Offence Of Such Scale And Grave Nature Directly Affects Public Interest: RoC Defends Serious Fraud Investigation Into Kerala CM's Daughter's Company, Karnataka HC Reserves Order

The Karnataka High Court today reserved Judgment in the Writ Petition filed by Exalogic Solutions Pvt Ltd. challenging the investigation by the Serious Fraud Investigation Office (SFIO) into its affairs.

The Bench of Justice M Nagaprasanna reserved order after hearing Senior Advocate Arvind Datar for Exalogic Solutions. The Court also observed that no precipitative action should be taken in the matter till orders are pronounced.

In its petition, Exalogic Solutions Pvt Ltd., owned by Veena Vijayan, daughter of the Kerala Chief Minister Pinarayi Vijay has told the Court that the SFIO investigation ordered within two weeks of ordering investigation under Section 210 of the Companies Act is impermissible and abuse of power.

It has contended that since the Central Government invoked power under Section 210, it took a conscious decision not to invoke power under Section 212 of the Companies Act and hence invocation of power under Section 212 subsequently amounts to abuse of power. According to the company, the Section 212 investigation should have awaited the result of the investigation commenced under Section 210.

Exalogic Solutions has also contended that no reason has been provided for invoking Section 212 and that the same is a result of gross non-application of mind. The Petitioner has also contended that jurisdictional requirements under Section 212 have not been fulfilled and that principles of natural justice have not been complied with.

A Counter Affidavit was filed by the Registrar of Companies, Bangalore (RoC) through Deputy Solicitor General H. Shanti Bhushan stating that the SFIO investigation was ordered after being satisfied that a multi-disciplinary approach is required, having regard to the gravity of the offence committed by the petitioner and other entities, and also being satisfied that it is necessary in the larger public interest.

"The Respondent No.2 (Union of India), as a matter of abundant caution, therefore has not granted sanction for any prosecution against the petitioner on any of the findings of the inquiring officer, including the contraventions of provisions of Companies Act on Related party disclosures, which the petitioner has attempted to emphasize. The Inquiring officer, based on the available material, had also observed prima facie case for fraudulent transaction in respect of certain transactions which required a more detailed inspection/investigation against the petitioner, as well as CMRL to properly obtain further documentary evidence in order to find out /establish the veracity of fraudulent transaction pointed out in the report", the RoC has said in its affidavit.

The RoC states that the Petitioner company has made "flimsy arguments" stating that they have provided the details of GST paid and also the deduction of TDS and that the same would in itself constitute proof of having rendered services to CMRL. "It is respectfully stated that these arguments are devoid of merits. The payment of GST and deduction of TDS in itself are not proof of services rendered and this became germane to the inquiry/investigation proceedings", the affidavit says.

The RoC says that in the Income Tax Interim Settlement Board's order, it was found that the Income Tax Department had cited illegal payments to the extent of INR 135 crore to various political functionaries of Kerala state and certain other entities, including the petitioner, by CMRL. "An offense of such scale and grave nature that directly affects public interest would definitely merit an investigation by a multidisciplinary organization in the form of SFIO", the affidavit says.

The RoC has also said that the petitioner has brazenly suppressed facts and fraudulently obtained dormancy status for the Company from the RoC.

In a case arising out of the same SFIO investigation, The Kerala High Court today refused to pass any interim order staying the investigation by the SFIO against the Kerala State Industrial Development Corporation (KSIDC) in relation to the financial dealings between Kerala Exalogic Solutions Pvt Ltd. and the state-owned Cochin Minerals and Rutiles Ltd.(CMRL). The Court also refused to close a plea filed by a political leader seeking investigation into the affairs of Exalogic Solutions and CMRL.

Cause Title: Exalogic Solutions Pvt. Ltd. v. The Director, Serious Fraud Investigation Office & Anr. (Writ Petition No. 4268/2024)