[Cites 39, Cited by 0]
Bombay High Court
Zenith Steel Pipes And Industries Ltd. vs Union Of India And 2 Others on 8 April, 2026
Author: Bharati Dangre
Bench: Bharati Dangre
2026:BHC-OS:9680-DB
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IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
WRIT PETITION NO. 3447 OF 2022
Zenith Steel Pipes & Industries .. Petitioner
Limited
Versus
Union of India and ors .. Respondents
WITH
WRIT PETITION NO. 2031 OF 2023
Yashovardhan Birla .. Petitioner
Versus
Union of India and ors .. Respondents
WITH
WRIT PETITION (L) NO. 29863 OF 2022
Satya Kishor Mathur .. Petitioner
Versus
Union of India and ors .. Respondents
WITH
WRIT PETITION (L) NO. 29916 OF 2022
Vipin Dilip Kumar Varkhawat .. Petitioner
Versus
Union of India and ors .. Respondents
WITH
WRIT PETITION NO. 4940 OF 2022
B. Girvanesh .. Petitioner
Versus
Union of India and ors .. Respondents
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...
Mr. Aspi Chinoy, Senior Advocate with Mr.Ashish Kamath,Senior
Advocate, Mr.Pranav Chaugule and Mr.Dinesh Dubey for the
petitioner in WP No.3447/2022.
Mr. Ravi Kadam, Senior Advocate with Mr.Manish Desai,
Ms.Nidhi Singh, Mr. Nishin Shrikhande i/b Vidhi Partners for
the petitioner in WP No. 2031/2023.
Mr.Vishal Kanade with Mr.Dinesh Kumar Dubey and Mr.Pranav
Chaugule for the petitioner in WP No. 4940/2022 and WPL
29916/2022.
Mr.Shubham Naik i/b ANB Legal for the petitioner in WPL No.
29863/2022.
Mr.Anil C. Singh, ASG with Mr.S.K. Halwasia, Mr.Aditya
Thakkar, Mr.D.P. Singh, Mr.Kedar B. Dighe, Mr.Kartik Garg,
Mr.Adarsh Vyas, Mr.Pradeep Yadav and Ms.Rama Gupta for the
respondents in all Writ Petitions.
CORAM : BHARATI DANGRE &
MANJUSHA DESHPANDE, JJ
DATED : 8th APRIL, 2026
JUDGMENT:
- (Per Bharati Dangre, J)
1. The five Writ Petitions before us revolve around the
investigation directed by the Ministry of Corporate Affairs, and
since all the Writ Petitions before us raise challenge to the order
dated 7/1/2019, passed in exercise of power conferred under
Section 212(1)(a) of the Companies Act, 2013 as the Central
Government expressed an opinion that the affairs of the
mentioned companies need to be investigated and directed
investigation into the affairs of (i) Birla Cotsyn Limited, (ii)Birla
Shloka Edutech Limited, and (iii) Zenith Birla Limited, to be
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carried out by the Serious Fraud Investigation Office (SFIO), as
may be designated by its Director.
The order directed the Inspectors to complete the
investigation by exercising the powers available under the
Companies Act 2013 and submit a report to the Central
Government within a period of three months from the date of
issuance of the order.
2. To begin with, we would refer to the petitioners in the
five petitions.
Writ Petition No. 3447/2022 is filed by Zenith Steel and
Pipe Industries, (earlier known as Zenith Birla (India) Limited,
having its registered office in Mumbai, State of Maharashtra, a
Public listed company primarily involved in the business of
manufacturing, producing, and/or dealing with all types of
pipes and tube products, fabrication of steel and iron or non-
ferrous material and by products.
The petitioner is served with the impugned order and the
impugned summons and notices are received by the petitioner,
and that is why it feel aggrieved, and has approached this
Court, praying for setting aside the impugned order passed by
the respondent no.1, as well as the impugned summoned/
notices.
Writ Petition No. 4940/2022 is filed by B. Girvanesh, the
Company Secretary of Zenith Birla, and pursuant to the order
of 7/1/2019, summons of investigation are issued, calling
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upon him to furnish the details sought by the said
communication.
Writ Petition No.2031/2023 is filed by Yashvardhan Birla,
the Director of Birla Cotsyn, who has also raised a challenge to
the impugned order dated 7/1/2019, directing an investigation
into the affairs of Birla Cotsyn through SFIO.
Writ Petition (L) 29863/2022 is filed by the Manager of
Birla Cotsyn, whereas Writ Petition (L) No. 29916/2022 is filed
by Vipin Dilip Kumar Varkhawat, who was engaged as Chief
Financial Officer, (CFO) of Birla Cotsyn (India) Ltd, raising an
identical challenge.
Since the Writ Petitions involve a common challenge, we
have clubbed and heard them together.
3. We have taken Writ Petition No. 3447/2022 as lead
petition and heard learned senior counsel Mr. Aspi Chinoy
representing the petitioner.
The petitioner, Yashovardhan Birla is represented by
Senior Advocate Mr. Ravi Kadam, whereas Mr. Vishal Kanade,
has represented the Writ Petitioner in WP(L) No.29916/2022
and WP No. 4940/2022. The learned counsel Mr. Shubham
Naik represent the petitioner - Satya Kishor Mathur in WP(L)
No. 29863/2022. We have also heard Additional Solicitor
General, Mr. Anil Singh, for the respondents in all the petitions.
Writ Petition Nos. 3447/2022, WP 2031/2023, WPL
29916/2022 and WPL 29863/2022 were admitted by an order
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of this Court on 13/10/2023, and the said order also record the
statement made by the learned counsel representing
respondent no.1 and 2 that the SFIO shall not summon till
final disposal of the petitions. The aforesaid statement came to
be accepted and treated as an undertaking given to the Court.
Writ Petition No. 4940/2022 is admitted by order dated
22/1/2026.
4. The impugned order served upon all the petitioners reads
thus:-
ORDER
"Whereas the Central Government is empowered under section
212 of the Companies Act, 2013 (the Act) to order investigation
into the affairs of any company upon receipt of a report from
Registrar of Companies u/s 208 of the Act and to appoint one or
more competent persons as inspectors to investigate the affairs
of the company.
