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TMI Blog2023 (12) TMI 1019X X X X Extracts X X X X X X X X Extracts X X X X ..... ing therefrom. ii. Quash/set aside sanction letter dated 19.05.2022, i.e., F.No. LEGAL 35/15/2022 issued by respondent no. 1/Ministry of Corporate Affairs granting sanction to the Serious Fraud Investigation Office for initiating Prosecution. iii. Quash the complaint dated 19.05.2022 filed by the Serious Fraud Investigation Office before the Court of the learned Additional Sessions Judge - 03 and Special Judge (Companies Act), Dwarka District Courts, Delhi. iv. Set aside summoning order dated 20.09.2022 passed by the learned Special Judge in CC No. 374/2022 titled 'SFIO v. Bhushan Airways Services Private Limited and Others'. v. Restrain the Serious Fraud Investigation Office from carrying out any further investigation into the affairs of Bhushan Power and Steel Ltd. ('BPSL') and Others under order F.No. 5/5/2016-CL-II dated 03.05.2016 issued by the Ministry of Corporate Affairs. Background 2. Briefly stated, the facts of the present case, necessary for adjudication of the present petition, are as under: i. Respondent no. 1/Ministry of Corporate Affairs ('MCA'), in exercise of powers under Section 212(1)(c) of the Companies Act, 2013 ('the Act'), vide F.No. 5/5/2016-CL- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earned Senior Counsel for the petitioners submitted that as far as petitioners no. 1 and 2 are concerned, the SFIO has no authority to carry out an investigation qua them, either in terms of Section 212(1) or Section 219 of the Act. The said provisions provide as under: "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." "219. Power of inspector to conduct investigati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of a person/company and ensure that no investigation is carried out without following the procedure provided for in the said Act. 3.3. Learned Senior Counsel submitted that Section 212(14) of the Act provides for prosecution of a company, its officers or any other persons. It was submitted that to initiate investigation against a company/body corporate, approval is required under Section 212(1), 219(a), 219(b) or 219(c) of the Act, as the case may be and to initiate investigation against an officer of a company or a person, approval under Section 219(d) of the said Act is required. Apart from the aforesaid, there is no other provision in the Act which authorizes an investigation to be carried out by the SFIO and therefore, in absence of such authority in terms of any of the aforesaid provision, the SFIO could not have investigated petitioners no. 1 and 2. Powers of the SFIO are Restricted to Investigate Offences Under the Companies Act Only 4. Learned Senior Counsel submitted that as per the scheme of the Act as well as the CrPC, the power of the SFIO is limited to carrying out an investigation under the Act only and it does not extend to offences under the IPC. 4.1. It was sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olice authority etc. that is investigating/examining the said offence under any other law. 4.4. It was submitted that a conjoint reading of the aforesaid provisions, thus, makes it clear that the SFIO has the authority to investigate offences under the Act only and in the present case, the SFIO overreached its authority inasmuch as it has carried out an investigation in relation to petitioners no. 1 and 3 qua offences under the IPC as well. In support of the said contention, reliance was placed on Manish Rangari and Others v. Union of India and Anr., 2020 SCC OnLine Bom 3226 and Ashim Maitra and Ors. v. State of West Bengal and Ors., 2008 (3) CHN 143. 4.5. Learned Senior Counsel for the petitioners further submitted that the Act does not expressly provide that the SFIO is empowered to carry out an investigation in relation to offences under the IPC and what has not been expressly provided in a statute cannot be read into it by way of implication or inference. Reliance was placed on B. Shankara Rao Badami and Ors. v. State of Mysore and Anr., (1969) 1 SCC 1 (Para 14), State of Uttar Pradesh v. Aman Mittal and Anr., (2019) 19 SCC 740 (Paras 29 and 30) and Union of India and Anr. v. