WRIT PETITION No. 4268 OF 2024
Date of judgment - 16/02/2024
Decided by - HON'BLE MR. JUSTICE M. NAGA PRASANNA
INTRODUCTION
In the current scenario where the law, regulations and rules are important to regulate the population, the exact similar principle can be applied to all the corporate communities where it requires rules, legislations and duties to ensure their transparency. Even then the corporate crimes keep taking place for which the Companies Act 2013 provides a measure that is ‘Inquiry, Inspection and investigation of companies’ which is an important step for the determination whether the company committed a crime. Form sections 206 - 229 of companies deal with Inquiry, Inspection and investigation of companies.
Exologic solutions private limited is a one person company established by veena thaikkandiyal in 19th september 2014 by registering in Registrar karnataka bangalore. This company contains a sole director that is venna with the 13 other employees working under her, Exalogic is an SAAP specifically deals with software developing, customization and consulting for all platforms and current status of the company is it is a dormant company under section 455 of the companies act. For better understanding of this case the above topic is important.
FACTS
In the start, it was found that Cochin minerals and rutile Ltd (CMRL) had some kind of illegal payments (Private transactions) of 1.72 crores to the petitioner’s IT firm (exalogic solutions), the Registrar initiated an enquiry under section 206 of the companies act and several documents and paperwork was requested form the petitioner to submit.
Even though all the requested documents have been submitted to the registrar, furthermore documents were asked and later a show cause notice was issued expressing their concerns regarding the related party transactions between the petitioner and Karnataka State industrial development Corporation (KSIDC) and demanding the documents and information about the transactions.
Later in 2023, the petitioner filed a Writ petition(WP) under 226 and 227 of the constitution in the Karnataka High Court asking the central government to conduct the investigation regarding the related party transactions between petitioner, CMRL and KSIDC. During the pendency of petition, Later an investigation under section 210 of the companies act is ordered by the central government, but petitioner did not receive the notification of this order.
later, also contended that through the media, they have received the information that investigation of the company was given to the SFIO under 212 of the companies act by the central government. In 2024, the SFIO issued notices to the petitioner company demanding documentation , records and various other documents of the company from several years
Later Petitioner requested an extension and filed the current pending Writ Petition under as. 226 and 227 of the Constitution, related to the order made by the central government regarding section 212 of companies act 2013 and quashing of the same, claiming it to be arbitrary, illegal, and invalid in the eyes of the law.
ISSUE
Whether the investigation or investigation notice under section 212 of companies act can be issued to a company while a prior investigation/notice under section 210 of companies act is being conducted.
ARGUMENTS
Petitioner
It was contended that the petitioner’s fundamental rights are violated as the notice of investigation under section 210 of companies act and even the notice of investigation under section initiated and both these notices were not delivered to the petitioner in the reasonable time
Also contended there was misuse of power , because without concluding the investigation under section 210 of companies act the central government initiated investigation under section 212 of companies act.
Respondent
It was contended that no fundamental right of the petitioners was violated as the transfer of investigation to SFIO under section 212 of companies act, is part of the investigation process under the chapter XIV of companies act 2013 which is considered within the same legal framework/legislation and also stated that it’s not essential to inform/intimate petitioners during the investigation process .
There is no misuse of power by the central government regarding the transfer of investigation to SFIO because the section 212(2) of company act states that once the investigation transferred to SFIO all the the previous and present investigation of all departments will cease and will be transferred to the SFIO.
It is also contended that prior to the transfer of the investigation to SFIO under section 212 of companies act 2013 an interim report was submitted by the inspector under section 210 companies act 2013 and based on such interim report the central government decided to transfer the case due to large financial transactions and complex subject matter.
