Full Text
IN THE SUPREME COURT OF INDIA
Civil Appeal No 4299 of 2022 (Arising out of SLP (C) No 531 of 2022)
Serious Fraud Investigation Office Appellants and Others
Limited and Others W I T H Civil Appeal No 4300 of 2022
(Arising out of SLP (C) No 4685 of 2022)
JUDGMENT
1 Leave granted.
2 These appeals arise from the orders dated 13 December 2021 and 5 January 2022 of the Division Bench of the High Court of Delhi. The High Court is seized of a batch of writ petitions under Article 226 of the Constitution challenging the legality of the orders dated 31 October 2018 and 27 October 2020 of the Union Ministry of Corporate Affairs, authorizing an investigation under the provisions of Section 212 and Section 219 of the Companies Act, 2013 in respect of several corporate entities in the Sahara group. By its interim orders, the High Court stayed the operation, implementation and execution of the above orders. The High Court has also stayed all subsequent action and proceedings initiated in pursuance of those orders “including coercive proceedings and look-out notices” qua the petitioners and their directors, promoters, officers, employees or any other person concerning them.
3 On 31 October 2018, the Government of India in the Ministry of Corporate Affairs, in exercise of its jurisdiction under clauses (a) and (c) of Section 212(1) of the Companies Act 2013 formed an opinion, on the basis of a report dated 14 August 2018 submitted to it by the Registrar of Companies, Mumbai under Section 208, that an investigation was required to be conducted into the affairs of:
(i) Sahara Q Shop Unique Products Range Limited;
(ii) Sahara Q Gold Mart Limited; and
(iii) Sahara Housing Investment Corporation Limited.
4 On 10 January 2019, the Ministry of Corporate Affairs addressed a communication to the Director of the Serious Fraud Investigation Office[1] seeking an approval for extending the time for the conclusion of the investigation. On 27 October 2020, a communication was addressed by the SFIO to the Ministry of Corporate Affairs seeking permission under Section 219 to investigate the affairs of six other companies, namely: “(i) Aamby Valley Limited;
(ii) Qing Ambay City Developers Corporation Ltd.;
(iii) Sahara India Commercial Corporation Limited;
(iv) Sahara Prime City Ltd;
1 “SFIO”
(v) Sahara India Financial Corporation Limited; and
(vi) Sahara India Real Estate Corporation Limited”
5 A challenge has been set up before the Delhi High Court to impugn the legality of the above orders dated 31 October 2018 and 27 October 2020.
6 The Division Bench of the High Court, while staying the operation of the above orders and all consequential steps pursuant to them, has recorded three reasons for coming to the conclusion that the investigation was prima facie required to be stayed:
(i) Section 212(3) of the Companies Act, 2013 empowers the Central
Government to direct that an investigation be conducted into the affairs of a company within a stipulated period and, in the present case, the period of three months which was stipulated in the order dated 31 October 2018 had expired;
(ii) The order dated 27 October, 2020 which authorizes an investigation into the affairs of six other companies prima facie appears to be contrary to the provisions of Section 219 since the six companies are neither subsidiaries nor holding companies of the three companies which were ordered to be investigated earlier nor have they been managed by the Managing Director of the earlier three companies under investigation; and
(iii) The orders dated 31 October 2018 and 27 October 2020 do not furnish the reasons or circumstances which compelled the Central Government to form an opinion while ordering the investigation.
7 The Union Government is in appeal.
8 Mr Tushar Mehta, Solicitor General submitted that each of the three reasons which have weighed with the High Court in staying the investigation at the interlocutory stage is contrary to the express provisions of the statute or, as the case may be, the material which has emerged on the record on the basis of which the orders dated 31 October 2018 and 27 October 2020 were issued. In this context, it is submitted that:
(i) Section 212(3) of the Companies Act 2013 has expressly been held to be directory in nature by a judgment of this Court in Serious Fraud Investigation Office vs. Rahul Modi[2];
(ii) While staying the investigation directed to be carried out in the order dated 27 October 2020, the Division Bench of the High Court has noted that the six companies are neither subsidiaries nor holding companies of the earlier three companies governed by the order dated 31 October 2 (2019) 5 SCC 256 (“SFIO vs. Rahul Modi”) 2018 nor were they managed by the same Managing Director. In coming to this conclusion, the High Court has relied on the provisions of clauses (a) and (b) of Section 219 ignoring the provisions of clause (c) which have specifically been invoked in the order dated 27 October 2020; and
(iii) The Union Government while issuing both the orders was acting within its jurisdiction and it would be an improper construction of the statute to postulate that while ordering an investigation, detailed reasons have to be spelt out. On the contrary, it was submitted that the very purpose of an investigation is to enquire into the affairs of the company and the entirety of the material will emerge only in the course of the investigation.
