SERIOUS FRAUD INVESTIGATION OFFICE AND OTHERS versus SAHARA HOUSING INVESTMENT CORPORATION LIMITED AND OTHERS on 26 May 2022

1. Leave granted.

F2. These appeals arise from the orders dated 13 December 2021and 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 ofthe Constitution challenging the legality of the orders dated 31 October2018 and 27 October 2020 of the Union Ministry of Corporate Affairs,authorizing an investigation under the provisions of Section 212 and SectionG219 of the Companies Act, 2013 in respect of several corporate entitiesin the Sahara group. By its interim orders, the High Court stayed theoperation, implementation and execution of the above orders. The HighCourt has also stayed all subsequent action and proceedings initiated inpursuance of those orders “including coercive proceedings and look-outnotices” qua the petitioners and their directors, promoters, officers,H

employees or any other person concerning them.

3. On 31 October 2018, the Government of India in the Ministryof Corporate Affairs, in exercise of its jurisdiction under clauses (a) and(c) of Section 212(1) of the Companies Act 2013 formed an opinion, onthe basis of a report dated 14 August 2018 submitted to it by the Registrarof Companies, Mumbai under Section 208, that an investigation wasrequired 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 CorporationLimited.

4. On 10 January 2019, the Ministry of Corporate Affairs addresseda communication to the Director of the Serious Fraud Investigation Office[1]seeking an approval for extending the time for the conclusion of theinvestigation. On 27 October 2020, a communication was addressed bythe SFIO to the Ministry of Corporate Affairs seeking permission underSection 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;

(iv) Sahara Prime City Ltd;

(v) Sahara India Financial Corporation Limited; and

(vi) Sahara India Real Estate Corporation Limited”

5. A challenge has been set up before the Delhi High Court toimpugn the legality of the above orders dated 31 October 2018 and 27October 2020.

6. The Division Bench of the High Court, while staying the operationof the above orders and all consequential steps pursuant to them, hasrecorded three reasons for coming to the conclusion that the investigationwas 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”

A

B

C

D

E

F

G

H

Abe conducted into the affairs of a company within astipulated period and, in the present case, the periodof three months which was stipulated in the orderdated 31 October 2018 had expired;

(ii) The order dated 27 October, 2020 which authorizesBan investigation into the affairs of six other companiesprima facie appears to be contrary to the provisionsof Section 219 since the six companies are neithersubsidiaries nor holding companies of the threecompanies which were ordered to be investigatedearlier nor have they been managed by the ManagingCDirector of the earlier three companies underinvestigation; and

(iii) The orders dated 31 October 2018 and 27 October2020 do not furnish the reasons or circumstanceswhich compelled the Central Government to formDan opinion while ordering the investigation.

7. The Union Government is in appeal.

8. Mr Tushar Mehta, Solicitor General submitted that each of thethree reasons which have weighed with the High Court in staying theEinvestigation at the interlocutory stage is contrary to the express provisionsof the statute or, as the case may be, the material which has emerged onthe record on the basis of which the orders dated 31 October 2018 and27 October 2020 were issued. In this context, it is submitted that:

(i) Section 212(3) of the Companies Act 2013 hasFexpressly been held to be directory in nature by ajudgment of this Court in Serious FraudInvestigation Office vs. Rahul Modi[2];

(ii) While staying the investigation directed to be carriedout in the order dated 27 October 2020, the DivisionBench of the High Court has noted that the sixGcompanies are neither subsidiaries nor holdingcompanies of the earlier three companies governedby the order dated 31 October 2018 nor were theymanaged by the same Managing Director. In comingto this conclusion, the High Court has relied on theH2 (2019) 5 SCC 256 (“SFIO vs. Rahul Modi”)

provisions of clauses (a) and (b) of Section 219ignoring the provisions of clause (c) which havespecifically been invoked in the order dated 27October 2020; and A

(iii) The Union Government while issuing both the orderswas acting within its jurisdiction and it would be anBimproper construction of the statute to postulate thatwhile ordering an investigation, detailed reasons haveto be spelt out. On the contrary, it was submitted thatthe very purpose of an investigation is to enquire intothe affairs of the company and the entirety of theCmaterial will emerge only in the course of theinvestigation.

