Holding

An independent, multi‑agency regulatory investigation is required to scrutinise the alleged financial irregularities of IFCI, as internal board review is insufficient to protect public interest.

Summary

The Centre for Public Litigation filed a writ petition under Article 32 seeking an independent investigation into alleged administrative and financial irregularities of the Industrial Finance Corporation of India (IFCI), a public financial institution with substantial loans, grants and guarantees from the Union Government. The petition alleged mis‑investments, loss‑making share purchases, loans to wilful defaulters and questionable dealings with the Satyam group, supported by inspection reports of the Registrar of Companies. The Court examined whether the internal scrutiny by IFCI’s board and the Department of Financial Services was sufficient, given the public interest and the magnitude of the alleged losses. It held that an impartial, independent regulatory scrutiny by multiple agencies was necessary to ensure accountability and protect public interest. Accordingly, the Court directed the Ministries of Finance and Corporate Affairs to order investigations by the Serious Frauds Investigation Officer, the Reserve Bank of India and SEBI within a stipulated timeline, and disposed of the writ petition.

Issues considered

Whether the internal examination by IFCI’s board and the Department of Financial Services suffices to address the alleged financial irregularities.
Whether an independent regulatory investigation is required under public interest considerations.
Whether the Union Government should be directed to ensure scrutiny by multiple regulatory agencies under the Companies Act, 1956.

Legislation cited

Companies Act, 1956s. 209(A), s. 234(b), s. 324(1), s. 4(A)
Industrial Finance Corporation of India Act, 1948
Industrial Finance Corporation of India (Transfer of Undertaking and Repeal) Act, 1993

Subjects

Public Interest LitigationIndependent investigationFinancial irregularitiesIndustrial Finance Corporation of IndiaCorporate governanceRegulatory oversightCompanies ActUnion GovernmentSerious Frauds Investigation OfficerReserve Bank of IndiaSecurities and Exchange Board of India

Judgment

[2016] 9 S.C.R. 673

CENTRE FOR PUBLIC LITIGATION A
v.
UNION OF INDIA & ORS.
(Writ Petition (C) No. 355 of201 l)
SEPTEMBER 23, 2016 B
[T. S. THAKUR, CJI AND DR. D.Y. CHANDRACHUD, J.]
Public Interest Litigation - Writ petition u/Art. 32 inter alia
. seeking independent investigation into alleged administrative and
financial irregularities of Industrial Finance Corporation of India
(IFCJ) - Held: IFCI has a huge financial commitment to the Union c
Government in terms of loans.· grants and guarantees - There is a
vital element of public interest in ensuring that a full, fair and
objective scrutiny is carried out by an independent regulatory -
Object and purpose of such an enquiry is to scrutinize serious
allegations levelled in regard to the investments made by IFCI - D
Directions issued to the Union Ministry of Finance and Union
Ministry of Corporate Affairs to ensure that a proper scrutiny is
carried out in respect of the allegations which form subject matter
of these proceedings - Companies Act, 1956. ·
Industrial Finance Corporation of India (IFCI), established as a
statutory Corporation under the Industrial Finance Corporation oflndia E
Act, 1948 was converted into a Company after the repeal of the said
Act in 1993. In or about December 2009, there were several complaints
alleging gross irregularities in certain investments made and generally in
regard to the accountability ofIFCl to the Government oflndia. Before
this Court, the writ petitioners sought diverse reliefs, including independent F
investigation, in relation to the conduct of business and affairs ofIFCI.
Disposing of the writ petition, the Court
HELD: 1. The material placed before this Court on the
record inter alia contains a copy of the report of the Registrar of
Companies, Delhi and Haryana dated 8 January 2013 which notes G
complaints against IFCI. The findings in the reports are as follows:
(i) acquisition of 5 percent stock in July 2009 by IFCI in MCX-
SX at the rate of Rs. 35 per share at an alleged loss of Rs. 168 .
crore; (ii) loss of Rs. 225 erorc granted to Blue Coast Hotels
and Resource Limited and (iii) financial dealings with Satyam
H
673
/