9 In response to the above submissions, Mr Kapil Sibal, senior counsel has fairly accepted the position that the provisions of Section 212(3) have been held to be directory in the judgment of this Court in SFIO vs. Rahul Modi (supra). However, it has been submitted that there are several substantive issues which would arise at the hearing of the writ petitions under Article 226 of the Constitution before the High Court. Mr Sibal has urged that either the petitions may be directed to be heard expeditiously by the High Court or they may be transferred for hearing before this Court. The issues which have been highlighted by the senior counsel include the following:
(i) The Sahara Housing Investment Corporation Limited has deposited an amount of Rs 24,000 crores with SEBI in pursuance of a judgment delivered by this Court in 2012;
(ii) The provisions of Section 212 and Section 219 are embodied in the
Companies Act 2013 whereas the transactions in the present cases relate to the period 2010-2011 and the applicability of the Act to such transactions would merit consideration;
(iii) Though extension orders were passed from time to time, it would appear that the extension was granted by the Central Government only in regard to the affairs of Sahara Q Shop Unique Products Range Limited; and
(iv) There is absolutely no material, within the meaning of Section 219(c) to indicate that the bodies corporate against whom an investigation has been ordered on 27 October 2020 comprise of a Board of Directors drawn from nominees of the company or which is accustomed to act in accordance with the directions or instructions of the company or any of its directors within the meaning of Section 219(c).
10 While we have set out the broad line of submissions which have been urged on behalf of the contesting parties, we would make it clear at the outset that it is not appropriate or proper for this Court to render a final adjudication on the merits of the submissions since the writ petitions before the High Court are pending consideration.
11 The narrow issue before this Court at the present stage is whether the High Court was justified in passing an interim direction staying the operation of the two orders dated 31 October 2018 and 27 October 2020 and interdicting all subsequent actions including the issuance of look-out circulars. The High Court does have the power to pass wide-ranging directions in the exercise of its extraordinary jurisdiction. The issue is whether in the facts of the present case, the High Court was justified in issuing such extra-ordinary directions, particularly at the interlocutory stage..
12 The first reason which has weighed with the High Court in regard to the construction of Section 212(3) is ex facie contrary to the law, as has been laid down by a two judge Bench of this Court in SFIO vs Rahul Modi (supra). While elaborating upon the provisions of Section 212(3), this Court has held that the statute does not contain any specific prescription of time and the reference to the completion of the investigation within a stipulated period is directory and not mandatory. Paragraphs 31 and 34 of the decision are extracted below for convenience of reference:
13 The second reason which prima facie weighed with the High Court was that the six companies in respect of which an investigation has been ordered on 27 October 2020 are neither subsidiary nor holding companies of the three companies which were covered by the order dated 31 October 2018 nor is there a commonality of Managing Directors. These observations are evidently made in the context of clauses (a) and (b) of Section 219. Section 219 reads as follows: “Power of inspector to conduct investigation into affairs of related companies, etc.—If an inspector appointed under Section 210 or Section 212 or Section 213 to investigate into the affairs of a company considers it necessary for the purposes of the investigation, to investigate also the affairs of— (a) any other body corporate which is, or has at any relevant time been the company's subsidiary company or holding company, or a subsidiary company of its holding company; (b) any other body corporate which is, or has at any relevant time been managed by any person as managing director or as manager, who is, or was, at the relevant time, the managing director or the manager of the company;
(c) any other body corporate whose Board of Directors comprises nominees of the company or is accustomed to act in accordance with the directions or instructions of the company or any of its directors; or
(d) any person who is or has at any relevant time been the company's managing director or manager or employee, he shall, subject to the prior approval of the Central Government, investigate into and report on the affairs of the other body corporate or of the managing director or manager, insofar as he considers that the results of his investigation are relevant to the investigation of the affairs of the company for which he is appointed.”
