Can CBI Probe Into Fraud In Company When SFIO Investigation Is Pending? Supreme Court Reserves Judgement

The Supreme Court today (January 8) reserved its judgment on the issue of whether the Central Bureau of Investigation (CBI) can conduct investigation with respect to fraud in a company when the Serious Fraud Investigating Officer (SFIO) is already investigating the matter.

The bench of CJI Sanjiv Khanna and Justices Sanjay Kumar and KV Viswanathan was hearing the challenge by CBI against the order of the Karnataka High Court which quashed two cases registered against Vijayraj Surana, Promoter Director of Surana Power Limited, registered under S. 13(2) read with 13(1)(d)of the Prevention of Corruption Act.

During the hearing, the CJI verbally noted that the main object of having S. 212 of the Companies Act (Investigation into affairs of company by Serious Fraud Investigation Office) was to have a bifurcation of administration when it comes to corporate crimes so that extra burden is not mounted on the Police officers. 

"What the enactment does is, it creates a specific unit for the companies Act because sometimes they find that the police officers aren't paid tune to deal with such sophisticated crime, white collar crime, so that's why" 

On the last hearing, the CJI remarked that although SFIO may have powers to investigate in an FIR relating to offences under the Companies Act, when the offences were under the Prevention of Corruption Act, the police needed to investigate the matter.

Today, Senior Advocate CU Singh appearing for Surana placed reliance on the Delhi High Court decision in Ashish Bhalla v. State which held that once an investigation has been initiated by the Serious Fraud Investigation Office (SFIO) under Section 212 of the Companies Act, 2013, a parallel investigation by a separate agency into the affairs of such a company is not permissible.

However, Justice KV Viswanathan interjected to observe that in the Bhalla case, the investigation was only limited to offences under the Companies Act and showed no intersection with the PCA. He stressed that the present matter required examination as to the procedure to be followed for investigation when the same conduct may be an offence under both the Companies Act and PCA. 

" A simpleciter offence involving fraud in a company- going to EOW or SFIO, but there may be offences that have an interface with Public Servants and PC Act. How does it operate? " Justice Viswanathan said. 

Notably, in Bhalla Case the High Court quashed an FIR registered by Delhi Police's EOW qua one Ashish Bhalla as the SFIO was already seized of the investigation against a company owned by Bhalla. The Ministry of Corporate Affairs in 2021 ordered the investigation against the WTC group of Companies under Section 212 of the Companies Act.

Singh emphasised that S.212 has to be seen as a complete code and reiterated the High Court's observation that S. 212 "is a complete code in itself wherein all the provisions contained therein are, not only interdependent upon each other and thus have to be harmoniously read together conjointly with each other, especially when it concerns readings of the provisions of Section 212(2) and Section 212(17)(a) and Section 212(17)(b) of the 2013 Act." 

Notably, S. 212(2) states that once a case has been assigned to SFIO, no other investigating agency of centre or state can investigate into the case. If the alternative investigation has started then it shall transfer the relevant documents and records to SFIO. 

S. 212(17)(a) states that any other investigating agency having information on the case assigned to SFIO shall provide all such information or documents available with it to the Serious Fraud Investigation Office. While S. 212(b) provides that SFIO shall share records or information with any investigating agency, State Government, police authority or income-tax authorities, which may be relevant or useful in respect of any offence or matter being investigated or examined by the latter under any other law.

In the present case, the 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 this it had lodged the complaint.

The single bench of Justice Hemant Chandangoudar noted that the FIRs were lodged on the Forensic Audit Report for the financial year 2009-10 to 2017-18.

Even if the allegations were accepted on their face, the Court said that they would be tantamount to the petitioner committing fraud as defined in Explanation (i) to Section 447 of the Companies Act. It also pointed out that Section 212 of the Companies Act deals with the investigation into a company's affairs by a serious fraud investigating officer (SFIO).

Under explanation (i) of S.447, fraud is defined as any act, omission, concealment of facts, or abuse of position with an intent to deceive, gain an unfair advantage, or cause harm to a company, its shareholders, or the public at large.

The High Court in its order made the following observations :

“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." 

Case Details : CENTRAL BUREAU OF INVESTIGATION Vs VIJAYRAJ SURANA| SLP(Crl) No. 9381/2024