674 SUPREME COURT REPORTS [2016] 9 S.C.R.

A Group of Companies. Besides these aspects the report deals
with various other matters including investments in unquoted
shares worth Rs. 2,500 crore; loss due to investments made
otherwise than in the normal course of business; bad and doubtful
debts written off to the extent of Rs. 279.85 crore, 284.66 crore
and 512.81 crore during 2008-09, 2009-10 and 2010-11. The
B
report has adverted to the lack af due diligence in various
investments made by IFCI. [Paras 7, 8][679-A,B,D; 680-F; 682-
A, G-H; 683-A]
2.1 The material placed before this Court is such as would,
necessitate close scrutiny and action by an independent
C regulatory. The position adopted before this Court by the
Department of Financial Services is that it would be sufficient in
itself, once IFCI through its newly constituted board had
examined the report and not found anything untoward or remiss.
This is not a satisfactory method of resolving the issues which
D have been raised and the serious concerns which emerge from
the inspection report of the ROC. The object and purpose of
such an enquiry is to scrutinb:e serious allegations which have
been levelled in regard to the investments which were made by
IFCI, a scrutiny of the report by the Board of IFCI would not
suffice to the affairs and impartial investigation.[Para 11][684-G;
E 685-A-C]
2.2 IFCI has a huge financial commitment to the Union
Government in terms of loans, grants and guarantees. A dire
financial position of IFCI led the Union Government to commit
resources to raise the company from a position of serious financial
F distress. There is a vital element of public interest in ensuring
that a full, fair and objective scrutiny is carried out by an
independent regulatory with a view to ensure a degree of
accountability. If it is found that the conduct of any of the officers
or employees of IFCI led to the sustain of a loss, such conduct
must be subjected to scrutiny and action in accordance with law.
G The whole purpose of an independent regulatory is to ensure
that an entity in the financial sector whose conduct is in question
does not have a final or decisive voice in determining whether
there has been a violation of law and if so what action is necessary.
[Para 11][685-C-E]
H a
3. It is necessary and proper to issue direction both to
CENTRE FOR PUBLIC LITIGATION v. UNION OF INDIA & 675
ORS.

the Union Ministry of Finance and Union Ministry of Corporate A
Affairs to ensure that a proper scrutiny is carried out in respect
of the allegations which form the subject matter of these
proceedings including 011 the basis of the inspection report of
the ROC dated 8 January 2013. The Union Ministry of Finance
and Corporate Affairs respectively shall ensure that all aspects
B
of the matter are duly looked into by the regulators competing to
do so in areas entrusted to their respective domains. The Union
Government is directed to ensure a due and proper scrutiny into
all aspects of the matter by the (i) serious frauds investigation
officer; (ii) Reserve Bank oflndia; and (iii) Security and Exchange
Board of India (SEBI). The scrutiny shall be conducted with due c
observance of norms of procedural fairness that would include
an opportunity to IFCI to respond to the allegations. (Para
12)(686-B-E]
CIVIL ORIGINAL JURISDICTION: Writ Petition (C) No. 355
of201 I.
D
Under Article 32 of the Constitution oflndia.
Prashant Bhushan, Adv. for the Petitioner.
Ranj it Kumar, SG, Man inder Singh, ASG, Ms. V. Mohan a, Sr. Adv.,
Ranjana Narayan, Ms. Pragya Baghel, Ms. Movita, M. K. Maroria,
Anil Katiyar, Arvind Kumar Sharma, D. S. Mahra, S. N. Terdal,
E
Ms. Ruchi Kohli, Ms. Sushma Suri, Advs. for the Repondents.
The Judgment of the Court was delivered by
DR. D. Y. CHANDAACHUD, J. I. Centre for Public Interest
Litigation, while invoking the jurisdiction of this Court under Article 32 of
the Constitution sought diverser~liefs in relation to the conduct of business
and affairs oflndustrial Finance Corporation oflndia. The reliefs which F
have been sought in these proceedings are for :
(i) The removal of Atul Kumar Rai, theRespondent No. 4 from
the post of Chief Executive Officer and Managing Director;
(ii)An independent investigation into allegations of administrative
and financial irregularities ofIFCI; G
(iii)A directionto the Union of India to exercise its powers under
the "surviving provisions" of the Industrial Finance Corporation;
(iv)Transfer of Undertaking and Repeal Act, 1993, in particular
by enforcing its rights for conversion of an investme\]t of Rs.
523 crore in Optional Convertible Debentures into equity. H
676 SUPREME COURT REPORTS [2016] 9 S.C.R.

