Karnataka High Court: Government of India Can Assign SFIO an Ongoing Investigation U/S 210 of Companies Act, 2013

Karnataka High Court: Government of India Can Assign SFIO an Ongoing Investigation U/S 210 of Companies Act, 2013

The Karnataka High Court ruled that the initiation of an investigation under Section 210 of the Companies Act 2013 does not strip the Government of India of its authority to assign the inquiry to the Serious Fraud Investigation Office (SFIO) under Section 212 of the same Act.

The ruling was made by Justice M Nagaprasanna while dismissed a petition filed by Exalogic Solutions Private Ltd, challenging the investigation conducted by the SFIO against the company.

The petitioner, primarily argued that an inquiry and investigation were initiated against the company subsequent to the issuance of a notice under Section 206(4) of the Act. This led to the passing of an order under Section 210, which pertains to the investigation into the affairs of a company. Although the requested documents have been submitted to the competent officer under Section 210, the proceedings are still ongoing.

He argued that while the proceedings under Section 210 are ongoing, the SFIO should not have been tasked with the investigation under Section 212 of the Act. Furthermore, he asserted that only after a report is submitted under Section 210, it might lead to the initiation of proceedings under Section 212 of the Act, based on the circumstances that would necessitate an investigation by the SFIO.

He further argued that the basis for invoking the power under Section 212 should be the formation of an opinion that it is necessary to conclude the investigation into the affairs of the company. However, in this case, no such opinion has been formed.

In response to the arguments regarding the jurisdiction of the SFIO under Section 212 of the Companies Act, 2013, Justice M Nagaprasanna, referred to the relevant provisions of the Act. The court noted that Section 212 delineates the circumstances under which an investigation can be assigned to the SFIO, including instances such as receipt of a report from the Registrar or Inspector under Section 208, intimation by the company itself, public interest considerations, or upon request from any department of the Central or State Government. Moreover, the court highlighted that under Section 212(2), any ongoing investigation by another agency will cease upon the SFIO's assignment. This comprehensive analysis formed the basis for the court's ruling while dismissing the petition filed by Exalogic Solutions Private Ltd, thus affirming the validity of the SFIO's investigation against the company.

The court stated, "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."

The court held that the powers of the Serious Fraud Investigation Office (SFIO) are statutorily determined from sub-section (3) to sub-section (17) of Section 212, and there is a procedure in place for the conduct of investigation.

Rejecting the contention of the company that the assignment of investigation to the SFIO cannot occur while proceedings are ongoing under Section 210 without a final report by the authorities, the court stated, "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." the court observed that the argument lacks merit as it sets a problematic precedent.

Furthermore, the court held, "Section 210 does speak of a report, and 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." In essence, the court emphasized that Section 210 allows for interim reports, and if during an ongoing investigation such as this, circumstances arise warranting SFIO's involvement, the Central Government should not be restricted from making such an assignment.

The Union Government argued that the investigation initiated under Section 210 led to the Inspector, conducting the investigation, submitting an interim report. This interim report, according to the government, justified the necessity of assigning the investigation to the SFIO.

The court observed that the petitioner's contention regarding the phrase 'interim report' being found only in sub-section 11 of Section 212, and not in Section 210, lacks merit.

The court observed that the report generated under Section 210, whether interim or final, serves the purpose of facilitating investigation rather than imposing immediate penalties on any company. Its primary objective is to aid in the discovery of any alleged unethical activities conducted by the company under scrutiny, such as the petitioner company in the present case.

The court noted that the Supreme Court, in numerous cases, has emphasized the gravity of economic offenses. The court stated, "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." the court observed that given the intricate nature of economic offenses, involving a multi-disciplinary body like the SFIO is deemed necessary, and consequently, the court supported the Union of India's decision to assign the investigation to the SFIO.

The court stated that if the Union government, in its judgment, deemed it appropriate to entrust the investigation to the SFIO based on factors emerging during the conduct of the investigation under Section 210 and in the public interest, the court, exercising its jurisdiction under Article 226 of the Constitution, cannot nullify such an opinion unless it is contrary to the statute or the action is demonstrably arbitrary.

Justice Nagaprasanna concluded that there were no grounds to interfere with the SFIO probe against Exalogic, stating that the decision to entrust the investigation to the SFIO was in line with public interest and not contrary to the law.