bhushan, learned Deputy Solicitor General of India appearing for the respondents. SUBMISSIONS: Petitioner: 8. The learned senior counsel representing the petitioner, Sri Arvind Datar would contend that the proceedings, under Chapter XIV of the Act which deal with inspection, inquiry and investigation begin against the petitioner, after issuance of notice under sub9 Section (4) of Section 206 of the Act. The same results in an order being passed under Section 210 which deals with investigation into affairs of a Company. The documents are sought by the competent officer under Section 210 and the petitioner has submitted, all the nece ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of natural justice and resultantly, it is a product of malice in law. The Union of India/SFIO: 9. Per contra, Sri. K. Arvind Kamath, the learned Additional Solicitor General of India would vehemently refute the submissions to contend that the SFIO is a multidisciplinary body. The investigation that began under Section 210 resulted in the Inspector who had taken up investigation submitting an interim report. The interim report necessitated assignment of investigation to the SFIO. Since it is a multidisciplinary body, it can call for information from any quarter which would ease completion of investigation against the petitioner. It is his contention, by taking this Court through the statement of objections that, it is not a case where Rs. 1.70 crores is the subject matter of investigation as is contended by the learned senior counsel for the petitioner but it is Rs. 135/- crores transaction between CMRL and the Company of the petitioner and others and those funds have been handed over to the accounts of several political entities. It is, therefore, the investigation for assimilation of information is assigned to the SFIO. 9.1. The Additional Solicitor General would c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Investigation Office-SFIO, a multidisciplinary body, under the Ministry of Corporate Affairs, constituted under the Act for detecting and recommending prosecution of crimes by the Companies. The aforesaid are the four protagonists in the lis. THE GENESIS: 14. The petitioner, as observed hereinabove, is a one person Company. This is a matter of record. The genesis of the issue appears to be that, on 28-07-2020 a communication comes about from the Registrar at Bangalore to the Director of the petitioner/Company on the score that a complaint is received at the office of the Registrar in respect of incorrect address mentioned in Form No.10 filed by the petitioner/Company with the Registrar. The communication reads as follows: No.ROCB/Complaint/EXALOGIC/2020, Date: 28-07-2020 To Ms. Veena Thaikkandiyil Pravik, Pandialamukku Pinarayi P.O., Thalassary, KANNUR 670 741, KERALA e-mail: [email protected] Sub: Complaint dated 22-05-2020 received from Mr. Vijay.J in the matter of Exalogic Solutions Pvt. Ltd (OPC) reg. Madam, Whereas this office has received a complaint stating that the address of the subscriber/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng from air, but it was due to the information received from the Enforcement Directorate regarding the transactions between CMRL and the petitioner. The communication sent to the petitioner on 29-01-2021 reads as follows: Sir, With reference to the above subject, I am to state that this office has received a reference from Directorate of Enforcement, Bengaluru regarding the transactions between COCHIN MINERALS AND RUTILE LTD. (CMRL) and EXALOGIC SOLUTIONS PRIVARTE LIMITED. Hence, in order to examine the matter to see the compliance of various provisions of the Companies Act, 2013, this office has decided to conduct inquiry u/s 206 (4) of the Companies Act, 2013. In this connection, you are hereby directed to submit the following documents/information within 07 days hereof: 01. Certified copies of the printed Annual Reports/ financial statements since incorporation till date with Director s Report, Audit Report and notes to accounts (three sets). 02. Details of all Bank accounts maintained by the Company with account numbers and name of the bank and branch address. 03. Bank statements till date for all the accounts. 04. Duly Certified copy of all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 15-16 2016-17 2017-18 2018-19 2019-20 Amount Received (Rs) 25,00,000 37,36,000 10,36,000 4,88,569 NIL You are requested to furnish the details of loans taken from Empower India Capital Investments Private Limited or from its directors, purpose of loan, due date of repayment, interest paid, outstanding as on date. Further, from the bank statement, it could be seen that during the year 2016-17 only a sum of Rs. 25 lakhs has been received from the said entity, however, as per bank statement no amount of Rs. 12,36,000/- had been received. Please state whether the amount has been received in cash or cheque/online. (b) The company has given donation of Rs. 1,30,000/- in the year ending 31.03.2019, you are requested to furnish the break up details of such donation, name of the Donee, interest of the director, etc. (c) From the Bank Statements produced, it could be seen that the company has been regularly (almost every month), receiving amount from various Charitable organ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tioner were directed to be furnished. The query was replied to by the petitioner on 17-11-2021 contending that donation of Rs. 1,30,000/- in the financial year 2018-19 was paid to the Chief Minister s Distress Relief Fund and the agreement between CMRL and the petitioner was in subsistence and was sought to be attached to the communication. This, after scrutiny of documents, results in a direction to the petitioner to appear in person before the Registrar. Proceedings go on. On 11-08-2023, on completion of scrutiny of financial statements, several violations are noticed. The heads of violations noticed are as follows: 1. VIOLATION OF RULE 16 OF COMPANIES (ACCEPTANCE OF DEPOSITS RULES, 2014 R/W SECTION 73 OF THE COMPANIES ACT, 2013 2. VIOLATION OF SECTION 137 r/w 134(2) R/W OF THE COMPANIES ACT, 2013 FURTHER R/W RULE 12 OF COMPANIES (ACCOUNTS) RULES, 2014 3. VIOLATION OF SECTION 129 R/W SCHEDULE III OF THE COMPANIES ACT, 2013: 4. VIOLATION OF SECTION 134 COMPANIES ACT, 2013 R/W RULE 8A OF COMPANIES (ACCOUNTS) RULES, 2014: 5. VIOLATION OF SECTION 179 OF THE COMPANIES ACT, 2013: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Company and to submit its report thereon to the Central Government. 