Supreme Court of India
SERIOUS FRAUD INVESTIGATION OFFICE AND OTHERSversusSAHARA HOUSING INVESTMENT CORPORATION LIMITED AND OTHERS
- Citation
- 2022 INSC 627
- Decided
- 26 May 2022
- Disposal
- Appeal(s) allowed
- Bench
- D Y CHANDRACHUD
Holding
The High Court was not justified in staying the investigation orders; the time‑limit in s.212(3) is directory, and the 2020 order validly invoked s.219(c), so the interim stay is set aside.
Summary
The Union Ministry of Corporate Affairs issued orders on 31 October 2018 and 27 October 2020 authorising the Serious Fraud Investigation Office (SFIO) to investigate several Sahara group companies under sections 212 and 219 of the Companies Act, 2013. The Delhi High Court, hearing writ petitions under Article 226, stayed the operation of both orders, relying on three grounds: the alleged expiry of the time‑limit in s.212(3), the contention that the six companies named in the 2020 order were not subsidiaries or holding companies within the meaning of s.219(a) and (b), and the absence of detailed reasons for the orders. The Union Government appealed. The Supreme Court held that s.212(3) prescribes a directory, not mandatory, time‑frame; that the 2020 order validly invoked clause (c) of s.219, which permits investigation of companies whose boards comprise nominees or act on the directions of the investigated company; and that the Government need not furnish elaborate reasons at the interlocutory stage. Consequently, the High Court’s stay was unjustified, and the appeals were allowed, setting aside the interim orders. The Court limited its judgment to the interlocutory issue, leaving the pending writ petitions to be decided by the High Court.
Issues considered
- Whether the Delhi High Court was justified in staying the investigation orders dated 31 October 2018 and 27 October 2020 issued under sections 212 and 219 of the Companies Act, 2013.
- Whether the time‑limit prescribed in section 212(3) is mandatory or directory.
- Whether the six companies named in the 27 October 2020 order fall within the ambit of clause (c) of section 219.
- Whether the Union Government was required to disclose detailed reasons for invoking its powers under sections 212 and 219 at the interlocutory stage.
Legislation cited
- Companies Act, 2013s. 208, s. 210, s. 212, s. 212(12), s. 212(2), s. 212(3), s. 213, s. 219, s. 219(a), s. 219(b), s. 219(c)
Subjects
Companies Act 2013Section 212Section 219Serious Fraud Investigation OfficeSahara GroupInterim injunctionHigh Court jurisdictionArticle 226Corporate investigationDirectory provision
Judgment
1060 [2022]
SUPREME COURT 16 S.C.R. 1060
REPORTS [2022] 16 S.C.R.
A SERIOUS FRAUD INVESTIGATION OFFICE AND OTHERS
v.
SAHARA HOUSING INVESTMENT CORPORATION LIMITED
AND OTHERS
B (Civil Appeal No. 4299 of 2022)
MAY 26, 2022
[DR. DHANANJAYA Y CHANDRACHUD AND
BELA M. TRIVEDI, JJ.]
Companies Act, 2013: ss.212 & 219 – Power to Investigate–
C
Affairs of Company – Body Corporate – Writ petitions filed before
High Court challenging the legality of the orders dated 31 October
2018 and 27 October 2020 of the Union Ministry of Corporate
Affairs, authorising an investigation under provisions of ss.212 and
219 in respect of several corporate entities of the Sahara group –
D High Court, by its interim order stayed the operation, implementation
and execution of the investigation orders on the grounds that
directions issued for investigation by order dated 31 October 2018
was after the expiry of the stipulated time as per s.212(3); and order
dated 27 October, 2020 authorising investigation into six other
companies was prima facie contrary to s.219, as the six companies
E
were neither subsidiaries nor holding companies of the companies
which were to be investigated; and thirdly, orders did not furnish
the reasons or circumstances which compelled the Central
Government to form opinion – Aggrieved, Union government filed
instant appeal – Issue limited to whether the High Court was justified
F in passing an interim direction staying the operation of the two
orders – Held: High Court does have the power to pass wide-ranging
directions in the exercise of its extraordinary jurisdiction –
Companies Act 2013 does not contain any specific prescription of
time and the reference to the completion of the investigation within
a stipulated period is directory and not mandatory – Order of the
G
Union Government dated 27 October 2020 contained factual
averments which related to the invocation of the jurisdiction clause
(c) of s.219, which allows an investigation into the affairs of any
other body corporate whose Board of Directors comprises nominees
H
1060
SERIOUS FRAUD INVESTIGATION OFFICE v. SAHARA HOUSING 1061
INVESTMENT CORPN. LTD.