RATIO DECIDENDI
Karnataka high court regarding the writ petition filed by the petitioner has decided that, the central government has the ultimate authority to appoint Serious Fraud Investigation Officers(SFIO) under section 212 of the companies act 2013 , for conducting investigation regarding any fraud that is identified. Even though a prior/ongoing investigation under section 210 of the companies act 2013 is being conducted, the Serious Fraud Investigation Officers(SFIO) investigation during that period doesn’t cause any violation of petitioner’s rights and it is not violating any law. Karnataka high court also mentioned that under section 212(2) of companies act 2013 states that “Where any case has been assigned by the Central Government to the Serious Fraud Investigation Office for investigation under this Act, no other investigating agency of Central Government or any State Government shall proceed with investigation in such case in respect of any offense under this Act and in case any such investigation has already been initiated, it shall not be proceeded further and the concerned agency shall transfer the relevant documents and records in respect of such offenses under this Act to Serious Fraud Investigation Office’’. Karnataka high court also highlighted the powers and independence of the Serious Fraud Investigation Officers(SFIO) and the ultimate discretion of the central government regarding their appointment, when this matter is affecting the public welfare.
JUDGEMENT
Karnataka High Court rejected/dismissed the writ petition filed by the petitioner and upheld the decision/order of the central government to appoint a Serious Fraud Investigation Officers(SFIO) under section 212 of the companies act 2013 to conduct information regarding this case. Karnataka high court also held that the central government order of SFIO investigation was within the the legislation of the companies act 2013 , it’s not violating any rights and it’s not an arbitrary in nature, court also asked the petitioner not compare both the section 210 and section 212 of companies act 2013 has section 212 will have any upper hand Karnataka high court held it will not interfere in the order made by central government and of the investigation of Serious Fraud Investigation Officers(SFIO) , asking the petitioners to cooperate with the investigation as the corporate frauds have become complex in nature to identify.
IMPACT OF THIS JUDGMENT
As of the impact of this judgment on future cases and subjects matters, is that the court confirmed the power of government and Serious Fraud Investigation Officers(SFIO) regarding any serious fraud that as been identified in an corporate entity, this judgment will accepted as an absolute principle to help any future cases to understand the power and functions of Serious Fraud Investigation Officers(SFIO) and section 212 of companies act 2013.
As for the social and political impact this judgment acts as penal enforcement or as a warning to the corporate communities by increasing their responsibility and accountability. This has also increased the powers of government to make decision and also their binding nature on the parties
CONCLUSION
By the above analysis it can be clearly understood, Karnataka High Court’s interpretation on the absolute power of the central government to appoint Serious Fraud Investigation Officers(SFIO) for serious matters(corporate frauds) by referring to section 212 of companies act 2013, which ensures more transparency, efficiency and quick dispute identification. This decision will be marked as an important legal precedent for the present and future generations and will act as a strong gripping(warning) to the corporate entities from committing any unlawful or illegal activities. After this issue was decided by the Karnataka High Court in favor of the central government, later the Enforcement Department has filed a Money Laundering suit under Prevention Of Money Laundering Act against the petitioner (Exalogic Solutions).
AUTHOR
Gayathri Thallam
The ICFAI Law School, Hyderabad(ILS)
REFERENCE
1.Aishwarya Pawar, SFIO’s Authority and Role Upheld by Karnataka High Court in Corporate Affairs Investigation, Metalegal Advocates (february 20, 2024)
2.Mustafa Plumber, Karnataka High Court Dismisses Plea Of Kerala CM's Daughter's Company Challenging SFIO Probe, Live Law.in (February 16, 2024)
3.The Companies Act, 2013, No. 18, Act of Parliament, 2013 (India)
4.Exalogic Solutions Pvt Ltd vs The Director, Serious Fraud InvestigationOffice , Writ Petition No. 4268 of 2024, Karnataka High Court, February 17, 2024
https://karnatakajudiciary.kar.nic.in/judgements/Order-WP_4268_2024-17022024.pdf
4.Modern Dental College and Research Center vs State of Madhya Pradesh (2016) 7 SCC 353
5.Uttam Das Chela Sundar Das vs Shiromani Gurdwara Parbandhak Committee(1996) 5 SCC 71
Related Posts