6. Accordingly, in exercise of the powers conferred u/s 210(3) of the Companies Act, 2013 the Central Government hereby appoints following Inspectors: Sl.No. Name of the Inspector(s) Designation 1. Shri Varun BS Dy.ROC, Karnataka 2. Shri K.M. Shanker Narayan Dy. Director, O/o RD (Chennai) 3. Shri A.Gokulnath ROC, Puducherry. 7. The Inspector(s) as appointed above, shall exercise all the powers available to them under the provisions of Companies Act, 2013. The Inspector(s) shall complete the investigation and submit the report to the Central Government within 4 months. This order is issued for and on behalf of the Central Government. (Emphasis added) The order is passed under Section 210(1)(c) of the Act. It observes that there were several violations under Section 206(4) found, which are quoted supra, and i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nto the affairs of abovementioned companies and shall exercise all the powers available to them under the Companies Act, 2013. Shri Prasad Adelli, Additional Director, Shri M.Arun Prasad, Dy. Director, Shri K.Prabhu, Sr. AD Shri A.Gokulnath, ROC, Shri KMS Narayan, Deputy Director, Shri Varun, B.S., Dy.ROC. 4. And further in exercise of powers conferred under Section 212(4) of the Companies Act, 2013, Sri M.Arun Prasad, Dy.Director is appointed as Investigating Officer to carry out the above noted investigation. The Inspectors shall exercise all the powers available to them under the Companies Act, 2013. 5. The Inspectors and the Investigating Officer shall complete the investigation and submit their report within eight months to the Central Government. Sd/- (Anuradha Thakur) Director. (Emphasis added) After the assignment to SFIO, a notice is issued on 02-02-2024 to the petitioner to produce several documents, as SFIO has been assigned to investigate into the affairs of the petitioner/Company and Inspectors had been assigned for conduct of such investigation. It was directed that the notice be treated as a notice u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lose a full and fair statement of the information required, he may, by another written notice, call on the company to produce for his inspection such further books of account, books, papers and explanations as he may require at such place and at such time as he may specify in the notice: Provided that before any notice is served under this subsection, the Registrar shall record his reasons in writing for issuing such notice. (4) If the Registrar is satisfied on the basis of information available with or furnished to him or on a representation made to him by any person that the business of a company is being carried on for a fraudulent or unlawful purpose or not in compliance with the provisions of this Act or if the grievances of investors are not being addressed, the Registrar may, after informing the company of the allegations made against it by a written order, call on the company to furnish in writing any information or explanation on matters specified in the order within such time as he may specify therein and carry out such inquiry as he deems fit after providing the company a reasonable opportunity of being heard: Provided that the Central Government may, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nquiry shall have all the powers as are vested in a civil court under the Code of Civil Procedure, 1908 (5 of 1908), while trying a suit in respect of the following matters, namely: (a) the discovery and production of books of account and other documents, at such place and time as may be specified by such Registrar or inspector making the inspection or inquiry; (b) summoning and enforcing the attendance of persons and examining them on oath; and (c) inspection of any books, registers and other documents of the company at any place. (4)(i) If any director or officer of the company disobeys the direction issued by the Registrar or the inspector under this section, the director or the officer shall be punishable with imprisonment which may extend to one year and with fine which shall not be less than twenty-five thousand rupees but which may extend to one lakh rupees. (ii) If a director or an officer of the company has been convicted of an offence under this section, the director or the officer shall, on and from the date on which he is so convicted, be deemed to have vacated his office as such and on such vacation of office, shall be disqualified ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Central Government may appoint such experts and other officers and employees in the Serious Fraud Investigation Office as it considers necessary for the efficient discharge of its functions under this Act. 5) The terms and conditions of service of Director, experts, and other officers and employees of the Serious Fraud SFIO shall be such as may be prescribed. 