Vinod Kujmar Dandona & Ors. vs Union Of India & Anr.
- Court
- Delhi High Court
IN THE HIGH COURT OF DELHI AT NEW DELHI
% Judgment reserved on:22.05.2026
Judgment pronounced on:16.10.2026
Judgment uploaded on:16.10.2026
+ W.P.(CRL) 1242/2022 & CRL.M.A. 10624/2022,
CRL.M.A.17443/2022, CRL.M.A. 17930/2022, CRL.M.A.
18958/2022, CRL.M.A. 19760/2024, CRL.M.A. 29960/2025,
CRL.M.A.29961/2025, CRL.M.A. 37241/2025
VINOD KUMAR DANDONA & ORS. .....Petitioners
versus
UNION OF INDIA & ANR. ..... Respondent
+ W.P.(CRL) 2970/2022
ASHISH MITTAL .....Petitioner
versus
UNION OF INDIA AND ORS ..... Respondents
Advocates who appeared in this case:
For the Petitioners : Mr. Mahesh Jethmalani, Sr. Adv. with Mr.
Arshdeep Singh Khurana, Ms. Neha Nagpal,
Mr. Vishvendra Tomar, Ms. Tannavi
Sharma, Ms. Khushboo Jain, Ms. Nishta
Juneja, Mr. Yashvendra Tomar & Mr.
Ajatshatru Singh Rawat, Advs. in
W.P.(CRL) 1242/2022
Mr. Shikhar Sharma & Mr. Harsh Kumar,
Advs. in W.P.(CRL) 2970/2022
For the Respondent : Mr. Chetan Sharma, ASG, Mr. Amit
Tiwari, CGSC, Mr. AmitGupta, Ms. Ayushi
Srivastava, Mr. Chetanya Puri, Mr.
Divyanshu Bhardwaj, Mr. R.V.Prabhat, Mr.
Signature Not Verified
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SEHGAL
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W.P.(CRL) 1242/2022& W.P.(CRL) 2970/2022 Page 1 of 63
Shubham Sharma, Mr. Arpan Narwal, Mr.
YashWardhan Sharma, Mr. NamanSingh,
Mr. Kushagra Malik, Mr. Ujjwal Tyagi &
Ms. VidhiGupta, Advs. along with Mr.
Deepak Shokeen, IO, SFIO.Mr. Aman
Sheoran, Sr. Prosecutor W.P.(CRL)
1242/2022
Ms. Arti Bansal CGSC (UOI)with Ms.
Shruti Goel, Adv.
Mr. Shaurya R. Rai, SPC forSFIO
Mr. Aman Sheoran, Sr.Prosecutor.in
W.P.(CRL) 2970/2022
CORAM
HON’BLE MR JUSTICE AMIT MAHAJAN
JUDGMENT
1. The present petitions are filed under Article 226 of the
Constitution of India read with Section 482 of the Code of Criminal
Procedure, 1973 (‘ CrPC ’) seeking quashing of Order dated
17.08.2018 bearing No. 1/52/2017-CL II passed by Respondent No.1
under Section 212 (1) (c) of the Companies Act, 2013, directing
investigation into the affairs of Educomp Solution Limited (“ ESL ”)
through Serious Frauds Investigation Office (“ SFIO ”).
2. The Petitioner No. 1/Sh. Vinod Kumar Dandona was an
Independent Director of ESL. The PetitionerNo.(s) 2 and 3 namely,
Sh. Jagdish Prakash and Sh. Shantanu Prakash (founder of ESL) were
Directors and Shareholder of ESL. Petitioner No. 4/Learning
Leadership Foundation (“ LLF ”) is a Public Charitable Trust
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registered under the Indian Trusts Act, 1882. The Petitioner No. 3 was
the Managing Trustee of LLF till February 2020.
3. The Petitioner in W.P. (Crl.) 2970/2022/Sh. Ashish Mittal,
joined ESL as Senior Vice President in 2013 and was promoted as the
Chief Financial Officer (“ CFO ”) in 2014.
4. It is the case of the Petitioners thatESL was incorporated on
07.09.1994 under the Companies Act,1956 with the ROC, NCT of
Delhi and Haryana. Educomp Infrastructure & School Management
Ltd. (“ EISML ”), was one of the companies of Educomp Group and
Edu Smart Solutions Pvt (“ ESPL ”) was incorporated as an
independent company in the year 2009 andbecame a subsidiary after
2013/14.
5. It has been set-out that thegenesis of present prosecution is the
corporate-rivalry which the directors and promoters of ESL had with
its erstwhile business partner, namely Raffles Group. In this regard, it
is alleged that in the year 2008, a Singapore-based corporate entity
namely Raffles Group, headed by Mr. Hua Seng Chew entered India
through Raffles Education Corporation Limited (“ RECL” ). In the
course of time the Raffles group partnered with ESL to form joint
venture companies operating in the field of educational sector, one of
them being Educomp Raffles Higher Education Limited (“ ERHEL ”).
6. After partnering with Raffles group, the Petitioner No.3, who
was not only a director in ESL but was also the President of one Jai
Radha Raman Educational Society (“ JRRES ”) registered under the
Societies Registration Act, 1860, inducted Mr. Chew as a life member
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and Chairman in JRRES along with eight other Singaporean nationals
of Chinese origin of the Raffles group. As per the petitioners, the
inter-se fight for taking over the management and assets of this
JRRES, is the cause behind initiation of the present prosecution
against the petitioners.
7. Around 2011& December 2012, ESLand ESPL availed of
various loan facilities from approximately 13 Banks forming the
Consortium Lenders during this period. Around 2012, ESL raised an
External Commercial Borrowing from one M/s. International Finance
Corporation ( “IFC ”) and M/s Proparco through a common term
agreement between ESL, IFC and M/s Proparco.
8. In the year 2013, ESL faced a liquidity crunch and ESL
underwent corporate debt restructuring (“ CDR ”) twice between 2013
and 2016. As per the petitioners, the first restructuring was approved
by the CDR Empowered Group with majority lenders led by State
Bank of Patiala under which the financial decisions of ESL stood
vested in a Monitoring Committee comprising of State Bank of
Patiala, Axis Bank, ICICI Bank and State Bank of India. The lead
bank i.e. State Bank of Patiala (“ SBI ”), after conducting due diligence
and a thorough investigation into the affairs and banking transactions
of ESL, categorically certified vide letter/Certificate dated 13.01.2014
that there was no diversion of funds or any other form of fraud or
wilful default or misfeasance in ESL (or its subsidiary).
9. For the second restructuring of 2015-16, the consortium
appointed Grant Thornton India LLP to forensically audit the accounts
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of ESL from 01.04.2012 to 31.03.2016, which submitted it’s report
dated 07.11.2026 and also did not find any instance of diversion or
misapplication of borrowings, or fraud concerning sales, revenue or
receivables.
10. Thereafter, in 2017, two lenders of ESL i.e. IFC and M/s.
Proparco filed a complaint with the MCA against ESL. The complaint
was forwarded to RoC on 05.03.2017 for examination and the
Respondent No. 1 also ordered an inspection into the books of account
of ESL on 18.05.2016 under Section 206(5) of the Companies Act,
2013.
11. Pursuant to the inspection, which was completed between
August – September 2017, the Regional Director submitted a Report
dated 31.03.2017 under Section 208 of the Act, identifying only
regulatory, secretarial disclosure and accounting-standard related
defaults, all of which were compoundable in nature. The Regional
Director found no evidence of defalcation, siphoning or
misappropriation of funds and, accordingly, recommended that no
further investigation be undertaken under the Companies Act, 2013.
The Regional Director submitteda supplementary report dated
31.07.2017 under Section 208 of the Act, again finding no substance
in the allegations made and as such found no basis for action under
Section 447 of the Act. No further investigation under Section 210 or
212of the Companies Act, 2013 was recommended. It is also stated
that pursuant to the Regional Director's report, show-cause notices
were issued to ESL from time to time in respect of the compoundable
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offences identified therein. According to the petitioners all such
offences were compounded by the ACMM, Special Acts, Tis Hazari
Courts, between July 2021 and July 2022.
12. While the disputes between the Raffles Group and the
management of ESL were ongoing,in the interim, around May, 2017,
in order to resolve its debt, ESL initiated the insolvency process under
Section 10 of the IBC by filing a Petition before the NCLT, which was
admitted vide Order dated 30.05.2017. The petitioners have urged that
the Resolution Professional had conducted an investigation into the
accounts of the Corporate Debtor i.e. ESL and vide Affidavit dated
08.10.2018, filed before the NCLT, ascertained that there was no
transaction which fell within the ambit of Section 43, 45, 50 or 66 of
the Code.
13. It is alleged that a series of fictitious and motivated news reports
started appearing in media, with the intention to prevent the resolution
process, which, as per the petitioners, formed the basis of complaints
which were filed by Raffles before the various authorities seeking
their intervention and initiation of criminal proceedings against the
ESL and its directors and office bearers.
14. As per the petitioners, on 28.03.2018, complaint filed by Raffles
Group was lodged with the Prime Minister’s Officeto investigate
ESL’s affairs. On 03.04.2018, 26.04.2018 and 03.07.2018, a series of
motivated articles were published online, on Telecom Tiger and “ the
Wire ” in relation to ESL making various allegations against ESL and
the Petitioner No. 3.Thereafter, on 04.04.2018, Mr. P.P. Chauhan, MP,
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filed a complaint with the NCLT to investigate the affairs of ESL. The
Raffles Group addressed multiple complaints to SFIO and to the CVC,
with copies marked to the Director, SFIO and the Director, CBI, PMO
seeking investigation in the affairs of ESL.