A 2. Industrial Finance Corporation oflndia (IFCI) was established
as a statutory Corporation under the Industrial Finance Corporation of
India Act, 1948 by the provisions of the Industrial Finance Corporation
of India (Transfer of Undertaking and Repeal) Act, 1993. The Act of
1948, was repealed and the Corporation was converted into a Company.
The Statement of Objects and Reasons accompanying the introduction
B
of the Bill in Parliament indicated that the conversion of!FCI from a
statutory Corporation to a Company was necessitated in view of the
decline in the availability of concessional funds from government and
the Reserve Bank of India. As a result of the developments which took
place in the financial sector, it had become necessary for IFCI to raise
c resources from the market.
3. A major shareholder of IFCI was the Industrial Development
Bank oflndia which was essential in a competing market position. As a
result of the repeal enactment a new Company governed by the
Companies Act 1956 was established to which the entire undertaking
D business and functions oflFCl a~ well as its assets and liabilities were
transferred. The financial position ofIFCI painted a dismal picture. On
31 March 2002, its accumulated losses were over Rs. 11 OOcrore; its net
worth stood at a negative Rs. 31 crore and non-performing assets were
officially estimated at 32 per cent.

E 4. A group of Ministers was formed in July 2002 to work out a
restructuring package following its recommendations. A note was placed
before the Cabinet in November 2002 stating that 56 per cent of the
~quity was held by public sector institutions and the nationalized banks.
The restructuring package was approved by the Union Cabinet on 17
February 2005 and until 2006-07 a total amount of Rs. 2932.31 crore
F was provided by way of assistance to IFCI of which an amount of Rs.
523 crore was in the form of Optional Convertible Debentures. As on 31
March 2011, IFCI had outstanding loans to the Union Government of
Rs. 923 crore, grants-in-aid of Rs. 2409.31 crore and outstanding
guarantees of Rs. 2797.06 crore. Under the package which was approved
G by the Union Government a total amount of Rs. 2932.31 crore was
released to IFCI. In or about December 2009, the Union Government
received several complaints from Members of Parliament and from the
employees association of IFCI alleging gross irregularities in certain
investments made and generally in regard to the accountability ofIFCJ
to the Government oflndia. Among the irregularities is.the role ascribed
H
CENTRE FOR PUBLIC LITIGATION v. UNION OF INDIA & 677
ORS. [DR. D. Y. CHANDRACHUD, J.]

to the Respondent No. 4,Atul Kumar Rai. The Respondent No. 4 belongs A
to the !ES cadre andhad joined the banking division (later known as the
Department of Financial Services) as a Director on I November 2002.
On 7 November 2002, he was appointed as a Director (Industrial
Finance), in the Department of Financial Services, Ministry ofFinance
inter alia dealing with the operational, policy and budgetary matters
B
relating to financial institutions including IFCI. On 21 August 2005, he
was nominated as Government Director on the Board ofIFCI in which
capacity he continued until taking voluntary retirement. In February 2007,
the Respondent No. 4 sought voluntary retirement with effect from 28
February 2007 following a cadre clearance,his voluntary retirement was
approved with effect from 31 May 2007. Before being relieved the c
Respondent No. 4 addressed. a note of 30 April 2007 stating that the
Board of Directors had offered him a post of a whole Time Director by
Board's resolution dated 7 Marcll 2007. Approval for his accepting the
position was conveyed on I January 2007 subject to his furnishing a
mandatory declaration in terms of the instructions under Rule 10 of the
D
CCS (Pension) Rules dated 5 December 2006. The Respondent No. 4
is stated to have submitted the declaration on plain paper on 31 March
2007 and joined IFCI as its Chief Executive Officer and Managing
Director on I June 2007.
5. A Committee of Privileges of the RajyaSabha raised certain
issues in the matter. of a breach of privilege by the Respondent No. 4, E
with the Secretary (Financial Services) on 19 August 2010. While
instituting these proceedings, the petitioners have sought to highlight the
role played by the Respondent No. 4 in the financial misdemeanour and
irrt?gularities committed in the conduct of business by IFCI. Among the
irregularities which have been highlighted by the petitioners are the F
following:
"(i) Purchase of 5% stake in the MCX-SX by IFCI
management on a much higher 'price of Rs. 35 per share
whereas the Union Bank of India and the Bank of India
acquired the shares of the same company at Rs. I 0 per G
share, thereby inflicting a loss of Rs. 168 crores on the
IFCI;
(ii) Notice dated 22.4.2009 issued by the Registrar of
Companies, NCT Ddhi and Haryana to the IFCI, calling
for an explanation from the IFCI on various irregularities/ H
678 SUPREME COURT REPORTS [2016] 9 S.C.R.