2. AND whereas RoC, Mumbai, vide his report dated 27th
September, 2018, submitted to the Central Government under
section 208 of the Companies Act,2013 has recommended
investigation into the affairs of the companies namely Birla
Cotsyn Limited, Birla Shloka Edutech Limited and Zenith Birla
Limited.
3. Now, therefore, in exercise of powers conferred under Section
212 (1)(a) of the Act, the Central Government has formed an
opinion that the affairs of the above referred companies need to
be Investigated and hereby orders investigation into the affairs
of 1.Birla Cotsyn Limited, 2 Birla Shloka Edutech Limited and 3.
Zenith Birla Limited, to be carried out by officers of the Serious
Fraud Investigation office as may be designated by Director,
SFIO.
4. The Inspectors appointed by Director, SFIO to investigate into
the affairs of the above mentioned company, shall exercise all
the powers available to them under the Companies Act, 2013.
The inspectors shall complete their investigation and submit the
report to the Central Government within a period of three (3)
months from the date of issue of this order.
5. This order is issued for an on behalf of the Central
Government.
(M.R. Das)
Joint Director."
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5. The aforesaid order contain a reference to the report
dated 27/9/2018 submitted to the Central Government under
Section 208 of the Companies Act which, according to the
impugned order, has recommended investigation into the affairs
of three companies. i.e. Birla Cotsyn, Birla Shloka Eductech
Limited and Zenith Birla Ltd.
Pursuant to the aforesaid order, the SFIO issued notice to
the Managing Director of the petitioner's Company, directing
that all books of accounts, documents, papers, correspondence,
including all statutory and physical and electronic records of or
relating to Zenith Birla secured in safe custody, and that they
shall not be destroyed, mutilated, altered or falsified during the
course of the ongoing investigation. In addition, the noticee is
directed to furnish the documents set out in the notice for the
purpose of ongoing investigation, and it further state that
failure to provide the information, would lead to the action
under the provisions of Companies Act 2013 and other Acts.
The petitioner responded to the said notice by forwarding the
response and necessary documents which were in his
possession.
Summons are also received by the petitioner on
28/10/2020, directing him to appear before the Investigating
Officer personally in the office of Serious Fraud Investigation,
Mumbai, in connection with the investigation of the affairs of
the three companies.
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With a little variation, on to the aspect of direction to
produce necessary documents, the impugned order dated
7/1/2019 is identically worded, being followed by issuance of
impugned noticee/summons.
6. Mr. Chinoy, by inviting our attention to the Scheme
contemplated in Chapter XIV of the Companies Act 2013,
including the provision and form of Section 212, pertaining to
investigation into the affairs of the Company by SFIO, would
submit that the Chapter consists of a Scheme involving various
provisions, and it is only in the set out circumstances, the
Central Government may order investigation into the affairs of
the Company by the SFIO.
According to him, it is only in the contingencies provided,
it is permissible for the Central Government to investigate into
the affairs of the Company and one of the contingency
prescribed is, on receipt of the report of the Registrar or
Inspector u/s. 208 or in public interest. According to Mr.
Chinoy, the report referred to in Section 208 is the report of the
Registrar or Inspector who, after inspection of the books of
accounts or conduct of an enquiry under section 206 and the
other books and papers of the Company u/s. 207, submit it in
writing to the Central Government along with such documents,
if any, and it may include a further recommendation that
further investigation into the affairs of the Company is
necessary.
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According to Mr. Chinoy, Section 208 inspection report,
make a reference to Sections 206 and 207 of the Companies Act
2013 and according to him, Section 206 is the power of the
Registrar to call for information, inspect books and conduct
inquiries, and upon scrutiny of the document/s filed by the
Company or information received, if the Registrar is of the
opinion that any further documents or information is necessary,
he may call upon the Company to furnish the same within such
reasonable time, and it will be the duty of the Company and its
Officers to furnish such information to the best of their
knowledge and power, and to produce documents within the
time specified or extended by the Registrar.
By specifically relying upon sub-section (4) of Section
206, Mr. Chinoy would submit that if the Registrar is satisfied
on the basis of the information available or furnished to him or
on a representation made by any person that the business of the
Company is being carried out for a fraudulent or unlawful
purpose, or it is not carried out in compliance of the provisions
of the Act, or that the grievance of the Investors is not
addressed, the Registrar may follow the procedure of calling
upon the Company to deal with the allegations and carry out
such enquiry, as it deems fit, after affording reasonable
opportunity to the Company of being heard.
7. Relying upon Section 207, Mr. Chinoy would submit that
where a Registrar or Inspector calls for the books of accounts
and other books and papers, every Director, Officer or other
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employee of the company is duty bound to render all
assistance. The Registrar or Inspector, making inspection or
enquiry, according to Mr. Chinoy, is conferred with all the
powers of a Civil Court under the Code of Civil Procedure, 1908
while trying a Suit, and this would include the power to
summon and enforce attendance of persons and examine them
on oath and inspection of any books, registers and documents
of the Company.
8. In light of the aforesaid statutory scheme, Mr. Chinoy has
urged that the report dated 27/9/2018 purported to be made
by the Registrar of the Companies under section 208 make a
reference to the complaints registered against the Company, but
the complaints are as regards failure to repay the deposits and
interest thereon. The Report also make a reference to the
balance sheet of the company, reflecting outstanding fixed
deposits.
By inviting our attention to the report furnished to the
Ministry of Corporate Affairs in the matter of Yash Birla Group
of Companies, according to Mr. Chinoy, the emphasis is on the
persistent default by the Companies, amongst which two
Companies (Birla Power and Zenith Birla), were subject to
inspection in the past and reports were submitted, whereas the
rest other two have been under enquiry by the RoC Mumbai, for
long time, but the reports were awaited.
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The report, according to Mr. Chinoy therefore, refer to
four companies, (a) Birla Power Solutions Ltd, (presently, under
liquidation) (b) Birla Cotsyn India Ltd (c) Birla Shloka Edutech
Limited and (d) Zenith Birla India Ltd.
