TMI Blog2019 (1) TMI 785X X X X Extracts X X X X X X X X Extracts X X X X ..... r Section 212 of the Companies Act – and given the report of the SFIO (which is, of course post such order) this court is of the opinion that there is no infirmity with the impugned judgment - appeal dismissed. - LPA 390/2017, C.M. APPL.19101/2017 & 32231/2017 - - - Dated:- 7-1-2019 - MR. S. RAVINDRA BHAT AND MR. A.K. CHAWLA JJ. Appellant Through: Sh. Jayant Bhushan, Sr. Advocate with Sh. Nitesh Jain, Sh. Atul Sharma and Sh. Abhinav Mukhi, Advocates. Respondents Through : Ms. Maninder Acharya, ASC with Sh. Dev. P. Bhardwaj, CGSC, Sh. Sahil Sood, Sh. Harshul Choudhary and Sh. Viprav Acharya, Advocates, for Respondent No.1. Sh. Dayan Krishnan, Sr. Advocate with Ms. Bina Gupta, Sr. Advocate, Ms. Rakhi Ray and Sh. Ashok Kumar Sharma, Advocates, for Respondent No.2. Sh. S.S. Haque, Sr. Assistant Director, Mrs. Deepmala Bagri, Assistant Director and Sh. Piyush Kumar, Assistant Director. MR. S. RAVINDRA BHAT 1. The appellant (hereafter Sunair ) impugns a judgment and order of the learned single judge, dismissing its writ petition; it had challenged the decision of the Union of India ( UOI hereafter) dated 29.02.2016 directing investigation by the Serious ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 77; 7 crore and a security deposit of ₹ 8 crore. 4. In 1995, Sunair decided to seek re-transfer of the developmental rights pertaining to the allotted land and accordingly sought to buy back the rights that were valued at ₹ 21 crores. The manner in which this re-purchase was carried out was through cheques for a sum of ₹ 1 crore furnished by Sunair in favour of its subsidiary, which was then rotated back to the promoters of Sunair who used that sum to subscribe for additional shares in Sunair. Thus, a sum of ₹ 1 crore which was with SUNAIR as share application money paid by VLS was rotated 21 times and was accounted for the share investment of ₹ 21 crores by Sunair. This transaction was perceived by VLS as fraudulent and one that prejudiced their rights under the MOU as no correspondingly proportionate shares were issued to VLS, thus diluting their shareholding in Sunair. 5. In 1998, VLS, by C.P. No. 45(ND)/98 moved the Company Law Board (hereafter CLB ) alleging that the affairs of the company were mismanaged and that the allotment of 2,09,916.00 shares of Sunair to Shri Vipul Gupta and 23 others to be fraudulent, and praying inter alia that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0/406/409/468/471/477-A and 120-B of the Indian Penal Code, 1860. In July 2009, VLS filed an application before the concerned criminal court under Section 451 and Section 457 claiming that the allotted shares that were in dispute to be seized and the concerned shareholders not be allowed recourse to exercise the rights that were attached to those shares. The application was allowed by order dated 25th September, 2010. The criminal court ordered that the disputed shares to be treated as tainted property until the entire matter could be heard. This court, on appeal, set aside that order by its order dated 28th September, 2010 in W.P. (CRL) No. 1497/2010 and W.P. (CRL) No. 1499/10. This court noted that the order seizing the disputed shares was a drastic measure which was taken in the absence of any demonstrable urgency and was further passed by the Trial Court without considering rival contentions and was invalid for a failure to state reasons. 8. It is also undisputed that further FIRs bearing No.99/2002 (registered at Connaught Place Police Station), No.148/2002 (registered at Defence Colony Police Station) and No. 315/2005 (registered at Naraina Police Station) were registered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cted the special leave petition and affirmed this court s order. Investigation under Section 237(b) of the Companies Act, 1956: 11. In 2003, VLS and the Union Department of Corporate Affairs filed petitions dated 25th August 2003 and 19th December 2003 respectively, praying the CLB to order an investigation to be carried out into the affairs of SUNAIR under Section 237(b) of the Companies Act, 1956. The CLB in its order dated 16th May, 2007 dismissed both the petitions. Therein, one of the members of the CLB, after perusing both the petitions noted that the allegations therein were almost identical to each other. The learned Member thereafter exhaustively examining the basis of the petition and concluded that all the allegations were either frivolous or had been considered in a different and more appropriate forum. The CLB, therefore, concluded: The facts and circumstances of the present case, to my mind, prima facie do not demonstrate and establish the existence of pre-requisite(s) necessary to form my opinion in terms of section 237(b) of the Act. Hence, I find no justification to order investigation under Section 237(b) of the Act in this case. 12. The vali ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t was also noted in the Affidavit dated 12th February 2016 that the Central Government was receiving fresh complaints and that it may consider acting under Section 212(1)(c) of the Companies Act, 2013, ordering an investigation