Summary
The Ministry of Corporate Affairs ordered an investigation by the Serious Fraud Investigation Office under Section 212(1)(a) and (c) of the Companies Act, 2013 into three Sahara group companies in October 2018 and, under Section 219 read with Section 212(1)(c), extended it in October 2020 to six related companies whose activities were said to be intertwined. In writ petitions challenging those orders the Delhi High Court stayed their operation and all consequential steps including coercive proceedings and look-out notices, reasoning that the three-month period in the 2018 order had expired, that the six companies were not subsidiaries, holding companies or under a common managing director, and that the orders gave no reasons. The Supreme Court set aside the interim orders. The time stipulated under Section 212(3) is directory (SFIO v. Rahul Modi).
Issues
- Whether a High Court is justified, at the interlocutory stage, in staying an investigation ordered by the Central Government under Sections 212 and 219 of the Companies Act, 2013 and all consequential steps including look-out circulars.
- Whether expiry of the period stipulated in an order under Section 212(3) ends the SFIO's mandate, whether Section 219(c) permits investigation of related companies that are not subsidiaries or under a common managing director, and whether an order directing investigation must record detailed reasons.
Provisions considered
- Sections 212(1), 212(3) and 219, Companies Act, 2013The period within which the SFIO is to submit its report under Section 212(3) is directory, not mandatory, and its expiry does not end the mandate (Rahul Modi). Section 219(c) allows investigation of any body corporate whose board comprises nominees of the company or acts on its directions, and the 2020 order specifically invoked it; the High Court erred in confining itself to clauses (a) and (b). An order directing investigation need not spell out elaborate reasons, since the material emerges in the investigation itself. (¶¶ 12, 13, 14, 15)
- Article 226, Constitution of IndiaThough the High Court may pass wide-ranging directions in its extraordinary jurisdiction, blanket interim orders halting an investigation and barring coercive steps at an early stage are to be avoided (Neeharika Infrastructure); the interim stay here was unwarranted. (¶¶ 11, 15, 16)
Held
- The first ground for the stay was ex facie contrary to Rahul Modi, which holds that Section 212(3) prescribes no fixed period for completing the investigation, that the stipulation is purely directory and that the SFIO's mandate ends only on submission of the final report under Section 212(12). (¶ 12)
- The order of 27.10.2020 contained factual averments invoking Section 219(c) — that the six companies' activities were intertwined with those under investigation — so the High Court's finding that they were neither subsidiaries nor holding companies nor under a common managing director, made under clauses (a) and (b) alone, did not warrant staying the investigation. (¶¶ 13, 14)
- The Union Government had indicated reasons for exercising its jurisdiction; at the stage of merely ordering an investigation it would be inappropriate to require elaborate reasons, since the purpose is to ensure a full enquiry into the companies' affairs, and the third ground was specious. The High Court was therefore not justified in staying the investigation and passing consequential directions at the interlocutory stage. (¶¶ 15, 16)
Result
Appeals allowed; the Delhi High Court's interim orders of 13.12.2021 and 05.01.2022 in W.P.(C) No. 13984 of 2021 staying the investigation orders of 31.10.2018 and 27.10.2020 and all consequential steps set aside; the High Court requested to decide the pending writ petitions preferably within two months of reopening after the summer vacation, their merits unaffected.