According to him, the report with regards to Zenith Birla
refer to 636 complaints and it make reference to the inspection
conducted way back in 2012. The report express that the
Company should be taken out of watch-list and fresh inspection
u/s. 206(5) may be considered, as inspection was conducted
way back and the Company has started drifting/defaulting in
repayment from 2014 onwards. It is therefore specifically
observed in the report that the inspection was conducted
covering a period when there were no defaults on repayment.
However, since the default in payment of deposits was notified
for more than one year, the necessary action is contemplated,
according to the learned senior counsel, the emphasis of the
report in referring the Company for investigation to SFIO is
clearly spelt out as:-
"SFIO is already conducting investigation into the
affairs of Birla Power Solutions Limited."
It is proposed that all the Yash Birla Group of companies
as listed above i.e. Birla Cotsyn, Birla Shloka Edutech Limited,
and Zenith Birla may also be assigned for investigation to SFIO
is formed, as in all these Companies, there are defaults of
repayment of deposits and similar set of people are involved.
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9. Mr. Chinoy is extremely critical about the manner in
which the impugned order is passed, and according to him, the
order which is based on the report dated 27/9/2018
purportedly u/s.208 is not in accordance with the statutory
scheme, as the Registrar had not issued notices under section
206(1) or 206(3) of the Companies Act, calling upon it to
furnish information or explanation, nor had the Registrar
issued any order u/s. 206(4) to the Company, informing it of
the accusations and calling any explanation or information. It is
also his submission that the report dated 27/9/2018, which has
been purported to be made by the Registrar u/s. 208 is not
based on any inspection or enquiry u/s. 206, and rather the
report "make it clear that the last inspection was conducted in
2012 and in fact, the RoC also recommended fresh inspection
under section 206. However, without an enquiry or
investigation being conducted, the report take note of the
orders of the Company Law Boards (CLB) for repayment of
deposits, and that too, from the website. It is, therefore,
submitted that the report purportedly made u/s. 208 is ex-facie
illegal, and without jurisdiction, as there is no compliance of
the requirement contemplated in the Scheme of the statute, and
as a consequence, the order dated 7/1/2019 purported to be
made by the respondent no.1 u/s. 212(1)(a) of the Companies
Act, also cannot be sustained.
10. Another aspect pressed into service by Mr. Chinoy is about
the investigation into the affairs of the Company by the SFIO, as
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he submit that the power to direct investigation into the affairs
of the Company is vested either in the Central Government or
in the Tribunal, as contemplated u/s. 213 of the Companies Act.
Under section 210, the Central Government may investigate
into the affairs of the Company on the given contingencies and
Mr. Chinoy's emphasis is upon contingency (a) and (c), when
an investigation can be ordered into its affairs. However, with
reference to Section 211, it is his submission that the Central
Government is empowered to order an investigation into the
affairs of the Company by SFIO, once again on receipt of the
report of the Registrar or Inspector u/s. 208 or on an intimation
of Special Resolution passed by the Company that it's affairs are
to be investigated or in public interest or on request by any
Department of Central Government or State Government.
With regard to the establishment of SFIO u/s. 211,
according to Mr. Chinoy, its establishment is for investigating
frauds relating to the Company, but in absence of any fraud, the
SFIO shall not exercise it's jurisdiction, and 'fraud' has a definite
connotation, which necessarily involve an intention, and merely
because there is default in payment of the amount or interest,
would not warrant investigation by SFIO.
Mr. Chinoy would rely upon the decision of the Division
Bench of this Court in case of Parmeshwar Das Agarwal Vs.
Additional Director (Investigation) Serious Fraud Investigation
Office & Ors,1 when the Court had pronounced upon the
1 2016 SCC Online Bom 9276
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scheme under the Companies Act 2013, and when the Central
Government exercised its power u/s. 212(1)(c), it is held that
there was no element of public interest projected, except some
vague and general reference to certain allegations, and it was
held that the situation did not warrant investigation into the
affairs of the Company on the pretext of 'public interest'.
By inviting our attention to the specific observations in
regard to the exercise of power u/s.212, he would submit that
the Division Bench has held that by its very title, the
investigation u/s. 212 by the SFIO ought to be on the basis of
the opinion of the Central Government, that it is necessary to
investigate into the affairs of the Company by SFIO and the
opinion has to be based on the report of the Registrar or
Inspector u/s. 208 or in public interest, or on the request of any
Department of the Central Government, he would, in specific,
rely upon the following observations of the Division Bench.
"47........ By Section 211, the SFIO is established to investigate
frauds relating to a company. It Is a very special office and headed
by a Director and consists of such number of experts from the
fields enumerated in subsection (2) of section 211 to be appointed
by the Central Government from amongst persons of ability,
integrity and experience. The wide powers that this office enjoys,
as is set out in various sub-sections of section 212, would denote as
to how its involvement comes after the investigations are assigned
to it by the Central Government. By their very nature the
investigations into frauds relating to a company have to be
assigned. They have to be of such magnitude and seriousness
demanding involvement of experts in the fields enumerated in sub-
section (2) of section 211. Therefore, while exercising the powers
under sub-section (1) of section 212, the Central Government
ought to be not only forming an opinion about the necessity to
investigate into the affairs of the company, but further that such
investigations have. to be assigned to the SFIO."
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11. Mr.Kadam, learned senior counsel representing Yash Birla,
the Director of Birla Cotsyn would join Mr. Chinoy in raising a
challenge to the impugned order on the basis of the
jurisdictional error, and he would submit that the summons are
received by Yashavardhan Birla on 14/9/2022 from the
Inspector, SFIO, as the Central Government had assigned the
investigation of the affairs of Birla Cotsyn Limited, along with 2
other companies, to the SFIO.
