Case: Parmeshwar Das Agarwal &amp; Others Vs. The Additional Director (Investigation) Serious Fraud Investigation Office, Ministry of Corporate Affairs, Government of India Regional Office &amp; Another

Commission or based on its recommendations. However, by its very title, the investigation under section 212 by the SFIO ought to be on the basis of the opinion of the Central Government that it is necessary to investigate into the affairs of the company by SFIO. That opinion has to be based on the report of the Registrar or Inspector under section 208; on intimation of a special resolution passed by a company that its affairs are required to be investigated; in the public interest or on the request from any department of the Central Government or the State Government. By section 211, the SFIO is established to investigate frauds relating to a company. It is a very special office and headed by a Director and consists of such number of experts from the fields enumerated in subsection (2) of section 211 to be appointed by the Central Government from amongst persons of ability, integrity and experience. The wide powers that this office enjoys, as is set out in various sub-sections of section 212, would denote as to how its involvement comes after the investigations are assigned to it by the Central Government. By their very nature the investigations into frauds relating to a company have to be assigned. They have to be of such magnitude and seriousness demanding involvement of experts in the fields enumerated in sub-section (2) of section 211. Therefore, while exercising the powers under sub-section (1) of section 212, the Central Government ought to be not only forming an opinion about the necessity to investigate into the affairs of the company, but further that such investigations have to be assigned to the SFIO.48. We do not think that there were materials in the present case and which can be termed as enough to warrant the exercise of power by the Central Government by resorting to section 212(1) of the Act of 2013. The Central Government, in the order under challenge, did not spell out any circumstances, except outlining its power under the above sections to order investigation into the affairs of a company in public interest. None disputes that power or its existence. In para 2 of the impugned order, however, a reference is made to the report of the Registrar of Companies, West Bengal, dated 13th January, 2016. We have already held that the findings in this report are not enough for the Central Government to exercise the drastic power. Something more was required and to be established as circumstances or material enough for exercise of the power. That is clearly lacking in this case.49. This is the only basis, namely, the report of the Registrar of Companies, West Bengal, or its contents which has enabled the Central Government to exercise its powers under section 212(1)(c). It is, therefore, apparent that it has not necessarily acted in terms of its power conferred by section 212 to direct investigation into the affairs of the company in public interest. The foundation for reaching the opinion or satisfaction is the report of the Registrar. We have referred to the details in that report and we are of the firm opinion that based on that the Central Government could not have recorded a satisfaction or an opinion that investigation into the affairs of the company are necessary. There is no element of public interest which is projected, save and except some vague and general references to certain allegations in matters of bank finance and allotment of coal mines and alleged diversion of raw materials. There has been absolutely no details furnished nor referred in the report. Rather, the report proceeds on the basis that as far as these issues are concerned nothing can be done by the Ministry of Corporate Affairs or the Registrar of Companies. We fail to understand, therefore, how in the present facts and circumstances and based on allegations and counter allegations between two groups of shareholders can it e even held that it is necessary in public interest to direct an investigation into the affairs of the company. Once we reach the conclusion that there is lack of requisite material to arrive at the requisite opinion or record the necessary satisfaction, then, in exercise of our powers of judicial review, we can safely quash and set aside the impugned order. We find that the opinion recorded or the satisfaction reached is vitiated by total non application of mind. None of the factors which are germane and relevant for forming the opinion have been referred. The opinion or satisfaction is based only on the complaint of the Member of Parliament to the CVC and with regard to which report was called for from the Registrar. Even the contents of that report have been, as held above, misread and totally misinterpreted. Based on that no opinion could have been recorded that it is necessary to investigate the affairs of the company in public interest.50. Once we reach the above conclusion, it is not necessary to express any opinion as to whether the SFIO at Mumbai has the necessary territorial jurisdiction to summon the petitioners for an inquiry. We also do not record any opinion for we are satisfied that in the facts and circumstances of the present case even in relation to private company, a complaint could have been made and that complaint could have been probed further.51. We are in complete agreement with Mr. Godbole that this is an investigation directed at the instance of the rival groups and though Mr. Agarwal tries to pursuade us into holding that the Central Government has not been influenced by or is never interested in family matters or disputes, we find that to be the essential basis on which the whole action is initiated. It being so initiated at the threshold itself it is vitiated. The law does not permit entering into all such controversies as are essentially factual and existing between groups of shareholders of a private company locked in litigation and which litigation has not reached finality.