SFIO Alone Has Authority To Probe Fraud U/S 447 Companies Act: Karnataka High Court Quashes CBI FIR Against Promoter Of Surana Power

The Karnataka High Court has quashed two cases registered by the Central Bureau of Investigation against Vijayraj Surana, Promoter Director of Surana Power Limited, registered under the provisions of the Prevention of Corruption Act.

A single judge bench of Justice Hemant Chandangoudar allowed the petitions filed by Surana and said,

“Although the CBI has invoked Section 13(2) read with Section 13(1)(d) of the Prevention of Corruption Act, there is no allegation in the first information report that the accused in connivance with the Bank Officials who come under the ambit of public servants as defined under the Prevention of Corruption Act misused funds, source of capital, manipulation in project award, accounting manipulation, and diversion of funds. In the absence of essential elements to constitute the offences under PC Act, the contention of the learned counsel for the CBI that the SFIO cannot investigate the offences under the PC Act is not acceptable, when there is no allegation to investigate the offence under PC Act."

CBI had registered the FIR based on the complaint made by IDBI Bank in which it was alleged the company's account became a non-performing asset from March, 2013 to November, 2015 with various Banks. The forensic audit for the financial year 2009-10 to 2017-18 was conducted and it was reported that there was misuse of funds, source of capital, manipulation in project award, accounting manipulation and diversion of funds. Following which it had lodged the complaint.

The petitioner argued that Companies Act, 2013 is the complete special code in itself and when the allegations made in the impugned FIR are all covered under the provisions of the Act, they can only be investigated by the Special Fraud Investigating Officer as contemplated under Section 212 of the Act. Petitioner contended registration of the FIR byCBI is without authority of law.

The CBI opposed the matter saying offence was committed within the territorial limits of the State of Tamilnadu. Therefore, the present petition filed before this Court is not maintainable before Karnataka High Court.

Petitioner contended that Karnataka High Court has jurisdiction to hear the matter as the CBI office in Bangalore had registered the case.

On merits, CBI argued that the nature and scope of investigation conducted by the SFIO under Section 212 of the Act is vastly different from the investigation conducted by the central probe agency. It was further submitted that SFIO is not competent to investigate the offences punishable under the Prevention of Corruption Act and therefore, registration of the FIR by CBI cannot be said to be vitiated for want of authority.

Considering the preliminary issue of maintainability of the petition the bench said, “I am of the considered view that this Court has jurisdiction to examine the validity of the FIR registered by the respondent - CBI which is located within the jurisdiction of this Court. Therefore, the contention of the learned counsel for the respondent that the present petition is not maintainable for want of territorial jurisdiction is not acceptable.”

Court then noted that the FIRs were lodged on the Forensic Audit Report for the financial year 2009-10 to 2017-18, wherein it is stated that the accused persons have facilitated misappropriation, manipulation of books of accounts, the fictitious account and conversion of property of the company by way of capital advances to potentially related parties, sale and purchases with potential related parties, and bilateral transaction with parties and the petitioner is implicated stating that he is one of the promoter/directors, who along with others, was involved in manipulation, and facilitated misappropriation of the money.

The allegations even if accepted on the face of it, Court said, tantamount to petitioner committing fraud as defined in Explanation (i) to Section 447 of Companies Act. It also pointed that Section 212 of the Companies Act deals with investigation into affairs of a company by a serious fraud Investigating Officer.

“Thus, an offence under Section 447 is given special treatment in terms of Sub-Section 6 of Section 212 of the Act, 2013. It is only that procedure which is prescribed under Sub-Section 6 of Section 212 which would apply, and the shareholder, minority or otherwise cannot initiate proceedings before the Magistrate by himself or herself for the alleged offence under Section 447,” it held.

Reliance was placed on a coordinate Bench judgment wherein it was ruled that Section 212(6) of the Companies Act deals with offences covered under Section 447 of the Act and makes it clear that no Court shall take cognizance unless the complaint is made by the Director, SFIO or the officer of the Central Government authorised by a general or special order in writing in this behalf by that Government.

Further placing reliance on Delhi High Court's judgment in RK Gupta v. Union of India, the bench said, “The Central Government in relation to the same allegation against the petitioner and other accused by order dated 9.4.2019 entrusted investigation to the SFIO, and the SFIO after investigation submitted a report, and thereafter, filed a complaint before the Special Court established under Section 435 of the Act, 2013. Therefore, the SFIO alone has jurisdiction to try the offences alleged against the petitioners.”

Thus, It held that registration of FIR by CBI for the allegations which constitute an offence under Section 447 of the Act, 2013 and the subsequent investigation stands vitiated for want of authority.

Appearance: Advocates K Raghavacharyulu for Advocate Mohamed Rizwan Ahmed for Petitioner.

Advocate P Prasanna Kumar A/W Advocate P Rahul Krishna Reddy FOR R1(PH).

Advocate T P Muthanna for R2.

Citation No: 2024 LiveLaw (Kar) 192

Case Title: Vijayraj Surana AND CBI & ANR

Case No: CRIMINAL PETITION NO. 5333 OF 2023 C/W CRIMINAL PETITION NO. 5354 OF 2023

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