15. On, 17.08.2018, the Impugned Order bearing no. 1/52/2017-CL
II was passed by the Respondent under Section 212(1)(c) of the
Companies Act, 2013, directing investigation into the affairs of ESL.
16. Subsequent thereto, one of the lender banks of ESL i.e. YES
BANK filed a complaint with EOW. As per the petitioners, the EOW
conducted a detailed enquiry and did not find commission of any
offence, and thus, the complaint was closed.
17. Thereafter, on 16.05.2019, the Raffles Group filed another
complaint along with certain forged and bogus documents (fabricated
ledger statements purporting them to be ledger statements of the two
educational societies i.e. Learning Leadership Foundation Society and
Richmond Education Society) qua the Petitioners and ESL and its
connected entities alleging that the Petitioners were diverting monies
from borrowings by ESL to purchase lands through two educational
societies.
18. Thus, on 14.11.2019, the Learning leadership
foundation/Petitioner No. 4, filed a complaint which led to the
registration of FIR No. 222 of 2019 dated 14.11.2019 by EOW Delhi
against the Raffles Group and its executives as LLF’s false ledger
statements/documents were submitted along with the afore-mentioned
complaint dated 16.05.2019. Another FIR No. 1313 of 2019 was
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registered by Gautam Buddh Nagar, Police Station at the behest of
Petitioner No. 3, which was later transferred and clubbed with FIR no.
222 of 2019.
19. After the first complaint of SBI, which did not get converted to
an FIR, the SBI filed another complaint with CBI on 06.02.2020,
which lead to registration of an FIR No. RCBD1/2020/E/0002 dated
10.02.2020. W.P (Crl) No 645 of 2020 was filed by the petitioner
challenging the FIR dated 10.02.2020.As per the petitioners, AXIS
Bank also filed a complaint against ESL on 15.09.2020 before the
EOW Gurgaon, which was also closed.
20. In relation to FIR No. 222/2019,The EOW filed a Final Report
dated 21.03.2022 u/s 173(8) of the CrPC and found that the material(s)
relied upon by members of Raffles Group are forged. Moreover, the
Final Report affirmed its earlier conclusions and charged the
directors/officials of Raffles u/s 465, 469, 471, 506 and 120-B of the
IPC.
21. Thus, aggrieved, that the direction by the Respondent No. 1
ordering a SFIO investigation has been passed in violation of statutory
framework of the Companies Act and prompted as a result of private
corporate rivalry, the present petition bearing W.P. (Crl.) 1242 of 2022
has been filed.
22. Vide order dated 26.05.2022, this Court passed an order that no
coercive steps be taken against the petitioners.
23. On 13.10.2022, OSN Infrastructure and Projects Pvt. Ltd. filed
a civil writ petition seeking quashing of the Impugned Order dated
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17.08.2018 passed by MCA. The said Writ Petition was dismissed by
the coordinate Bench of this Court on the ground that it was
premature, without adjudication on the merits and with liberty
toapproach at the appropriate stage.
24. During the pendency of the above captioned Writ, Sh. Ashish
Mittal/Petitioner in connected W.P. (Crl.) 2970 of 2022 also filed a
petition seeking quashing of the Impugned order dated 17.08.2018 and
all consequential proceedings, including the investigation/prosecution
emanating therefrom. It has been alleged that he had joined ESL as
Senior Vice President on 01.11.2013 and was promoted to the position
of Chief Financial Officer on 26.05.2014. He had resigned from ESL
w.e.f. 24.02.2018 and vacated office w.e.f. 31.05.2018.
25. The Short Reply dated 28.10.2022was filed on Behalf of the
Respondent through Sh. Harvinder /Sr. Assistant Director, SFIO. It
was disclosed therein that the investigation into the affairs of ESL was
not ordered on the basis of the documents provided by the Raffles
Group, but was ordered based on the deliberations of the Oversight
Committee on 28.06.018 and various complaints received against
ESL. As per the petitioner, this was the first time when the minutes of
the Oversight Committee dated 28.06.2018 surfaced in the present
matter and reliance on the same was made by Respondent No.2,
justifying the commencement of its investigation.
26. On 12.12.2022, SFIO filed a Criminal Complaint (through
Senior Assistant Director Sh. Harvinder) with the Ld. Special Court,
Dwarka, with an Investigation Report dated 30.11.2022 for
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prosecution under Section 447 (punishment for fraud), 448
(punishment for false statement) and 449 (punishment for falsification
of books) r/w Section 212 of the Companies Act. As per the SFIO, the
complaint arises from SFIO’s investigation (initiated vide order dated
17.08.2018) into alleged financial irregularities at ESL and associated
companies. Key allegations included fraud involving manipulation of
accounts, fictitious entries, siphoning/diversion of funds, round-
tripping of loans, sale of group companies at undervalued prices, and
wilful default on loans (e.g., IDBI, IFCI), allegedly causing wrongful
loss to creditors/investors.
27. The Additional Affidavit dated 13.01.2023 was filed by the
Petitioners,contending that the Impugned Order is premised on false
and frivolous allegations by a corporate rival, confirmed by the
minutes of the Oversight Committee and the investigation report; no
order under Section 210 of the Companies Act was passed and there is
no application of mind on this aspect; constitution of the Oversight
Committee and delegation of powers to it is illegal; decision of the
Oversight Committee is a non-speaking order reflecting non-
application of mind and violates natural justice; no investigation in
public interest could have been ordered once the inspection reports of
the Regional Director, MCA, under Sections 206/208 of the
Companies Act were available and the Committee failed to consider
them.
28. The Reply dated 10.02.2023 was filed by the Respondents
through Sh. Harvinder /Sr. Assistant Director, SFIO. It was disclosed
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that Investigation Report into the affairs of ESL had been submitted to
the MCA on 30.11.2022. Criminal Complaint bearing No. 990/2022
against the Petitioner has been already filed by the SFIO before the
Ld. ASJ & Special Judge (Companies Act), Dwarka on 12.12.2022.
The eight principal sets of allegations in the prosecution complaint
concern alleged fraud through paper entities and promoter
contribution; alleged diversion of funds towards acquisition of
shares/assets relating to Educomp Child Care/Little Millennium and
The Millennium School; alleged divestment of shares in Vidya Mandir
Classes Ltd.; alleged fraud in relation to Mussoorie International
School; alleged bogus capital advances; alleged acquisition of land at
inflated prices in Rajasthan and Hyderabad; and alleged cheating
through Inland Letters of Credit. The Respondents alleged that Sh.
Ashish Mittal, being the CFO of ESL, occupied a strategic position in
the company and was responsible for the preparation and approval of
its financial statements and balance sheets, which were alleged to have
been fraudulently prepared and falsified during his tenure. It was
further alleged that the financial statements failed to present a true and
fair view of the state of affairs of ESL and instead projected a
distorted financial position. The Respondents also alleged that Sh.
Ashish Mittal was closely associated with the promoters of ESL,
namely Sh. Shantanu Prakash and Sh. Jagdish Prakash, as well as
other Key Managerial Personnel, and had facilitated the promoters in
carrying out the alleged fraudulent activities.
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SEHGAL
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29. On 01.05.2025, the Respondent No. 2 filed Criminal M.C. No.
3047 of2025, SFIO v. State of NCT of Delhi , seeking quashing of FIR
No. 222 of 2019, the charge-sheet dated 21.03.2022, the cognizance
order dated 23.05.2022, the supplementary charge-sheet dated
12.08.2024 against its first investigating officer, the cognizance order
dated 09.09.2024 and the order dated 23.10.2024 directing further
investigation into the role of its second investigating officer. The first
investigating officer of SFIO, thereafter, also filed Criminal M.C. No.
3343 of 2025, Ashish Harita v. State Government of NCT ofDelhi, on
08.05.2025, in his personal capacity, seeking quashing of the
supplementary charge-sheet and the cognizance order dated
09.09.2024. Both petitions are pending adjudication before this court.
By order dated 02.06.2025 passed in the petition filed by the SFIO,
this Court restrained the EOW from summoning officers of the SFIO
until the next date.
30. Mr. Jethmalani, learned Senior Counsel for the Petitioners
submitted that the impugned order is liable to be set aside at the
threshold as it does not disclose any reason, circumstance or material
demonstrating why investigation by the SFIO was necessary in public
interest. He submitted that the statutory power under Section 212(1)(c)
is not unbridled and the opinion of the Central Government must be
founded upon relevant and sufficient material available to it when the
order is passed.
31. Reliance is placed upon the judgment passed by the Bombay
High Court in Parmeshwar Das Aggarwal v. Union of India , 2016
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SCC OnLine Bom 9276 , affirmed by the Hon’ble Supreme Court, to
submit that the existence of circumstances forming the basis of the
statutory opinion must itself be demonstrable. Mere assertion that an
opinion has been formed cannot substitute the existence of relevant
material. It is further submitted that the Bombay High Court
specifically held that an investigation procured at the instance of a
corporate rival is vitiated at the threshold.
32. Reliance is also placed upon the judgment passed by a
Coordinate Bench of this Court in Nita Puri v. Union of India ,
W.P.(C) 261/2025, dated 28.08.2025 , and the judgment passed by the
Hon’ble Supreme Court in Karanartham Viramah Foundation v.
Union of India & Anr. , SLP (C) Diary No. 4494/2026, vide order
dated 27.01.2026, to submit that the material forming the basis of an
order under Section 212(1)(c) must satisfy the twin requirements of
relevancy and sufficiency and must prima facie disclose circumstances
warranting criminal investigation by the SFIO.