A allegations, appalling corruption including the questionable
acquisition of 17.4% shareholding ofRajus of the Satyam
in MAYTAS Infrastructure, it has come to light that
ShriRamal ingaRaj u had borrowed a Joan of Rs. 85 crores
after pledging 10 lakh shares of the Satyam and the
MAYTAS barely 72 hours before he had confessed to
B
irregularities in the Satyam;
(iii) Sanction of Rs. 225 crores to Blue Coast Hotels Ltd.,
whose name has been put up on the wilful defaulters list by
the Reserve Bank of India" (Id. at p-D)
c These proceedings were entertained by the court,while issuing a
notice on 5 September 2011. Directions were issued for the submission
of counter affidavits. On I August 2013, this Court noted the statement
which was made before it to the effect that the Respondent No. 4 had
since been removed from the post of CEO and MD ofIFCI as a result
of which that part of the relief had been rendered infructuous.
D
6. The second prayer, as the court noted was for the initiation of
the investigation into various allegations ofadministrative and financial
irregularities in IFCI. This Court noted that an investigation by the
Registrar of Companies was underway. As regards the third prayer for
the exercise of control by the Union Government, the court was informed
E that this was being done. In pursuance of the order dated I August 2013,
this Court was infonned on 8 March 2016 by the learned counselappearing
on behalf of the Union Government in the Ministry of Corporate Affairs
that the report had been submitted by the Registrar of Companies, Noida.
The report has since been filed on' 29 June 2016. This Court was infonned
F by the Solicitor General on the basis of an affidavit of the Joint Director
in the Ministry of Corporate Affairs that the Board of IFCI "is being
reconstituted and the process overhauled". This Court accordingly stood
over for the hearing so as to enable the Union Government to apprise it
on whether the reconstituted board had looked into the allegations of
mismanagement and financial irregularities which were referred to in
G the recommendations contained in the report dated 8 January 2013 and
on whether any action was initiated on the basis thereof.
7. During the course of the hearing, counter affidavits have been
filed in these proceedings including on behalf of the Union Government,
IFCI as well as the Respondent No. 4. The petitioners have availed the
H
CENTRE FOR PUBLIC LITIGATION v. UNION OF INDIA & 679
ORS. [DR. D. Y. CHANDRACHUD, J.]