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 86) 4 SCC 537 - Paras 2 and 11. xi. State of Punjab and Anr. v. Gurdial Singh and Ors., (1980) 2 SCC 471 - Para 9. xii. Badrinath v. State of Tamil Nadu and Ors., AIR 2000 SC 3243 - Para 27. xiii. State of Kerala v. Puthenkavu N.N.S. Karayogam and Anr., (2001) 10 SCC 191 - Para 9. xiv. C. Albert Morris v. K. Chandrasekaran and Ors., (2006) 1 SCC 228 - Para 42. xv. Upen Chandra Gogoi v. State of Assam and Ors., (1998) 3 SCC 381 - Para 6. xvi. State of Punjab v. Davinder Pal Singh Bhullar, AIR 2012 SC 364 - Para 107. xvii. Yusofalli Mulla v. King Emperor, AIR 1949 PC 264 - Para 14. xviii. Manish Rangari and Others v. Union of India and Anr., 2020 SCC OnLine Bom 3226 - Para 7. xix. State of Punjab v. Baldev Singh, (1999) 6 SCC 172 - Paras 28 and 55. xx. Hussein Ghadially v. State of Gujarat, (2014) 8 SCC 425 - Para 21.3. Submissions on behalf of the Respondents Prior Approval under Section 219 of the Companies Act Not Required to Prosecute an Individual or Entity under Section 212(14) of the said Act 7. Learned Senior Panel Counsel appearing on behalf of the SFIO submitted that in order to prosecute a person under Section 212(14) of the Act, prior approval und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that Section 219 enables the SFIO to carry out an investigation into the affairs of any other body corporate (linked to a company qua which proceedings have been initiated in terms of Section 212 of the Act), managing director, manager or employee when it is found that such investigation is necessary for the purposes of the investigation into a company in terms of Section 212 of the Act. It was submitted that therefore, Section 219 of the Act is an ancillary provision and required to be invoked only when an investigation is required to be conducted into a company/individual different from one for which approval has been given in terms of Section 212 of the Act. It was submitted that Section 212(14) of the Act, on directions of the Central Government, empowers the SFIO to prosecute a company and its officers or employees or 'any other person directly or indirectly connected with the affairs of the company'. It was submitted that there is no stipulation for the requirement of a prior approval under Section 212(1) or Section 219 of the Act for investigation into 'any other person directly or indirectly connected with the affairs of the company'. Therefore, learned Senior Panel Couns ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of a transaction amounting to Rs. 10 Crores was found involving Silver Star Commercial Company Pvt. Ltd./petitioner no. 2. In 2015-16, monies siphoned from BPSL were transferred to Silver Star Commercial Company Pvt. Ltd./petitioner no. 2 as an unsecured loan from the entry operators and the same was then transferred onwards to another entity controlled and managed by Sh. Sanjay Singhal. Moreover, the money received by Silver Star Commercial Company Pvt. Ltd./petitioner no. 2 was simply forwarded to the aforesaid entity. No instance was found of the said money being infused back into the 'promoter equity' of BPSL. v. However, the fact remains that Silver Star Commercial Company Pvt. Ltd./petitioner no. 2 did receive siphoned funds, which, as per the Investigation Report, were to be used for acquiring property, which did not materialize. Therefore, it cannot be said that Silver Star Commercial Company Pvt. Ltd./petitioner no. 2 was not a beneficiary of siphoned funds. vi. SFIO further deemed it irrelevant to look into the affairs of Silver Star Commercial Company Pvt. Ltd./petitioner no. 2 in order to supplement its investigation into BPSL. Silver Star Commercial Company Pvt. L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs had, in turn, received monies from BPSL (which were then accounted for as "Advances to Suppliers" and "Capital Advances"). * While the initial purpose of the unsecured loan of INR 10 Crores was for purchase of property, it appears that the amount of INR 10 Crores was transferred onward to BSN Enterprises and an unsecured loan. 6. Involvement in Fraud * Used as a vehicle to facilitate the round tripping of funds from BPSL. * Funds siphoned off from BPSL were received by Décor Investment and Finance Pvt. Ltd. Decor then infused the funds siphoned off from BPSL into BPSL as promoter contribution. * Consistent receipt of siphoned funds between 2011-2014 which were then infused into BPSL as promoter contribution. * This company was a beneficiary of the siphoned funds. * This company was not found to have been consistently receiving funds from entry operators. 7. Facets of fraud involved This entity not only facilitated the round tripping of money, it also duped banks by infusing funds siphoned from BPSL as promoter contribution. * It is thus arrayed as an accused charged under Section 447 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an offence under this Act, a Special Court may also try an offence other than an offence under this Act with which the accused may, under the Code of Criminal Procedure, 1973 (2 of 1974) be charged at the same trial." 