33. He submitted that, having regard to the serious consequences of
an investigation under Section 212 upon the promoters, directors and
managerial personnel, including consequences affecting their rights
under Article 21 of the Constitution of India, the Central Government
was required to undertake a conscious and objective assessment of the
material and record the reasons, necessity and justification for
assigning the investigation to the SFIO.
34. He submitted that the impugned order cannot be supplemented
by reasons subsequently disclosed in the Oversight Committee
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minutes, SFIO pleadings or the investigation report. Reliance is placed
upon Mohinder Singh Gill v. Chief Election Commissioner , (1978) 1
SCC 405, and the aforesaid decision of the Hon’ble Supreme Court in
Karanartham Viramah Foundation (supra) , to submit that the validity
of the impugned order must be tested on the reasons contained in the
order itself and not on fresh reasons or subsequent developments.
35. He submitted that the invocation of Section 212(1)(c) was
contrary to the statutory scheme of Chapter XIV of the Companies
Act. The reports prepared under Sections 206 and 208 had not
disclosed fraud, siphoning or diversion of funds and did not
recommend an SFIO investigation. In these circumstances, the Central
Government could not mechanically bypass the statutory scheme and
invoke Section 212(1)(c) without first applying its mind to why an
investigation was nevertheless necessary and why it was required to be
assigned specifically to the SFIO.
36. He submitted that the very material subsequently relied upon by
the SFIO demonstrates the absence of a sufficient foundation for the
impugned order. The inspection report dated 31.03.2017 noticed only
compoundable secretarial irregularities; the supplementary report
dated 31.07.2017 found no relevant violation; the YES Bank
complaint was closed by EOW, Delhi; and the IFC complaint had
already been examined in the supplementary inspection. The PMO
reference and the letter of the Member of Parliament contained no
independent verification of the allegations, while the Wire article was
itself an unverified media report.
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37. Consequently, once such exculpatory statutory reports were
before the Committee, the jurisdictional foundation for invoking
Section 212(1)(c) ceased to exist. To buttress the arguments, Mr.
Jethmalani, has produced a chart before this court demonstrating the
irrelevancy of the said material. The same is extracted hereinbelow:
S.No. Documents relied upon in
Minutes dated 28.06.2018
Why the said document cannot constitute
sufficient material for ordering a criminal
investigation under Section 212(1)(c) of the
Companies Act.
i) Inspection Report dated
31.03.2017 of Regional Director
under Section 206(5) of the
Companies Act.
The inspection report dated 31.03.2017 found
violations which do not remotely suggest any
financial fraud, defalcation of funds or siphoning
of funds to any third entity (Ref: Document No. 4
@Pg. 281 of CC dated 02.06.2026). The
violations were only secretarial irregularities in
the functioning of the company, which were
compoundable under the Act. None of the
provisions which attract criminal consequences
were invoked. The violations were thereafter
compounded by the company on orders passed by
the Ld. ACMM. ( Ref: Document No. 9@Pg. 466
of CC dated 02.06.2026) . Reliance on this
Inspection Report to order investigation by SFIO
clearly shows complete on-application of mind.
Non-compliance/violation of compoundable
provisions (subsequently compounded) cannot be
a circumstance grave enough to justify a criminal
investigation into the affairs of the company in
public interest.
ii) Supplementary Inspection
Report dated 31.07.2017 of
Regional Director under Section
206(5)
This supplementary inspection report was based
on the complaint made by International Finance
Corporation and Proparco. No violation of any
nature was reported in the said supplementary
inspection report (Ref: Document No. 4 @Pg.
375 of CC dated 02.06.2026). Despite this, the
U01 in a mechanical manner relied on it to order
a criminal investigation having grave Article 21
consequences. This clearly shows the Impugned
Order was passed without any application of
mind - albeit for extraneous reasons.
iii) Internal Fraud Monitoring
Report of YES Bank
This was an internal report of YES Bank. Based
on the said FMR, a complaint dated 07.03.2018
was filed by YES Bank with the EOW of Delhi
Police, as per RBI Guidelines. The EOW, after
detailed investigation, found that no financial
offence had been committed by ESL and the
complaint was closed (RTI dated 27.05.2019)
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. (Ref: Document No. 18 @Pg. 934-please see
para 3@Pg. 9360fCC dated 02.06.2026). Though
the FMR itself records that a complaint was filed
with EOW-Delhi Police, the Central Government
did not take into consideration the closure of the
complaint by the Delhi Police. This shows
complete lack of application of mind.
iv) Complaint by International
Finance Corporation (IFC)
dated 01.02.2017
The complaint by IFC was based on draft E&Y
report dated 14. 12.2015. The supplementary
inspection report dated 31.07.2017 (above) was
itself based on the same draft E&Y report dated
14.12. 2015 forming part of complaint by
PROPARCO, wherein no irregularities were
found. Reference of the said IFC complaint as an
independent "relevant material" to justify a
Section 212 of the Companies Act investigation
clearly shows the order was passed on the ipse
dixit of the officers of the Central Government.
The Central Government officers failed to
perform their solemn duty to undertake complete
and conscious scrutiny of the whole record.
v) Forwarded complaint from
PMO
From the records it now appears based on the
material unearthed from FSL report during the
EOW investigation that Raffles itself had
complained to PMO. It appears that the
complaint was merely forwarded from the PMO
without any application of mind on he merits of
the complaint.
vi) Letter from Member of
Parliament (Sh. P.P. Chauhan,
MP)
This letter had no independent reasons; it merely
forwarded the allegations contained in “THE
WIRE” article, published at the behest of Raffles.
This confidential letter also written at the behest
of Raffles as the complaint dated 16.008.2018 by
Raffles to PMO contains a copy of this
confidential letter. (Ref: Document No. 13 @Pg
584 of CC dated 02.06.2026)
vii) Article from “THE WIRE” “THE WIRE” article was a planted article by
corporate rivals, i.e. the Raffles Group, as
confirmed by the EOW Chargesheet. In any
event, a news report cannot be the basis for
directing any criminal investigation as it lacks
evidentiary value. Vide order dated 23.10.2024
Ld. ACJM has directed further investigation into
the role of persons connected with WIRE media
which is currently pending. (Ref: Document No.
42 see para 20 @Pg 1905 of CC dated
02.06.2026)
38. He submitted that the material relied upon by the Respondents
substantially originated from Raffles Group, the corporate rival of
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ESL. The subsequent EOW investigation allegedly revealed that
theWire article, which became one of the foundational materials for
the regulatory action, had been planted at the instance of Raffles. The
recovered communications also allegedly demonstrate that persons
associated with Raffles were in communication with the SFIO and
were supplying material and information during the investigation.
39. He submitted that the subsequent EOW material assumes
significance not for supplying a new basis to the impugned order, but
for demonstrating the circumstances in which the proceedings were
initiated and the manner in which the subsequent investigation was
conducted. Reliance is placed upon the charge-sheet against SFIO
officer Sh . Ashish Harita under Sections 465, 469, 471 and 120-B IPC
and the order dated 23.10.2024 directing investigation into the role of
the subsequent SFIO Investigating Officer, to contend that the SFIO
investigation itself stands seriously compromised.
40. He submitted that the prosecution complaint cannot
retrospectively validate the impugned order. Each of the eight sets of
allegations relates to transactions preceding 17.08.2018 and had
already been examined by independent institutions. In particular,
allegations concerning promoter contribution, capital advances, land
transactions, letters of credit and alleged diversion of funds were
examined in the CDR process, Grant Thornton forensic audit,
statutory inspection, EOW proceedings and/or SEBI investigation,
without any finding of fraud or diversion.
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41. He submitted thatas regards the allegations concerning promoter
contribution and alleged paper entities, the SBI certificate dated
13.01.2014 recorded no diversion of funds, the Grant Thornton report
examined the promoter contribution, the statutory inspection reports
found no fraud, the RP's affidavit found no avoidance transactions
under the IBC, and SEBI subsequently found no adverse inference.
The alleged paper entities themselves have not been arraigned as
accused.
42. He submitted that as regards diversion of funds for acquisition
of Educomp Child Care/Little Millennium and The Millennium
School, the Grant Thornton audit, RP's examination and the EOW
proceedings did not disclose any such diversion and, in any event, the
shares of ESL in Little Millennium continued to remain with ESL.
43. He submitted that as regards alleged divestment of shares in
Vidya Mandir Classes Ltd., the allegation substantially reproduces the
allegations contained in the Wire article and was examined by EOW,
Delhi, without any cognizable offence being found. The relevant
shares were sold by ICICI Bank, which received the consideration,
and the bank itself has not been implicated.
44. He submitted that the alleged fraud concerning Mussoorie
International School, the charge was subsequently based upon a
complaint of Raffles and that, according to the statement of the former
SFIO officer before EOW, the documents concerning the transaction
were not independently collected by SFIO but were furnished by
Raffles. The recovered communications allegedly demonstrate that the
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investigation into the transaction was pursued at the instance of
Raffles.
45. He submitted that as regards the allegations concerning bogus
capital advances and land acquisitions, the allegations relate to periods
substantially preceding the impugned order and were already
examined during the CDR process, forensic audit, statutory inspection,
RP's transaction audit and SEBI proceedings. The SEBI report
specifically found no adverse inference regarding the capital advances.
The documents subsequently relied upon for these charges were
supplied by Raffles and were not independently verified by SFIO.
46. He submitted that the prosecution complaint is therefore
founded upon material which either stood exonerated by
contemporaneous investigations or was subsequently procured from a
corporate rival. The SFIO cannot convert such material into a valid
jurisdictional foundation for an order under Section 212(1)(c),
particularly when the impugned order itself contains no reasons
demonstrating the formation of the requisite opinion.