of a company or is accustomed to act in accordance with the A
directions or instructions of the company or any of its directors –
On the basis of material placed on record, it cannot be said that the
Union Government had not indicated reasons for the exercise of its
jurisdiction under s.212 and s.,219 – At this stage, the Union
Government was only ordering an investigation and it would be
B
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 – High Court was
not justified in staying the investigation and in passing the
consequential directions which have been passed in the impugned
orders at the interlocutory stage – Interlocutory order. C
Allowing the appeals, the Court
HELD: 1.1 The order of the Union Government dated 27
October 2020 contains factual averments which relate to the
invocation of the jurisdiction clause (c) of Section 219. Clause (c)
of Section 219 allows an investigation into the affairs of any other D
body corporate whose Board of Directors comprises nominees
of a company or is accustomed to act in accordance with the
directions or instructions of the company or any of its directors.
The order dated 27 October 2020 contains a specific invocation
of the above provision, when it states thus: “AND whereas SFIO E
vide letter dated 24th Sept. 2020 sought permission under section
219 of the Companies Act, 2013 for investigation into the affairs
of the following six companies that intertwined the activities of
the companies under investigation” [Para 14][1070-C-E]
1.2 It cannot be said that the Union Government had not F
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 G
with the High Court is hence specious. The High Court was not
justified in staying the investigation and in passing the
consequential directions which have been passed in the impugned
orders at the interlocutory stage. [Paras 15, 16][1071-A-C]
H
1062 SUPREME COURT REPORTS [2022] 16 S.C.R.
A Serious Fraud Investigation Office vs. Rahul Modi
(2019) 5 SCC 266 : [2019] 5 SCR 91; Neeharika
Infrastructure Pvt. Ltd. State of Maharashtra and
Others 2021 SCC OnLine SC 315 – referred to
Case Law Reference
B [2019] 5 SCR 91 referred to Para 8
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 4299
of 2022.
From the Judgment and Order dated 13.12.2021 of the High Court
C of Delhi at New Delhi in W. P. (Civil) No.13984 of 2021.
With
Civil Appeal No. 4300 of 2022.
Tushar Mehta, SG, K.M. Nataraj, ASG, Kanu Agarwal, Rajan
Kumar Chourasia, Arvind Kumar Sharma, Vishal Shrivastava, Advs.
D
for the Appellants.
Kapil Sibal, Sr. Adv., Gautam Awasthi, Ayush Choudhary, Nizam
Pasha, Devanshu Yadav, Sameer Pandey, Simranjeet Singh, Gautam
Talukdar, Rahul Tripathi, Ram Sajan Yadav, Vijay Kumar, Advs. for the
Respondents.
E
The Judgment of the Court was delivered by
DR. DHANANJAYA Y CHANDRACHUD, J.
1. Leave granted.
F 2. These appeals arise from the orders dated 13 December 2021
and 5 January 2022 of the Division Bench of the High Court of Delhi.
The High Court is seized of a batch of writ petitions under Article 226 of
the Constitution challenging the legality of the orders dated 31 October
2018 and 27 October 2020 of the Union Ministry of Corporate Affairs,
authorizing an investigation under the provisions of Section 212 and Section
G 219 of the Companies Act, 2013 in respect of several corporate entities
in the Sahara group. By its interim orders, the High Court stayed the
operation, implementation and execution of the above orders. The High
Court has also stayed all subsequent action and proceedings initiated in
pursuance of those orders “including coercive proceedings and look-out
notices” qua the petitioners and their directors, promoters, officers,
H
SERIOUS FRAUD INVESTIGATION OFFICE v. SAHARA HOUSING 1063
INVESTMENT CORPN. LTD. [DR. DHANANJAYA Y CHANDRACHUD, J.]
employees or any other person concerning them. A
3. On 31 October 2018, the Government of India in the Ministry
of Corporate Affairs, in exercise of its jurisdiction under clauses (a) and
(c) of Section 212(1) of the Companies Act 2013 formed an opinion, on
the basis of a report dated 14 August 2018 submitted to it by the Registrar
of Companies, Mumbai under Section 208, that an investigation was B
required to be conducted into the affairs of:
(i) Sahara Q Shop Unique Products Range Limited;
(ii) Sahara Q Gold Mart Limited; and
(iii) Sahara Housing Investment Corporation C
Limited.