opportunity to traverse the material contained in the counter affidavits in A
rejoinder. The material which has been placed before this Court on the
record inter alia contains : (i} a copy of the inspection report under
Section 209(A} of the Companies Act 1956 dated 10 April 2012
submitted by the Joint Director (Inspection); (ii)a copy of the report of
the Registrar of Companies, Delhi and Haryana dated 8 January 2013;
B
(iii) a copy of the Jetter dated 4 June 2013 addressed by the Secretary to
the Government of India in the Ministry of Finance (Department of
Financial Services) to the Secretary, Ministry of Corporate Affairs. The
report of the ROC dated 8 January 2013 notes that the complaints against
IFCI commenced with a reference from the LokSabha Secretariat
(Standing Committee on Finance) having forwarded the complaints c
against affairs of the Companies. IFCI refused to furnish information
and challenged the jurisdiction of the ROC by filing Writ Petitions in the
Delhi High Court, after the disposal of those Writ Petitions, the ROC
submitted its reports to the Ministry of Corporate Affairs in 2009, 20 l 0
and 2011. The findings in the reports are as follows: (i) acquisition of 5
percent stock in July 2009 by IFCI in MCX-SX at the rate of Rs. 35 per
D
share at an alleged loss of Rs. 168 crore. The findings in the reports are
as follows:
"The issue of acquisition of 5% stake in MCX-SX in July
2009 from TCIL by IFCI @ of Rs. 35/- per share while
Union Bank oflndia acquired@ Rs. 10/- per share inflicting E
a loss of Rs. 168 crores (approximately) to IFCI, a Public
Financial Institution, was raised in a complaint against the
company in a complaint filed by Sh. Mohammad Ajeeb,
Hon'ble Member of Parliament (RajyaSabha) addressed
to the Hon 'ble Prime Minster and various other authorities F
including this office enclosing therewith a complaint signed
by 54 shareholders of the Company. This office had
submitted a detailed report vide this office Jetter dated
13.5.2011 on examination of the said complaint received by
this office. The detailed factual information and prima facie
findings were given by this office in the said report dated G
13.5.2011. The allegation was prima facie found to be
correct. Copy of this office letter dated 13 .5.2011 along
with a copy of the complaint received from the Hon'ble
MP are enclosed for ready reference and collectively
H
680 SUPREME COURT REPORTS [2016] 9 S.C.R.

A marked as Annexure-1. Ministry had ordered inspection
under Section 209Aofthe Companies Act, 1956 ofthe Books
of Account and other records of the captioned Company
vide Ministry letter No. 3/235/2009-CL.II dated 16.9.2011
on the basis ofreport under Section 234(b) dated 13.5.2011
submitted by this office. The inspection was conducted by
B
an officer from the office of Regional Director (NR). He
has given his comments on this issue videpara 17 in Annexure
A attached to his report. The Company had claimed that
the amount of premium @ Rs. 25/- per share along with
interst@ 9.5% per annum has been returned by Financial
c Technologies (India) Limited (FTIL), the co-promoter of
MCX-SX, as MCX was not able to come out with an IPO
before 31.3.2011. It is not clear from the inspection report
as to under which head FTIL has returned this amount
whereas the amount was paid to MCX under the head
"share premium amount" which cannot be refunded in this
D
manner. It is also pertinent to mention here that this office
has reported vi de on para 14 to the Notes to Account to the
Balance Sheet as at 3 1.3 .20 I 0 of FTIL that FTIL has
earned profit of Rs. 2,36,82,81,250/- (net of directly
attributable brokerage expenses of Rs. 7,54,68, 750/-)
E whereas the Company has refused to give any information
on the payment of brokerage to the IO as noted in his
comments vide para 24 in Annexure A to his report dated
I 0.4.2010. Thus, this transaction, prima facie smacks of
lack due diligence and is prejudicial to the interest of the
Company and its members/stakeholders. (id. at p-172-1 73)
F
Loss of Rs. 225 crore granted toBlue Coast Hotels and Resource
Limited. The findings are ~s follows:

"(a) The hotel is associated with Morpen Laboratories
Limited and Sh. SushilSuri, the Managing Director of
G Morpen, hold 0.37% stake in the said hotel and is also the
Chairman and Managing Director ofMorpen Laboratories
Limited against whom the Ministry is indulges in a court
case on account of default in repayment of deposits and
interest to about 85,000 depositors. Certain Directors in
H
CENTRE FOR PUBLIC LITIGATiON v. UNION OF INDIA & 681
ORS. [DR. D. Y. CHANDRACHUD, J.]