47. He lastly submitted that the subsequent conduct of the SFIO
aggravates, rather than cures, the original jurisdictional defect. The
investigation was allegedly conducted in collusion with persons
associated with Raffles, confidential investigation material was shared
with them, documents supplied by them were incorporated without
independent verification and the investigating officer himself has been
charge-sheeted in connection with the alleged conspiracy.
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48. To buttress the arguments advanced, reliance is placed upon
A.M. Mohan v. State , (2024) 12 SCC 181 , and Anand Kumar
Mohatta v. State (NCT of Delhi) , (2019) 11 SCC 706, to submit that
proceedings instituted with mala fide intent or for wreaking vengeance
may be quashed even after filing of a charge-sheet.
49. Hence, it has been urged that the impugned order dated
17.08.2018, having been passed without demonstrable and sufficient
material, without recording the requisite reasons for assigning
investigation to the SFIO, in disregard of the exculpatory statutory
reports and in circumstances indicating initiation at the instance of a
corporate rival, is unsustainable in law. Consequently, all proceedings
consequential thereto, including the SFIO Investigation Report and
prosecution complaint, are liable to be quashed.
50. Per Contra , Mr. Tiwari, learned Central Government
Standing Counsel submitted that the impugned order dated
17.08.2018 ought not to be read in isolation and must be read in
conjunction with the minutes of the Oversight Committee dated
28.06.2018, which reflect detailed deliberation upon the material
available with the Central Government, on the basis whereof the
opinion was formed that an investigation by the SFIO was necessitated
in public interest. He submitted that although the deliberations of the
Committee find no specific mention in the impugned order, they are
implicit therein andform the very basis of formation of opinion under
section 212(1)(c) of the Companies Act.
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51. He submitted that the order was based on independent material
which comprised of the inspection ordered on 18.05.2016 under
Section 206(5), the Regional Director's report dated 31.03.2017 and
supplementary report dated 31.07.2017. On 28.06.2018 the Oversight
Committee considered those reports with Shri P.P. Chauhan's
complaint, “ the Wire” article, PMO references, Yes Bank's Fraud
Monitoring Return and inputs from IFC-World Bank Group, and
recommended an SFIO inquiry in public interest.
52. He emphasised that the opinion under Section 212 was thus
supported by relevant, independent and contemporaneous material. He
submitted that the circumstances, application of mind, reasons,
justification and necessity for an SFIO investigation were borne out by
the Oversight Committee minutes and that, read with the impugned
order, they satisfied the test laid down in Nita Puri ( supra ).
53. Hefurther submitted that a completed statutory investigation and
prosecution complaint could not be annulled on that ground alone. The
first investigating officer was repatriated on 31.12.2020, before
completion and filing of the prosecution complaint. He submitted that
the said officer neither prepared nor submitted the final report dated
30.11.2022. The prosecution complaint was filed by the second officer
against whom he said no allegation had been made.
54. He further submitted that a filed prosecution complaint cannot
be quashed merely because the initiating order was defective or the
investigation was allegedly tainted. He submitted that those matters
are matters related to defences to be urged during the trial before the
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Special Court. He relied on State of Bihar v. P.P. Sharma, AIR 1991
SC 1260; Ahmed Noormohmed Bhatti v. State of Gujarat , (2005) 3
SCC 647; State of Maharashtra v. Iswar Piraji Kalpatri (1996) 1
SCC 542; Sheonandan Paswan v. State of Bihar , (l987) 1 SCC 288;
and State of Karnataka v. M. Devendrappa, (2002) 3 SCC 89 to
buttress his submission that (i) where a report under Section 173
Cr.P.C. stands forwarded to the Magistrate and the matter is under
judicial scrutiny this court ought not to quash the proceedings in
exercise of its inherent jurisdiction; (ii) that where the investigating
authorities are performing their statutory duties and the proceedings
are pending before the competent jurisdictional court trying the
offence it ought not be quashed under Article 226 of the Constitution
or under Section 482 Cr.PC.; (iii) and that an oblique motive in
launching the prosecution, the mala fides of the complainant, of the
first informant or of the investigating agency, and personal animosity,
are of no consequence where the material collected discloses the
commission of an offence and its ingredients are otherwise made out.
55. He further submitted that the expert, forensic and financial
reports cited by the petitioners were evaluative in nature and had to be
tested at trial through cross-examination, corroboration and judicial
assessment. He submitted that in writ jurisdiction this court could not
decide the probative value of competing expert conclusions at the pre-
cognizance or cognizance stage. Lastly, referring to each of the
charges set out in the prosecution complaint, he submitted that a case
of fraud is made out therein, and that notwithstanding any lacuna or
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fallacy in the impugned order dated 17.08.2018, the prosecution
complaint is not liable to be quashed after its filing.
56. In rejoinder, Mr. Jethmalani, learned Senior Counsel for
the Petitioners submitted that contemporaneous audits and
investigations by independent agencies, statutory bodies and financial
institutions examined the same transactions but found no fraud,
defalcation, siphoning or diversion by the petitioners. In this regard
Mr. Jethmalani relied upon the CDR proceedings of 2013; the State
Bank of Patiala's certification dated 13.01.2014; the Grant Thornton
forensic audit report dated 07.11.2016; the Yes Bank complaint dated
07.03.2018 and its closure; the Resolution Professional's affidavit
dated 08.10.2018, based on the BDO India LLP report; the closure
report concerning the complaint made by Axis Bank; the SEBI
investigation report dated 02.11.2020; and the NCLT's approval of the
resolution plan on 14.12.2020. He submitted that these independent
examinations covered the very same financial affairs of ESL and the
very transactions forming the basis of the prosecution complaint, but
disclosed no fraud, diversion, siphoning or misapplication of funds,
financial impropriety, cognizable offence, or preferential,
undervalued, extortionate or fraudulent transaction against ESL, its
promoters or its management.
57. By placing reliance on the said material, Mr. Jethmalani,
learned Senior Counsel submitted that the prosecution complaint
contradicted every contemporaneous independent audit, forensic
examination and statutory inquiry concerning the same transactions,
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including the examinations under Sections 206(5) and 208. He relied
on a comparative chart juxtaposing each SFIO charge with the
exculpatory finding on that transaction. He contended that the SFIO
by one stroke reversed the consistent finding given by several domain
experts without any cogent basis with a predisposition to implicate the
petitioners. According to him a challenge which impeaches the very
jurisdictional foundation of the prosecution cannot be treated as a
mere defence requiring the Petitioners to undergo a full-fledged trial
for its determination through examination and cross-examination of
witnesses.
58. Submissions heard and the material placed on record
perused.
59. At the outset, this Court deems it apposite to deal with the
preliminary objection regarding the maintainability of the petitions
raised by the respondents.
60. It was vehemently contended on behalf of the respondent that
the petition needs to be dismissed in limine on the ground that the
present proceedings are, in effect, an attempt to re-agitate issues which
had already been considered by a Coordinate Bench of this Court
while dismissing a similar petition, being, W.P.(C) 14487/2022 , which
was filed by one of the accused, being, OSN Infrastructure and
Projects Ltd.
61. It was contended that, on an earlier occasion, the Coordinate
Bench, by order dated 13.10.2022, had dismissed the petition filed by
co-accused, wherein similar prayers were sought. It was contended
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that the grounds and contentions which are raised in the present
petition were also taken on an earlier occasion, however, the
Coordinate Bench dismissed the said petition giving opportunity to the
accused to agitate all grounds at an appropriate time.
62. In the opinion of this Court, the aforesaid objections raised by
the respondents are unmerited. As rightly contended by Mr.
Jethmalani, learned Senior Counsel, the present petition was filed
prior to dismissal of the said petition and the petitioners were also
protected by way of an interim order passed by this Court. Further,
W.P.(C) 14487/2022 was dismissed by the Coordinate Bench noting
that the issues raised were pre-mature and the liberty was granted to
the petitioners therein to approach the Court at an appropriate stage.
Thus, the dismissal of the said petition filed by the co-accused did not
constitute an adjudication on merits so as to attract the bar of res
judicata in the present proceedings.
63. Moreover, it remains undisputed that pursuant to filing of the
present petition, the investigation proceeded. The Hon’ble Apex
Court, in numerous cases, has categorically held that a party who
approaches the Court, cannot be disentitled from hearing only because
certain circumstances have changed during the pendency of the
petition. The legality of the impugned action must be examined in the
context of the grounds urged against it and the applicable statutory
framework. The subsequent progress of the proceedings cannot,
merely by reason of the passage of time, foreclose judicial scrutiny of
the original action.
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64. It would be apposite, in this regard, to refer to the order dated
13.10.2022 passed by the Coordinate Bench in W.P.(C) 14487/2022,
wherein it wasnoted that the final decision by the Central Government
is yet to be taken on the investigation report and therefore, the
challenge was premature. It was held as under: -
“7. Having heard learned counsels for parties, the
Court at the outset notes that in terms of the
provisions enshrined in Section 212 of the Act, on
conclusion of investigation, the Investigation Report
is liable to be transmitted to the Union Government
for its consideration. In terms of sub section (14)
thereof, the Union Government may after due
examination of the said report and upon legal advice
that may be obtained, proceed to direct the SFIO to
initiate prosecution. Admittedly, that stage is yet to
be reached in the present case. In fact, learned
counsel appearing for the SFIO apprised the Court
that the Union Government is yet to receive the
Investigation Report. It is thus manifest that the
Union Government is yet to apply to its mind on the
report and form an opinion whether prosecution is
liable to be initiated.