to be commenced by the SFIO into the affairs of SUNAIR. Upon receiving the Affidavit of the UOI, the Supreme Court by order dated 26th February 2016, listed the matter to be subsequently heard on 18th March 2016. Before the matter came to be heard again by the Supreme Court, on 29th February 2016, the Ministry of Corporate Affairs issued Order No. 03/97/2009 CL II (NR), dated 29th February 2016 thereby ordering an investigation into the affairs of SUNAIR to be carried out by the SFIO and to submit a report to the Central Government within a period of 6 months. On being appraised of the decision of the Central Government to proceed under Section 212 of the Companies Act, 2013, the Supreme Court on 08th April 2016 posted the matter to be heard after four weeks therefrom after noting that the pendency of the special leave petition will not come in the way of the aggrieved parties challenging the said decision i.e., dated 29th February, 2016 before the ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... argued that investigations were ordered solely on the basis of complaints that in effect merely reiterated previous allegations made by VLS in various FIRs and petitions to the CLB. These allegations had been considered in the various appropriate fora, that most of these complaints were held to be frivolous and that the rest of the offences were compounded. Sunair contends that in the absence of any new material with the MCA so as to alter the conclusions arrived at by the other fora and in the absence of any application of mind to differ from the conclusions so arrived, the opinion of the Government was ill-formed and the action ordering an investigation was bad in law. 19. It was finally contended that the order directing an investigation in public interest under Section 212(1)(c) must stand on its own rationale and that additional affidavits or the final report that is the outcome of the investigation cannot be used to justify the order of investigation. Sunair relied on Ashok Kumar Agarwal v. CBI (WP Crl. 1401/2002 (Judgement Dated 13.01.2016); Delhi HC) and Smt. Selvi v. State of Karnataka [(2010) 7 SCC 263] to establish this proposition. 20. The UOI, on the other h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... infructuous in the event the SFIO report is in favour of the Petitioner Company. 32. Therefore, in my considered view, in keeping with the directions of the Hon'ble Supreme Court, as contained in the orders dated 22.07.2016 and 05.12.2016; it would be necessary to consider the final report of investigation dated 31.10.2016, submitted by the SFIO, whilst adjudicating the present petition on its merits. 24. Having held so, the learned single Judge opined that the investigation provision under Section 212 of the 2013 Act is similar to Section 237 of the 1956 Act and the Judge rules that the principles enunciated by the Supreme Court in Barium Chemicals (supra) and Rohtas (supra) are applicable to investigations under Sections 212 of the 2013 Act as well. After discussing the decisions above mentioned, the learned single judge astutely summarizes the law on investigations under Section 212 thus: 44. On a conspectus of the aforesaid decisions, relevant paragraphs of which have been extracted hereinabove; the following legal position emerges: i. Discretionary power has been conferred upon the Central Government under the relevant provisions of the Act, to order a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fact, existed, or whether extraneous considerations have weighed on the opinion formed by the Central Government. xii. Whilst considering a challenge to an opinion of a competent authority directing an investigation into the affairs of a company, the Court has to exercise caution, inasmuch as, the Court cannot sit in appeal over the opinion and cannot substitute its opinion for that of the competent authority of the Central Government. 25. Thereafter, the impugned judgment examined the material on the basis of which the investigation was ordered and held that the opinion formation was in accordance with law: a perusal of the material on record, in the present case, would show that the formation of the opinion cannot be assailed on the ground of it having being rendered without proper application of mind or in a casual manner. The opinion was formed based on cogent and creditworthy material warranting investigation in the public interest. The material justified the ordering of an investigation since the allegations levelled constituted serious violations of various provisions under the 1956 Act, 2013 Act and the IPC. Analysis and Conclusions 26. Before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rsons concerned in the formation of the company or the management of its affairs have in connection therewith been guilty of fraud, misfeasance or other misconduct towards the company or towards any of its members ;or (iii) that the members of the company have not been given all the information with respect to its affairs which they might reasonably expect, including information relating to the calculation of the commission payable to a managing or other director or the manager, of the company. 