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2023 (11) TMI 1380 - HC - Companies LawCompetence of respondents to file complaint - investigation into the affirs of comapny - authority to take cognizance u/s 447 of Companies Act 2013 - no authority given to Registrar of Companies to file complaint - cognizable odffences or not - invocation of jurisdiction u/s 482 of Cr.P.C. - HELD THAT - This is a case where petitioner has taken exception to the proceedings bearing complaint No. SC/12/2021 under Section 447 of the Act of 2013 in which cognizance has been taken and process has been issued vide order dated 11-01-2021. The sheet anchor of the argument of petitioner company goes when authorization is given by the Central Government. So far as submission of petitioner regarding ex post facto application of penal provision is concerned it also lacks merits for the reason that from the documents filed by the petitioner as Annexure A/15 (apparently an application filed before the trial Court) details out the course of events in which one Shri Ashok Kumar Khosla took over the Alliance Industries Ltd. in the year 2012 by acquiring the shares from the erstwhile shareholders/directors of the company and became the sole shareholder/director of the company. Shri Khosla from 2014 onwards started complaining to the various authorities regarding the practice adopted by the petitioner company to defraud the investors by diverting the funds of the investment to other company for utilization of the same for unintended purpose. So far as submission of petitioner regarding opinion given by the office of Director General (Cooperate Affairs) vide Annexure A/10 is concerned it is not an opinion prima facie. In fact it was a summary prepared for interdepartmental communication and it proceeds on probabilities. In fact that summary note of inspection report nowhere gives any clean chit to the company. It is mere proposal. Summary note has no legal sanctity prima facie. This Court does not venture into the factual details on merits of the case in specific terms lest affect the trial but certainly constrains to discuss that the allegations are such which attract trappings of Section 447 of the Act of 2013 for trial prima facie. Transactions were spread out in years together and funds of the company were allegedly siphoned of to different entity (SJPN). Therefore only the trial would unfold the truth. Conclusion - In the considered opinion of this Court the petition preferred by the petitioner fails and has no merits to entertain under Section 482 of Cr.P.C. scope of which constricts once parameters as mandated by the Apex Court in the case of State of Haryana and others Vs. Ch. Bhajan Lal and others 1990 (11) TMI 386 - SUPREME COURT and subsequent judgments are not satisfied. Section 482 of Cr.P.C. can be invoked in exceptional circumstances on the basis of grounds as delineated by the Apex Court time and again. Here this Court desists to invoke such jurisdiction in the given facts and circumstances of the case. Petition dismissed.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered by the Court include: (a) Whether the complaint filed by the Registrar of Companies (RoC) without specific authorization by the Central Government under Section 212(6) of the Companies Act, 2013, is valid and competent to confer jurisdiction on the Special Court to take cognizance under Section 447 of the Act; (b) Whether the alleged offence falls under the Companies Act, 1956 or the Companies Act, 2013, and whether the penal provisions of the Act of 2013 can be applied without violating the prohibition against ex post facto application of penal laws; (c) Whether the summary note of inspection report prepared by the Director General (Corporate Affairs) suggesting no prima facie offence was made out, but prosecution was still initiated, renders the complaint and subsequent proceedings arbitrary and illegal; (d) Whether the allegations of diversion of funds and wrongful gains to related parties, as per the inspection and investigation reports under Sections 206 and 208 of the Companies Act, 2013, prima facie attract the penal provisions of Section 447 of the Act; (e) Whether the petition under Section 482 of the Code of Criminal Procedure, 1973, seeking quashment of the criminal proceedings, is maintainable and warrants interference in the present facts and circumstances. 2. ISSUE-WISE DETAILED ANALYSIS (a) Competence of the Complainant and Authorization under Section 212(6) of the Companies Act, 2013 The legal framework revolves around Section 212(6) of the Companies Act, 2013, which mandates that cognizance of offences under Chapter XIV of the Act can only be taken by the Special Court upon a written complaint made by the Director of the Serious Fraud Investigation Office (SFIO) or any officer of the Central Government authorized by general or special order in writing. The petitioner contended that the Registrar of Companies, who filed the complaint, lacked such authorization, thus vitiating the proceedings. The Court examined the sequence of events: the Central Government ordered an inspection under Section 206(1) on 24-04-2019 and appointed an Inspecting Officer under Section 206(5). The Inspecting Officer submitted a report under Section 208 on 29-11-2019. Subsequently, the Central Government directed further detailed examination and supplementary inspection reports, culminating in a letter dated 18-05-2020 authorizing the Registrar of Companies to file prosecution for violation of Section 447. The Court found that the authorization required under Section 212(6) was