8. In that view of the matter, this Court is of the
opinion that the challenge as laid is clearly
premature since as and when the Union Government
does get the opportunity to apply its mind and
thereafter direct further proceedings to be taken by
the SFIO, the petitioner shall have all remedies as
are available in law to assail any prosecution that
may be lodged as well as to challenge any adverse
findings that may stand recorded or contained in the
Investigation Report.”
65. A perusal of the aforesaid observations makes it evident that the
Coordinate Bench declined to entertain the challenge at that stage
because the statutory process had not yet culminated in a decision by
the Central Government regarding prosecution. The Court did not
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adjudicate upon the legality of the orderentrusting the investigation to
the SFIO. It is apparent that the Court observed that the prosecution is
initiated ultimately on perusal of the report and the petitioner can seek
recourse by initiating appropriate remedy.
66. Hence, in view of the above, the issue in regard to
maintainability of the present Petitions is decided in favor of the
petitioners.
67. I had the benefit of not only hearing the extensive arguments
advanced by learned counsels representing the parties but also
perusing the written submissions filed on their behalf.
68. The foremost issue, forming the fulcrum of arguments advanced
by the parties, is whether the power exercised by the Department
under Section 212 (1) (c) of the Companies Act, 2013, fulfils the
statutory prerequisitegoverning the exercise of such power, as
mandated under the Act and as interpreted by the Courts from time to
time.
69. The issuetherefore, to be consideredat the outset, is whether the
impugned order dated 17.08.2018 passed by the Respondent No. 1, in
exercise of the power conferred under Section 212 (1)(c) of the Act,
thereby entrusting the investigation into the affairs of ESL to the
SFIO, is legally sustainable.
70. For the purpose of convenience, the Sections 206, 208, 210 and
212 of the Act, are set out below: -
“CHAPTER XIV
INSPECTION, INQUIRY AND INVESTIGATION
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206. Power to call for information, inspect books and
conduct inquiries.— (1) Where on a scrutiny of any
document filed by a company or on any information
received by him, the Registrar is of the opinion that any
further information or explanation or any further
documents relating to the company is necessary, he may by
a written notice require the company—
(a) to furnish in writing such information or
explanation; or
(b) to produce such documents, within such reasonable
time, as may be specified in the notice.
(2) On the receipt of a notice under sub-section (1), it
shall be the duty of the company and of its officers
concerned to furnish such information or explanation to the
best of their knowledge and power and to produce the
documents to the Registrar within the time specified or
extended by the Registrar:
Provided that where such information or explanation
relates to any past period, the officers who had been in the
employment of the company for such period, if so called
upon by the Registrar through a notice served on them in
writing, shall also furnish such information or explanation
to the best of their knowledge.
(3) If no information or explanation is furnished to the
Registrar within the time specified under subsection (1) or
if the Registrar on an examination of the documents
furnished is of the opinion that the information or
explanation furnished is inadequate or if the Registrar is
satisfied on a scrutiny of the documents furnished that an
unsatisfactory state of affairs exists in the company and
does not disclose a full and fair statement of the
information required, he may, by another written notice,
call on the company to produce for his inspection such
further books of account, books, papers and explanations
as he may require at such place and at such time as he may
specify in the notice:
Provided that before any notice is served under this
sub-section, the Registrar shall record his reasons in
writing for issuing such notice.
(4) If the Registrar is satisfied on the basis of
information available with or furnished to him or on a
representation made to him by any person that the business
of a company is being carried on for a fraudulent or
unlawful purpose or not in compliance with the provisions
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of this Act or if the grievances of investors are not being
addressed, the Registrar may, after informing the company
of the allegations made against it by a written order, call
on the company to furnish in writing any information or
explanation on matters specified in the order within such
time as he may specify therein and carry out such inquiry
as he deems fit after providing the company a reasonable
opportunity of being heard:
Provided that the Central Government may, if it is
satisfied that the circumstances so warrant, direct the
Registrar or an inspector appointed by it for the purpose to
carry out the inquiry under this subsection:
Provided further that where business of a company has
been or is being carried on for a fraudulent or unlawful
purpose, every officer of the company who is in default
shall be punishable for fraud in the manner as provided in
section 447.
(5) Without prejudice to the foregoing provisions of
this section, the Central Government may, if it is satisfied
that the circumstances so warrant, direct inspection of
books and papers of a company by an inspector appointed
by it for the purpose.
(6) The Central Government may, having regard to the
circumstances by general or special order, authorise any
statutory authority to carry out the inspection of books of
account of a company or class of companies.
(7) If a company fails to furnish any information or
explanation or produce any document required under this
section, the company and every officer of the company, who
is in default shall be punishable with a fine which may
extend to one lakh rupees and in the case of a continuing
failure, with an additional fine which may extend to five
hundred rupees for every day after the first during which
the failure continues.
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.
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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.
212. Investigation into affairs of Company by Serious
Fraud Investigation Office.— (1) Without prejudice to the
provisions of section 210, where the Central Government is
of the opinion, that it is necessary to investigate into the
affairs of a company by the Serious Fraud Investigation
Office—
(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,
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 inspectors, as he may consider
necessary for the purpose of such investigation.
(2) Where any case has been assigned by the Central
Government to the Serious Fraud Investigation Office for
investigation under this Act, no other investigating agency
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of Central Government or any State Government shall
proceed with investigation in such case in respect of any
offence under this Act and in case any such investigation
has already been initiated, it shall not be proceeded further
with and the concerned agency shall transfer the relevant
documents and records in respect of such offences under
this Act to Serious Fraud Investigation Office.
(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.
(4) The Director, Serious Fraud Investigation Office
shall cause the affairs of the company to be investigated by
an Investigating Officer who shall have the power of the
inspector under section 217.
(5) 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 the investigation.
(6) Notwithstanding anything contained in the Code of
Criminal Procedure, 1973 (2 of 1974), 1 [offence covered
under section 447] of this Act shall be cognizable and no
person accused of any offence under those sections shall be
released on bail or on his own bond unless—
(i) the Public Prosecutor has been given an
opportunity to oppose the application for such release; and
(ii) where the Public Prosecutor opposes the
application, the court is satisfied that there are reasonable
grounds for believing that he is not guilty of such offence
and that he is not likely to commit any offence while on
bail:
Provided that a person, who, is under the age of
sixteen years or is a woman or is sick or infirm, may be
released on bail, if the Special Court so directs:
Provided further that the Special Court shall not take
cognizance of any offence referred to this subsection except
upon a complaint in writing made by—
(i) the Director, Serious Fraud Investigation Office; or
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(ii) any officer of the Central Government authorised,
by a general or special order in writing in this behalf by
that Government.
(7) The limitation on granting of bail specified in sub-
section (6) is in addition to the limitations under the Code
of Criminal Procedure, 1973 (2 of 1974) or any other law
for the time being in force on granting of bail.
(8) If the Director, Additional Director or Assistant
Director of Serious Fraud Investigation Office authorised
in this behalf by the Central Government by general or
special order, has on the basis of material in his possession
reason to believe (the reason for such belief to be recorded
in writing) that any person has been guilty of any offence
punishable under sections referred to in sub-section (6), he
may arrest such person and shall, as soon as may be,
inform him of the grounds for such arrest.
(9) The Director, Additional Director or Assistant
Director of Serious Fraud Investigation Office shall,
immediately after arrest of such person under sub-section
(8), forward a copy of the order, along with the
material in his possession, referred to in that sub-section,
to the Serious Fraud Investigation Office in a sealed
envelope, in such manner as may be prescribed and the
Serious Fraud Investigation Office shall keep such order
and material for such period as may be prescribed.
(10) Every person arrested under sub-section (8) shall
within twenty-four hours, be taken to a Judical Magistrate
or a Metropolitan Magistrate, as the case may be, having
jurisdiction: Provided that the period of twenty-four hours
shall exclude the time necessary for the journey from the
place of arrest to the Magistrate's court.
(11) The Central Government if so directs, the Serious
Fraud Investigation Office shall submit an interim report to
the Central Government.
(12) On completion of the investigation, the Serious
Fraud Investigation Office shall submit the investigation
report to the Central Government.
(13) Notwithstanding anything contained in this Act or
in any other law for the time being in force, a copy of the
investigation report may be obtained by any person
concerned by making an application in this regard to the
court.
(14) On receipt of the investigation report, the Central
Government may, after examination of the report (and after
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taking such legal advice, as it may think fit), direct the
Serious Fraud Investigation Office to initiate prosecution
against the company and its officers or employees, who are
or have been in employment of the company or any other
person directly or indirectly connected with the affairs of
the company.
(15) Notwithstanding anything contained in this Act or
in any other law for the time being in force, the
investigation report filed with the Special Court for framing
of charges shall be deemed to be a report filed by a police
officer under section 173 of the Code of Criminal
Procedure, 1973 (2 of 1974).
(16) Notwithstanding anything contained in this Act,
any investigation or other action taken or initiated by
Serious Fraud Investigation Office under the provisions of
the Companies Act, 1956 (1 of 1956) shall continue to be
proceeded with under that Act as if this Act had not been
passed.
(17) (a) In case Serious Fraud Investigation Office has
been investigating any offence under this Act, any other
investigating agency, State Government, police authority,
income-tax authorities having any information or
documents in respect of such offence shall provide all such
information or documents available with it to the Serious
Fraud Investigation Office;
(b) The Serious Fraud Investigation Office shall share
any information or documents available with it, with any
investigating agency, State Government, police authority or
income-tax authorities, which may be relevant or useful for
such investigating agency, State Government, police
authority or income-tax authorities in respect of any
offence or matter being investigated or examined by it
under any other law.”