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]The public at large is not concerned with its affairs, much less internal management. The petitioners have pointed out as to how there is a large family involving about three brothers. These three brothers, in turn, have formed separate groups comprising of their families, There are two units one at Raigarh in Chattisgarh and another at Jharsuguda in the State of Odisha. The company manufactures sponge iron. That there are disputes between these groups who have the entire shareholding of the company and those disputes are subject matter of several proceedings pending before the High Court of Calcutta. There was an attempt made to resolve the disputes amicably. A settlement document / MOU was drawn up with respective obligations and to be discharged by the groups, there are allegations and counter allegations of failure to discharge them. An attempt is made to resile from the said obligations and have the entire arrangement or settlement cancelled or declared invalid and illegal. There are some Suits in relation thereto are pending before the High Court of Calcutta. An attempt was also made to resolve the disputes by demerging the businesses of the company. Though this demerger was taken forward and a company petition seeking approval to the scheme of demerger was filed in the Calcutta High Court, one group member backed out and filed an affidavit in opposition. That is how the scheme could not go through. Thereafter, the orders were passed by the single Judges of the High Court of Calcutta refusing interim reliefs and sanctioning the scheme. Appeals from the said order were preferred and as far as appeal against interim order in the suit are concerned, that has also been dismissed. The appeal from the order passed by the company Judge in the High Court of Calcutta approving the scheme is still pending. Then there are various acts of oppression and mismanagement alleged and they are pending before the Company Law Board.On the other hand, Mr. Agarwal appearing on behalf of the respondents would submit that the Central Government has no intent of interfering in family disputes. It does not intend to take any sides at all. However, whether it is a company privately managed or otherwise, if it is brought to the notice of the Central Government that its affairs are being managed in such a way as would prejudice the interest of the public, then, to protect such larger public interest, powers are conferred in the Central Government. Mr. Agarwal relied upon the entire scheme contained in The Indian Companies Act, 1956 and The Companies Act, 2013. He submits that the power akin to section 235 of the Companies Act, 1956 and now to be found in the Companies Act, 2013, vide section 212, has been exercised. That has been exercised on the footing that the report of the Registrar enables the Central Government to appoint Inspectors to investigate affairs of the company and to report thereon.As far as the 1956 Act is concerned, the same contains provision enabling the Central Government to act upon a report made by the Registrar under(6) of section 234 or(7) of section 234 read with subsection (3) thereof and appoint one or more competent persons as Inspectors to investigate into the affairs of the company and to report thereon in such manner as the Central Government may direct. The further powers in terms of section 236 enables members of the company to approach the Central Government for causing an investigation to be made. That is a situation dealt with by section 236. Without prejudice to the powers under section 235, the Central Government independently can direct investigation, but that is in other cases. The said power is to be found in section 237.33. What we have to note is that this investigation of affairs of a company can be directed by the Central Government on the basis of a report made by the Registrar under section 234(6). Section 234 of the Companies Act, 1956, enables the Registrar to call for information or explanation. If on perusing any document, which a company is required to submit to him under the Act, the Registrar is of the opinion that any information or any explanation is necessary with respect to any matter to which such document purports to relate, he may, by a written order call on the company submitting the document to furnish in writing such information or explanation within such time as he may specify in the order. On receipt of this order, the duties of the companies are then enumerated in section 234(2). The officer of the company is also obliged to perform his duty as set out in(3) of section 234. If there is awith the order and information or explanation is not furnished or if any information or explanation is furnished, but, in the opinion of the Registrar, is inadequate, then, he has a power and which is enumerated in section 234(3A) whichhas been introduced by the Act 65 of 1960. Then comes a situation where the company or any person as referred to in the aboverefuses or neglects to furnish any such information or explanation or if the company or any such person as is referred to in(3A) refuses or neglects to produce any such books and papers, that is an offence in terms of(4) of section 234.