effectively granted by the Central Government through this letter, thereby validating the complaint filed by the Registrar of Companies. The petitioner's argument that no such authorization existed was rejected as the respondents clarified the procedural compliance and authorization chain. Precedents cited by the petitioner from other High Courts were distinguished on factual grounds, as those cases involved different procedural or authorization issues. (b) Applicability of Companies Act, 1956 vs. Companies Act, 2013 and Ex Post Facto Application of Penal Provisions The petitioner argued that the alleged offences pertained to transactions occurring between 2000 and 2006, hence under the Companies Act, 1956, and that applying penal provisions of the Companies Act, 2013 would amount to ex post facto application, which is constitutionally impermissible. The Court analyzed the facts and noted that the cause of action was continuous and recurring, with significant transactions and alleged diversion of funds continuing well beyond 2013, including as late as 31-03-2018. The petitioner's own documents revealed complaints and allegations made post-2013, indicating that the fraudulent conduct persisted into the period governed by the Companies Act, 2013. The Court held that the offence was not confined solely to the pre-2013 period and that the penal provisions of the Companies Act, 2013 were applicable to the continuing offence. The Court distinguished the petitioner's reliance on judgments prohibiting ex post facto penal application, noting that those cases involved entirely different factual and legal contexts. (c) Legality of Proceedings Despite Summary Note Suggesting No Prima Facie Offence The petitioner relied on a summary note of the inspection report prepared by the Director General (Corporate Affairs) which suggested that no prima facie offence was made out, contending that proceeding with prosecution was arbitrary and illegal. The Court clarified that the summary note was an internal interdepartmental communication based on probabilities and did not represent a conclusive or legally binding opinion. It was not a "clean chit" to the company and lacked legal sanctity to preclude further action. Therefore, the initiation of prosecution despite the summary note did not render the proceedings invalid. (d) Merits of Allegations and Prima Facie Case under Section 447 of the Companies Act, 2013 The investigation revealed that the petitioner company had transferred substantial funds to related parties at interest rates significantly below market rates, including interest-free loans, leading to wrongful gains and losses to the company and its shareholders. The transactions spanned several years and involved diversion of funds from the company's net worth. The Court observed that these allegations prima facie attract the penal provisions of Section 447 of the Companies Act, 2013, which deals with fraud. While the Court refrained from delving into the factual merits in detail to avoid prejudicing the trial, it noted that the allegations were serious and warranted trial to ascertain the truth. (e) Maintainability of Petition under Section 482 Cr.P.C. and Scope of Interference The petitioner sought quashment of the complaint and all proceedings under Section 482 of the Code of Criminal Procedure, 1973, invoking the inherent powers of the Court to prevent abuse of process or miscarriage of justice. The Court referred to the principles laid down by the Apex Court in the landmark case concerning the scope of Section 482 Cr.P.C., emphasizing that such power is to be exercised sparingly and only in exceptional circumstances where the proceedings are manifestly illegal or without jurisdiction. Given that the authorization for prosecution was validly granted, the offence was continuing and within the scope of the Companies Act, 2013, and the allegations prima facie disclosed an offence under Section 447, the Court found no exceptional circumstances warranting interference. The petition was thus dismissed. 3. SIGNIFICANT HOLDINGS The Court held: "Once the proceedings under Sections 206 and 208 of the Act of 2013 were carried out then authorization as per Section 212(6) of the Act of 2013 was given to Registrar of Companies by Central Government. Therefore, it is not a case where respondents No. 2&3 are carrying out the prosecution without any authorization by the Central Government." "The commission of offence was a recurring cause of action and continuous process travelled in pre and post era of the Act of 2013. Thus, it is not a case where offence has been committed in earlier Act of 1956 and application of penal provision of present Act namely the Companies Act, 2013 was applied." "Summary note has no legal sanctity prima facie." "On merits, allegations are such which require trial to reach to the truth... only the trial would unfold the truth." "Section 482 of Cr.P.C. can be invoked in exceptional circumstances on the basis of grounds as delineated by the Apex Court time and again. Here, this Court desists to invoke such jurisdiction in the given facts and circumstances of the case." Final determinations included the validation of the complaint and prosecution filed by the Registrar of Companies under proper authorization, the applicability of the Companies Act, 2013 to the offence due to its continuing nature, rejection of the ex post facto application argument, dismissal of the petition for quashing the proceedings, and affirmation that the trial must proceed to determine the merits.
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