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TMI BlogINVESTIGATION REPORT OF SERIOUS FRAUD INVESTIGATION OFFICEX X X X Extracts X X X X X X X X Extracts X X X X ..... INVESTIGATION REPORT OF SERIOUS FRAUD INVESTIGATION OFFICE X X X X Extracts X X X X X X X X Extracts X X X X ..... y, by order, assign the investigation into the affairs of the said company to the SFIO and its Director, may designate such number of inspectors, as he may consider necessary for the purpose of such investigation. The Central Government if so directs, the SFIO shall submit an interim report to the Central Government. On completion of the investigation, the SFIO shall submit the investigation report to the Central Government. On receipt of the investigation report, the Central Government may, after examination of the report direct the Serious Fraud Investigation Office to initiate prosecution against the company and its officers or employees, who are or have been in employment of the company or any other person directly or ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irectly connected with the affairs of the company. Case law In 'SUNAIR HOTELS LTD. & ORS. VERSUS MINISTRY OF CORPORATE AFFAIRS & ANR. - 2025 (2) TMI 638 - DELHI HIGH COURT, the Ministry of Corporate Affairs ('MCA' for short), vide its order dated 29.02.2016 directed SFIO to cause an investigation into the affairs of the company in public interest. The petitioner company had filed a writ petition before Delhi High Court SUNAIR HOTELS LIMITED VERSUS UNION OF INDIA AND ANR. - 2017 (4) TMI 1197 - DELHI HIGH COURT], challenging the very foundation to the investigation conducted by SFIO. The High Court, vide their order, rejected the contentions of the writ petitioner and upheld the decisions of MCA. In the meanwhile, the SFIO submi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tted its report to MCA on 31.10.2016. The High Court considered the said report and did not go into the details of the report. It observed that a bare reading of the said report would show that the affairs of the petitioner company have been conducted in a manner prejudicial to the public interest, in addition to that of the shareholders. The Court was satisfied that the recommendations of the MCA in directing an investigation into the affairs of the petitioner company was valid and the recommendations in the impugned report warranted prosecution for the offences under the relevant provisions of the Companies Act and Indian Penal Code, 1860 ('IPC' for short). The petitioner filed an appeal before the Division Bench ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... challenging the above said order. The Division Bench dismissed the appeal upholding the report of SFIO and order of MCA. The petitioner, in the present writ petition came with the prayer to quash the investigation report of SFIO, dated 31.10.2016. The petitioner submitted the following before the High Court- * The impugned report is unreasonable, unjustified, perverse and arbitrary. * The report is arbitrary, perverse, and suffers from non-application of mind, having been prepared with a pre-conceived notion, without due consideration of the factual matrix. * The SFIO failed to consider crucial background facts, despite these having been submitted both in writing and orally. Specifically, prior inspections int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the affairs of Sunair Hotels Limited had already been conducted by the erstwhile Department of Corporate Affairs. * Had the SFIO taken these facts into consideration, they would have arrived at the rightful conclusion that the affairs of the petitioner company had already been investigated. The SFIO, failed to examine past investigations and actions already taken. * The SFIO investigation is an attempt to indirectly achieve what the MCA and VLS failed to accomplish through judicial channels, rendering the impugned report legally untenable. * The SFIO's reports are erroneous and do not establish any act of 'fraud' on the part of the petitioners. * The SFIO appears to have based its findings on statement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s made by only 14 shareholders out of a total of 362. These statements were not recorded on oath, thereby diminishing their credibility. The selective reliance on an insignificant minority of shareholders, renders the findings unreliable. * One of the allegations, in the report is that that the directors of the petitioner company engaged in a criminal conspiracy with the directors of Bansal Estate Private Limited and Trans Asia Consultant Private Limited to derive wrongful gains at the expense of genuine shareholders. * The shares of the petitioner company were transferred to independent shareholders of Bansal Estate Private Limited and later to Trans Asia Consultant Private Limited. * The said transaction is an independent tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ansaction between two corporate entities and the petitioner company or its directors had no role to play in such transfer but merely approving the same. * The impugned report fails to demonstrate any element of 'public interest'. * No monetary harm was caused to the public since the loan taken by the petitioner company was duly repaid. The High Court considered the submissions of the petitioner and found the same is not convincing. The High Court analysed the erstwhile legal proceedings initiated by the petitioner before the High Court. The Court found that the Court in those proceedings act well in accordance with the law. The primary consideration of the High Court, in this petition, is as to whether the alle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gations made in the report, when read holistically, disclose a cognizable offence under the Companies Act and other applicable statutes. The High Court observed that the petitioner has issued duplicate shares to related parties, without any evidence that the said shares were destroyed or defaced or mutilated or torn or surrendered to the company. The petitioner had issued such duplicate shares in contravention of Section 84 (2) of Companies Act, 1956. It is revealed in the investigation that the petitioner had issued such duplicate shares with mala fide intention to avail loan from Axis Bank Limited by pledging these duplicate share certificates. Vipul Gupta and Kaveen Gupta, the then Directors of the petitioner company, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... who were instrumental in issuance of duplicate certificates in contravention to section 84 (2) of Companies Act 1956 and liable for punishment under section 84(3) of the same Act read with section 420 of IPC. It is revealed during investigation that Directors S.P. Gupta, Vipul Gupta, Kaveen Gupta have illegally falsified the records by cancelling and splitting the shares seized by the Income Department and issuing fresh shares to CTCL and VLSFL. The petitioner company has pledged 21,25,176 of Columbia Trading Company Limited (CTL), fraudulently with the Axis Bank for securing loan and hence have committed offences under Section 628 of the Companies Act, 1956 read with 420 of the IPC, the accused persons have in connivance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and conspired with each other, siphoned off funds of the petitioner company by transferring them through various shell/ dummy companies of Delhi & Kolkata on the basis of large-scale bogus transactions, fabricating documents and fabrication of books of accounts. The said amounts were ploughed back into the petitioner company for subscribing the additional equity shares through S.P. Gupta, his family members and group companies on the basis of large-scale manipulations and fabrication of books of accounts etc. The High Court further observed that the statutory auditors had dishonestly and fraudulently falsified the Annual Financial Statements of the petitioner with false records of shareholders and thus made himself liable to be punis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hed for the offence punishable under section 628 and section 211, 227, 233 of the Companies Act, 1956. SFIO report, prima facie discloses offences under the relevant provisions of the Companies Act and IPC, warranting prosecution.
The High Court held that the petitioner is having an opportunity to challenge the report's findings during trial. Therefore, the invocation of writ petition at this stage is legally untenable and pre mature. The High Court dismissed the writ petition filed by the writ petitioner. X X X X Extracts X X X X X X X X Extracts X X X X
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