SIFO investigation not ends after expiry of period prescribed for submission of report

SIFO investigation does not come to an end even after expiry of period within which a report has to be submitted u/s 212(3) of the Companies Act 2013

ABCAUS Case Law Citation:
ABCAUS 2846 (2019) (03) SC

Under Section 212(3) of the Companies Act, 2013 (2013 Act) where the investigation is assigned by the Central Government to the Serious Fraud Investigation Office (SFIO), the investigation must be conducted in the manner and in accordance with the procedure provided in the Chapter and a report has to be submitted to the Central Government within such period as may be specified.

The instant appeal was filed by the SIFO challenging the correctness of the interim order passed by the High Court directing release of accused holding that their arrest by SIFO was an absolute illegality.

In exercise of powers conferred by Section 212(1)(c) of the 2013 Act and under Section 43(2) and (3)(c)(i) of the Limited Liability Partnership Act, 2008 (2008 Act), the Central Government had directed investigation into the affairs of Adarsh Group of Companies and LLPs (The Group) by SFIOas nominated by Director, SFIO.

On the same date, i.e. on 20.06.2018 an Order was passed by the Director, SFIO which prescribed completion of the investigation and submission of the report within three months.

Based on the material gathered during investigation, an approval was sought under Rule (2) of the Companies (Arrests in connection with Investigation by Serious Fraud Investigation Office) Rules, 2017 (2017 Rules) from the Director, SFIO to arrest three accused persons. The approval was granted by the Director, SFIO on 10.12.2018 much after the expiry of the three months from the date of the said order dated 20.06.2018.

The accused were accordingly arrested on 10.12.2018. and were produced before the Magistrate on 11.12.2018. The Magistrate granted remand till 14.12.2018 and directed they be produced before the Special Court (Companies Act), on 14.12.2018.

The prayer for extension of custody was opposed by the accused inter alia on the grounds that the period of completion of investigation as stipulated in the order dated 20.06.2018 had expired and as such all further proceedings were illegal. During the course of proceedings, the proposal seeking extension in respect of said 57 cases, where investigation had not been completed, was placed before the Special Court. After going into the record, the Special Court found that the application seeking further remand was justified. It, therefore, extended the police custody of the accused till 18.12.2018

Mean time, on 13.12.2018 a proposal was made by SFIO seeking approval of the Central Government for extension of time for completing investigation and submission of investigation report in respect of 57 cases which were at various stages of completion and the period granted for completion of investigation had either expired or was near the expiry.

The proposal was accepted vide order dated 14.12.2018 passed by the Central Government in respect of the Group and extension was granted upto 30.06.2019.

The accused approached the Hon’ble High Court and submitted that with the expiry of period of three months within which the investigation had to be completed in terms of order dated 20.06.2018, all further proceedings including the arrest of the respondents were illegal and without any authority of law.

The High Court concurring with the arguments of the applicants held that the arrest of the applicants was an absolute illegality and patently suffered from the vice of lack of legal sanction and jurisdiction. The High court also opined that also, the applicants were arrested at the SFIO office at New Delhi rendering the remand orders passed by the concerned Magistrate wholly without jurisdiction.

Accordingly the Hon’ble High Court directed release of accused on interim bail, during the pendency of the writ petitions, on their furnishing personal bond with local sureties subject to conditions stipulated in the order.

The Hon’ble Supreme Court observed the “investigation report” under Section 212(12) is to be submitted on completion of the investigation whereas report under sub-Section (11) is in the nature of an interim report and is to be submitted if the Central Government so directs.

The question to be answered by the Hon’ble Supreme Court was whether the period within which a report is contemplated to be submitted to the Central Government under sub-Section (3) is mandatory and what is the scope and extent of such stipulation. Particularly when the provisions of Section 43(2) of 2008 Act did not postulate any such period and the assignment in the present case to SFIO was under the concerned provisions of 2013 Act as well as under 2008 Act.

The Hon’ble Supreme Court noted that Section 212(3) of 2013 Act by itself does not lay down any fixed period within which the report has to be submitted. Even under sub-Section (12) which is regarding “investigation report”, again there is no stipulation of any period. In fact such a report under sub-Section (12) is to be submitted “on completion of the investigation”. There is no stipulation of any fixed period for completion of investigation which is consistent with normal principles under the general law.