Inviting our attention to the report dated 27/9/2018 with
reference to Birla Cotsyn, Mr. Kadam would submit that the
report make reference to 125 complaints registered against the
Company since 2013, the complaints pertaining to default in
repayment of principal and interest. Surprisingly, according to
Mr. Kadam, the report make reference to the CLB orders for
rescheduling the payment of deposits, but this is not based on
any enquiry, but the Registrar has picked up various orders
from the website, to arrive at a conclusion that the Company
has not repaid the depositors in compliance with the order
passed by the CLB. Based on the admitted default which was
persisting for more than one year, and since the Directors of the
Company were disqualified u/s.164(2)(b) of the Act, the report
categorically record thus:-
"The RoC, Mumbai was asked to conduct an inquiry in case of
Birla Cotsyn, but the detail inquiry has not yet been
completed. However, this report on deposit related activities,
and default is being submitted."
Mr. Kadam has also submitted that, accepting that there
was a default, but in absentia of fraud, whether the
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investigation could have been handed over by SFIO. He would
submit that the impugned report is of the year 2018 and
summons are issued after four years, clearly indicating that
there was no need for investigation.
12. Learned counsel Mr. Vishal Kanade, largely adopted the
arguments advanced by the respective senior counsel in the two
petitions, and as regards the status of Birla Cotsyn India
Limited, he has placed before us a copy of Company Petition
No. 150/2022 filed before the NCLT, Mumbai by the Ministry of
Corporate Affairs, requesting for an action u/s. 221, 222, 242
r/w Section 339 of the Companies Act. He has also placed on
record the order dated 20/11/2018 when Birla Cotsyn (India)
Ltd, is subjected to the proceedings under the Insolvency and
Bankrupty Code, 2016 (for short 'IBC') by the Financial
Creditor Edelweisse Asset Reconstruction Company Limited, the
assignee of Axis Bank Limited. According to Mr. Kanade, the
CIRP order admitted Insolvency Application against the
Company, and on 24/9/2019, the NCLT directed initiation of
liquidation proceedings after the Resolution Professional was
appointed.
It is also submitted that a composite scheme of
Compromise and Arrangement in respect of the Company is
filed under Section 230 of the Companies Act, which is
approved by the NCLT on 9/1/2025 and the Scheme provide
for payment as to the fixed deposit holders, and according to
him, the Company is now under a new regime. Submitting that
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Vipin Dilip Kumar Varkhawat was working as Chief Financial
Officer of the Company, but according to him, he was not a part
of the Company when it allegedly started accepting deposits.
Mr. Kanade would also submit that in any case, with the
initiation of CIRP process, he has ceased to be under the
employment of the Company, and there is no reason why
summons are issued to him.
Mr. Kanade also represent Mr. B. Girvanesh, the Company
Secretary of Zenith Birla, and he would submit that the
respondent no.1 has failed to appreciate the draconian effect of
investigation into the affairs of Zenith Birla on its business,
operations, and shareholders, and he has also further urged
that the impugned order is vitiated, as the opinion formed by
respondent no.1 before passing the order must establish the
nexus to the circumstances and material before it, and no such
nexus is prima facie evident from the impugned order read with
the Registrar's report.
13. Opposing the submissions advanced on behalf of the
petitioners, Mr. Anil Singh, has attempted to justify the
impugned order, and by way of preliminary objection, he would
submit that the Company i.e. Birla Cotsyn limited (presently in
liquidation) has not challenged the order passed by the Central
Government directing investigation into the affairs of the
Company, but, it is the Chief Financial Officer and three other
individuals in their individual capacity who have approached
this Court, upon they being summoned in relation to the
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investigation into the affairs of the Company. He therefore has
raised serious objection about the petitioners Mr. Satya Madhur,
Vipin Dilip Kumar Varkhawat and Yashovardhan Birla in
approaching this Court when the Company has not challenged
the order dated 7/1/2019. Apart from this, he would submit
that out of three companies against whom the investigation is
directed, only Zenith Steel Pipes and Industries has chosen to
file a Writ Petition, whereas the other two Companies, Birla
Cotsyn Limited and Birla Shloka Edutech Limited, has not made
any grievance.
14. Mr. Singh has also objected to the petitions being
entertained, as he would submit that the investigation is
initiated by SFIO, and it is not open for the petitioners to
interdict the investigation, as it is the settled position in law,
that accused persons do not have a say in the matter of
Investigation, and as they cannot choose the investigating
agency. He would place reliance upon the decision of the Apex
Court in case of Pragya Singh Thakur versus State of
Maharashtra,2 and as far as the present case is concerned, he
would submit that it is too premature for the petitioners to file
the present petitions, as they are not even arraigned as an
accused, and it is possible that upon the summons being issued,
when they mark their appearance before the Investigating
Officer, they may not be arraigned as accused. Mr. Singh would
also submit that since the investigation is at a very nascent
2 2014 All.MR (Cri) 457
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stage, it is incorrect on part of the petitioners to presume that
any liability would be fastened upon them, and at this stage
when only summons are issued to them u/s. 217, in exercise of
the powers conferred upon the SFIO to conduct investigation,
and they cannot make any grievance, as there is no violation of
their fundamental right or any legal right.
Mr. Singh would invoke the principle laid down by this
Court in Shradha Binani Vs. Ministry of Corporate Affairs and
ors (Writ Petition No. 2264/2021) when the Division Bench of
the Court in the context of issuance of summons under section
217 of the Companies Act, has observed thus :-
"The Petitioner is only issued with the summons. As yet the SFIO has
not submitted the report to the Central Government. The
investigation is at the nascent stage. The Courts would not generally
interfere at the initial stage of the investigation. The investigation is
carried out to unearth the alleged irregularities into the affairs of the
company. The investigation is carried out by SFIO consisting of
experts. In such scenario, we do not find it a fit case to invoke the writ
jurisdiction under Article 226 of the Constitution of India."
15. By relying upon the following decisions of the Apex Court
in Abhinandan Jha Vs. Dinesh Mishra,3 State of Bihar Vs. J.A.
Saldanha,4 and M.C. Abraham Vs. State of Maharshtra5, Mr.
