Centre Not Powerless To Order SFIO Probe During Ongoing Investigation U/S 210 Of Companies Act 2013: Karnataka High Court

The Karnataka High Court has held that once an investigation has commenced under Section 210 of Companies Act 2013, the statute does not render the Government of India powerless to assign the probe to the Serious Fraud Investigation Office (SFIO) under Section 212 of the Act.

A single judge bench of Justice M Nagaprasanna made the ruling while dismissing a petition filed by Exalogic Solutions Private Ltd - a company of which Kerala Chief Minister Pinarayi Vijayan's daughter Veena Vijayan is a director - challenging the investigation by the SFIO against the company.

Senior Advocate Arvind Datar appearing for the petitioner had primarily contended that inquiry and investigation have begun against the company after issuance of notice under Section 206(4) of the Act. The same resulted in an order being passed under Section 210 which deals with investigation into affairs of a Company. The documents sought by the competent officer under Section 210 have been submitted and all the necessary documents, the proceedings are yet to conclude.

Thus, he contended that during the pendency of the proceedings under Section 210, the SFIO could not have been assigned with the investigation under Section 212 of the Act. Moreover, only after a report is made under Section 210, it can perhaps lead to commencement of proceedings under Section 212 of the Act, as the circumstances that would warrant investigation by the SFIO, he submitted.

Datar further argued that the basis of invoking the power under Section 212 should be the formation of an opinion that it is necessary to have the investigation concluded into the affairs of the Company, however in this case there is no such opinion formed.

Dealing with these submissions the court referred to Section 212 of the Act and noted that investigation can be assigned to the SFIO – (a) on receipt of a report of the Registrar or Inspector under Section 208, as is found in Section 210; (b) on intimation by the Company itself as is found in Section 210; (c) in public interest which is also found in Section 210 and (d) on a request from any department of the Central Government or a State Government to assign investigation to the SFIO. Under Section 212 (2) any investigation by any agency preceding such assignment will cease to operate.

Following which it said, “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.”

It held that the powers of SFIO is statutorily determined from sub-section (3) to sub-section (17) of Section 212 and there is procedure in place for conduct of investigation.

Rejecting the contention of the company that when proceedings are ongoing under Section 210, assignment of investigation to the SFIO cannot take place without there being a final report by the authorities, the court said “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.”

Further it held “Section 210 does speak of a report, the report can be either interim or final it need not be the final report only. During an investigation under Section 210, if the Inspectors, out of serendipity come across information that would prima facie touch upon skullduggery and thereon necessity emerges to assign the investigation to a multi-disciplinary body like the SFIO, created under the Act this Court cannot put shackles on the hands of the Central Government, for such assignment.”

The Union Government had contended that the investigation that began under Section 210 resulted in the Inspector who had taken up investigation submitting an interim report. The interim report necessitated the assignment of investigation to the SFIO.

The court observed that contention of petitioner that the phrase 'interim report' is found only in sub-section 11 of Section 212, and nowhere in Section 210 suffers from want tenability.

It said “The report under Section 210, can either be interim or final. The said report will not result in any penalty being imposed straight away against any Company. It is for the purpose of investigation. Investigation is for the purpose of unearthing the alleged unethical activities of any Company, in the case at hand, the petitioner/Company.”

Court noted that the Apex Court has in a plethora of cases has made observations on seriousness of economic offences and said “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. Therefore, no fault can be found with the action of the Union of India, in entrusting the investigation to the SFIO.”

Court said if the Union government has thought it fit to entrust the investigation to the SFIO, owing to certain factors which have emerged while conduct of investigation under Section 210 and in public interest, it cannot in exercise of its jurisdiction under Article 226 of the Constitution annul such opinion, unless it is contrary to the statute or the action is demonstrably arbitrary.

Exalogic Solutions came under controversy following reports of payment of Rs 1.72 crore by Cochin Minerals and Rutile Ltd to Exalogic Solutions over three years since 2017. Based on an order passed by the Income Tax Interim Board of Settlement, which suggested that the amount was paid by CMRL to Exalogic without availing any services, allegations surfaced that the kickbacks were routed to the company of CM's daughter under the guise of consideration for IT services.

Case Title: EXALOGIC SOLUTIONS PRIVATE LIMITED AND THE DIRECTOR, SERIOUS FRAUD INVESTIGATION OFFICE & ANR

Case No: Writ Petition No 4268 OF 2024

Citation No: 2024 LiveLaw (Kar) 80

Click Here To Read/Download Order