Karnataka High Court Reserves Order On Kerala CM's Daughter's Company To Stay SFIO Probe

The Karnataka High Court on Monday (February 12) reserved order on the plea of Exalogic Solutions Private Ltd - a company of which Kerala Chief Minister Pinarayi Vijayan's daughter Veena Vijayan is a director - to stay the investigation by the Serious Fraud Investigation Office (SFIO) against the company.A bench of Justice M Nagaprasanna reserved order on interim relief while hearing a petition filed by Exalogic Solutions challenging the direction issued by the Union Ministry of Corporate Affairs asking the SFIO to investigate the affairs of the company.After reserving the order, the Court verbally asked the SFIO to not take any coercive action against the company till the order was pronounced. The Court also asked the company to provide the documents sought for by the SFIO.Arguments by the petitionerSenior Advocate Arvind P Datar, appearing for the petitioner company, submitted that an investigation by the Registrar of the Companies under Section 210 of the Companies Act 2013 was already underway against the company. While that investigation is pending, the Centre issued another order invoking Section 212 of the Companies Act asking SFIO to investigate the company.He contended that there cannot be two parallel investigations at the same time against the company.While agreeing to cooperate with the Section 210 enquiry, Datar said that the SFIO probe must be stopped. When the Court asked what was the objection to the SFIO probe, Datar said that it is "more draconian" and likened it to the "UAPA". Under the SFIO process, there can be arrests of persons and attachment of properties.Datar said that SFIO is intended to investigate cases of serious fraud like the Sahara scam involving hundreds of crores and not matters like the present case, where the allegation is about non-disclosure of a transaction of Rs 1.76 crores.He argued that there are no factual circumstances indicating a "serious fraud" so as to warrant SFIO probe. The allegation is that the transaction with another company, CMRL, regarding the supply of software services, was not recorded.Datar also submitted that the Registrar has submitted an "interim status report" under Section 210. He contended that an interim status report is unheard of in the company law and that it was prepared as an "afterthought" to justify the SFIO probe."Sec 212 is a draconian provision meant to be used in extraordinary circumstances like Sahara etc. Not in this case. If one software company has given software to another company and has not recorded it, it does not come under "public interest"....If Sahara company goes under and crores are affected, there is public interest...here, there is nothing to indicate "serious fraud"...This is no way a fraud but a non-reporting of a party transaction...Let 210 inquiry go on but let them not invoke 212," Datar submitted. He relied on the doctrine of proportionality and cited the Supreme Court judgments in Modern Dental College and Anuradha Bhasin case.Respondent's argumentsAdditional Solicitor Genera Arvind Kamath, appearing for the Central Government, submitted that the SFIO is a multidisciplinary body which can seamlessly gather information. When the Court asked about the status of the Section 210 proceedings after the commencement of the SFIO enquiry, the counsel replied that the SFIO will take over all the documents.During the course of the investigation, it was found that Rs.135 crores was given by CMRL to various political functionaries. Rs 1.72 crores was paid by CMRL to Exalogic under the guise of a software agreement even though no software was actually provided. "When 135 crore is involved, there are a lot of transactions which look shady. Officers said we cannot get information from the income tax department and it may be placed before SFIO. Union Govt need not hear petitioner before ordering an investigation," the ASG submitted.After reserving the order, the judge asked the ASG, "Are you going to do arrest etc, any precipitative action?". "No, we have just issued notice," ASG replied pointing out that the petitioner has sought for more time to produce the documents. Details of the petitionThe petitioner argued that an investigation under Section 212 of the Act cannot be ordered before the conclusion of the investigation under Section 210 (Investigation into affairs of company) of the Act.Further, it is said the Impugned Order is arbitrary, devoid of any reasons and suffers from gross non-application of mind. Moreover, the order is violative of the principles of natural justice and amounts to malice in law, thereby violating Articles 14 and 21 of the Constitution.The plea states that in 2021, the petitioner received a communication from the Registrar of Companies Bangalore, stating that an inquiry under section 206(4) of the Act, was sought to be initiated against the petitioner to examine its compliance under various provisions of the Act in respect of the transactions between Cochin Minerals and Rutile Limited (CMRL) ...

Karnataka High Court Reserves Order On Kerala CM's Daughter's Company To Stay SFIO Probe

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