Singh has submitted that quashing of the summons at this
stage, would impinge upon the investigating powers of the
SFIO, as the Courts are not expected to a charter the course of
action upon the Investigating Agency, as it is the sole
prerogative of the Investigating Officer when he is investigating
3 (1967) 3 SCR 668
4 (1998) 1 SCC 52
5 (2003) 2 SCC 649
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a crime.
Submitting that economic offences constitute a class by
themselves being crime against Society based on deep rooted
conspiracy, Mr. Singh would would invoke the principle laid
down in Y.S. Jagan Mohan Reddy Vs. CBI,6 where it is held that
economic offences constitute a class apart and need to be
visited with different approach, as they involve deep rooted
conspiracies and huge loss of public funds need to be viewed
seriously. And it is to be considered as grave offence affecting
the economy of the country as the whole, posing serious threat
to the financial health of the country.
It is also the submission of Mr. Singh, that the
investigation ought not to be thwarted at the initial stage, as it
is the prerogative of the Investigating Officer to arrive at truth
by conducting a fair, unbiased, and proper investigation.
It is also the contention of Mr. Singh that if the impugned
order passed by the Central Government under Section 212 of
the Act, has only directed the SFIO to investigate the affairs of
the particular company, and it being an administrative order, it
shall be tested by this Court by applying the parameters of a
judicial review of an administrative action. He would invoke the
principle laid down in SFIO Vs. Sahara Housing Investment
Corporation Ltd,7 where the Division Bench of Delhi High Court
stayed the order passed under section 212, the ground being
6 (2013) 7 SCC 439
7 (2022) 9 SCC 794
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that the order passed did not furnish reasons or set out the
circumstances which compelled the Central Government to
form an opinion while ordering the investigation.
By relying upon the decision in case of Neeharika
Infrastructure Vs. State of Maharashtra,8 the Apex Court has
observed thus :-
"This Court in Neeharika Infrastructure Pvt. Ltd. vs State of
Maharashtra and Others 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.(emphasis supplied)"
As far as the facts of the matter are concerned, according
to Mr. Singh, the Ministry of Corporate Affairs, RoC, Mumbai,
received various complaints of defaults in payments of Yash
Birla Group of companies, and amongst the group, Birla
Solutions Limited, failed to meet out its financial obligations,
and it was admitted into liquidation proceedings, consequent to
the order dated 28/8/2014 passed by the Court in Company
Petition No. 421/2013, when the Official Liquidator, Mumbai
was appointed as liquidator of BPSL. The matter was referred to
SFIO for examination/investigation of siphoning of funds, etc.
The Ministry of Corporate Affairs ordered SFIO to investigate
into its affairs by order dated 14/10/2016, and upon the
8 2021 SCC Online SC 315
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investigation being conducted, the report was submitted to
MCA on 28/1/2022. The SFIO therefore, initiated prosecution,
and the Special Court took cognizance. According to Mr. Singh,
the report dated 27/9/2018 by the Registrar came at a time
when SFIO was already investigating into the affairs of BPSL.
He would submit that the report dated 27/9/2018 has
specifically made out a case against each company, and this
report, according to him, has to be considered along with the
material in form of (i) action taken by the Official Liquidator,
Mumbai against BPSL (ii) Review Report submitted by RoC and
(iii) orders passed by CLT/NCLT.
Mr. Singh would specifically submit that perusal of the
report would reveal persistent default in repayment of public
deposit and interest thereon since 2013 and this was common
for all the companies of Yash Birla Group, who were found to
be engaged in persistent default resulting into large number of
complaints being filed.
The CLB/NCLT had passed orders from time to time,
granting time to clear the default, but there was no compliance
which rendered the Company and their Officers punishable
u/s.58A(1) of the Companies Act.
With reference to the report, Mr.Singh would submit that
there are multiple complaints approximating to 800 against the
three companies and multiple orders passed by CLB, involving
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around 3000 depositors who have not been returned their
monies which had rendered disqualification of the Directors of
all the three companies. Mr. Singh would submit that a careful
reading of the Report and the material contained therein would
bear out the possibility of commission to two offences i.e. under
Section 75 and Section 447 of the Companies Act and he has
specifically invoked Section 447 which prescribe punishment
for fraud and the term 'fraud' has assigned a meaning through
the explanation appended to the Section. According to
Mr.Singh, 'fraud' in relation to the affairs of the Company,
include any act, omission, concealment of any fact, or abuse of
position, committed by any person with the connivance in any
manner, with intent to deceive, gain undue advantage or to
injure the interest of the Company or its shareholders, or its
creditors or any other person whether or not there is wrongful
gain or wrongful loss. It is in the wake of the aforesaid
meaning being assigned to the term 'fraud' for the purpose of
Section 447, Mr. Singh assertively submit that the default by the
Companies in repayment was not a singular instance, but a
persistent default occurring in group of companies for several
years, involving thousands of depositors and therefore, the
report had made out the possibility of serious fraud both in
terms of Section 75 and Section 447 and it also made out a case
for involvement of public interest as thousands of depositors
are defrauded. Thus, it is the submission of Mr. Singh that the
exercise of power by the Central Government is completely
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justiciable in the present case, as the report which is placed
before the Central Government has been the basis of the
exercise of power by it under Section 212. According to him,
the report dated 27/9/2018, is in substantial compliance of
Section 208 and no prejudice has been caused or pleaded by
the petitioners. In conclusion, Mr.Singh would rely upon the
decision of the Apex Court in case of SFIO Vs. Rahul Modi,9 and
he would rely upon the following observations :-
"It is well settled that while laying down a particular procedure if no
negative or adverse consequences are contemplated for non-
adherence to such procedure, the relevant provision is normally not
taken to be mandatory and is considered to be purely directory.
Furthermore, the provision has to be seen in the context in which it
occurs in the statute. There are three basic features which are
present in this matter:
1. Absolute transfer of investigation in terms of Section 212(2) of the
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.
2. For completion of investigation, sub-section (12) of Section 212
does not contemplate any period.
3. Under sub-section (1) of Section 212 there could be interim
reports as and when directed."