4. On 10 January 2019, the Ministry of Corporate Affairs addressed
a communication to the Director of the Serious Fraud Investigation Office1
seeking an approval for extending the time for the conclusion of the
investigation. On 27 October 2020, a communication was addressed by D
the SFIO to the Ministry of Corporate Affairs seeking permission under
Section 219 to investigate the affairs of six other companies, namely:
“(i) Aamby Valley Limited;
(ii) Qing Ambay City Developers Corporation Ltd.;
(iii) Sahara India Commercial Corporation Limited; E
(iv) Sahara Prime City Ltd;
(v) Sahara India Financial Corporation Limited; and
(vi) Sahara India Real Estate Corporation Limited”
F
5. A challenge has been set up before the Delhi High Court to
impugn the legality of the above orders dated 31 October 2018 and 27
October 2020.
6. The Division Bench of the High Court, while staying the operation
of the above orders and all consequential steps pursuant to them, has
G
recorded three reasons for coming to the conclusion that the investigation
was prima facie required to be stayed:
(i) Section 212(3) of the Companies Act, 2013 empowers
the Central Government to direct that an investigation
1
“SFIO” H
1064 SUPREME COURT REPORTS [2022] 16 S.C.R.
A be conducted into the affairs of a company within a
stipulated period and, in the present case, the period
of three months which was stipulated in the order
dated 31 October 2018 had expired;
(ii) The order dated 27 October, 2020 which authorizes
B an investigation into the affairs of six other companies
prima facie appears to be contrary to the provisions
of Section 219 since the six companies are neither
subsidiaries nor holding companies of the three
companies which were ordered to be investigated
earlier nor have they been managed by the Managing
C Director of the earlier three companies under
investigation; and
(iii) The orders dated 31 October 2018 and 27 October
2020 do not furnish the reasons or circumstances
which compelled the Central Government to form
D an opinion while ordering the investigation.
7. The Union Government is in appeal.
8. Mr Tushar Mehta, Solicitor General submitted that each of the
three reasons which have weighed with the High Court in staying the
E investigation at the interlocutory stage is contrary to the express provisions
of the statute or, as the case may be, the material which has emerged on
the record on the basis of which the orders dated 31 October 2018 and
27 October 2020 were issued. In this context, it is submitted that:
(i) Section 212(3) of the Companies Act 2013 has
F expressly been held to be directory in nature by a
judgment of this Court in Serious Fraud
Investigation Office vs. Rahul Modi2;
(ii) While staying the investigation directed to be carried
out in the order dated 27 October 2020, the Division
Bench of the High Court has noted that the six
G
companies are neither subsidiaries nor holding
companies of the earlier three companies governed
by the order dated 31 October 2018 nor were they
managed by the same Managing Director. In coming
to this conclusion, the High Court has relied on the
H 2
(2019) 5 SCC 256 (“SFIO vs. Rahul Modi”)
SERIOUS FRAUD INVESTIGATION OFFICE v. SAHARA HOUSING 1065
INVESTMENT CORPN. LTD. [DR. DHANANJAYA Y CHANDRACHUD, J.]
provisions of clauses (a) and (b) of Section 219 A
ignoring the provisions of clause (c) which have
specifically been invoked in the order dated 27
October 2020; and
(iii) The Union Government while issuing both the orders
was acting within its jurisdiction and it would be an B
improper construction of the statute to postulate that
while ordering an investigation, detailed reasons have
to be spelt out. On the contrary, it was submitted that
the very purpose of an investigation is to enquire into
the affairs of the company and the entirety of the
material will emerge only in the course of the C
investigation.
9. In response to the above submissions, Mr Kapil Sibal, senior
counsel has fairly accepted the position that the provisions of Section
212(3) have been held to be directory in the judgment of this Court in
SFIO vs. Rahul Modi (supra). However, it has been submitted that D
there are several substantive issues which would arise at the hearing of
the writ petitions under Article 226 of the Constitution before the High
Court. Mr Sibal has urged that either the petitions may be directed to be
heard expeditiously by the High Court or they may be transferred for
hearing before this Court. The issues which have been highlighted by E
the senior counsel include the following:
(i) The Sahara Housing Investment Corporation Limited
has deposited an amount of Rs 24,000 crores with
SEBI in pursuance of a judgment delivered by this
Court in 2012; F
(ii) The provisions of Section 212 and Section 219 are
embodied in the Companies Act 2013 whereas the
transactions in the present cases relate to the period
2010-2011 and the applicability of the Act to such
transactions would merit consideration; G
(iii) Though extension orders were passed from time to
time, it would appear that the extension was granted
by the Central Government only in regard to the
affairs of Sahara Q Shop Unique Products Range
Limited; and
H
1066 SUPREME COURT REPORTS [2022] 16 S.C.R.
A (iv) There is absolutely no material, within the meaning of
Section 219(c) to indicate that the bodies corporate
against whom an investigation has been ordered on
27 October 2020 comprise of a Board of Directors
drawn from nominees of the company or which is
accustomed to act in accordance with the directions
B
or instructions of the company or any of its directors
within the meaning of Section 219(c).