BCH and its subsidiaries are Directors in Morpen group of A
companies or their near relatives are the Directors of
Morpen Group of Companies. It was reported that the term
loan of Rs. 150 Crore obtained from IFCI Limited is prima
facie, utilized for repayment of secured term loans of Rs.
72.49 crore to its existing lenders and in making further
B
investments of Rs. 85 crore in the subsidiary Company of
BCH namely Silver Resort Hotel India Private Limited
(SRH). IFCI is also a major shareholder in SRH. It was
further reported that on the basis of such examination the
contention of IFCI that being on NBFC the loans are
extended having commercial objective of the Company in c
mind is prima facie wrong and misleading particularly
\<eeping into consideration the fact that IFCI had made
investment of Rs. 85 crore in a newly incorporated
(incorporated in 2010) subsidiary ofBCH i.e. SRH. It was
also noted that the promoters and group shareholding in
D
BCH had decreased significantly in the financial year 2009-
10 as compared to previous year shareholding following
the loans/investments made by IFCI. This office had
reported that this was one of the instances which show
that the main objective of IFCI is to divert funds to real
estates or auxiliary business that too in the garb of loan by E
NBFC. On this point this office also recived a complaint
from All India Finance Corporation Employees Assistance
on 27.3.2010 and accordingly a report No.5/367/2009/TC/
COMP/719 dated 16.4.2010 was sent to the Minstry. Thus,
this office had preliminary found that IFCI had made loans
F
to wilful defaulters ....
( c) However this office reiterates that the loan to BCH
was not on the basis of adequate due diligence and lack of
commercial prudence on the sanction of the loans as well
as utilization of sanctioned loan and cannot be prima facie
stated to be a loan by an NBFC whose motive is to finance G
for industrial infrastructure particularly in view of the track
record of the Directors and promotoers ofMorpen Group
of Companies and further diversion offunds by BCH. (Id
atp-173-175)
H
682 SUPREME COURT REPORTS [2016] 9 S.C.R.

A Financial dealings with Satyam Group of Companies. The findings
are as follows:
"(a) This point ofloans to Satyam group was also raised by
the complainant in the above referred ocmplaint under the
head "Raju dug hole in JFCI too". The Hon 'ble MP has
B referred to a news item published in newspaper wherein it
was reported that "barely 72 hours before Satyam computer
founder Sh. RamalingaRaju confessed his crime he dug a
hole in the fiances of a public sector Industrial Finance
Corporatin of India by borrowing loans of Rs. 85 crores
after pledging I 0 Lacs shares of Satyam and Mytas and 72
c acres of land situated in NagalloreVilalge ..... "This office
had given a detailed report on this point vide para 9(t) of
this office report dated 13.5.2011 referring to admission of
the Company in its reply to the order under Section 324( 1)
issued by this office on the basis of reference received from
D LokSabha Secretariat (Standing Committee of Finance
Branch) wherein the Company had admitted having
securities of 17.45 Lacs shares in Mytas Infrastructure
Limited by involving the pledge which it held as security for
the loans sanctioned to "certain companies of Mytas
Infrastructure Limited" but had not revealed the name of
E such 'certain companies'. IFCI had specifically denied
furnishing the information as called for by this office on the
contention that ROC has no reason to pass directions for
furnishing information of cumulative shares pledge by the
promoters and the list of loans granted to Satyam furnish
F the information/documents called by this office under
Section 234 of the Companies Act, 1956.
(b) The' IO has given his findings on this issue as per para
23 in Annexure A to his report dated I 0.4.2012.(Id at p-
175).
G 8. Besides these aspects the report deals with various other matters
including investments in unquoted shares worth Rs. 2,500 crore; loss
due to investments made otherwise than in the normal course of business;
bad and doubtful debts written off to the extent of Rs. 279.85 crore,
284.66 crore and 512.81 crore during 2008-09, 2009-10 and 2010-11.
H The report has adverted to the lack of due diligence in various investments
CENTRE FOR PUBLIC LITIGATION v. UNION OF INDIA & 683
ORS. [DR. D. Y. CHANDRACHUD, J.]

