Investigation Prima Facie Revealed Skullduggery, Court Cannot Shackle Hands Of Central Govt: Karnataka HC While Upholding SFIO Investigation Into Kerala CM’s Daughter’s Company
The Karnataka High Court while dismissing the petition challenging the investigation by the Serious Fraud Investigation Office (SFIO) into the company belonging to Veena Vijayan, daughter of the Kerala Chief Minister Pinarayi Vijay, has observed that the Court cannot shackle the hands of Central Government.
The company named Exalogic Solutions Pvt. Ltd. had preferred a writ petition seeking direction to call for records and quash the order of the Director of SFIO.
A Single Bench of Justice M. Nagaprasanna observed, “Section 210 does speak of a report, 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. If it had been entrusted to any other agency outside the Act, it would have been a circumstance altogether different. It is entrusted to the SFIO which is created under the Act, i.e., in terms of Section 211 with elaborate functions under Section 212.”
The Bench added that the protection to any company from duplication of proceedings is kept tight under sub-section (2) of Section 212 of the Companies Act and above all, and after all, it is investigation.
Senior Advocate Arvind Datar appeared for the petitioner while Addl. Solicitor General K. Arvind Kamath and Deputy Solicitor General H. Shanthi Bhushan appeared for the respondents.
Factual background -
The petitioner company i.e., Exalogic Solutions Private Limited claimed to be a one person company (OPC) incorporated in the year 2014 under the Companies Act, 2013. In 2020, the Ministry of Corporate Affairs (MCA), Union of India addressed a communication to the said company observing that a complaint was received by it in respect of certain alleged incorrect address mentioned in Form No. 10 filed with the Registrar. Such communication never reached the company and a show cause notice was issued against it under Section 12 of the Companies Act. The company contended in its reply that owing to COVID-19 pandemic, it began to work from home and hence, its registered office was shifted.
Another notice was issued by the Registrar directing the company to file adjudication application under Section 454 for alleged non-maintenance of the office. An order was later passed imposing a penalty of Rs. 1,00,000/- each on the company and the Director but the same got reduced to Rs. 20,000/- as a result of an appeal. Thereafter, a show cause notice was issued alleging that a related party transaction appeared between the company and Kerala State Industrial Development Corporation (KSIDC) that owned 13.4% shares of the company. Subsequently, an order was passed by MCA directing initiation of investigation and assigning the same to SFIO under Section 212. Aggrieved by this, the company approached the High Court.
The High Court, in view of the above facts, held, “The powers of SFIO is statutorily determined from sub-section (3) to sub-section (17) of Section 212 and for conduct of investigation there is procedure in place which need not require elaboration at this juncture.”
The Court further noted that a bleak attempt is made by the senior counsel to submit that the phrase ‘interim report’ is found only in sub-section 11 of Section 212, and nowhere in Section 210 suffers from want tenability.
“The said report will not result in any penalty being imposed straight away against any Company. It is for the purpose of investigation. Investigation is for the purpose of unearthing the alleged unethical activities of any Company, in the case at hand, the petitioner/Company. The Apex Court, in plethora of cases, has observed that with the advancement of technology, economic offences have become a real threat to the functioning of the financial system of the country”, it noted.
The Court observed that such economic offences become a great challenge for Investigating Agencies to detect and comprehend intricate nature of transactions, as also the role of persons involved therein. It said that plethora of minute exercise is expected to be undertaken by any Investigating Agency.
“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. As submitted by the learned Additional Solicitor General, the multi-disciplinary body would bring about multi-departmental correspondence to arrive at any finding. Therefore, no fault can be found with the action of the Union of India, in entrusting the investigation to the SFIO”, it also emphasised.
Furthermore, the Court said that at this stage, application of mind to hand over the investigation, need not form part of the order and that the statement of objections are in defence of interim report necessitating assignment of investigation.
“If the Union of India has thought it fit to entrust the investigation to the SFIO, owing to certain factors which have emerged while conduct of investigation under Section 210 and in public interest, this Court in exercise of its jurisdiction under Article 226 of the Constitution of India would not by a stroke of pen, annul such opinion of the Union of India, unless it is contrary to the statute or the action is demonstrably arbitrary. Neither of the two is present in the case at hand, as the projection of the two, by the learned senior counsel for the petitioner is sans acceptance. Therefore, there is no warrant to interfere at this stage”, it held.
It also referred to the case of Modern Dental College and Research Centre v. State of Madhya Pradesh (2016) 7 SCC 353 in which the Supreme Court dealt with the doctrine of proportionality.
“It is the submission that the statute should be used only for the designated proper purpose. In the considered view of the Court, the statute is used for the designated proper purpose. Proportionality is not what can be considered at this stage of the proceedings. The stage, as observed in the course of the order, is conduct of investigation and the Apex Court is clear that investigation process should not be interdicted or annihilated unless the grounds projected are in support of such interdiction. The grounds projected, in support of the petition, are held to be unacceptable. Therefore, the said judgment would not be applicable to the issue at this juncture”, the Court observed.
It, therefore, concluded that the action impugned does not suffer from any statutory aberration and the petition does not deserve any entertainment.
Accordingly, the High Court rejected the petition.
Cause Title- Exalogic Solutions Private Limited v. The Director, Serious Fraud Investigation Office & Anr.
Appearance:
Petitioner: Senior Advocate Arvind Datar, Advocates Manu Prabhakar, Mrinalshankar, Dharmendra Chatur, and Isha Prakash.
Respondents: Addl. Solicitor General K. Arvind Kamath and DSGI H. Shanthi Bhushan.
