This post analyses the recent judgment of the Supreme Court in Serious Fraud Investigation Office v. Rahul Modi & Ors. While a significant part of the judgment deals with permissibility of plea of heabus corpus while the accused is in remand, this post would analyse the interpretation accorded by the Court to the jurisdiction of Serious Fraud Investigation Office (“SFIO”) under Section 212 of the Companies Act, 2013. The Supreme Court held that the mandate of SFIO cannot be said to have come to an end on the expiry of the period prescribed for the purpose of investigation. Subsequently, the arrest effected thereupon cannot be termed to be illegal or unauthorized by law. The Court also set aside the common interim order of the High Court and directed the accused to surrender and remain present before the Special Court, Gurugram. The question of whether the accused are required to remanded to custody would subsequently be determined by the Special Court as and when it considers the matter on merits.

Facts of the Case

The appeal before the Supreme Court challenged the correctness of the Common interim order passed by the High Court of Delhi dated 20.12.2018. The Central Government had in pursuance of its power under Section 212(3) of the Act directed investigation into the affairs of Adarsh Group of Companies. The aforementioned Investigation was assigned to SFIO vide Order Dated 20.06.2018 and which specified that the period stipulated therein (for completion of investigation) would expire on 19.09.2018. Subsequently, the proposal to arrest the accused was approved by Director, SFIO on 10.12.2018. On 13.12.2018, a proposal seeking extension of time for completing investigation in respect of 57 cases including the present case was preferred by SFIO. The proposal for extension was accepted by the Central Government in respect of the Group and extension was granted up to 30.06.2019.  The special court remanded the accused to custody till 18.12.2018.

Arguments of the Appellant

  1. That the Investigation commences when the present matter is assigned to SFIO under Section 212(1) of 2013 Act and the investigation end on the filing of the report by SFIO after completion of investigation as per Section 212(12) of the Act. The mandate to investigate or power to arrest would not come to an end on completion of three months from 20.06.2018.
  2. That the stipulation in Section 213(3) of 2013 Act regarding submission of the report to CG “within such period as may be specified in the order” is purely directory in nature.

Arguments of the Respondents

  1. That the time limit is contemplated for the reason that investigation cannot be allowed to be an endless matter.
  2. That SFIO, being a special entity which otherwise has no jurisdiction to investigate into the matter, must therefore act within the parameters of the mandate and no arrest after the expiry of the period could have been effected.

ANALYSIS OF THE JUDGMENT

The question of mandatory character of the provision is to be adjudged with reference to the meaning and the intention of the legislature. The said meaning and intention is to be deciphered not just from the phraseology of the provision but must also consider the nature, design and consequences of the interpretation concerned.

The Central Government may, by order, assign the investigation into the affairs of the said company to the Serious Fraud Investigation Office and its Director, may designate such number of inspector, as he may consider necessary for the purpose of such investigation.

(3) Where the investigation into the affairs of a company has been assigned by the Central Government to Serious Fraud Investigation Office, it shall conduct the investigation in the manner and follow the procedure provided in this Chapter; and submit its report to the Central Government within such period as may be specified in the order.

 

Under Section 212 of the Companies Act, 2013 the jurisdiction is triggered by the assignment of the investigation into the affairs of the company to Serious Fraud investigation office and its directors. Herein, while the jurisdiction can be termed as episodic, there is little doubt that the jurisdiction vested is comprehensive and exclusive as to the investigation so conducted under Section 212 of the Act. A plain reading of the Section reveals that the statute contemplates SFIO, if and when instituted for investigation, to be a nodal agency for investigation into the offences provided under the Companies Act, 2013.  Therefore, the Court evolved an interpretation that would have the effect of ensuring that the section concerned is not rendered nugatory.  Given that there is no prescribed period for completion of investigation, the Court rightly opined that the authority to investigate would not come to an end if the investigation is not over within a fixed period.  Herein, the Court elucidated three factors that formed the basis for adjudging the directory character of Section 212(3) of the Companies Act, 2013

  1. Absolute transfer of investigation in terms of Section 212 (2) of 2013 Act in favour of SFIO
  2. Sub-section (12) does not contemplate any period
  3. Under sub-section (11), there could be interim report as and when directed.

Insofar as absolute nature of transfer of investigation is concerned, the Court held that the phrase “assign” denotes complete transfer of investigation for all purposes wherein the power and jurisdiction to investigate for other agencies is denuded to that effect in respect of the offences contemplated in the report. Additionally, the exclusivity of the jurisdiction is manifest from sub-section (2) of Section 212 that provides that no other investigating agency shall proceed with the investigation in such case in respect of any offence under the Companies Act, 2013 and shall transfer all the relevant document and records in respect of such offences under the Act to the SFIO. The nodal character of SFIO was also apparent in Sub-section 17(b) of the Section 212 which provides that SFIO shall share any information or documents available with it, with any investigating agency which may be relevant or useful for such investigating agency in respect of any offence or matter being investigated or examined by it under any other law.

Sub-section (12) and (13) of the Section 212 provides that SFIO shall submit, if directed, an interim report as well as investigation report on completion of the investigation to the Central government. The key basis for the Court decision is the absence of a prescribed time period for the completion of the investigation by the SFIO. The lack of a prescribed time period is thereby held to be indicative of directory nature of the prescription in Sub-section 212(2) of the Act.  The Court also observed that if the investigation by SFIO was to come to an end upon expiry of prescribed time period, the legislation would have contemplated certain results including re-transfer of investigation back to the original investigating agencies which were directed to transfer the case under section 212(2). In absence of such contemplation, the only construction which is possible is that the prescription of period within which a report has to be submitted to the Central Government under sub-section 212 is purely directory. In other words, 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 period of investigation and on expiry of that period the mandate in favour of SFIO must come to an end.

In my opinion, the central question in the present case pertained to the legal validity or invalidity of the actions of SFIO after the time period specified for conducting investigation has expired with reference to Section 212 of the Companies Act, 2013. On this point, the Court noted that the Section 212(3) of 2013 Act does not lay down any fixed period within which the report has to be submitted by the SFIO to the concerned authorities. The stipulation ‘within such period as may be specified in the order’ was held to be directory and was held to not result in invalidation of proceedings conducted by the SFIO under Section 212 of the Act.  A positivist position preferring a textual interpretation, as was the case with Delhi High Court, would call in favour of declaring a mandatory character for the stipulation for completion of the investigation report by SFIO under sub-section (3) of Section 212 of the Act.  An enabling interpretation of the power to investigate under Section 212 of the Companies Act, 2013 was thus an outcome of an interpretative process that was mindful of nature, objective and consequences of adopting a specific interpretation. Additionally, the decision to give Section 212(3) a directory interpretation drew from the existing jurisprudence that hold that if there are no negative or adverse consequences contemplated for non-adherence to such procedure, the relevant provision is normally considered to be purely directory in character. Therefore, the controlling question herein involves the ‘need’ of interpretation and the presence of ‘ambiguity’ that frustrates operation of the section concerned. Given that both the counts are well satisfied in the present case, an interpretation that ensures that investigation and consequent action by SFIO is not rendered naught cannot be termed to be impermissible in law. The judgment, admirably ties together the procedural framework that comprises of and is fraught with terminological ambiguities.

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