(5) of section 234 enables the Registrar to annex a writing, book or paper or where that book or paper is required by the company, any copy or extract thereof to the document referred to in(1), and he shall annex that writing in pursuance of the order he passes under(3A) or of an order underon (6) of section 234 deals with a situation where information or explanation called for is not furnished within the specified time or furnished but on such information or explanation being perused the Registrar forms an opinion that the document referred to intogether with such information or explanation or such books and papers discloses an unsatisfactory state of affairs or does not disclose a full and fair statement of any matter to which the document purports to relate, the Registrar shall report in writing the circumstances of the case to the Central Government.Thus, the principle is that there has to be an opinion formed. That opinion may be subjective, but the existence of circumstances relevant to the inference as to the sine qua non for action must be demonstrable. It is not reasonable to hold that the clause permits the Government to say that it has formed an opinion on circumstances which it thinks exist. Since existence of circumstances is a condition fundamental to the making of the opinion, when questioned the existence of these circumstances have to be proved at least prima facie.41. In that light if one peruses the powers conferred under the 2013 Act, they are also identical. By section 206, there is a power to conduct inspection and enquiry by section 207. Both these powers are to be exercised by the Registrar. Then, the report has to be made by the Registrar and the Registrar or the Inspector after inspection of the Books of account or inquiry under section 206 and other books and papers of the company under section 207, shall submit a report in writing to the Central Government along with such documents, if any, and such report may, if necessary, include a recommendation that further investigation into the affairs of the company is necessary. For that, reasons in support have to be set out. We are not concerned with the power of search and seizure vesting in the Registrar in terms of section 209. Then comes the crucial provision in the 2013 Act, namely, section 210. That reads as under :210. Investigation into affairs ofWhere the Central Government is of the opinion, that it is necessary to investigate into the affairs of a company(a) on the receipt of a report or the Registrar or inspector under section 208;(b) on intimation of a special resolution passed by a company that the affairs of the company ought to be investigated; or(c) in public interest it may order an investigation into the affairs of the company.(2) Where an order is passed by a court or the Tribunal in any proceedings before it then the affairs of a company ought to be investigated, the Central Government shall order the investigation into the affairs of that company.(3) For the purposes of this section, the Central Government may appoint one or more persons as inspectors to investigate into the affairs of the company and to report thereon in such manner as the Central Government may direct.42. Therefore, a perusal of this section would indicate that the Central Government must form an opinion, that opinion must be that it is necessary to investigate into the affairs of a company. The Central Government can act on the receipt of a report of the Registrar or Inspector under section 208 or on intimation of a special resolution passed by a company that its affairs are to be investigated or in public interest. Thus, there is a discretion to order an investigation into the affairs of the company.43. As far as the principles laid down in the afore quoted decisions they are salutary and must apply even to the exercise of power in terms of section 210 of the 2013 Act. What we find is that the Registrar of Companies, West Bengal, received a letter from the Ministry of Corporate Affairs dated 30th October, 2015. It is evident that the letter referred to the complaint of the Member of Parliament and which complaint was addressed to the Central Vigilance Commission. The CVC, in turn, forwarded it to the Central Government and the Central Government through the above Ministry of Corporate Affairs called for a report from the Registrar. The Registrar forwarded the report on the points referred in this complaint and that report dated13th January, 2016, outlines the main issue. They are as under:a) That the Company namely M/s Singhal Enterprises Private Ltd had taken more than 100 crores loan from State Bank of India, Park Street Branch, Kolkata. The Manager / GM has supported the Company instead of stopping loan.b) It appears that Honble MP has also raised doubts that If any thing wrong goes in balance sheet tomorrow and loan goes bad the bank will suffer.c) The Company has taken Iron Ore from Barbil, Orissa to Raigarh, Chhattisgarh. The Company has got CBT allotment of 10 Railway Rack per month and doing fraudulent activity. They sale material to other plant and misusing the rack allotment. I has also stated that do proper investigation through Railway Board and there allotment of CBT should be suspend until the investigation is done.d) Company has not filed its Balance Sheet since 5 years.e) Various other issues like money laundering fraud / cheating etc have raised in enclosure of complaint. [See Pg. 188]44. On each of these issues the Registrar of Companies stated that only the issue in paragraph 1(d) that the company has not filed its balance sheet for five years comes within his purview. However, his explanation says that the company has filed a petition before the Calcutta High Court being Company Petition Nos.475 of 2010 and 112 of 2012 restraining the Registrar of Companies from taking action. There