8.1. Learned Senior Panel Counsel submitted that the aforesaid provisions are to be constructed harmoniously, in a manner that does not restrict the powers of the SFIO to investigate offences under the Act only. It was submitted that a bare reading of Section 436(2) of the Act reflects that the offences under the Act as well as any other offence with which an accused may be charged under the CrPC, can be tried together, by the Special Court trying the offence under the Act. It was submitted that the said provision gives jurisdiction to the SFIO for investigation, as well as prosecution. Reliance was placed on a judgment of the Hon'ble High Court of Punjab and Haryana in Raj Kumar Modi v. Serious Fraud Investigation Office, 2019:PHHC:133009. 8.2. Learned Senior Panel Counsel further drew the attention of this Court to a judgment delivered by a coordinate bench in Ashish Bhalla v. State & Anr., 2023:DHC:6808, wherein while quashing an FIR and transferring the proceedi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es for a requirement of approval in relation to 'any person', which will include any person related to a company for which prior approval has been given under Section 212 of the Act and therefore, in order to investigate R.K. Gupta/petitioner no. 1, approval was required. 10. Learned Senior Counsel submitted that as far as the power of the SFIO to investigate offences under the IPC is concerned, Section 436(2), though provides that offences under the Act and the IPC can be tried together, but it does not give jurisdiction to the SFIO to investigate offences under the IPC. It was submitted that within the scheme of the Act, the bar on the power of the SFIO to investigate offences other than those under the Act is implicit. In support of the said contention, learned Senior Counsel drew the attention of this Court to Sections 212(15) and 212(17) of the Act. Analysis and Findings Jurisdiction or legal sanction/authority with the SFIO to investigate petitioners no. 1 and 2 11. Learned Senior Counsel submitted that SFIO could carry out an investigation only pursuant to approval or authority granted by the Central Government under Section 212(1) of the Act or after obtaining prior app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... '. It was submitted that in the facts and circumstances of the present case, SFIO took a conscious decision not to investigate into the affairs of petitioner no. 2. It was submitted that since the affairs of petitioner no. 2 were not investigated, there was no requirement for approval under Section 219 of the Act. As regards, petitioner no. 1, it was stated that he was a 'Key Managerial Personnel' as the Company Secretary of BPSL and was responsible for control and management of the affairs of the said company. 16. Section 219 of the Act has the heading 'Power of inspector to conduct investigation into affairs of related companies, etc.'. The said provision relates to the following entities: a. any other body corporate which is, or has at any relevant time been the company's subsidiary company or holding company, or a subsidiary company of its holding company; b. any other body corporate which is, or has at any relevant time been managed by any person as managing director or as manager, who is, or was, at the relevant time, the managing director or the manager of the company; c. any other body corporate whose Board of Directors comprises nominees of the company or is accusto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in case if the inspector, if after approval being given with regard to investigation of the 'related' companies mentioned under Section 219(a), (b) or (c), comes across role of Managing Director, Manager or employee of the said 'related' companies, then no prior approval for investigation would be required. In other words, protection has been given only to the Managing Director or Manager or employee of the company being investigated under Section 212 of the Act and not for the Managing Director or Manager or Employee of the companies being investigated under Section 219 (a), (b) or (c) of the Act. The aforesaid position is not acceptable. In the considered opinion of this Court, once an approval has been given under Section 212 of Act to investigate into the affairs of a company, the same would also relate to a Managing Director