71. A Coordinate Bench of this Court in Nita Puri (supra), while
examining a challenge to an order passed under Section 212(1)(c) of
the Act, considered the statutory scheme and the applicable legal
principles in considerable detail. The relevant observations are
reproduced hereinbelow:-
“ Reasoning and findings :
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19. Having considered the rival contentions of the parties,
this court finds that there is merit in the petitioner's
contention that the impugned order cannot withstand the
scrutiny of law. The reasons are enumerated as under:
(A) The impugned order is in contravention of the dicta
laid down in the judgment of the Bombay High Court in
Parmeshwar Das Agarwal v. Additional Director
(Investigation) [(2016) 199 Comp Cas 353 (Bom); 2016
SCC OnLine Bom 9276.]
20. In the aforesaid case, the Bombay High Court had
occasion to examine the statutory scheme of Chapter XIV
of the Companies Act, 2013. After taking note of the
corresponding provisions in sections 234 and 237 of the
Companies Act, 1956 (hereinafter the “Act, 1956”) and
considering the judgment of the Supreme Court in Barium
Chemicals Ltd. v. Company Law Board [[1966] 36 Comp
Cas 639 (SC); 1966 SCC OnLine SC 53; AIR 1967 SC
295.] , and Rohtas Industries Ltd. v. S.D. Agarwal [(1969)
39 Comp Cas 781 (SC); (1969) 1 SCC 325; 1968 SCC
OnLine SC 372.] it was held as under (page 380 of 199
Comp Cas):
“Thus, the principle is that there has, to be an
opinion formed. That opinion may be subjective, but
the existence of circumstances relevant to the
inference as to the sine qua non for action must be
demonstrable. It is not reasonable to hold that the
clause permits the Government to say that it has
formed an opinion on circumstances which it
thinks exist. Since existence of circumstances is a
condition fundamental to the making of the
opinion, when questioned the existence of these
circumstances have to be proved at least prima
facie.
*
Therefore, a perusal of this section would indicate
that the Central Government must form an opinion,
that opinion must be that it is necessary to
investigate into the affairs of a company. The
Central Government can act on the receipt of a
report of the Registrar or inspector under section
208 or on intimation of a special resolution passed
by a company that its affairs are to be investigated
or in public interest. Thus, there is a discretion to
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order an investigation into the affairs of the
company…
Section 210 falling in the same Chapter XIV titled
inspection, inquiry and investigation contains these
two sections. Section 210 confers a discretion in the
Central Government to order an investigation into
the affairs of the company and that power has to be
exercised if there is an order passed by a court or a
Tribunal in any proceedings before it to the effect
that the affairs of a company ought to be
investigated. Thus sub-section (1) of section 210
confers a discretion while sub-section (2) is
mandatory in terms. By sub-section (3) and when
the Central Government orders an investigation
into the affairs of the company, it may appoint one
or more persons as inspectors so as to carry out
this task and to report thereon in such manner as
the Central Government may direct. By section 212
the seventeen sub-sections thereof enable
investigation into the affairs of a company by the
Serious Fraud Investigation Office. This power is
without prejudice to the provisions of section 210.
This power is to be exercised if the Central
Government is of the opinion that it is necessary to
investigate into the affairs of a company by the
Serious Fraud Investigation Office. Therefore, the
power to investigate into the affairs of company is
common to both provisions. In the former there are
three clauses (a) to (c) in sub-section (1) of section
210 and the investigation is to be carried out by the
Central Government by appointing inspectors and
there is a discretion in that behalf. This power is
stated to be akin to section 235 of the 1956 Act. The
latter enables investigations into the affairs of a
company by the Serious Fraud Investigation Office
and there is one more clause (d) in sub-section (1) of
section 212 where the Central Government can act
on a request from any department of the Central
Government or a State Government. Therefore, in a
given case there could be an action initiated on the
request of the Central Vigilance Commission or
based on its recommendations. However, by its very
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title, the investigation under section 212 by the
Serious Fraud Investigation Office 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 the Serious Fraud Investigation
Office. That opinion has to be based on the report
of the Registrar or inspector under section 208; on
intimation of a special resolution passed by a
company that its affairs are required to be
investigated; in the public interest or on the request
from any department of the Central Government or
the State Government. By section 211, the Serious
Fraud Investigation Office 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 sub-section (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 Serious
Fraud Investigation Office.
We do not think that there were materials in the
present case and which can be termed as enough to
warrant the exercise of power by the Central
Government by resorting to section 212(1) of the Act
of 2013. The Central Government, in the order
under challenge, did not spell out any
circumstances, except outlining its power under the
above sections to order investigation into the
affairs of a company in public interest. None
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disputes that power or its existence. In paragraph 2
of the impugned order, however, a reference is made
to the report of the Registrar of Companies, West
Bengal, dated January 13, 2016. We have already
held that the findings in this report are not enough
for the Central Government to exercise the drastic
power. Something more was required and to be
established as circumstances or material enough
for exercise of the power. That is clearly lacking in
this case.
This is the only basis, namely, the report of the
Registrar of Companies, West Bengal, or its contents
which has enabled the Central Government to
exercise its powers under section 212(1)(c). It is,
therefore, apparent that it has not necessarily acted
in terms of its power conferred by section 212 to
direct investigation into the affairs of the company
in public interest. The foundation for reaching the
opinion or satisfaction is the report of the Registrar.
We have referred to the details in that report and
we are of the firm opinion that based on that the
Central Government could not have recorded a
satisfaction or an opinion that investigation into
the affairs of the company are necessary. There is
no element of public interest which is projected,
save and except some vague and general references
to certain allegations in matters of bank finance
and allotment of coal mines and alleged diversion
of raw materials. There has been absolutely no
details furnished nor referred in the report. Rather,
the report proceeds on the basis that as far as these
issues are concerned nothing can be done by the
Ministry of Corporate Affairs or the Registrar of
Companies. We fail to understand, therefore, how in
the present facts and circumstances and based on
allegations and counter allegations between two
groups of shareholders can it be even held that it is
necessary in public interest to direct an investigation
into the affairs of the company. Once we reach the
conclusion that there is lack of requisite material to
arrive at the requisite opinion or record the
necessary satisfaction, then, in exercise of our
powers of judicial review, we can safely quash and
set aside the impugned order. We find that the
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opinion recorded or the satisfaction reached is
vitiated by total non-application of mind. None of
the factors which are germane and relevant for
forming the opinion have been referred. The opinion
or satisfaction is based only on the complaint of the
Member of Parliament to the CVC and with regard
to which report was called for from the Registrar.
Even the contents of that report have been, as held
above, misread and totally misinterpreted. Based on
that no opinion could have been recorded that it is
necessary to investigate the affairs of the company
in public interest.”
(Emphasis Supplied)
72. The Coordinate Bench, while rendering the aforesaid judgment,
had also extensively relied upon the judgment passed by the Bombay
High Court in the case of Parmeshwar Das Aggarwal (supra). The
fact that the said judgment had been upheld by the Hon’ble Supreme
Court was also taken note of by the Coordinate Bench.It was thus,
opined as under: -
“ 21. Thus, it has been unequivocally laid down in the
aforesaid judgment that:
(i) the existence of circumstances relevant for formation
of opinion for the purpose of section 212(1)(c) of the Act,
2013, “must be demonstrable”;
(ii) the exercise of the power under section 212 must be in
consonance with the scheme of Chapter XIV of the Act,
2013. In terms thereof, in the first instance, power is
conferred under section 206 to conduct inspection/inquiry
(section 206(4) of the Companies Act, 2013). Section 208
specifically contemplates that the Registrar or inspector
shall, after inspection of books of account or inquiry under
section 206, submit a report in writing to the Central
Government, along with such documents, if any, and the
report may also include or recommend further
investigation into the affairs of the company, if necessary.
(iii) Section 210 contemplates investigation into the affairs
of a company:
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(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.
(iv) Where a report under section 208 does not find any
occasion to conduct a further investigation, the same has
a bearing on the exercise of the power under section
212(1)(c) of the Act, 2013 (as in the facts of the case
before the Bombay High Court).
(v) Where recourse is sought to be taken to section
212(1)(c) of the Act, 2013, the same ought to be “based
on the report of the Registrar or inspector under section
208; on intimation of a special resolution passed by a
company that its affairs are required to be investigated;
in the public interest or on the request from any
Department of the Central Government or the State
Government”
(vi) It is necessary for the Central Government not only
to form an opinion regarding necessity to investigate into
the affairs of the company, but also to justify the
assignment of such investigation/s to the Serious Fraud
Investigation Office.
(vii) An order under section 212 must disclose the
relevant circumstance/s which warrant (i) conduct of
investigation and (ii) conduct of investigation by the
Serious Fraud Investigation Office.
*
22. In the present case, the impugned order (apart from
other infirmities referred to hereinbelow), fails to
articulate the “necessity of investigation by the Serious
Fraud Investigation Office”, thereby contravening the
mandatory requirement articulated in paragraph 47 of
the aforesaid judgment of the Bombay High Court.