is an interim order passed on 3rd October, 2010. As far as the loan transaction with State Bank of India, he says clearly in his report that it is not covered under the purview of the Companies Act. Wrong distribution of loan is a matter of investigation by the concerned Banking Regulatory Authority or other relevant agency. Thus the allegation from the Ministrys letter appears to be that even the banks have acted contrary to public interest in granting credit facilities and extending loans to the said company. However, those allegations cannot be looked into as there are independent Regulators and a mechanism as a whole available under distinct statutes. As far as the allotment of coal mines, misuse of mines, sale of materials to the other plants were not covered under the purview of the Ministry of Company Affairs or the Registrar of Companies. The Member of Parliament has requested in his complaint that investigation with regard to these issues should be by the Railway Board.45. The Registrar of Companies had already made a detailed report and forwarded it to the Ministry and the contents of which he has reproduced. He has also reported on the issue raised in the letter of the Ministry of Corporate Affairs dated 30th October, 2015. He points out in details as to how matters are subjudice and with regard to subjudice matters, it will not be possible for him to undertake any investigation. He has pointed out clearly as to how the issues relating to non filing of annual accounts / annual returns, no action is required till the pendency of litigation and upto the final outcome. As far as serious issues regarding the above matters, namely, allotment of coal mines, extension of facilities he has opined that it is not for his office to take any action. It is on the basis of such a report that the impugned order has been passed. The impugned order reads as under :WHEREAS, the Central Government has the power under section 210 and section 212(1)(c) of the Companies Act, 2013 to order investigation into the affairs of a company in Public interest.2. AND WHEREAS ROC, West Bengal has submitted his report dated 13.01.2016 to the Central Government in the matter of Singhal Enterprises Pvt Ltd and has recommended that investigation be made byauthorities / specialised agency to find out misutilisation of bank finance and other violations under provision of law.3. NOW therefore, in exercise of powers conferred under section 212(1)(c) of the Companies Act, 2013, the Central Government hereby orders investigation into the affairs of Singhal Enterprises Pvt Ltd by the Serious Fraud Investigation Office (SFIO) of the Ministry of Corporate Affairs.4. The Director, SFIO, in exercise of powers u/s 212(1), may decide such number of inspectors, as he may consider necessary and the Inspectors so appointed, shall exercise all the relevant powers under the Companies Act, 2013 for the purpose of the investigation.5. SFIO shall complete the investigation and submit report to the Central Government within a period of four months from the date of issue of this order.6. This order is issued for and on behalf of the CentralK Sahoo)Joint Director46. A bare perusal of this order would indicate that the Central Government has referred to the report dated 13th January, 2016, but completely misread and misinterpreted it. It has not recommended any investigations to be made under the Companies Act,1956 or 2013. If at all the investigations are to be made in terms of this recommendatory report, or suggestion therein, that is for the multiple disciplinary authorities to find out misutilisation of bank finances and other violations of law. The respondents ought be aware that there is a difference in the language of the two relevant sections, namely, section 210 and section 212.47. Section 210 falling in the same Chapter XIV titled Inspection, Inquiry and Investigation contains these two sections. Section 210 confers a discretion in the Central Government to order an investigation into the affairs of the company and that power has to be exercised if there is an order passed by a Court or a Tribunal in any proceedings before it to the effect that the affairs of a company ought to be investigated. Thus(1) of section 210 confers a discretion while(2) is mandatory in terms. By(3) and when the Central Government orders an investigation into the affairs of the company, it may appoint one or more persons as Inspectors so as to carry out this task and to report thereon in such manner as the Central Government may direct. By section 212 the seventeenthereof enable investigation into the affairs of a company by Serious Fraud Investigation Office. This power is without prejudice to the provisions of section 210. This power is to be exercised if the Central Government is of the opinion that it is necessary to investigate into the affairs of a company by the SFIO. Therefore,the power to investigate into the affairs of company is common to both provisions. In the former there are three clauses (a) to (c) in(1) of section 210 and the investigation is to be carried out by the Central Government by appointing Inspectors and there is a discretion in that behalf. This power is stated to be akin to section 235 of the 1956 Act. The latter enables investigations into the affairs of a company by the SFIO and there is one more clause (d) in(1) of section 212 where the Central Government can act on a request from any department of the Central Government or a State Government. Therefore, in a given case there could be an action initiated on the request of the Central Vigilance Commission or based on its recommendations. However, by its very title, the investigation under section 212 by the SFIO ought to be on