In the wake of the aforesaid submission, Mr. Singh
sincerely urged that the petitions filed by the petitioners, being
without any merit and substance are liable to be dismissed, as
invocation of the jurisdiction of this Court by the petitioners is
nothing but abuse of process of law and they should be dealt
with by stern hand.
16. In light of the counter submissions advanced, we have
perused the Scheme contained in the Companies Act, 2013 to
9 (2019) 5 SCC 266
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find that Chapter XIV deals with inspection, enquiry and
investigation.
Section 206 is the power of the Registrar to call for any
information or explanation, if on scrutiny of the documents
filed by Company or any information received by him, he is of
the opinion that further information or explanation from the
Company is warranted, and he may call upon the Company to
furnish such explanation or to produce such documents.
Whenever such demand is made by issuance of notice under
sub-section(1) of Section 206, the Company as well as its
Officers are duty bound to furnish such information or
explanation within the prescribed timeline. Sub-section (3) of
Section 206, in specific, provide that if no information or
explanation is furnished to the Registrar or on examination of
the information or explanation furnished, is inadequate, or if
the Registrar is satisfied on scrutiny of the documents
furnished, that a unsatisfactory state of affairs exist in the
Company, and there is no full and fair statement of information
required, he may call upon the Company to produce for his
inspection, such further books of account, papers and
explanation, as he may require but with a caveat that before the
Registrar direct this to be done, he shall record his reasons in
writing for issuing issues such notice.
However, if on the basis of the information available with
him or furnished to him, or upon the representation made to
him by any person, the Registrar is satisfied that the business of
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the Company is carried out for a fraudulent or unlawful
purpose, and in violation of the provisions of the Act, or that
the grievance of the investors is not being addressed, the
Registrar, shall inform the company of the allegations in writing
and call upon the Company to furnish its explanation, and
thereafter carry out such enquiry, as it deems fit after providing
the Company a reasonable opportunity of being heard.
The proviso appended to sub-section (4) of Section 206
also prescribe that where it is noted by the Registrar that the
business of the Company has been or is being carried out on a
fraudulent or unlawful purpose, every Officer of the Company
who is in default shall be punishable for fraud as provided in
Section 447. Apart from this, on the Registrar having issued a
notice calling upon the Company to furnish any information or
explanation, if there is failure to do so, the Company and every
Officer who is in default is liable for punishment as prescribed
in sub-section (7).
17. Section 207 in the Scheme of the Chapter, pertain to
conduct of inspection and enquiry and when the Registrar had
called for the books of accounts and other papers, under
Section 206 and since a corresponding obligation is cast upon
the Director/Officer or other employee of the Company to
furnish such documents, and furnish such statement/
information or explanation, as required, they are expected to
render all assistance to the Registrar or Inspector in connection
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with such inspection.
The Registrar or Inspector making an inspection or
enquiry is vested with the powers of the Code of Civil
Procedure, as set out in sub-section (3) of Section 207. The
most pertinent section in the Scheme is Section 208 which
reads thus :-
"208. Report on inspection made
The Registrar or inspector shall, after the inspection of the
books of account or an inquiry under section 206 and other
books and papers of the company under section 207, submit a
report in writing to the Central Government along with such
documents, if any, and such report may, if necessary, include a
recommendation that further investigation into the affairs of
the company is necessary giving his reasons in support."
18. Section 209 is the power of Search and Seizure conferred
on the Registrar or the Inspector, on a reasonable ground to
believe that the books and papers of the Company relating to
key managerial personnel, are likely to be destroyed, mutilated,
altered, falsified or secreted, after obtaining permission from
the Special Court, he is authorised to enter into the premises,
take search of the place where such books or papers are kept
and seize such books and papers, if he considered it to be
necessary.
19. Section 210 is a provision for investigation into the affairs
of the Company and it is relevant to note that the power of
investigation can be exercised by the Central Government only
on the contingency stipulated therein and Section 210 reads
thus :-
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"210 Investigation into affairs of company
(1) Where the Central Government is of the opinion, that it is
necessary to investigate into the affairs of a company ,--
(a) on the receipt of a report of the Registrar or inspector under
section 208;
(b) on intimation of a special resolution passed by a company
that the affairs of the company ought to be investigated; or
(c) in public interest, it may order an investigation into the
affairs of the company.
(2) Where an order is passed by a Court or the Tribunal in any
proceedings before it that the affairs of a Company ought to be
investigated, the Central Government shall order an investigation
into the affairs of that Company.
(3) For the purposes of this section, the Central Government
may appoint one or more persons as Inspectors to investigate into the
affairs of the Company and to report thereon in such manner, as the
Central Government may direct."
Similarly, the investigation can also be directed pursuant
to an order passed by the Court or Tribunal in any proceedings,
involving the affairs of the company.
20. With effect from 1/4/2014, Section 211 is introduced in
the Companies Act 2013, which provide for establishment of
Serious Fraud Investigation Office (SFIO) by the Central
Government through notification to investigate 'Frauds relating
to a Company".
Serious Fraud Investigation Office is headed by Director
and consists such number of experts from various fields to be
appointed by the Central Government and this include the
Officers from the field of Banking, Corporate affairs/taxation,
forensic audit, capital market, information technology, law or
such other fields as may be prescribed.
21. Section 212 is a specific provision which relate to
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Investigation into affairs of the Company by SFIO and this
provision exist, without prejudice to the provision of Section
210 and as it prescribe that where the Central Government is of
the opinion that it is necessary to investigate into the affairs of
the Company by SFIO in the contingencies set out therein :-
(a) On receipt of a report of the Registrar or Inspector under
section 208;
(b) on intimation of a special resolution passed by a company
that its affairs are required to be investigated;
(c) in the public interest; or
(d) on request from any Department of the Central
Government or a State Government,
then, the Central Government may by order, assign the
investigation to SFIO and its Directors and such Inspectors may
be designated for carrying out such investigation.
When the investigation is assigned to SFIO by the Central
Government, it shall be conducted in the manner by following
the procedure prescribed and submit the report to the Central
Government within such period as is specified in the order.
