CRITICAL EVOLUTION OF SERIOUS FRAUD INVESTIGATION OFFICE’S POWERS VIS-À-VIS WHITE-COLLAR CRIMES INVESTIGATIONS IN INDIA

The SFIO comprises of experts ranging in auditing, accountancy, information technology, etc, equipped for the investigation and prosecution of white-collar crimes

Introduction

The Serious Fraud Investigation Office (‘SFIO’) is a specialised body established under the aegis of the Ministry of Corporate Affairs (‘MCA’), Government of India – for investigation into the affairs of a company and particularly investigation of ‘fraud’ as defined under Section 447 of the Companies Act, 2013 (‘2013 Act’). While the SFIO was constituted in July, 2003 basis the recommendations of the Naresh Chandra Committee Report of 2002, it gained statutory force only through the 2013 Act with powers to investigate serious frauds without solely depending on police investigation under the Indian Penal Code, 1860 (‘IPC’). In fact, to combat the rising number of corporate fraud cases in India, the 2013 Act introduced Section 447, which, for the first time, provided a definition of fraud as well as punishment for such an offence.

Building on the aforestated context, this article attempts to examine the systematic evolution of the powers and functions of the SFIO through the lenses of certain key judicial pronouncement by courts in India.

Role and purpose of SFIO under the 2013 Act

The SFIO comprises of experts ranging in auditing, accountancy, information technology, etc, equipped for the investigation and prosecution of white-collar crimes. Procedurally, while assigning investigation to the SFIO, the Central Government is required to pass a reasoned order in writing. The SFIO conducts investigation per the procedure stipulated under Chapter XIV of the 2013 Act and has powers such as summoning for documents or information, cross examine persons, seize books of accounts and documents, arrest etc.

The model for investigating corporate fraud in India is akin to the one adopted in United Kingdom. Multiple agencies, such as the SFIO, Economic Offences Wing, Central Bureau of Intelligence, Income Tax Department, Enforcement Directorate, etc, which share overlapping investigatory powers in the domain of investigating white collar crimes. While such multiplicity can provide for a scaffold for collaborative resource and information sharing, leading to more comprehensive investigations, it can antithetically also result in parallel investigations. As the kinds of white-collar crimes dynamically evolve with time, pertinently through integration with technological aids, it becomes extremely pressing to create coherent demarcations between the roles of these different agencies.

Judicial interpretation on the powers of investigation

Recent judgements have highlighted the need to both, amplify and affirm the independent identity of the SFIO, which earmarks a stated change in the investigatory ambit of the SFIO. This is visualised viz. three broad judicial trends. Firstly, by the prevention of parallel proceedings and consolidation of SFIO’s role vis-à-vis offences under the 2013 Act; secondly, by doing away with procedural roadblocks for SFIO investigations and thirdly, by the amplification of SFIO’s jurisdiction vis-à-vis offenses under the IPC.

In the Hon’ble High Court of Delhi’s judgement of Ashish Bhalla v. State and Another¹, (‘Ashish Bhalla judgement’), it was held that once an investigation by the SFIO under Section 212 of has been initiated into the affairs of a company, a parallel investigation by a separate agency into the affairs of the company, considering the bar under Section 212(2), is not permissible. It was observed that SFIO is an expert body, created keeping in mind the gravity and complexity of the offences involved into the affairs of the Company and for a definitive purpose with a clear and special objective. Therefore, no other parallel agency can be held to be competent to look into the same set of facts/allegations as the SFIO. It was also indicated that Section 212(2) is not strictly limited to the investigation of offences under the 2013 Act but could also be invoked for investigation of offences which may have some relation to the 2013 Act. This judgment was an initiative towards not only protecting individuals being vexed by legal scrutiny in multiple proceedings but also consolidates the role of SFIO vis-à-vis offences related to the 2013 Act.

Secondly, courts have tried to curb any procedural impediments that might affect the efficiency of SFIO’s investigation. Amidst the high number of pending investigations, extensive nature of corporate frauds, and dearth of experienced personnel, the investigation agency might be unable to conclude its investigation within strict timelines. In SFIO v. Rahul Modi², the Supreme Court held that Section 212 does not prescribe a specific time period for the submission of an investigation report and so, even after the time period mentioned in the Government order for submitting an investigation report lapses, the mandate present with the SFIO cannot be understood to extinguish. Additionally, the Bombay High Court in N. Sampath Ganesh v. Union of India³, held that within the meaning of sub-clause (14) of Section 212, prosecution can be initiated on the basis of either an interim report or an investigation report, as long as it can supplement a charge.

The ultimate leg of this trend was ushered by the judgement of the Delhi High Court in R.K. Gupta v. Union of India⁴, which has reaffirmed the SFIO’s powers to investigate offences under the IPC. Upon a harmonious reading of the relevant provisions of the Cr.P.C. and the 2013 Act, the Court held that if during the investigation of an offence under the 2013 Act, an investigating officer of the SFIO also uncovers an offence that is punishable under the IPC, he may proceed to investigate the latter in accordance with Section 4(1) of the Cr.P.C. Such dispensation with the need of separate proceedings for offences that arise out of the IPC not only re-attests the systematic evolution of the investigative role of the SFIO, but it also deters the commonality of allegations from diverging into an additional supplementary investigation.

This restriction respectfully circumvents any criticism of enabling the SFIO to encroach the investigating powers of other agencies. In fact, it supplements the holding in Ashish Bhalla judgement which indicated that Section 212(2) should also be invoked for the investigation for offences which may have some relation to the 2013 Act and has thus carved a path for a singular investigation being carried out for a particular transaction.

Key Takeaways

With an increase in the instances of white-collar crimes in India, the need for their early detection, speedy investigation and immaculate weeding out is a necessity, more than ever before. The Parliamentary Standing Committee on Finance in its report on the Ministry Demands for Grants (2021-22) observed that there had been no convictions in non-compoundable cases by the SFIO and the rate of disposal for prosecution cases was 8 to 10 years on an average. And thus, the SFIO should be armed with sufficient teeth to investigate and prosecute cases which relate to complex corporate frauds that have huge and grave impact on the economy and on various stakeholders. The current judicial trend has undeniably aided the SFIO by defining its investigatory ambit and preventing multiple agencies from probing in the same financial crimes which inevitably result in prolonged litigations. Whether this systematic evolution of the SFIO and the intricately defined role, purpose and authority of this body would usher in a more systematic and efficient disposal of corporate fraud investigation and adjudication, to eventually cause a spill-over effect for other white-collar crime enforcement agencies remains to be evaluated.

Disclaimer – The views expressed in this article are the personal views of the authors and are purely informative in nature.