*
24. The impugned order, inasmuch as it does not satisfy
the ingredients enunciated by the Bombay High Court
for the purpose of an order under section 212(1)(c) of the
Act, 2013, suffers from an apparent and incurable legal
lacuna. ”
(Emphasis Supplied)
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73. It was further emphasised that, the formation of opinion by the
central government though is subjective, but the circumstances
forming the basis of such opinionmust be demonstrable from the
order. The relevant observations are as follows:
“42. The law is well-settled that although the formation
of opinion by the Central Government is subjective, but
the existence of circumstance/s forming the basis of such
opinion must be “demonstrable”. The legal position in
this regard has been expounded by the Supreme Court in
the landmark cases of Barium Chemicals Ltd. v. Company
Law Board [(1966) 36 Comp Cas 639 (SC); 1966 SCC
OnLine SC 53; AIR 1967 SC 295.] , Rohtas Industries Ltd.
v. S.D. Agarwal [(1969) 39 Comp Cas 781 (SC); (1969) 1
SCC 325; 1968 SCC OnLine SC 372.] and Rampur
Distillery and Chemical Co. Ltd. v. Company Law Board
[(1970) 40 Comp Cas 916 (SC); (1969) 2 SCC 774; 1969
SCC OnLine SC 319.] . The same has also been reiterated
by the Division Bench of the Bombay High Court in
Parmeshwar Das Agarwal v. Additional Director
(Investigation) [(2016) 199 Comp Cas 353 (Bom); 2016
SCC OnLine Bom 9276.] . As held therein, the legal
position expounded by the Supreme Court in ( Barium
Chemicals Ltd. v. Company Law Board, , Rohtas
Industries Ltd. v. S.D. Agarwal, and Rampur Distillery
and Chemical Co. Ltd. v. Company Law Board, ) for the
purpose of judicial review of the “opinion” under sections
237 and 326 of the 1956 Act, is also applicable, and
relevant for the purpose of testing the “formation of
opinion” under section 212 of the Act, 2013 .”
(Emphasis Supplied)
74. In paragraphs 70 and 71 of the Nita Puri (supra) , this Court
concluded the issue, by holding that an order under Section 212(1)(c)
of the Act, must mandatorily be issued only after due “ application of
mind ” and upon “ examination of all relevant circumstances, which is
a sine qua non for the formation of opinion under Section 212(1)(c) of
the Companies Act, 2013 ” and existence of such relevant
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circumstances must be “ demonstrable ” before the Court and must be
discernible from the language of the order itself. Relevant
extractreadsas under: -
“70. An order under section 212(1)(c) of the Act, 2013
directing investigation by the Serious Fraud
Investigation Office is not a routine administrative
measure. It is in the nature of an extremely serious
statutory action having grave consequences and
repercussions for the subject entities and individuals. It
is therefore, imperative that such an order must be issued
only after due application of mind, after examining all
relevant circumstances.
71. The existence of “relevant circumstances” is sine qua
non as for the purpose of formation of opinion under
section 212(1)(c) of the Act, 2013. As held by the Supreme
Court in Barium Chemicals Ltd. v. Company Law Board
[[1966] 36 Comp Cas 639 (SC); 1966 SCC OnLine SC 53;
AIR 1967 SC 295.] , Rohtas Industries Ltd. v. S.D.
Agarwal [(1969) 39 Comp Cas 781 (SC); (1969) 1 SCC
325; 1968 SCC OnLine SC 372.] and Rampur Distillery
and Chemical Co. Ltd. v. Company Law Board [(1970) 40
Comp Cas 916 (SC); (1969) 2 SCC 774; 1969 SCC
OnLine SC 319.] , and reiterated by the Bombay High
Court in Parmeshwar Das Agarwal v. Additional Director
(Investigation) [[2016] 199 Comp Cas 353 (Bom); 2016
SCC OnLine Bom 9276.] , the existence of the relevant
circumstances has to be “demonstrable”. Exercise of
power under section 212(1)(c) in a casual or perfunctory
manner, seriously undermines the statutory provision
itself and the safeguards implicit thereunder. The use of
boilerplate language and/or extrapolations from third
party documents, without consideration of all the
“relevant circumstances”, reflects a disregard for
procedural propriety. It can hardly be emphasised
enough that the power under section 212(1)(c) must be
exercised with circumspection and deliberation. In the
present case, the impugned order under section 212(1)(c)
appears to have been issued in a rather casual manner,
unmindful of the statutory pre-requisites therefor .”
(Emphasis Supplied)
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75. Notably, the aforesaid judgment of this Court passed in Nita
Puri (supra) was assailed by way of an SLP before the Hon’ble
Supreme Court. The Hon’ble Apex Court, by a detailed order dated
27.01.2026 passed in SLP (C) Diary No(s). 4494/2026 , affirmed the
findings and reasoning given by the Coordinate Bench of this Hon’ble
Court in Nita Puri (supra) . The order dated 27.01.2026 of the
Supreme Court is extracted hereinbelow:
“SLP (CIVIL) Diary No(s). 4494/2026
……...
3. The challenge in this Special Leave Petition is to the
order passed by the High Court of Delhi allowing the Writ
Petition preferred by the respondent no.2 assailing the
order dated 05.09.2024 passed by the Ministry of
Corporate Affairs, Government of (c) under Section
212(1)(c) of the Companies Act, 2013 (for short, ‘the Act’)
directing the Serious Fraud Investigation Office (for short,
‘SFIO’) to conduct an investigation into the affairs of
Moser Baer (c) Ltd. (MBIL) and its Subsidiaries including
joint ventures and associate companies as on date.
…….
6. Thereafter, the Central Government has issued the
order which has been set aside by the High Court of Delhi
relying on the order of the Bombay High Court in the
matter of Parmeshwar Das Agarwal & Ors. Vs. The
Additional Director (Investigation) Serious Fraud
Investigation Office & Ors. 2016 SCC Online BOM
9276which in turn has already been affirmed by this
Court in SLP (Civil) Diary No(s). 2680/2026. According
to the High Court, in the case of Parmeshwar Das
Agarwal (supra), the High Court of Bombay referred to
Barium Chemicals Limited and Anr. Vs. Company Law
Board and Ors., AIR 1967 SC 295 and Rohtas Industries
vs. SD Aggarwal and Ors., 1969 1 SCC 325, to hold that
all the relevant circumstances which is sine qua non for
the purpose of formation of opinion under Section
212(1)(c) of the Act, has not been considered and
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therefore, exercise of power under Section 212(1)(c) of
the Act in a casual and perfunctory manner, undermines
the statutory provisions itself and the safeguard implicit
thereunder.
7. The High Court quashed the order passed by the
Central Government also on the ground that the
additional reasons supplied in the affidavit could not be
considered in view of the law laid down by this Court in
the matter of Mohinder Singh Gill & Another v. The
Chief Election Commissioner, New Delhi & Ors, Opto
Circuit (c) Ltd. V. Axis Bank & Ors. And Ritesh Tiwari
v. State of Uttar Pradesh. Thus, in the peculiar
circumstances of the case, the High Court being bound by
the law laid down in Barium Chemicals (supra) and
Mohinder Singh Gill (supra), has rightly adjudged the
validity of the order under Section 212(1)(c) of the Act
on the basis of the contents of the Order itself, and not
on the vice of fresh reasons or subsequent developments
or by calling report of SFIO, and as such High Court
has not committed any error.
8. Considering the submissions made by the Ld. Senior
counsel for the petitioner, we are not inclined to entertain
this Special Leave Petition and the same is, accordingly,
dismissed.”
(Emphasis Supplied)
76. I am in complete agreement with the view expressed by the
Coordinate Bench that an order under Section 212 (1)(c) of the Act
must clearly demonstrate the due application of mind and that the
power has been exercised after examination of all relevant
circumstances and material before forming the requisite opinion. The
existence of the relevant circumstances / material as well as
application of the mind must be demonstrable and discernible from the
language of the order itself.
77. Reliancehas also been placed upon the judgment passed by the
Hon’ble Apex Court in the Barium Chemicals Limited and Anr. v.
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The Company Law Board and Others : AIR 1967 SC 295 and Rohtas
Industries Limited v. S.D. Aggarwal : (1969) 1 SCC 325. The
Hon’ble Apex Court in the said judgments had considered the
provision of Section 237 of the Companies Act, 1956, which
empowered the authorities to inquire into the affairs of the company
and can be called the predecessor provision to Section 210 and 212 of
the Companies Act, 2013. It is, therefore, well settled that although
the formation of opinion by the authorities is subjective but the
existence of circumstances forming the basis of such opinion must be
demonstrable from the order itself.
78. In this backdrop, the validity of the impugned order dated
17.08.2018 has to be considered in light of the crystallized legal
principles governing the prerequisites to exercise power under Section
212(1)(c) of the Act.
79. At this juncture, it would be beneficial to peruse the impugned
order dated 17.08.2018, which reads as under:
“ORDER
Whereas by virtue of powers conferred under section 212
(1) (c) of the Companies Act, 2013, in the public interest,
Central Government is empowered to order investigation
into the affairs of the company through Serious Fraud
Investigation Office (SFIO).
2. Now, therefore, in exercise of powers conferred under
section 212 (1) (c) of the Companies Act, 2013, the
Central Government hereby orders investigation into the
affairs of Educomp Solution Limited through SFIO.
3. By virtue of provio to section 212 (1) of the Companies
Act, 2013, the inspector (s) appointed by the Director,
Serious Fraud Investigation Office (SFIO) to carry out the
investigation of Educomp Solution Limited shall exercise
powers conferred upon them under the Companies Act,
2013. The Director, SFIO shall complete the investigation
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and submit the report to the Ministry within four (4)
months hereof.
4. This order is issued for and on behalf of the Central
Government.”