9. In response to the above submissions, Mr Kapil Sibal, seniorcounsel has fairly accepted the position that the provisions of Section212(3) have been held to be directory in the judgment of this Court inSFIO vs. Rahul Modi (supra). However, it has been submitted thatthere are several substantive issues which would arise at the hearing ofthe writ petitions under Article 226 of the Constitution before the HighCourt. Mr Sibal has urged that either the petitions may be directed to beheard expeditiously by the High Court or they may be transferred forhearing before this Court. The issues which have been highlighted bythe senior counsel include the following:

D

E

D

E

(i) The Sahara Housing Investment Corporation Limitedhas deposited an amount of Rs 24,000 crores withSEBI in pursuance of a judgment delivered by thisCourt in 2012; F

(ii) The provisions of Section 212 and Section 219 areembodied in the Companies Act 2013 whereas thetransactions in the present cases relate to the period2010-2011 and the applicability of the Act to suchtransactions would merit consideration; G

(iii) Though extension orders were passed from time totime, it would appear that the extension was grantedby the Central Government only in regard to theaffairs of Sahara Q Shop Unique Products RangeLimited; and H

A(iv) There is absolutely no material, within the meaning ofSection 219(c) to indicate that the bodies corporateagainst whom an investigation has been ordered on27 October 2020 comprise of a Board of Directorsdrawn from nominees of the company or which isaccustomed to act in accordance with the directionsBor instructions of the company or any of its directorswithin the meaning of Section 219(c).

A

10. While we have set out the broad line of submissions whichhave been urged on behalf of the contesting parties, we would make itclear at the outset that it is not appropriate or proper for this Court toCrender a final adjudication on the merits of the submissions since thewrit petitions before the High Court are pending consideration.

11. The narrow issue before this Court at the present stage iswhether the High Court was justified in passing an interim directionstaying the operation of the two orders dated 31 October 2018 and 27DOctober 2020 and interdicting all subsequent actions including theissuance of look-out circulars. The High Court does have the power topass wide-ranging directions in the exercise of its extraordinaryjurisdiction. The issue is whether in the facts of the present case, theHigh Court was justified in issuing such extra-ordinary directions,Eparticularly at the interlocutory stage..

12. The first reason which has weighed with the High Court inregard to the construction of Section 212(3) is ex facie contrary to thelaw, as has been laid down by a two judge Bench of this Court in SFIOvs Rahul Modi (supra). While elaborating upon the provisions of SectionF212(3), this Court has held that the statute does not contain any specificprescription of time and the reference to the completion of the investigationwithin a stipulated period is directory and not mandatory. Paragraphs 31and 34 of the decision are extracted below for convenience of reference:

“31.Section 212(3) of the 2013 Act by itselfdoes not lay down any fixed period within whichthe report has to be submitted. Even under sub-section (12) which is regarding “investigationreport”, again there is no stipulation of any period.In fact such a report under sub-section (12) is tobe submitted “on completion of the investigation”.

G

H

There is no stipulation of any fixed period forcompletion of investigation which is consistentwith normal principles under the general law. Forinstance, there is no fixed period within which theinvestigation under the Criminal Procedure Codemust be completed. If the investigation proceedsfor 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 theinvestigation 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 aparticular procedure if no negative or adverseconsequences are contemplated for non-adherence to such procedure, the relevantprovision is normally not taken to be mandatoryand is considered to be purely directory.Furthermore, the provision has to be seen in thecontext in which it occurs in the statute. Thereare three basic features which are present in thismatter:

1. Absolute transfer of investigation interms of Section 212(2) of the 2013 Act infavour of SFIO and upon such transfer alldocuments and records are required to betransferred to SFIO by every otherinvestigating agency.

2. For completion of investigation, sub-section (12) of Section 212 does notcontemplate any period.

3. Under sub-section (11) of Section 212there could be interim reports as and whendirected.

In the face of these three salient features it cannotbe said that the prescription of period within whicha report is to be submitted by SFIO under sub-section (3) of Section 212 is for completion of A

B

C

D

E

F

G

H

A

B

C

D

E

F

G

period of investigation and on the expiry of thatperiod the mandate in favour of SFIO must cometo an end. If it was to come to an end, the legislationwould have contemplated certain results includingretransfer of investigation back to the originalinvestigating agencies which were directed totransfer the entire record under sub-section (2)of Section 212. In the absence of any clearstipulation, in our view, an interpretation that withthe expiry of the period, the mandate in favour ofSFIO must come to an end, will cause greatviolence to the scheme of legislation. If suchinterpretation is accepted, with the transfer ofinvestigation in terms of sub-section (2) of Section212 the original investigating agencies would bedenuded of the power to investigate and with theexpiry of mandate SFIO would also be powerlesswhich would lead to an incongruous situation thatserious frauds would remain beyond investigation.That could never have been the idea. The onlyconstruction which is possible, therefore, is thatthe prescription of period within which a reporthas to be submitted to the Central Governmentunder sub-section (3) of Section 212 is purelydirectory. Even after the expiry of such stipulatedperiod, the mandate in favour of SFIO and theassignment of investigation under sub-section (1)would not come to an end. The only logical endas contemplated is after completion ofinvestigation when a final report or “investigationreport” is submitted in terms of sub-section (12)of Section 212. It cannot, therefore, be said thatin the instant case the mandate came to an endon 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 bylaw. In any case, extension was granted in thepresent case by the Central Government on 14-12-2018. But that is completely beside the point since the original arrest itself was not in any wayillegal. In our considered view, the High Courtcompletely erred in proceeding on that premiseand in passing the order under appeal.”