When the investigation is ongoing, the Company and its
Officers and employees who are, or have been in employment
of the Company shall be responsible to provide all information,
explanation, documents and assistance to the Investigating
Officer, as he may require for conduct of investigation.
22. Section 212 set out the procedure in detail to be followed
by SFIO and the manner in which the report shall be submitted
to the Central Government and the action to be taken by the
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Central Government on receipt of such report, which may
include initiation of prosecution against the Company, and its
Officers or employees who are, or have been in the employment
of the Company, or any other person directly or indirectly
connected with the affairs of the Company.
23. The order dated 7/1/2019 passed by the Government of
India, Ministry of Corporate Affairs, has invoked power under
Section 212 (1)(a), as the Central Government opined that it is
necessary to investigate into the affairs of Birla Cotsyn and Birla
Shloka Edutech Limited and Zenith Birla Limited by the SFIO.
The Inspectors appointed by Director, SFIO, are directed
to investigate into its affairs and on completion of investigation,
submit a report to the Central Government within a period of
three months. Pursuant to the said notices, individual
summons are issued to the petitioners for attending the
investigation and the order dated 7/1/2019 along with the
summons are challenged in the Writ Petition.
The submission advanced on behalf of the petitioners is
specific; the exercise of power under Section 212 by the Central
Government, is unwarranted as the impugned order has
invoked power under clause (a) of sub-section (1) of Section
212 by expressly stating that the Central Government, is of the
opinion that it is necessary to investigate into the affairs of the
Company through SFIO, on the basis of report of Registrar
under Section 208 of the Companies Act, 2013.
Section 208 is a report made by the Registrar after
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inspection of books of account or on a conduct of enquiry under
Section 206, and other books and papers of the Company under
section 207 and such report may include a recommendation
that further investigation into the affairs of the Company is
necessary.
24. The report u/s.208 necessarily is preceded by the
Inspection of the books of accounts u/s.206 and other books
and paper of the Company u/s.207, when the Registrar deemed
it appropriate to carry an enquiry.
What is urged before us is the absence of the conduct of
such an enquiry by the Registrar or collation of such
information by him by affording an opportunity to the
Company or those who are in helm of the affairs of the
Company.
Under Section 206, when on scrutiny of the document
filed by any Company or information received, the Registrar
deem it necessary to obtain further explanation, he may issue a
notice and upon receipt of such notice, the Company and its
Officers are duty bound to furnish such information or
explanation to the best of their knowledge and power.
However, if no such information is furnished, Registrar himself,
on examination of the documents with him, or documents
furnished to him, must scrutinize the same and arrive at a
conclusion recording about the unsatisfactory state of affairs
existing in the Company and that the Company had not
disclosed full and fair statement of the information.
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Even if the Registrar is satisfied that if the business of the
Company is carried on for a fraudulent or unlawful purpose
and in breach of the provisions of the Act or that the grievances
of the investors are not addressed, it is imperative for the
Registrar to apprise the Company about the allegations made
against it, and call on the Company to furnish in writing its
explanation on matters specified in the order i.e. he shall
ensure reasonable opportunity of hearing to the Company. It is
strenuously urged before us that none of the process has been
adhered to, before the report was acted upon while exercising
the power u/s.212(1)(a), which permit exercise of the power
on receipt of the report of the Registrar or Inspector under
section 208 or on intimation of a Special Resolution passed by a
Company that its affairs are required to be investigated or on
the request from any Department of the Central Government or
the State Government when the investigation into the affairs of
the Company would be entrusted to SFIO.
25. We have perused the report forwarded to the Ministry of
the Corporate affairs in respect of the three companies and the
preface to the said report, with reference to the company
belonging to Yashovardhan Birla group (Yash Birla group) are
reported to be persistently defaulting in repayment of public
deposits and interest since 2013. The report make a reference
to the order passed by the CLB/NCLT granting time to clear the
defaults, but it note that there is no compliance, as a result, its
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Officers are also held liable for prosecution under section 58
A(1) of the Companies Act, 1956.
The fulcrum of the Report is thus the persistent default
and large number of complaints against the Companies, and
with regards to Birla Cotsyn, the report state that there are 125
complaints, largely on account of default in repayment of
principal and interest thereon. It is also recorded that the
default is persisting for more than a year and despite order
passed by the CLB, there is no repayment of the deposits.
In case of Zenith Birla (India) Limited, there is a reference
to 636 complaints against the Company, on account of failure of
repayment of deposits and interest, and with reference to the
inspection conducted in 2012, the report disclose that the
Company has started drifting/defaulting in repayment of
deposits, but the Registrar of Companies clearly express that the
Company should be taken out of the watch list and fresh
inspection under section 206(5) shall be carried as the earlier
inspection was conducted, covering a period when there are no
defaults on account of the repayment of deposits.
Surprisingly, the report relied upon certain orders of CLB
from the website, to conclude that there is a default on part of
the Company.
26. One of the pertinent basis of the Report highlighted in
paragraph no.14, is SFIO is already conducting investigation
into the affairs of Birla Power Solutions Limited, and therefore
it is proposed that the other Yash Birla group of Companies, i.e.
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that is Birla Cotsyn Limited, Birla Shloka Edutech Limited and
Zenith Birla Limited, shall also be assigned for investigation to
SFIO on account of default of repayment of deposits.
27. It is also pertinent to note that the assignment of
investigation to SFIO is for investigation into frauds relating to
a Company and the power of the SFIO to investigate, is
conferred without prejudice to the provision contained in
Section 210, where the investigation into the affairs of the
Company shall be carried out on receipt of a report of the
Registrar or Inspector under section 208, or where any Tribunal
or Court direct an investigation to be carried out in the affairs
of the Company, and such investigation shall be then carried
out, through one or more persons appointed as Inspectors by
the Central Government, and a report may be submitted to the
Central Government for appropriate action. However, it is only
in the respect of investigation into a fraud, and if in the opinion
of the Central Government, such affairs need to be investigated
by SFIO, on receipt of the report of Registrar or Inspector under
section 208 or in public interest, or upon a Special Resolution
passed by a company, that its affairs are to be investigated, the
investigation shall be handed over to it.