The Hon’ble Supreme Court pointed out that sub-Section (2) of Section 213 of 2013 Act does not speak of any period for which the other Investigating Agencies are to hold their hands, nor does the provision speak of any re-transfer of the relevant documents and records from SFIO back to said Investigating Agencies after any period or occurring of an event.

The Hon’ble Supreme Court quoted an example that under Section 6 of the National Investigation Agency Act, 2008 (NIA Act) the Agency (NIA) can be directed by the Central Government to investigate the Scheduled Offence under the NIA Act and where such direction is given, the State Government is not to proceed with any pending investigation and must forthwith transmit the relevant documents and records to the Agency (NIA). But under Section 7 of NIA Act, the Agency may, with previous approval, transfer the case to the State Government for investigation and trial of the offence.

The Hon’ble Supreme Court opined that the use of the very expression “assign” in Section 212(3) of 2013 Act contemplates transfer of investigation for all purposes whereafter the original Investigating Agencies of the Central Government or any State Government are completely denuded of any power to conduct and complete the investigation in respect of the offences contemplated therein. In other words, the idea under sub-Section (2) is complete transfer of investigation.

The Hon’ble Supreme Court stated that the transfer under residuary section 213(2) would not stand revoked or recalled in any contingency. If a time limit is construed and contemplated within which the investigation must be completed then logically, the provisions would have dealt with as to what must happen if the time limit is not adhered to.

The Hon’ble Supreme Court observed that the Statute must also have contemplated a situation that a valid investigation undertaken by any Investigating Agency of Central Government or State Government which was transferred to SFIO, must then be re-transferred to said Investigating Agencies. But the Statute does not contemplate that.

The Hon’ble Supreme Court opined that the transfer is irrevocable and cannot be recalled in any manner. Once assigned, SFIO continues to have the power to conduct and complete investigation. If that be so, can such power stand curtailed or diminished if the investigation is not completed within a particular period. The Statute has not prescribed any period for completion of investigation.

The Hon’ble Supreme Court pointed out that it is well settled that while laying down a particular procedure if no negative or adverse consequences are contemplated for non-adherence to such procedure, the relevant provision is normally not taken to be mandatory and is considered to be purely directory. Furthermore, the provision has to be seen in the context in which it occurs in the Statute.

The Hon’ble Supreme Court observed that in a SIFO investigation, there are three basic features as under:

  1. Absolute transfer of investigation in terms of Section 212(2) of 2013 Act in favour of SFIO and upon such transfer all documents and records are required to be transferred to SFIO by every other Investigating Agency.
  2. For completion of investigation, sub-Section (12) of Section 212 does not contemplate any period.
  3. Under sub-Section (11) of Section 212 there could be interim reports as and when directed

In view of the above three salient features, the Apex Court opined that it cannot be said that the prescription of period within which a report is to be submitted by SFIO under sub-Section (3) of Section 212 is for completion of period of investigation and on the expiry of that period the mandate in favour of SFIO must come to an end. If it was to come to an end, the legislation would have contemplated certain results including re-transfer of investigation back to the original Investigating Agencies which were directed to transfer the entire record under sub-Section (2) of Section 212.

The Hon’ble Supreme Court opined that in the absence of any clear stipulation, an interpretation that with the expiry of the period, the mandate in favour of SFIO must come to an end, will cause great violence to the scheme of legislation. If such interpretation is accepted, with the transfer of investigation in terms of sub Section (2) of Section 212 the original Investigating Agencies would be denuded of power to investigate and with the expiry of mandate SFIO would also be powerless which would lead to an incongruous situation that serious frauds would remain beyond investigation. That could never have been the idea.

Therefore, the Hon’ble Supreme Court opined that the only construction which is, possible is that the prescription of period within which a report has to be submitted to the Central Government under sub-Section (3) of Section 212 is purely directory. Even after the expiry of such stipulated period, the mandate in favour of the SFIO and the assignment of investigation under sub-Section (1) would not come to an end. The only logical end as contemplated is after completion of investigation when a final report or “investigation report” is submitted in terms of sub-Section (12) of Section 212 of the Act.

Accordingly, the Hon’ble Supreme Court held that It could not therefore be said that in the instant case the mandate came to an end on 19.09.2018 and the arrest effected on 10.12.2018 under the orders passed by Director, SFIO was in any way illegal or unauthorised by law and the High Court completely erred in proceeding on that premise and in passing the order under appeal.

The Hon’ble Supreme Court set aside the order of the High Court and directed the accused to surrender

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