28. Under the 2013 Act, under Section 206 the Registrar has the power of superintendence and is empowered to call for information, to inspect books and to conduct inquiries and Section 207 further, confers powers of discovery and summons on the Registrar so as to aid with the inquiry. Under Section 208, upon the completion on the inquiry, the Registrar or Inspector thus appointed shall be required to submit a report in writing to the Central Government and if necessary he/she may include a recommendation that further investigation into the affairs of the company is necessary giving their reasons in support. Section 210 confers powers on the Central Government to investigate the aff ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of investigation is an administrative order because, as explained in Barium Chemicals [supra], The discretion conferred to order an investigation is administrative and not judicial since its exercise one way or the other does not affect the rights of a company nor does it lead to any serious consequences as, for instance, hampering the business of the company. 31. Being an administrative order, it is essential that the Government must form an opinion under the section and it has been repeatedly affirmed by the jurisprudence of our courts that certain defects in the formation of opinion are justiciable. Section 237(b) of Companies Act, 1956 and Section 212 of Companies Act, 2013 32. The court would consider previous rulings under Section 237(b) of the Companies Act, 2013 which was the provision conferring the power on the Government to initiate an investigation into the affairs of a company. Later, the court would consider the applicability of these rulings to Section 212 that is relevant to the instant matter. In Barium Chemicals (supra) having discussed the principles that govern the formation of opinion under administrative law, referring to the text of Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of Justice Hidayatullah, who, in his opinion observed: Para 28 [ ]Since the existence of circumstances is a condition fundamental to the making of an opinion, the existence of the circumstances, if questioned, has to be proved at least prima facie. It is not sufficient to assert that the circumstances exist and give no clue to what they are because the circumstances must be such as to lead to conclusions of certain definiteness. [ ] Para 31 [ ] The affidavit merely says that these reports indicated the need for a deeper probe. This is not sufficient. The material must suggest certain inferences and not the need for a deeper probe . The former is a definite conclusion the latter a mere fishing expedition. A straight-forward affidavit that there were circumstances suggesting any of these inferences was at least necessary. There is no such affidavit and the reason is that the Chairman completely misunderstood his own powers. 34. Justice Bachawat did not express an opinion on this issue but agreed with the conclusions arrived at by Justice Hidayatullah and Justice Shelat. It is important to note that on the other hand Sarkar, C.J., and Mudholkar, J., who were in dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amental to the making of the opinion, when questioned the existence of these circumstances have to be proved at least prima facie. 38. The learned impugned judgment has also accepted this proposition quoting with approval the following passage from Parmeshwar Das Agrawal (supra): 31. The Indian Companies Act, 1956 (for short 1956 Act ) and The Companies Act, 2013 (for short 2013 Act ) are both enacted to consolidate and amend the law relating to companies and certain other associations. As far as the 2013 Act is concerned, on its initial enactment and later on its amendment, it has been clarified that the legislation relating to incorporation and registration of companies had to be consolidated and brought in time with the current situation prevailing in the country and abroad. Several provisions had to be introduced which were hitherto not introduced. As far as the power and referable to the provisions of these two enactments are concerned, their basic foundation remains the same, 39. This court, however, is unable to agree with this proposition. It is a well-established principle of statutory interpretation that the primary meaning of a provision must be inferred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions enumerated in the subclause (i),(ii) and (iii) of section 237(b) whereas in the latter the formation of opinion pertains to the necessity of investigation in public interest . The circumstances enumerated in the above-mentioned sub-clauses finds no mention in Section 212 (or in the entire chapter regarding investigations in the 2013 Act) and to directly apply the rulings in Barium Chemicals (supra) and Rohtas Industries (supra)would in effect amount to reading into Section 212 an entire sub-section that was willfully omitted from the present statute and changing the very character of the opinion to be formed under the subsection. Such an interpretation cannot be sustained and amounts to judicially rewriting the statute. This conclusion is in fact supported by the