or Manager or Employee of the said company. The pre-condition of a prior approval under Section 219 of the Act applies to related companies and their Managing Director, Manager or employees as provided for in the said Section. It is further pertinent to note that petitioner no. 1, being a 'Key Managerial Personnel' in terms of Section 2(51) of the Act wou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... K.G. Finvest Pvt. Ltd. 1.00 Rootstar Merchandise Pvt. Ltd. 3.00 Sarvottam Securities Pvt. Ltd. 4.00 Wincliff Technologies Pvt. Ltd. 0.80 Jagdhara Dealcom Pvt. Ltd. 1.00 Total 10.00 The aforesaid extract, as quoted hereinabove, from the complaint filed by the SFIO clearly shows that the affairs of the company were 'investigated' into qua petitioner no. 2 and the aforesaid allegation would cover the case of petitioner no. 2 under Section 219(c) of the Act. However, the effect of not taking such prior approval would not ipso facto render the cognizance taken qua petitioner no. 2 by learned Special Court as invalid. It is the case of the SFIO that prior sanction for prosecution with respect to petitioner no. 2 had been obtained under Section 212(14) of the Act. It is settled law that defective investigation would not render cognizance taken by the learned Special Court as invalid. In Fertico Marketing (supra), while examining an issue with regard to validity of investigation without approval of the State Government under Section 6 of the Delhi Special Police Establishment Act, 1946, the Hon'ble Supreme Court observed and held as under: "22. As early as in 1955, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... miscarriage of justice but the invalidity of the investigation has no relation to the competence of the court. 23. It will also be apposite to note the following observations of this Court in State of Karnataka v. Kuppuswamy Gownder [State of Karnataka v. Kuppuswamy Gownder, (1987) 2 SCC 74 : 1987 SCC (Cri) 280], while considering the provisions of Section 465 CrPC : (SCC pp. 79-80, para 14) "14. The High Court, however, observed [Kuppaswamy Gounder v. State of Karnataka, 1981 SCC OnLine Kar 220 : (1981) 2 Kant LJ 509] that provisions of Section 465 CrPC cannot be made use of to regularise this trial. No reasons have been stated for this conclusion. Section 465 CrPC reads as under: '465. Finding or sentence when reversible by reason of error, omission or irregularity.-(1) Subject to the provisions hereinbefore contained, no finding, sentence or order passed by a court of competent jurisdiction shall be reversed or altered by a court of appeal, confirmation or revision on account of any error, omission or irregularity in the complaint, summons, warrant, proclamation, order, judgment or other proceedings before or during trial or in any inquiry or other proceedings under this C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R 1944 PC 73] and Lumbhardar Zutshi v. R. [Lumbhardar Zutshi v. R., 1949 SCC OnLine PC 64 : (1949-50) 77 IA 62 : AIR 1950 PC 26] held that if cognizance is in fact taken on a police report initiated by the breach of a mandatory provision relating to investigation, there can be no doubt that the result of the trial, which follows it cannot be set aside unless the illegality in the investigation can be shown to have brought about a miscarriage of justice and that an illegality committed in the course of investigation does not affect the competence and the jurisdiction of the court for trial. This being the legal position, even assuming for the sake of argument that CBI committed an error or irregularity in submitting the charge-sheet without the approval of CVC, the cognizance taken by the learned Special Judge on the basis of such a charge-sheet could not be set aside nor could further proceedings in pursuance thereof be quashed. The High Court [Prakash P. Hinduja v. Union of India, 2002 SCC OnLine Del 679 : (2002) 64 DRJ 34] has clearly erred in setting aside the order of the learned Special Judge taking cognizance of the offence and in quashing further proceedings of the case." ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment may prescribe in this behalf:..." 