Supreme Court of India
In exercise of powers, the Central Government directed investigation into the affairs of one Group of Companies and LLPs by Officers of Serious Fraud Investigation (SFIO) as nominated by Director, SFIO.
CRIMINAL APPEAL NOS. 538-539 OF 2019
SERIOUS FRAUD INVESTIGATION OFFICE AND ORS.(APPELLANTS) V. RAHUL MODI AND ORS. (RESPONDENTS) (CRIMINAL APPEAL NOS. 538-539 OF 2019 (SUPREME COURT OF INDIA)
1. In exercise of powers, the Central Government directed investigation into the affairs of one Group of Companies and LLPs by Officers of Serious Fraud Investigation (SFIO) as nominated by Director, SFIO.
2. The SFIO shall investigate into following areas in addition to any other issues that it may come across during the investigation.
(i) To ascertain and unearth rotation of funds or identification of quantum of diversion of funds of siphoning including beneficiaries thereof;
(ii) To identify instances of mismanagement, negligence or fraud;
(iii) To ascertain the role of auditors, KMPs or independent directors or any other person in the alleged fraud;
(iv) To examine role of any other entity used as conduit in the alleged fraud;
(v) To identify non-compliance of the statutory provisions of the Act and its impact on Corporate Governance.
3. That the Inspector(s) so appointed shall exercise all powers available to them Under Section 217 of the Companies Act, 2013 and Chapter IX of LLP Act, 2008.
4. The inspector(s) shall complete their investigation and submit their report to the Central Government within a period of 03 (Three) months from the date of issue of this order.
5. Accused were accordingly arrested and Judicial Magistrate granted remand and directed they be produced before Special Court. Thereafter, the Accused were produced before the Special Court with a fresh application for remand.
6. The prayer for extension of custody was opposed by the Accused inter alia on the grounds that the period of completion of investigation as stipulated in the order had expired and as such all further proceedings were illegal.
7. The Special Court found that the application seeking further remand was Inspection, Inquiry and Investigation justified and extended the police custody of the Accused.
8. Writ Petition were filed by accused persons in the High Court. It was submitted that with the expiry of period within which the investigation had to be completed in terms of order, all further proceedings including the arrest of the Respondents were illegal and without any authority of law.
9. The High Court directed release of accused persons on interim bail, during the pendency of the writ petitions, on their furnishing personal bond.
10. Appellants challenged the correctness of the common interim order passed by Delhi High Court in the Supreme Court.
It could not be said that the prescription of period within which a report was to be submitted by SFIO under Sub-section (3) of Section 212 was for completion of period of investigation and on the expiry of that period the mandate in favour of SFIO must come to an end. If it was to come to an end, the legislation would have contemplated certain results including re-transfer of investigation back to the original Investigating Agencies which were directed to transfer the entire record under Sub-section (2) of Section 212.
In the absence of any clear stipulation, an interpretation that with the expiry of the period, the mandate in favour of SFIO must come to an end, would cause great violence to the scheme of legislation. If such interpretation was accepted, with the transfer of investigation in terms of Sub-section (2) of Section 212 the original Investigating Agencies would be denuded of power to investigate and with the expiry of mandate SFIO would also be powerless which would lead to an incongruous situation that serious frauds would remain beyond investigation.
That could never have been the idea. The only construction which was, possible therefore, was that the prescription of period within which a report had to be submitted to the Central Government under Sub-section (3) of Section 212 was purely directory.
Even after the expiry of such stipulated period, the mandate in favour of the SFIO and the assignment of investigation under Sub-section (1) would not come to an end.
The only logical end as contemplated was after completion of investigation when a final report or investigation report was submitted in terms of Sub-section (12) of Section 212. It could not therefore be said that in the instant case the mandate came to an end and the arrest effected under the orders passed by Director, SFIO was in any way illegal or unauthorised by law.
In any case, extension was granted in the present case by the Central Government. But that was completely besides the point since the original arrest itself was not in any way illegal. The High Court completely erred in proceeding on that premise and in passing the order under appeal.