'Fraud' has a definite connotation under the Companies
Act and in the statutory framework of the Companies Act 2013,
there is a provision for payment of damages for fraud, as
Section 75 clearly provide that when a Company failed to repay
the deposits or part thereof, or any interest thereon with
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reference to Section 74 within the time specified therein, and if
it is proved that the deposits had been accepted with intent to
defraud the depositors, or for any other fraudulent purpose,
every Officers of the Company responsible for the acceptance of
such deposit shall be personally responsible for all or any of the
losses or damages that may have been incurred by the
depositors.
The said provision introduced with effect from 1/6/2016
also provide that any suit, proceeding or other action may be
taken by any person, group of persons or any association of
persons who had incurred any loss as a result of the failure of
the Company to pay the deposit or any part thereof or interest
thereon.
Section 447 of the Companies Act has prescribed
punishment for fraud and the said provision operate without
prejudice to any liability, including repayment of any debt
under the Act or any other law for the time being in force, and
if any person is found to be guilty of fraud involving an amount
of at least 10 lakhs rupees or 1% of the turnover of the
Company, whichever is lower, shall be punished with
Imprisonment as prescribed therein. The explanation appended
to the said Section provide as to what would amount to fraud
and it reads thus :-
(i) "fraud" in relation to affairs of a company or any body corporate,
includes any act, omission, concealment of any fact or abuse of
position committed by any person or any other person with the
connivance in any manner, with intent to deceive, to gain undue
advantage from, or to injure the interests of, the company or its
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shareholders or its creditors or any other person, whether or not
there is any wrongful gain or wrongful loss;
(ii) "wrongful gain" means the gain by unlawful means of property
to which the person gaining is not legally entitled;
(iii) "wrongful loss" means the loss by unlawful means of property
to which the person losing is legally entitled.
28. Reading the aforesaid provision would make it evidently
clear that 'fraud' is something more than a default and in
relation to affairs of a company, it would include any act
omission, concealment or any fact or abuse of position
committed by any person with connivance in any manner, with
intent to deceive, to gain undue advantage from, or to affect
the interest of the company, its shareholders, or its creditors or
any other person. Fraud necessarily involve a mental element,
mens rea, and an act which amounts to fraud is punishable
but, in our considered view, merely because there is a default in
payment of the principal sum/interest, and despite repeated
orders passed by the CLB/NCLT, there is a failure to comply by
itself, would not amount to 'fraud'.
Even in terms of the Indian Penal Code, 1860, a penal
statute punishing an act of fraud, a person is said to do a thing
fraudulently, if he does that thing with intent to defraud, but
not otherwise and the penal code has provided distinct
instances of a fraudulent action with separate punishment
being prescribed for the same.
One thing however is undisputedly clear i.e. fraud
involves a mens rea to deceive and an intent to defraud and
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therefore, mere default would not fall within the purview of
fraud. When the SFIO is constituted specifically for
investigation into the fraudulent affairs of the Company, and
when the report which form the basis of the exercise of power
by the Central Government under Section 212, has failed to
make out a case of investigation into the fraudulent affairs of
the Company, when the report itself has only referred to the
default in repayment of deposits, despite directions being issued
by CLB, the liability is not clear and merely because there are
various complaints by depositors, in our view, do not make out
the case of investigation by SFIO which is specifically
constituted for investigating frauds relating to a Company.
Merely because SFIO is already conducting investigation
into the affairs of Birla Power Solution, is not a sufficient
justification for investigating into the affairs of other companies
of Yash Birla Group i.e. Birla Cotsyn as well as Zenith Birla
Limited.
We, therefore, agree with the submission advanced by
learned senior counsel Mr.Chinoy and the learned counsel
Mr.Kadam along with Mr.Vishal Kanade who have specifically
urged that the existence of circumstances/material justifying
exercise of power u/s.212 of the Companies Act, 2013 is not at
all made out and resultantly, the show cause notices of the
summons purported to investigate the affairs of the company
and the Directors on the basis of the report, suffers from
arbitrariness in absence of the necessary power.
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It is worth to note that before making the report dated
27/9/2018 purportedly under section 208, the Registrar had
not issued notices under section 206(1) or Section 206(3),
calling on the Company or its Directors to furnish information
or explanation, nor had the Registrar issued any order
u/s.206(4) of the Company informing it of the allegations and
calling an explanation or information.
In fact, the report dated 27/9/2018 purported to be
prepared u/s.208, is not based on any inspection or enquiry
conducted u/s.206. In fact, in the Report, it is categorically
mentioned that the last inspection was conducted in 2012 and
the Company started defaulting in making the payment since
2014 and in fact, the Registrar of Companies itself has
recommended a fresh inspection u/s.206. The report clearly
record that the default has surfaced in the wake of the orders
passed by CLB for repayment of deposits and these notices are
picked up from the website. Hence, we are of the view that the
report dated 27/9/2018 purported to be made by the Registrar
u/s.208 is ex-facie illegal, as it failed to conform to the
requirements and stipulations in the scheme of the Companies
Act, 2013.
The order dated 7/1/2019 based upon the said report,
also therefore, cannot sustain and deserve to be quashed and
set aside along with the summons/notices issued to the
petitioners, being Directors of the Birla Cotsyn and Birla Shloka
Edutech Limited.
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As a result of the above, the Officers of the two
Companies in their capacity as Chief Financial Officer/Company
Secretary/ Director cannot be subjected to investigation by the
SFIO.
For the reasons recorded above, we quash and set aside
the impugned order dated 7/1/2019 passed by the respondent
no.1 along with the summons and notices issued by the SFIO
directing the petitioners to render co-operation in the
investigation.
Similarly, since we are of the view that the report of
27/9/2018 is not in conformity with the procedure set out in
Section 206, sub-section (4), the same is also quashed and set
aside.
Writ Petition is made absolute in the aforesaid terms.
(MANJUSHA DESHPANDE, J) (BHARATI DANGRE, J.)
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