23. It was pointed out that petitioners no. 1 and 3 have been arrayed as accused for alleged commission of offences under the under the IPC as well. A conjoint reading of the aforesaid provisions of the CrPC makes it apparent that only an officer in-charge of a police station can commence an investigation under the IPC. It was submitted that such a power has not been given to any of the officers of the SFIO. Reliance was placed on Manish Rangari (supra) wherein it has been held as under: "7. I have carefully considered the rival submissions and perused the application and the documents placed on record by the applicants. Having done so, I am of the prima facie, view that the contentions raised by the applicants have merit. Prima facie, it appears that while passing the impugned Order dated 29/07/2019 taking cognizance of offence against the applicants, the learned Special Court failed to take judicial notice of the following legal aspects which go to the root of the matter, thus rendering the impugned Order vulnerable. (a) The various offences under the 2013 Act of which cognizance has been taken came into force only with effect from 12/0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ort dated 31st August 2018 and the subject complaint filed by the SFIO before the learned Special Court, appear to be without jurisdiction. Impugned Order, as such, becomes vulnerable, at least prima facie, case for consideration is, as such, made out." (emphasis supplied) 24. Per contra, learned Senior Panel Counsel on behalf of the respondent submitted that provisions of Section 212(2) and Section 436(2) of the Act are to be constructed harmoniously in a manner that does not restrict the power of SFIO to investigate offences under the Act only. It was pointed out that Section 436(2) of the Act gives power to the learned Special Court to try an offence other than the offences under the Act at the same trial and that would give jurisdiction to the SFIO for investigation as well as prosecution for offences punishable under the IPC. Reliance was placed on a judgment passed by a coordinate bench of this Court in Ashish Bhalla (supra), wherein an FIR registered by the Economic Offences Wing on the basis of a similar allegations which were part of an ongoing investigation being conducted by SFIO was quashed on the ground that since the Companies Act is a special act, the same would p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly to the proceedings before a Special Court and for the purposes of the said provisions, the Special Court shall be deemed to be a Court of Session and the person conducting a prosecution before a Special Court shall be deemed to be a Public Prosecutor." Similarly, Section 436(2) of the Act, provides as under: "436. Offences triable by Special Courts.- *** *** *** (2) When trying an offence under this Act, a Special Court may also try an offence other than an offence under this Act with which the accused may, under the Code of Criminal Procedure, 1973 (2 of 1974) be charged at the same trial." Section 4 of the CrPC provides as under: "4. Trial of offences under the Indian Penal Code and other laws.- (1) All offences under the Indian Penal Code (45 of 1860) shall be investigated, inquired into, tried, and otherwise dealt with according to the provisions hereinafter contained. (2) All offences under any other law shall be investigated, inquired into, tried, and otherwise dealt with according to the same provisions, but subject to any enactment for the time being in force regulating the manner of place of investigating, inquiring into, trying or otherwise dealing with suc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... further investigation, as under: "173. Report of police officer on completion of investigation.- *** *** *** (8) Nothing in this section shall be deemed to preclude further investigation in respect of an offence after a report under sub-section (2) has been forwarded to the Magistrate and, where upon such investigation, the officer in charge of the police station obtains further evidence, oral or documentary, he shall forward to the Magistrate a further report or reports regarding such evidence in the form prescribed; and the provisions of sub-sections (2) to (6) shall, as far as may be, apply in relation to such report or reports as they apply in relation to a report forwarded under sub-section (2)." It is further pertinent to note that this Court has perused the record and does not find any document to show that after the learned Special Court has taken cognizance on 20.09.2022, the petitioners herein have been asked to join any further investigation by the SFIO. Conclusion 30. In view of the above discussion, the conclusions of this Court can be summarized as under: i. Petitioner no. 1, being a 'Key Managerial Personnel' in terms of Section 2(51) of the Act would not ..... X X X X Extracts X X X X X X X X Extracts X X X X
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