10. While we have set out the broad line of submissions which
have been urged on behalf of the contesting parties, we would make it
clear at the outset that it is not appropriate or proper for this Court to
C render a final adjudication on the merits of the submissions since the
writ petitions before the High Court are pending consideration.
11. The narrow issue before this Court at the present stage is
whether the High Court was justified in passing an interim direction
staying the operation of the two orders dated 31 October 2018 and 27
D October 2020 and interdicting all subsequent actions including the
issuance of look-out circulars. The High Court does have the power to
pass wide-ranging directions in the exercise of its extraordinary
jurisdiction. The issue is whether in the facts of the present case, the
High Court was justified in issuing such extra-ordinary directions,
E particularly at the interlocutory stage..
12. The first reason which has weighed with the High Court in
regard to the construction of Section 212(3) is ex facie contrary to the
law, as has been laid down by a two judge Bench of this Court in SFIO
vs Rahul Modi (supra). While elaborating upon the provisions of Section
F 212(3), this Court has held that the statute does not contain any specific
prescription of time and the reference to the completion of the investigation
within a stipulated period is directory and not mandatory. Paragraphs 31
and 34 of the decision are extracted below for convenience of reference:
“31. Section 212(3) of the 2013 Act by itself
G does not lay down any fixed period within which
the report has to be submitted. Even under sub-
section (12) which is regarding “investigation
report”, again there is no stipulation of any period.
In fact such a report under sub-section (12) is to
be submitted “on completion of the investigation”.
H
SERIOUS FRAUD INVESTIGATION OFFICE v. SAHARA HOUSING 1067
INVESTMENT CORPN. LTD. [DR. DHANANJAYA Y CHANDRACHUD, J.]
There is no stipulation of any fixed period for A
completion of investigation which is consistent
with normal principles under the general law. For
instance, there is no fixed period within which the
investigation under the Criminal Procedure Code
must be completed. If the investigation proceeds
B
for a longer period, under Section 167 of the Code,
certain rights may flow in favour of the accused.
But it is certainly not the idea that in case the
investigation is not over within any fixed period,
the authority to investigate would come to an end.
34. It is well settled that while laying down a C
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. D
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 E
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.
F
2. For completion of investigation, sub-
section (12) of Section 212 does not
contemplate any period.
3. Under sub-section (11) of Section 212
there could be interim reports as and when G
directed.
In the face of these three salient features it cannot
be said that the prescription of period within which
a report is to be submitted by SFIO under sub-
section (3) of Section 212 is for completion of
H
1068 SUPREME COURT REPORTS [2022] 16 S.C.R.
A period of investigation and on the expiry of that
period the mandate in favour of SFIO must come
to an end. If it was to come to an end, the legislation
would have contemplated certain results including
retransfer of investigation back to the original
investigating agencies which were directed to
B
transfer the entire record under sub-section (2)
of Section 212. In the absence of any clear
stipulation, in our view, an interpretation that with
the expiry of the period, the mandate in favour of
SFIO must come to an end, will cause great
C violence to the scheme of legislation. If such
interpretation is accepted, with the transfer of
investigation in terms of sub-section (2) of Section
212 the original investigating agencies would be
denuded of the power to investigate and with the
expiry of mandate SFIO would also be powerless
D
which would lead to an incongruous situation that
serious frauds would remain beyond investigation.
That could never have been the idea. The only
construction which is possible, therefore, is that
the prescription of period within which a report
E has to be submitted to the Central Government
under sub-section (3) of Section 212 is purely
directory. Even after the expiry of such stipulated
period, the mandate in favour of SFIO and the
assignment of investigation under sub-section (1)
would not come to an end. The only logical end
F
as contemplated is after completion of
investigation when a final report or “investigation
report” is submitted in terms of sub-section (12)
of Section 212. It cannot, therefore, be said that
in the instant case the mandate came to an end
G on 19-9-2018 and the arrest effected on 10-12-
2018 under the orders passed by the Director,
SFIO was in any way illegal or unauthorised by
law. In any case, extension was granted in the
present case by the Central Government on 14-
12-2018. But that is completely beside the point
H
SERIOUS FRAUD INVESTIGATION OFFICE v. SAHARA HOUSING 1069
INVESTMENT CORPN. LTD. [DR. DHANANJAYA Y CHANDRACHUD, J.]
since the original arrest itself was not in any way A
illegal. In our considered view, the High Court
completely erred in proceeding on that premise
and in passing the order under appeal.”