If the submission of the Respondents (writ Petitioners) that the compliance of Sub-section (3) of Section 212 of the Act in relation to the submission of the report be held mandatory was accepted, the very purpose of enacting Section 212 of the Act would get defeated and would become nugatory. It was held that Subsection (3) of Section 212 of the Act was directory in nature, it serves the legislative intent for which Chapter XXIX was enacted.
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SECTION 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 Investigation Office —
(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 Investigation Office and its Director , may designate such number of inspectors, as he may consider necessary for the purpose of such investigation.
(2) Where any case has been assigned by the Central Government to the Serious Fraud Investigation Office for investigation under this Act, no other investigating agency of Central Government or any State Government shall proceed with investigation in such case in respect of any offence under this Act and in case any such investigation has already been initiated, it shall not be proceeded further with and the concerned agency shall transfer the relevant documents and records in respect of such offences under this Act to Serious Fraud Investigation Office.
(3) Where the investigation into the affairs of a company has been assigned by the Central Government to Serious Fraud Investigation Office, it shall conduct the investigation in the manner and follow the procedure provided in this Chapter; and submit its report to the Central Government within such period as may be specified in the order.
(4) The Director, Serious Fraud Investigation Office shall cause the affairs of the company to be investigated by an Investigating Officer who shall have the power of the inspector under section 217.
(5) The company and its officers and employees, who are or have been in employment of the company shall be responsible to provide all information, explanation, documents and assistance to the Investigating Officer as he may require for conduct of the investigation.
(6) Notwithstanding anything contained in the Code of Criminal Procedure, 1973, offence covered under section 447 of this Act shall be cognizable and no person accused of any offence under those sections shall be released on bail or on his own bond unless—
(i) the Public Prosecutor has been given an opportunity to oppose the application for such release; and
(ii) where the Public Prosecutor opposes the application, the court is satisfied that there are reasonable grounds for believing that he is not guilty of such offence and that he is not likely to commit any offence while on bail:
Provided that a person, who, is under the age of sixteen years or is a woman or is sick or infirm, may be released on bail, if the Special Court so directs:
Provided further that the Special Court shall not take cognizance of any offence referred to this sub-section except upon a complaint in writing made by—
(i) the Director, Serious 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 sub-section (6) is in addition to the limitations under the Code of Criminal Procedure, 1973 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 sub-section 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 envelope, in such manner as may be prescribed and the Serious Fraud Investigation Office shall keep such order and material for such period as may be prescribed.
(10) Every person arrested under sub-section (8) shall within twenty-four hours, be taken to a Special Court or Judicial Magistrate or a Metropolitan Magistrate, as the case may be, having jurisdiction:
Provided that the period of twenty-four hours shall exclude the time necessary for the journey from the place of arrest to the Special Court or Magistrate’s court .
(11) The Central Government if so directs, the Serious Fraud Investigation Office shall submit an interim report to the Central Government.
(12) On completion of the investigation, the Serious Fraud Investigation Office shall submit the investigation report to the Central Government.
(13) Notwithstanding anything contained in this Act or in any other law for the time being in force, a copy of the investigation report may be obtained by any person concerned by making an application in this regard to the court.
(14) On receipt of the investigation report, the Central Government may, after examination of the report (and after taking such legal advice, as it may think fit), 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 indirectly connected with the affairs of the company.
(14A) Where the report under sub-section (11) or sub-section (12) states that fraud has taken place in a company and due to such fraud any director, key managerial personnel, other officer of the company or any other person or entity, has taken undue advantage or benefit, whether in the form of any asset, property or cash or in any other manner, the Central Government may file an application before the Tribunal for appropriate orders with regard to disgorgement of such asset, property or cash and also for holding such director, key managerial personnel, other officer or any other person liable personally without any limitation of liability.
(15) Notwithstanding anything contained in this Act or in any other law for the time being in force, the investigation report filed with the Special Court for framing of charges shall be deemed to be a report filed by a police officer under section 173 of the Code of Criminal Procedure, 1973.
(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 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 incometax 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.
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