A

13. The second reason which prima facie weighed with the HighCourt was that the six companies in respect of which an investigationhas been ordered on 27 October 2020 are neither subsidiary nor holdingcompanies of the three companies which were covered by the orderdated 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:

B

C

“Power of inspector to conduct investigationinto affairs of related companies, etc.—If aninspector appointed under Section 210 or Section212 or Section 213 to investigate into the affairsof a company considers it necessary for thepurposes of the investigation, to investigate alsothe affairs of—

D

(a) any other body corporate which is, or has atany relevant time been the company’ssubsidiary company or holding company, ora subsidiary company of its holdingcompany; E

(b) any other body corporate which is, or has atany relevant time been managed by anyperson as managing director or as manager,who is, or was, at the relevant time, theFmanaging director or the manager of thecompany;

(c) any other body corporate whose Board ofDirectors comprises nominees of thecompany or is accustomed to act inGaccordance with the directions orinstructions of the company or any of itsdirectors; or H

(d) any person who is or has at any relevanttime been the company’s managing directoror manager or employee, A

he shall, subject to the prior approval of theCentral Government, investigate into and reportBon the affairs of the other body corporate or ofthe managing director or manager, insofar as heconsiders that the results of his investigation arerelevant to the investigation of the affairs of thecompany for which he is appointed.”

C14. The order of the Union Government dated 27 October 2020contains factual averments which relate to the invocation of thejurisdiction clause (c) of Section 219. Clause (c) of Section 219 allowsan investigation into the affairs of any other body corporate whose Boardof Directors comprises nominees of a company or is accustomed to actin accordance with the directions or instructions of the company or anyDof its directors. The order dated 27 October 2020 contains a specificinvocation of the above provision, when it states thus:

“AND whereas SFIO vide letter dated 24[th]Sept. 2020 sought permission under section 219of the Companies Act, 2013 for investigation intoEthe affairs of the following six companies thatintertwined the activities of the companies underinvestigation:

[…]

FNow, therefore, in exercise of powers conferredunder Section 219 read with section 212 (1) (c)of the Act, the Central Government has formedan opinion that the affairs of the above referredcompanies/ entities needs to be investigated..”

Hence, the finding of the High Court on the above groundGto stay the investigation at the interlocutory stage was notwarranted.

15. This Court in Neeharika Infrastructure Pvt. Ltd. vsState ofMaharashtra and Others[3] cautioned the High Courts against passing blanket interim orders directing no coercive steps to be taken by theinvestigating authorities as that might hamper the investigation at an earlystage. Having due regard to the material which has been placed onrecord, it cannot be said that the Union Government had not indicatedreasons for the exercise of its jurisdiction under Section 212 and Section219. At this stage, the Union Government was only ordering aninvestigation and it would be inappropriate to place a burden of recordingelaborate reasons when the purpose of the investigation is to ensure thata full enquiry into the affairs of the companies is carried out. The thirdreason which weighed with the High Court is hence specious.

16. For the above reasons, we are of the view that the High Courtwas not justified in staying the investigation and in passing theconsequential directions which have been passed in the impugned ordersat the interlocutory stage.

17. We accordingly allow the appeals and set aside the impugnedorders of the High Court dated 13 December 2021 and 5 January 2022.

18. However, since the writ petitions before the High Court arepending, we clarify that the reasons contained in the present judgmentare confined to the issue as to whether an interim injunction waswarranted and shall not affect the merits of the writ petitions which arepending before the High Court for consideration.

19. We request the High Court to take up the writ petitions fordisposal expeditiously and to endeavour a disposal preferably within aperiod of two months after the reopening of the High Court upon theconclusion of the ensuing summer vacation.

20. Pending applications, if any, stand disposed of.

Devika Gujral and Amarendra Kumar(Assisted by : Pooja Mishra, LCRA)

Appeals allowed.

A

B

C

D

E

F

G

H