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Supreme Court Agrees To Consider SFIO's Plea Challenging Stay Of Look Out Circulars Issued By Centre Against Sahara Group Firms

Shruti Kakkar
19 May 2022 4:19 AM GMT
Supreme Court Agrees To Consider SFIOs Plea Challenging Stay of Look Out Circulars Issued By Central Government Against Sahara Group Firms
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The Supreme Court on Tuesday agreed to consider the SLP preferred by the Serious Fraud Investigation Office (SFIO) against the Delhi High Court's order dated December 13, 2021, staying the operation of the investigation orders issued by the Central Government against Sahara Housing Investment Corporation Limited, Sahara India Real Estate Corporation Limited and Amby Valley Limited.

The SLP was mentioned by Solicitor General Tushar Mehta before the bench headed by CJI NV Ramana.

"One matter filed by us where lookout circular in case of Sahara is stayed. There is some apprehension. It was filed and was not listed. I'll get the details," submitted SG.

"We will list it," CJI said.

In the application for urgent listing, SFIO had said that all the actions and proceedings undertaken under the orders dated October 31, 2018 and October 27, 2020 passed by the Central Government have been stayed, which seriously prejudices the ongoing investigation and proceedings.

SFIO in the SLP had thus sought the stay of the Delhi High Court's order dated December 13, 2021.

In the investigation order dated October 31, 2018, which was passed on the basis of the report dated 14.08.2018 rendered by ROC, Mumbai, the investigation was directed into the affairs of three Companies, Sahara Q Shop Unique Products Range Limited, Sahara Q Gold Mart Limited, and Sahara Housing Investment Corporation Limited. It was categorically mentioned in the order that the Investigation Report shall be submitted by the Inspectors to the Central Government within a period of three months from 31.10.2018.

In the order dated October 27, 2020 investigation was ordered to be made against the six Companies Aamby Valley Limited, Qing Amby City Developers Corporation Ltd, Sahara India Commercial Corporation Limited, Sahara Prime City Ltd, Sahara India Financial Corporation Limited and Sahara India Real Estate Corporation Limited.

Assailing the two orders, Sahara Housing Investment Corporation Limited, Sahara India Real Estate Corporation Limited and Amby Valley Limited had approached the Delhi High Court. Counsel for Sahara, with regards to the order dated October 31, 2018, had submitted that the Investigation Report was not rendered within 3 months and despite the passage of more than 3 years, the investigation was still going on.

Referring to Section 212(3) of the Companies Act which stipulated that where the investigation into the affairs of a company has been assigned by the Central Government to SFIO, it shall submit its report to the Central Government within such period as may be specified in the order, the High Court said there was a clear violation of the Statutory mandate by the respondents in continuing the investigation after the lapse of the period of three months commencing from 31.10.2018.

With regards to the order dated October 27, 2020 counsel had submitted that no reason has been assigned in the order as to why it was considered necessary that an investigation be made against the six Companies.

Relying on section 219 of the Companies Act, 2013 which deals with the power of an Inspector to conduct an investigation into the affairs of related companies, counsel had said that it was not disclosed in the order dated 27.10.2020 as to on what basis the investigation into the affairs of the Six Companies was directed by the Central Government and which of the conditions of Section 219(a) to 219(d) were met.

The division bench of Chief Justice and Justice Jyoti Singh on December 13, 2021, while remarking that the petitioners had made out a prima facie case for grant of interim relief had stayed the operation, implementation and execution of the orders dated 31.10.2018 and 27.10.2020 as well as subsequent actions and proceedings initiated pursuant thereto, including coercive proceedings and look-out notices till January 18, 2022. On January 18, 2022, the High Court had said that the interim order dated December 13 would continue during the pendency of the writ petition.

The bench had stayed the impugned orders on the following grounds:

  • Referring to the mandate u/s Section 212(3) of the Companies Act, the bench had said, "However, the investigation was not completed within the stipulated time and as asserted by the Petitioners, the same is still ongoing. Prima facie, there is a violation of Section 212(3) and the direction of the Central Government."
  • With regards to the order dated October 27, 2020 bench had said, "There seems to be prima facie merit in the contention of the Petitioners that the Companies sought to be investigated under Section 219 ought to have an affiliation with the Company(s) under investigation, as provided for in the Statute. Petitioners have categorically averred in para 26 of the writ petition that the six companies listed in the order dated 27.10.2020 are neither the Subsidiary nor the Holding Companies and were never managed by the Managing Director of the earlier three Companies under investigation, pursuant to the order dated 31.10.2018. Respondents, on a pointed query, were unable to rebut the said position. Therefore, in our prima facie view, there was no justification in initiating investigation against Petitioners No.2 and 3 vide the impugned order dated 27.10.2020."

The bench had also said, "There is also prima facie merit in the contention of the Petitioners that the impugned orders dated 31.10.2018 and 27.10.2020 do not indicate the reasons or circumstances that compelled the Central Government to form an opinion to order an investigation by the SFIO into the affairs of the Petitioners. All that the orders reveal is that the Central Government has the power under Section 212 of the Companies Act to direct investigation into the affairs of a Company and that it has formed an opinion to do so. Reading of Section 212(1) leaves no doubt that the Central Government is required to look into the facts and circumstances that emanate out of a report of the Registrar or Inspection furnished under Section 208 of the Companies Act, 2013 and then form a subjective opinion based on objective considerations. In our prima facie view nothing is discernible from the impugned orders as to what cogent material led to the formation of opinion by the Central Government that the affairs of the Petitioners were required to be investigated."

It may be noted that the Supreme on Friday stayed the direction of the Patna High Court, also Friday, by which the Bihar DGP was required to produce Sahara India Group Head Subrata Roy in the Court on May 16.

Case Title: SFIO v. SAHARA HOUSING INVESTMENT CORPORATION LIMITED| SLP(C) No. 531 - / 2022

Click Here To Read/Download High Court Order

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