made by JFCI. Following the report, it appears that a communication A
was addressed by the Ministry of Corporate Affairs on I3 February
2013 to the Ministry of Finance (Department of Financial Services) in
response, by letter dated 4 June 2013the Secretary in the Ministry of
Finance informed the Secretary in the Ministry of Corporate Affairs
that the Respondent No. 4 has submitted his resignation which was
B
accepted with effect from 31 May 2013.The letter stated that the Union
Government was in the process of overhauling and reconstituting the
entire Board of!FCI which was expected to be completed shortly. The
letter stated that it was appropriate ifthe charges were looked at impartial
by the reconstituted board of IFCI.
9. An affidavit has been filed in these proceedings on 13 July 2016 c
on behalfofthe Union Government in the Ministry of Corporate Affairs
(Department of Financial Services) it has been stated before the court
that the report was forwarded to lFCl on 27 June 2013. The report was
placed before the reconstituting board ofIFCI on 30 July 2013 and 12
November 2013 earlier, as on 11 December 2012. The Board of IFCI D
consisted of 13·members as on 12 November 2013.The reconstituted
board consisted of 8 members of whom 2 were on the previous board.
The reconstituted board examined the report. The affidavit submitted on
behalf of the Ministry of Finance contains the following summary of the
observations of the board of!FCI.
E
"(9) That the response of!FCI Ltd. inter-alia indicated no
loss in share purchase; action under debt recovery laws
where warranted; investment in unlisted equity made after
appraisal with personal guarantees and pledge of shares;
NPAs, wherever occurring were fully provided for and
investment in debentures were done after due diligence, F
with ongoing action in some cases. (Id at p- 2-3)
I 0. The learned Solicitor General, while adverting to the findings
in the report over the violation of the provisions of the Companies Act
1956 stated that where the violations are of a nature that is capable of
being compounded, orders for compounding have been passed by the G
Company Law Board in five cases on 27 August 2013, 25 September
2013. In other cases, it has been stated that proceedings have been
dropped. The Solicitor General submits that the prayer for the removal
of the Respondent No.4 as CEO and MD will not survive since in the
meantime, he has resigned from the post. As regards the exercise of the
H
684 SUPREME COURT REPORTS [2016] 9 S.C.R.

A option for the conversion ofOCD, into equity, it has been stated that due
steps have been taken by the Union Government in this regard, reference
has been made in the report submitted by the ROC on 8 January 2013 to
the following:
"(c) Allotment of Equity Shares to Central Government:-
B The Company has filed form No.2 vide SRN No. S15353568
on 31.10.2012 for allotment of 40 crores Equity Shares of
Rs. 10/- each amounting to Rs. 400 crore to Govt. oflndia,
Ministry of Finance, Deparment of Financial Services,
Jeevan Deep Buildiri.g, Parliament Street, Delhi- 110 001
vide allotment dated 17.10.2012 on conversion of Optionally
c Convertible Debentures held by Govt. of India amounting
to Rs. 400 crore into 40 crore Equity Shares of the Company
at par i.e. @ Rs. I 0/- per shares ranking pari-passu with
the existing Equity Shares. The Company has enclosed list
of allottees certified copy of the extracts of the minutes of
D the meeting of the committee of Directors held on 17.10.2012
and also a copy of the extracts of the minutes of the 9th
AGM of the Company held on 23.9.2002 (copies enclosed
collectively marked as Annexure 9). The Company has
filed another Form 2 vi de SRN No. S19735174 on 1.1.2013
for allotment of 52.30 crore Equity Shares of Rs. I 01- each
E amounting to Rs. 523 crore to Govt. of India, Ministry of
Finance, Department of Financial Services, Jeevan Deep
Building, Parliament Street, Delhi- 110 001 vide allotment
dated 20. 12.2012 on conversion of Optionally Convertible
Debentures held by Govt. of India amounting to Rs. 523
F crore into 52.30 Crore Equity Shares of the Company having
face value of Rs. 10/- each ranking pari-passu with the
existing Equity Shares. (Id at p- 186-187)
11. The material which has been placed before this Court during
the course of the hearing is such as would, in our view, necessitate close
G . scrutiny and action by an independent regulatory. Learned counsel
appearing on behalf of the petitioners has in fact supported this line of
action, submitting that it would not be adequate or sufficient to rest on
the respon~ submitted by IFCI for the inspection and the report of the
ROC. As we have noted earlier following the receipt of the report of the
ROC, the Ministry of Corporate Affairs eliciting the response to the
H
I
/