the basis of the opinion of the Central Government that it is necessary to investigate into the affairs of the company by SFIO. That opinion has to be based on the report of the Registrar or Inspector under section 208; on intimation of a special resolution passed by a company that its affairs are required to be investigated; in the public interest or on the request from any department of the Central Government or the State Government. By section 211, the SFIO is established to investigate frauds relating to a company. It is a very special office and headed by a Director and consists of such number of experts from the fields enumerated in subsection (2) of section 211 to be appointed by the Central Government from amongst persons of ability, integrity and experience. The wide powers that this office enjoys, as is set out in variousof section 212, would denote as to how its involvement comes after the investigations are assigned to it by the Central Government. By their very nature the investigations into frauds relating to a company have to be assigned. They have to be of such magnitude and seriousness demanding involvement of experts in the fields enumerated insubsection (2) of section211. Therefore, while exercising the powers under(1) of section 212, the Central Government ought to be not only forming an opinion about the necessity to investigate into the affairs of the company, but further that such investigations have to be assigned to the SFIO.48. We do not think that there were materials in the present case and which can be termed as enough to warrant the exercise of power by the Central Government by resorting to section 212(1) of the Act of 2013. The Central Government, in the order under challenge, did not spell out any circumstances, except outlining its power under the above sections to order investigation into the affairs of a company in public interest. None disputes that power or its existence. In para 2 of the impugned order, however, a reference is made to the report of the Registrar of Companies, West Bengal, dated 13th January, 2016. We have already held that the findings in this report are not enough for the Central Government to exercise the drastic power. Something more was required and to be established as circumstances or material enough for exercise of the power. That is clearly lacking in this case.49. This is the only basis, namely, the report of the Registrar of Companies, West Bengal, or its contents which has enabled the Central Government to exercise its powers under section 212(1)(c). It is, therefore, apparent that it has not necessarily acted in terms of its power conferred by section 212 to direct investigation into the affairs of the company in public interest. The foundation for reaching the opinion or satisfaction is the report of the Registrar. We have referred to the details in that report and we are of the firm opinion that based on that the Central Government could not have recorded a satisfaction or an opinion that investigation into the affairs of the company are necessary. There is no element of public interest which is projected, save and except some vague and general references to certain allegations in matters of bank finance and allotment of coal mines and alleged diversion of raw materials. There has been absolutely no details furnished nor referred in the report. Rather, the report proceeds on the basis that as far as these issues are concerned nothing can be done by the Ministry of Corporate Affairs or the Registrar of Companies. We fail to understand, therefore, how in the present facts and circumstances and based on allegations and counter allegations between two groups of shareholders can it e even held that it is necessary in public interest to direct an investigation into the affairs of the company. Once we reach the conclusion that there is lack of requisite material to arrive at the requisite opinion or record the necessary satisfaction, then, in exercise of our powers of judicial review, we can safely quash and set aside the impugned order. We find that the opinion recorded or the satisfaction reached is vitiated by total non application of mind. None of the factors which are germane and relevant for forming the opinion have been referred. The opinion or satisfaction is based only on the complaint of the Member of Parliament to the CVC and with regard to which report was called for from the Registrar. Even the contents of that report have been, as held above, misread and totally misinterpreted. Based on that no opinion could have been recorded that it is necessary to investigate the affairs of the company in public interest.50. Once we reach the above conclusion, it is not necessary to express any opinion as to whether the SFIO at Mumbai has the necessary territorial jurisdiction to summon the petitioners for an inquiry. We also do not record any opinion for we are satisfied that in the facts and circumstances of the present case even in relation to private company, a complaint could have been made and that complaint could have been probed further.51. We are in complete agreement with Mr. Godbole that this is an investigation directed at the instance of the rival groups and though Mr. Agarwal tries to pursuade us into holding that the Central Government has not been influenced by or is never interested in family matters or disputes, we find that to be the essential basis on which the whole action is initiated. It being so initiated at the threshold itself it is vitiated. The law does not permit entering into all such controversies as are essentially factual and existing between groups of shareholders of a private company locked in litigation and which litigation has not reached finality.