The launch of an investigation by government-appointed inspectors into the affairs of a company under Section 210 of the Companies Act, 2013 does not render the government of India powerless to later assign the probe to the Serious Fraud Investigation Office (SFIO), the Karnataka High Court recently held.The Court made the observation while rejecting a petition filed challenging the initiation of an SFIO probe against Exalogic Solutions Private Limited, a one-person company owned by Veena Thaikkandiyil who is the daughter of Kerala Chief Minister Pinarayi Vijayan.Justice M Nagaprasanna also rejected an argument by Exalogic that the initiation of an SFIO probe under Section 212 against the software company would result in parallel proceedings since a Section 210 investigation was already underway.To decide the matter, the Court analysed Chapter XIV of the Companies Act (Sections 206-212 of the Act), which deals with inspection, inquiry and investigation into company affairs.“What would unmistakably emerge from what is above analysed is, once investigation has commenced under Section 210, the statute does not render the Government of India powerless, to assign the investigation under Section 212 to the SFIO. It neither results in duplication of investigation, nor takes away any right of the petitioner (Exalogic),” the Court held.The Court explained that once the SFIO is entrusted with an investigation, any other investigation that was initiated earlier would “not be proceeded further” and that all the documents related to the probe would be transferred to the SFIO. The Court further rejected an argument by Exalogic that an SFIO probe under Section 212 could only be started if a “report under Section 210” is first prepared, which could not be an “interim report.”
In Exalogic’s case, the Court was told that the January 31, 2024 decision to start an SFIO probe was taken based on an undisclosed “interim report.”
The Court opined that such an “interim report” is sufficient for the start of an SFIO probe.
“Section 210 does speak of a report, the report can be either interim or final it need not be the final report only. During an investigation under Section 210, if the Inspectors, out of serendipity come across information that would prima facie touch upon skullduggery and thereon necessity emerges to assign the investigation to a multi-disciplinary body like the SFIO, created under the Act, this Court cannot put shackles on the hands of the Central Government, for such assignment,” the Court added.
The Court also found merit in the Central government’s contention that a probe by a multi-disciplinary body like the SFIO was required to examine the allegations against Exalogic.
“The Apex Court, in plethora of cases, has observed that with the advancement of technology, economic offences have become a real threat to the functioning of the financial system of the country. Those offences become a great challenge for Investigating Agencies to detect and comprehend intricate nature of transactions, as also the role of persons involved therein. Plethora of minute exercise is expected to be undertaken by any Investigating Agency. It is therefore, to unearth such intricate or minute details about the transactions it becomes necessary to hand it over to a multi-disciplinary body like the SFIO,” the Court explained.
Justice Nagaprasanna concluded that there was no ground made out for the Court to interfere with the initiation of the SFIO probe against Exalogic.
“If the Union of India has thought it fit to entrust the investigation to the SFIO, owing to certain factors which have emerged while conduct of investigation under Section 210 and in public interest, this Court in exercise of its jurisdiction under Article 226 of the Constitution of India would not by a stroke of pen, annul such opinion of the Union of India, unless it is contrary to the statute or the action is demonstrably arbitrary. Neither of the two is present in the case at hand, as the projection of the two, by the learned senior counsel for the petitioner is sans acceptance. Therefore, there is no warrant to interfere at this stage.”
Senior Advocate Arvind Datar and advocates Manu Prabhakar Kulkarni, Mrinal Shankar, Dharmendra Chatur and Isha Prakash represented Exalogic.
Additional Solicitor General of India Arvind Kamath and Deputy Solicitor General of India H Shanthi Bhushan represented the Central government.
TAGS: government-appointed inspectors Section 210 Companies Act 2013 Serious Fraud Investigation Office (SFIO) Karnataka High Court Exalogic Solutions Private Limited Veena Thaikkandiyil Kerala Chief Minister Pinarayi Vijayan