··--tENTRE FOR PUBLIC LITIGATION v. UNION OF INDIA & 685
ORS. [DR. D. Y. CHANDRACHUD, J.]

inspection repo11 dated 8 January 2013 of the ROC. The Department of A
Financial Services in turn forwarded the report to IFCI. IFCI Board
considered the rep011 and came to the conclusion essentially that there
were no irregularities. The position which has been adopted before this
Court by the Department ofFinancial Services is that it would be sufficient
in itself, once IFCI through its newly constituted board had not found
B
anything untoward or remiss. This in our view is not a satisfacto1y method
of resolving the issues which have been raised and the serious concerns
which emerge from the inspection report of the ROC. As of it now
emerges, the object and purpose of such an enquiry is to scrutinize serious
allegations which have been levelled in regard to the investments which
were made by IFCI and particularly in regard to the role of its erstwhile c
CEO and MD, a scrutiny of the report by the Board of IFCI wou Id not
suffice to the affairs and impartial investigation. IFCI has a huge financial
commitment to the Union Government in terms of loans, grants and
guarantees. A dire financial position of!FCI led the Union Government
to commit resources to raise the company from a position of serious
financial distress. There is a vital element of public interest in ensuring
D
that a full, fair and objective scrutiny is carried out by an independent
regulatory with a view to ensure a degree of accountability. If it is found
that the conduct of any of the officers or employees of IFC! led to the
sustain of a Joss, such conduct must be subjected to scrutiny and action
in accordance with law. The whole purpose of an independent regulatory E
is to ensure that an entity in the financial sector whose conduct is in
question does not have a final or decisive voice in determining whether
there has been a violation of Jaw and if so what action is necessary. In
fact, we may note at this stage that the affidavit which has been filed in
these proceedings on behalf of the Ministry of Finance (Department of
Financial Services) specifically draws attention to the fact that IFCI, F
being a public financial institution and NBFC, listed with stock exchanges
falls within the regulatory purview of various agencies. The affidavit of
the Union Government states that:
"(8). It is stated that IFC! is a Public Limited Company
and Notified as Public Finance Institution under Section 4(A) G
of the Companies Act, 1956, it is also registered as
systemically important NBFC and listed with stock
exchanges. As such it comes under the regulatory purview
of Ministry of Corporate Affairs, RBI, SEBI, NSE and BSE.
H
686 SUPREME COURT REPORTS [2016] 9 S.C.R.

A Therefore, investigation into financial irregularities, it any,
may be ordered by the respective regulatory agencies.
(Id. at p- 313)
12. In fairness, we may also note that the Solicitor General has
not opposed a direction required a further independent scrutiny by
B competing regulator. In view of the matter and for the aforesaid reasons
we are of the view that it is necessary and proper to issue a direction
both to the Union Ministry of Finance and Union Ministry of Corporate
Affairs to ensure that a proper scrutiny is carried out in respect of the
allegations which form the subject matter of these proceedings as
narrated in the earlier part of this judgment including on the basis of the
c inspection report of the ROC dated 8 January 2013 The Union Ministry
of Finance and Corporate Affairs respectively shall ensure that all aspects
bf the matter are duly looked into by the regulators competing to doso in
areas entrusted to their respective domains. We direct the Union
Government to ensure a due and proper scrutiny into all aspects of the
D matter by the (i) serious frauds investigation officer; (ii) Reserve Bank
of India; and (iii) Security and Exchange Board of India (SEBI). The
scrutiny, it is needless to add shall be conducted with due observance of
norms of procedural fairness that would include an opportunity to IFCI
to respond to the allegations This exercise shall be initiated not later than
a period cifone month from the receipt of a copy of this judgment and
E shall be completed not later than a period of four months thereafter.
Upon receipt of the reports of the respective agencies, the Union
Government shall determine what action is necessary to ensure
compliance of law expeditiously.
13. The Writ Petition shall accordingly stand disposed of. There
F shall be no order as to costs.
Divya Pandey Writ Petition disposed of.

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