observation of Justice Mudholkar in Barium Chemicals (supra) wherein the learned Judge observed: The formation of an opinion must, therefore, be as to whether there are circumstances suggesting the existence of one or more of the matters in sub-clauses (i) to (ii) and not about anything else. [ ]To say that the opinion to be formed must be as to the necessity of making an investigation would be making a clear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 237 of the Companies Act, 1956 was challenged, Justice Shelat elaborating on the standards of review applicable to the formation of an opinion before an investigation may be ordered observed that: Though an order passed in exercise of power under a statute cannot be challenged on the ground of propriety or sufficiency, it is liable to be quashed on the ground of mala fides dishonesty or corrupt purpose. Even if it is passed in good faith and with the best of intention to further the purpose of the legislation which confers the power, since the Authority has to act in accordance with and within the limits of that legislation, its order can also be challenged if it is beyond those limits or is passed on grounds extraneous to the legislation or if there are no grounds at all for passing it or if the grounds are such that no one can reasonably arrive at the opinion or satisfaction requisite under the legislation. In any one of these situations it can well be said that the authority did not honestly form its opinion or that in forming it, it did not apply its mind to the relevant facts. 46. Justice Shelat then illustrated that the interpretation of statutory provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ete facts . The majority view thus vindicated the validity of the provision on the ground that under the power conferred thereby, Reserve Bank had to determine, albeit instead of the court, the issue whether the continuance of a particular banking company was detrimental to the depositors, interests. Though the words used were in the opinion of , the opinion, though exclusively of the Reserve Bank, was dependent on the determination by it of the aforesaid issue. Therefore, the words, reason to believe or in the opinion of do not always lead to the construction that the process of entertaining reason to believe or the opinion is an altogether subjective process not lending itself even to a limited scrutiny by the court that such a reason to believe or opinion was not formed on relevant facts or within the limits or as Lord Radcliffe and Lord Reid called the restraints of the statute as an alternative safeguard to rules of natural justice where the function is administrative. 47. In the present case Sunair has challenged the order as being arbitrary and illegal primarily on the ground that the Central Government did not make the order on the basis of sufficient mate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before such an investigation is ordered, the deciding authority must appraise itself of all the relevant facts. Further, as observed by in Sri Ramdas Motor Transport Ltd. v. Tadi Adhinarayana Reddy [(1997) 5 SCC 446] The department of the Central Government which deals with companies is presumed to be an expert body in company law matters. Therefore the standard that is prescribed under Section 237(b) is not the standard required of an ordinary citizen but that of an expert. 50. It was this context that Rohtas Industries (supra) had in mind, when it held that if it is established that there were no materials upon which the authority could form the requisite opinion the court may infer that the authority did not apply its mind to the relevant facts. The requisite opinion is then lacking and the condition precedent to the exercise of the power under Section 237(b) is not fulfilled. 51. Sufficiency of material relates not only to the volume of material but rather also includes the quality of the material. It follows that if the Central Government receives mere allegations, no matter how serious the allegations are, there is a duty to examine those allegations so a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her shares in the company to themselves. c. It is alleged that 21 files that were stolen from the Ministry of Corporate Affairs were later recovered within the premises of the Sunair. 53. It is evident that allegations (a) and (b)were the subject of litigation since 1999 and the CLB has twice found that there were no discrepancies in the retransfer of the land or in the allotment of shares. Most recently, CLB, hearing the remanded matter, after exhaustively considering the MOU between VLS and SUNAIR dated 11th March 1995, by order dated 4th September 2013, dismissed VLS s petition finding unequivocally that there were no infirmities in the abovementioned transaction. Further, VLS approached the CLB under Section 237(b) of the 1956 Act and prayed for an investigation into the affairs of the Sunair on these same facts in 2003. This petition was rejected by the CLB in 2006 on account of the allegations being frivolous and already addressed in various forums. This order was upheld by this Court in 2012 and by the Supreme Court in 2013. 