14 The order of the Union Government dated 27 October 2020 contains factual averments which relate to the invocation of the jurisdiction clause (c) of Section 219. Clause (c) of Section 219 allows an investigation into the affairs of any other body corporate whose Board of Directors comprises nominees of a company or is accustomed to act in accordance with the directions or instructions of the company or any of its directors. The order dated 27 October 2020 contains a specific invocation of the above provision, when it states thus: “AND whereas SFIO vide letter dated 24th Sept. 2020 sought permission under section 219 of the Companies Act, 2013 for investigation into the affairs of the following six companies that intertwined the activities of the companies under investigation: […] Now, therefore, in exercise of powers conferred under Section 219 read with section 212 (1) (c) of the Act, the Central Government has formed an opinion that the affairs of the above referred companies/ entities needs to be investigated..” Hence, the finding of the High Court on the above ground to stay the investigation at the interlocutory stage was not warranted.
15 This Court in Neeharika Infrastructure Pvt. Ltd. vsState of Maharashtra and Others[3] cautioned the High Courts against passing blanket interim orders directing no coercive steps to be taken by the investigating authorities as that might hamper the investigation at an early stage. Having due regard to the material which has been placed on record, it cannot be said that the Union Government had not indicated reasons for the exercise of its jurisdiction under Section 212 and Section 219. At this stage, the Union Government was only ordering an investigation and it would be inappropriate to place a burden of recording elaborate reasons when the purpose of the investigation is to ensure that a full enquiry into the affairs of the companies is carried out. The third reason which weighed with the High Court is hence specious.
16 For the above reasons, we are of the view that the High Court was not justified in staying the investigation and in passing the consequential directions which have been passed in the impugned orders at the interlocutory stage.
17 We accordingly allow the appeals and set aside the impugned orders of the High Court dated 13 December 2021 and 5 January 2022.
18 However, since the writ petitions before the High Court are pending, we clarify that the reasons contained in the present judgment are confined to the issue as to whether an interim injunction was warranted and shall not affect the merits of the writ petitions which are pending before the High Court for consideration.
19 We request the High Court to take up the writ petitions for disposal expeditiously and to endeavour a disposal preferably within a period of two months after the reopening of the High Court upon the conclusion of the ensuing summer vacation.
20 Pending applications, if any, stand disposed of......…...….......……………..… ........ J. [Dr Dhananjaya Y Chandrachud]..…....…........……………….… ........ J. [Bela M Trivedi] New Delhi; May 26, 2022 CKB ITEM NO.1 COURT NO.2 SECTION XIV-A S U P R E M E C O U R T O F I N D I A RECORD OF PROCEEDINGS Petition(s) for Special Leave to Appeal (C) No.531/2022 (Arising out of impugned final judgment and order dated 13-12-2021 in WPC No.13984/2021 passed by the High Court of Delhi at New Delhi)
SERIOUS FRAUD INVESTIGATION OFFICE & ORS. Appellant(s)
VERSUS
SAHARA HOUSING INVESTMENT CORPORATION Respondent(s) LIMITED & ORS. (With I.R. and IA No.5784/2022-EXEMPTION FROM FILING C/C OF THE IMPUGNED JUDGMENT and IA No.5784/2022 - EXEMPTION FROM FILING C/C OF THE IMPUGNED JUDGMENT) WITH S.L.P.(C) No.4685/2022 (XIV) (WITH IA No.38147/2022 - EXEMPTION FROM FILING C/C OF THE IMPUGNED JUDGMENT) Date: 26-05-2022 These matters were called on for hearing today. CORAM: HON'BLE DR.
JUSTICE D.Y. CHANDRACHUD HON'BLE MS.
JUSTICE BELA M. TRIVEDI For Appellant(s) Mr. Tushar Mehta, SG Mr. K.M. Nataraj, ASG Mr. Kanu Agarwal, Adv. Mr. Rajan Kumar Chourasia, Adv. Mr. Arvind Kumar Sharma, AOR Mr. Vishal Shrivastava, Adv. For Respondent(s) Mr. Kapil Sibal, Sr. Adv. Mr. Gautam Awasthi, AOR Mr. Ayush Choudhary, Adv. Mr. Nizam Pasha, Adv. Mr. Devanshu Yadav, Adv. Mr. Sameer Pandey, Adv. Mr. Simranjeet Singh, Adv. Mr. Gautam Talukdar, Adv. Mr. Rahul Tripathi, Adv. Mr. Ram Sajan Yadav, Adv. Mr. Vijay Kumar, Adv. Mr. Gautam Talukdar, AOR UPON hearing the counsel the Court made the following O R D E R
3 Pending applications, if any, stand disposed of. (CHETAN KUMAR) (SAROJ KUMARI GAUR) A.R.-cum-P.S. Court Master (Signed Reportable Judgment is placed on the file)