212. Investigation into affairs of Company by Serious Fraud Investigation Office. (1) Without prejudice to the provisions of Section 210, where the Central Government is of the opinion, that it is necessary to investigate into the affairs of a company by the Serious Fraud SFIO (a) on receipt of a report of the Registrar or inspector under Section 208; (b) on intimation of a special resolution passed by a company that its affairs are required to be investigated; (c) in the public interest; or (d) on request from any Department of the Central Government or a State Government, the Central Government may, by order, assign the investigation into the affairs of the said company to the Serious Fraud SFIO and its Director, may designate such number of inspectors, as he may consider neces ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Fraud Investigation Office; or (ii) any officer of the Central Government authorised, by a general or special order in writing in this behalf by that Government. (7) The limitation on granting of bail specified in subsection (6) is in addition to the limitations under the Code of Criminal Procedure, 1973 (2 of 1974) or any other law for the time being in force on granting of bail. (8) If any officer not below the rank of Assistant Director] of Serious Fraud Investigation Office authorised in this behalf by the Central Government by general or special order, has on the basis of material in his possession reason to believe (the reason for such belief to be recorded in writing) that any person has been guilty of any offence punishable under sections referred to in sub-section (6), he may arrest such person and shall, as soon as may be, inform him of the grounds for such arrest. (9) The officer authorised under sub-section (8) shall, immediately after arrest of such person under such subsection], forward a copy of the order, along with the material in his possession, referred to in that sub-section, to the Serious Fraud Investigation Office in a sealed envelop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er under Section 173 of the Code of Criminal Procedure, 1973 (2 of 1974). (16) Notwithstanding anything contained in this Act, any investigation or other action taken or initiated by Serious Fraud Investigation Office under the provisions of the Companies Act, 1956 (1 of 1956) shall continue to be proceeded with under that Act as if this Act had not been passed. (17)(a) In case Serious Fraud Investigation Office has been investigating any offence under this Act, any other investigating agency, State Government, police authority, income tax authorities having any information or documents in respect of such offence shall provide all such information or documents available with it to the Serious Fraud Investigation Office; (b) The Serious Fraud Investigation Office shall share any information or documents available with it, with any investigating agency, State Government, police authority or income tax authorities, which may be relevant or useful for such investigating agency, State Government, police authority or income tax authorities in respect of any offence or matter being investigated or examined by it under any other law. (Emphasis supplied) Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent to assign investigation to the SFIO. What happens once investigation is handed over to the SFIO is also dealt with under sub-section (2) of Section 212. Any investigation by any agency preceding such assignment will cease to operate. It is on the bedrock of the aforesaid statutory frame work, the issue in the lis needs to be considered. 21. What would unmistakably emerge from what is above analysed is, once investigation has commenced under Section 210, the statute does not render the Government of India powerless, to assign the investigation under Section 212 to the SFIO. It neither results in duplication of investigation, nor takes away any right of the petitioner. Sub-section (2) clearly mandates that once the SFIO is entrusted with investigation under Section 212, any other investigation already initiated shall not be proceeded further and further, those agencies who are/were conducting any investigation, shall transfer all the relevant documents and records in respect of those offences to the SFIO. The powers of SFIO is statutorily determined from sub-section (3) to sub-section (17) of Section 212 and for conduct of investigation there is procedure in place which need ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... actions, as also the role of persons involved therein. Plethora of minute exercise is expected to be undertaken by any Investigating Agency. It is therefore, to unearth such intricate or minute details about the transactions it becomes necessary to hand it over to a multi-disciplinary body, like the SFIO. As submitted by the learned Additional Solicitor General, the multidisciplinary body would bring about multi-departmental correspondence to arrive at any finding. Therefore, no fault can be found with the action of the Union of India, in entrusting the investigation to the SFIO. 24. The second submission is that no reasons are provided to invoke Section 212 of the Act and, therefore, it suffers from nonapplication of mind. This is again unacceptable, as this Court is projected with a problem of investigation being handed over. At this stage, application of mind to hand over the investigation, again in the considered view of the Court, need not form part of the said order. The statement of objections are, in defence of interim report necessitating assignment of investigation. If the Union of India has thought it fit to entrust the investigation to the SFIO, owing to certain fact ..... X X X X Extracts X X X X X X X X Extracts X X X X
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