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Companies Act Does Not Stipulate Any Period For Completion Of Serious Fraud Investigation: SC [Read Judgment]

Ashok Kini
27 March 2019 12:30 PM GMT
Companies Act Does Not Stipulate Any Period For Completion Of Serious Fraud Investigation: SC [Read Judgment]
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Holding that there is no stipulation of any fixed period for completion of a Serious Fraud investigation, the Supreme Court has observed that the stipulation in sub-section (3) of Section 212 of the Companies Act, 2013, in relation to the submission of the report, is not mandatory, but directory.

The bench comprising Justice AM Sapre and Justice UU Lalit were dealing with an appeal filed by the Serious Fraud Investigation Office against Delhi High Court order that termed arrests illegal because the period of investigation was 'over'.

Section 212(3) provides that, where the investigation into the affairs of a company has been assigned by the Central Government to Serious Fraud Investigation Office, it shall conduct the investigation in the manner and follow the procedure provided in this Chapter; and submit its report to the Central Government within such period as may be specified in the order.

Examining the provisions of Section 212, Justice Lalit observed that that the prescription of period within which a report is to be submitted by SFIO under sub-Section (3) of Section 212 is not for completion of period of investigation and on the expiry of that period the mandate in favour of SFIO does not 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. In the absence of any clear stipulation, in our view, 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."

The court also added:

  • 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.
  • For completion of investigation, sub-Section (12) of Section 212 does not contemplate any period.
  • Under sub-Section (11) of Section 212 there could be interim reports as and when directed,

No fixed period for completion of investigation

The court also 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."

Explaining it further with the provisions of CrPC, the bench said:

"For instance, there is no fixed period within which the investigation under Criminal Procedure Code must be completed. If the investigation proceeds for a longer period, under Section 167 of the Code certain rights may flow in favour of the Accused. But it is certainly not the idea that in case the investigation is not over within any fixed period, the authority to investigate would come to an end."

Justice Sapre, in his concurring opinion observed:

"If the submission of the learned counsel for the respondents (writ petitioners) that the compliance of sub-section (3) of Section 212 of the Act in relation to the submission of the report be held mandatory is accepted (which I am afraid, I cannot accept) in our view, the very purpose of enacting Section 212 of the Act would get defeated and will become nugatory."

Read Judgment



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