13. The second reason which prima facie weighed with the High
Court was that the six companies in respect of which an investigation B
has been ordered on 27 October 2020 are neither subsidiary nor holding
companies of the three companies which were covered by the order
dated 31 October 2018 nor is there a commonality of Managing Directors.
These observations are evidently made in the context of clauses (a) and
(b) of Section 219. Section 219 reads as follows:
C
“Power of inspector to conduct investigation
into affairs of related companies, etc.—If an
inspector appointed under Section 210 or Section
212 or Section 213 to investigate into the affairs
of a company considers it necessary for the
purposes of the investigation, to investigate also D
the affairs of—
(a) any other body corporate which is, or has at
any relevant time been the company’s
subsidiary company or holding company, or
a subsidiary company of its holding E
company;
(b) any other body corporate which is, or has at
any relevant time been managed by any
person as managing director or as manager,
who is, or was, at the relevant time, the F
managing director or the manager of the
company;
(c) any other body corporate whose Board of
Directors comprises nominees of the
company or is accustomed to act in G
accordance with the directions or
instructions of the company or any of its
directors; or
H
1070 SUPREME COURT REPORTS [2022] 16 S.C.R.
A (d) any person who is or has at any relevant
time been the company’s managing director
or manager or employee,
he shall, subject to the prior approval of the
Central Government, investigate into and report
B on the affairs of the other body corporate or of
the managing director or manager, insofar as he
considers that the results of his investigation are
relevant to the investigation of the affairs of the
company for which he is appointed.”
C 14. The order of the Union Government dated 27 October 2020
contains factual averments which relate to the invocation of the
jurisdiction clause (c) of Section 219. Clause (c) of Section 219 allows
an investigation into the affairs of any other body corporate whose Board
of Directors comprises nominees of a company or is accustomed to act
in accordance with the directions or instructions of the company or any
D of its directors. The order dated 27 October 2020 contains a specific
invocation of the above provision, when it states thus:
“AND whereas SFIO vide letter dated 24th
Sept. 2020 sought permission under section 219
of the Companies Act, 2013 for investigation into
E the affairs of the following six companies that
intertwined the activities of the companies under
investigation:
[…]
F Now, therefore, in exercise of powers conferred
under Section 219 read with section 212 (1) (c)
of the Act, the Central Government has formed
an opinion that the affairs of the above referred
companies/ entities needs to be investigated..”
Hence, the finding of the High Court on the above ground
G
to stay the investigation at the interlocutory stage was not
warranted.
15. This Court in Neeharika Infrastructure Pvt. Ltd. vsState of
Maharashtra and Others3 cautioned the High Courts against passing
3
H 2021 SCC OnLine SC 315
SERIOUS FRAUD INVESTIGATION OFFICE v. SAHARA HOUSING 1071
INVESTMENT CORPN. LTD. [DR. DHANANJAYA Y CHANDRACHUD, J.]
blanket interim orders directing no coercive steps to be taken by the A
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
B
investigation and it would be inappropriate to place a burden of recording
elaborate reasons when the purpose of the investigation is to ensure that
a full enquiry into the affairs of the companies is carried out. The third
reason which weighed with the High Court is hence specious.
16. For the above reasons, we are of the view that the High Court
was not justified in staying the investigation and in passing the C
consequential directions which have been passed in the impugned orders
at the interlocutory stage.
17. We accordingly allow the appeals and set aside the impugned
orders of the High Court dated 13 December 2021 and 5 January 2022.
D
18. However, since the writ petitions before the High Court are
pending, we clarify that the reasons contained in the present judgment
are confined to the issue as to whether an interim injunction was
warranted and shall not affect the merits of the writ petitions which are
pending before the High Court for consideration.
E
19. We request the High Court to take up the writ petitions for
disposal expeditiously and to endeavour a disposal preferably within a
period of two months after the reopening of the High Court upon the
conclusion of the ensuing summer vacation.
20. Pending applications, if any, stand disposed of. F
Devika Gujral and Amarendra Kumar Appeals allowed.
(Assisted by : Pooja Mishra, LCRA)
G
H
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