54. As regards the alleged misstatement in the balance sheet, the Company Law Board compounded this offence under Section 211 of the 1956 Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that although on the face of it the allegations seem to suggest that there were serious irregularities in the conduct of the company. Upon a perusal of the history of the various disputes between Sunair and the VLS, it clear that some allegations were restatements of allegations that have been decided in favour of the Sunair time and again. However, with passage of time, fresh allegations were levelled; the matter was given greater weight because several Members of Parliament expressed concern and sent complaints by members of the public. These ultimately led to the formation of opinion that an older course, initially suggested and contemplated could not be pursued; instead an investigation under Section 212 was favoured as feasible and necessary. Though the reasons are not elaborate, the reference to the fresh material, has to be connected with what ultimately prevailed with the government, which was also prompted to take up, having regard to the repeated queries by the court, which wished it to respond whether it was definitely saying that no investigation was necessary, and if necessary to take appropriate steps in accordance with law. Such orders of the court however, do not a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... perly or illegally managed; but who would be responsible for the affairs which are reported to be irregularly managed is a matter which would be determined at the end of the enquiry. At the commencement of the enquiry and indeed throughout its proceedings there is no accused person, no accuser and no accusation against anyone that he has committed an offence. In our opinion a general enquiry and investigation into the affairs of the company thus contemplated cannot be regarded as an investigation which starts with an accusation contemplated in Article 20(3) of the Constitution. 59. It is, therefore, evident that the fact that the complaints on the basis of which the investigation was ordered related to offences that had already been considered in others does not by itself render the investigation illegal or in violation of Article 20. This court notes that the learned Single Judge came to the same conclusion while rejecting the Appellant s argument relying on the protection against double jeopardy. The learned Single Judge observed that: 60. Lastly, the submission made on behalf of the Petitioner Company that the impugned order is tantamount to double jeopardy, cannot be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd, it is important to note that the SFIO is a body comprising experts in the field of forensic audits, taxation, banking etc. Further, the SFIO derives its powers of investigation under Section 212 and has been given far greater powers to investigate the affairs of the company, rather than that would be available to investigations conducted under Section 210. For instance, when a case has been assigned to the SFIO, no other agency may investigate the affairs of the company and all files concerning the affairs of the company should be transferred to the SFIO. Further, certain offences if discovered in the course of an SFIO investigation, bail would only be made available at a much higher threshold than under Section 437 of the Criminal Procedure Code. The SFIO is also bestowed with greater powers of arrest. Upon completion of the investigations by the SFIO it must submit its report to the Central Government upon which the Government may direct it to initiate prosecution against the officers of the Company. Although the constitutional validity of Section 212 is not presently under challenge in the present petition, based on the above observations by Justice Shelat in Barium Chemical ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers of Sunair and family members, the report suggested, rotated ₹ 1 crore 21 times to get the majority shares of SHL (Sunair) fictitiously held by approx. 350 shareholders through other intermediary companies. According to the SFIO report identities from the general public were personated to allot the shares of Sunair in fictitious names; these shares were later transferred to Trans Asia Consultants P Ltd via Bindal Estate Pvt. Ltd. Further Loans were secured from Axis Bank Ltd, which accepts deposits from general public, after using duplicate certificates or share certificates divided from the shares lying as seized property with the Income Tax Department. Thus, these loans were secured fraudulently. The report was given shape after going through a mass of 40,000 pages of materials, by a four-member SFIO team. 66. For the above reasons, i.e the materials which were on the record of the Central Government when it did issue the impugned order under Section 212 of the Companies Act and given the report of the SFIO (which is, of course post such order) this court is of the opinion that there is no infirmity with the impugned judgment. The appeal is, therefore, dismis ..... X X X X Extracts X X X X X X X X Extracts X X X X
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