80. Abare perusal of the impugned order, ex facie, reflects that the
order entrusting the investigation to SFIO, is devoid of any reason
whatsoever. Law, as noted above, mandates that the reason should be
demonstrable from the order itself. It is not understandable or
demonstrable that examination of which material, brought before the
authorities, enabled it to form an opinion to entrust the investigation to
SFIO. The order also fails to reflect any discernible application of
mind by the competent authorities to the inculpatory circumstances
/material, if any, placed before it and what weighed with the
authorities for arriving at an independent opinion regarding the
necessity of entrusting the investigation to the SFIO.
81. The impugned order, therefore, in the opinion of this Court,
does not satisfy the test laid down for exercise of power under Section
212(1)(c) of the Act. The impugned order, as apparent, only
reproduces the power conferred on the Central Government by the
said section, and is bereft of any reason for exercising the same and
directing the investigation by the SFIO.
82. Significantly, the mere reproduction of the statutory language
cannot, by itself, demonstrate that the requisite opinion was formed
after due consideration of relevant material.
83. It is also well settled that the powers as proclaimed under
Section 212(1)(c) of the Act, cannot be equated with the registration of
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an FIR, for which the statutory threshold is materially different asthe
same only requires allegations about a cognizable offence. Powers
such as under Section 212(1)(c) of the Act cannot be exercised in a
routine administrative manner, particularly in view of the safeguards
inherent in the statutory scheme and emphasised by the Courts from
time to time.
84. At the same time, though the formation of opinion is founded
on a subjective satisfaction of the authorities but the same has to be
routed in objective consideration of cogent and relevant material
available at the time of passing of the order. Mere presence of material
is of no consequence unless the same is discernible from the order
itself. Formation of opinion cannot also be whimsical or on unverified
allegations or a third-party material unless the same is independently
examined and authenticated through the scheme of the Act warranting
investigation.
85. In this regard, this Court, therefore, agrees with the submissions
made by Mr. Jethmalani, learned Senior Counsel, that material before
the Central Government must prima facie indicate fraud, siphoning or
diversion of funds, use of power with intent to deceive, undue will, an
injury to company etc. so as to attract the consequences contemplated
under the Companies Act. No order of such nature ought to be passed
without assigning and supplying due reasons.
86. This also becomes important, as in the present case, the initial
reports issued under the Companies Act itself, did not discover any
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infraction of such nature as warranting passing of the impugned order
under Section 212 of the Act.
87. The absence of any discernible reasoning in the impugned order
assumes further significance when considered alongside the statutory
inspection report dated 31.03.2017 and the supplementary inspection
report dated 31.07.2017, both of which preceded the impugned order.
88. The statutory inspection report dated 31.03.2017 into the affairs
of the company discovered some compoundable infractions, which as
argued have already been compounded. It is also significant to note
that the supplementary investigation report dated 31.07.2017, also
found the allegations of fraud and diversion of funds as unfounded.
89. Unlike the orders passed under other provisions of chapter XIV,
the orders passed under Section 212(1)(c) of the Companies Act are
distinct, as the same confers wide discretion upon the competent
authority to entrust the investigation into the affairs of a company to a
specialised agency. Passing of an order under Section 212(1)(c) of the
Act by the authorities entail serious civil as well as criminal
consequences and, therefore, requires strict adherence to the tests laid
down by the Courts.
90. As discussed in the preceding paragraphs and in Nita Puri
(supra), the compliance of the prerequisite, that is, demonstrable
application of mind on the available material is a sine qua non for
sustaining on order under Section 212(1)(c) of the Act. The same
should be clearly reflected in the order itself which is missing in the
present case. The reflection of the exercise undertaken by the authority
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for examining such material, and lastly the reasoning on the basis of
which the authority reaches an opinion to exercise the statutory power.
91. These ingredients have to be necessarily reflected in the order
itself so as to obviate any challenge on the ground of arbitrariness. In
the absence of such opinion being reflected in the order, the same
makes it vulnerable on the ground of arbitrariness and having been
passed on irrelevant consideration and extraneous factors.
92. Having held that from a perusal of the Impugned Order no
reasoning is discernable, this Court, now proceeds to examine the
further submissions advanced on behalf of the respondents that the
impugned order must be read in conjunction with the minutes of the
Oversight Committee dated 28.06.2018.
93. This submission does not persuade the Court, because of two
reasons. Firstly, that the impugned order has to stand on its own legs
and no amount of additional reasons, supplied in other forms, either by
way of an affidavit or otherwise can justify passing of an unreasoned
order; and Secondly, on an independent examination of the Minutes of
Oversight Committee dated 28.06.2018, the alleged material in the
opinion of this Court also does not justify the formation of opinion for
passing an order under Section 212(1)(c) of the Act for ordering the
investigation by the SFIO.
94. The said minutes reads as under:-
“ Minutes of the meeting of the Oversight Committee for
deciding investigations held on 28.06.2018 at 3.30 P.M.
in Conference Room of the MCA, Shastri Bhawan, New
Delhi
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Present Officers:
Ms Anjali Bhawara, Additional Secretary, MCA
Shri Narender Kumar Bhola, DGCOA
Shri Amardeep Singh Bhatia, Director, SFIO
Shri K.V.R. Murty, Joint Secretary, MCA
Shri S. B. Gautam, DII - Special Invitee
Shri D. Bandyopadhyay, RD(NR) - Special Invitee
Shri Kamal Harjani, ROC-Delhi - Special Invitee
The meeting was chaired by the Additional Secretary,
Corporate Affairs.
The presentations were made before Oversight Committee
on following 3 Cases by AD(CL-II) and RD(NR)
(1) Educomp Solutions Limited
(2) *
(3)
(1) Educomp Solutions Limited
The inspection and supplementary inspection report of RD
is taken on record. Further, on the basis of various serious
complaints received from Sh P P Chauhan, Hon’ble M P
Lok Sabha, PMO references, Report of Yes Bank/Fraud
Monitoring Return (FMR 1)), International Finance
Corporation (IFC) (World Bank Group), Issue reported by
‘THE WIRE’ regarding criminal breach of trust of
creditors /investors, defrauding creditors/ investors by
diversion of funds, dishonestly misappropriating funds
received from creditors/ investor by diversion of funds,
dishonestly misappropriating funds received from
Creditors/investors, cheating is investor/creditors with or
without the knowledge that wrongful loss may be caused
to them and falsification of account by Educomp Solutions
Limited, the Oversight Committee is of considered view
that investigation should be carried out by SFIO in public
interest as per section 212(1)(c) of the Companies Act,
2013.…………”
95. The aforesaid minutes refer to certain independent documents/
material for recommending entrustment of investigation to SFIO. The
relevant question, however, is not merely whether such material was
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referred to in the minutes, but whether the material, when examined in
its proper context, furnished a relevant and demonstrable basis for the
requisite opinion under Section 212(1)(c) of the Act.
96. During the course of arguments, it was informed that the
minutes were recorded on the basis of presentation made on that date
by the officers of Respondent No. 1 before the Oversight Committee.
The presentation was also placed before this Court by additional
affidavit dated 13.01.2023. The material which constituted part of the
said presentation and was allegedly the basis of the above impugned
order was: -
i. Inspection and supplementary inspection report of RD.
ii. Complaint from Mr. P.P. Chauhan, Member of
Parliament, Lok Sabha.
iii. PMO reference.
iv. Internal Fraud Monitoring Report of YES Bank;
v. Complaint by International Finance Corporation (IFC),
World Bank Group dated 01.02.2018;
vi. Issue reported by “The Wire” regarding criminal breach
of trust of creditors, investors, defrauding creditors /
investors by diversion of funds, dishonestly
misappropriating funds received from creditors /
investors.
97. The scrutiny of above referred material, which, as argued by the
respondents, furnished the statutory basis for the purpose of formation
of opinion for ordering of investigation by the SFIO, again indicates
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that the impugned order has been passed without due application of
mind and without the existence of the relevant material which can
demonstrate circumstances and reasons justifying the necessity of
entrusting the investigation to the SFIO.
98. Though the impugned order is vitiated for want of due
application of mind and demonstrable circumstances and reasoning in
the order, this Court has been constrained to look into the material
since the arguments have been advanced that the minutes of Oversight
Committee shall be read in conjunction with the impugned order.
99. The first set of documents referred to by the Oversight
Committee comprises the inspection and supplementary inspection
reports of the Regional Director. A perusal of the same reflects that
these are not of such nature as to disclose any issue of fraud and
diversion of funds for the concerned period. The inspection report
dated 31.03.2017 was submitted in respect of inspection conducted by
the statutory authorities pursuant to directions dated 18.05.2016 issued
by the Respondent No. 1 exercising power under Section 206(5) of the
Act to inquire into the allegations made in the complaint filed by one
Advocate, namely, Saurabh Luthra. The conclusion by the Inspector in
the said report categorically records that no material indicating
defalcation, siphoning, diversion or misappropriation of funds has
been found. Certainly, non-compliances were though reflected in the
report relating to procedure, statutory disclosures and accounting
standards under the Companies Act, 1956 and 2013, the same were
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compoundable in nature. The relevant extract is reproduced herein
below: -
“10. BASIS OF INSPECTION AND FINDING THEREOF
i. The inspection of the company U/s. 206(5) of the
Companies Act, 2013 was ordered by the Ministry vide
letter No. 7 /81 /2016/Cl.ll(NR) dated 18.05.2016. The
Inspection was ordered on the basis a complaint has been
received from Advocate Sourabh Luthra in the officer of
ROC, Delhi alleging various allegations against the
management of the company.
ii. Further, the matter has been examined during course of
Inspection the Complainant has made vague allegations
against the company in order to extortion and blackmail
the Company. The company in turn has lodged FIR against
the Complainant and during its investigation advocate
Sourabh luthra has admitted that it was done with a
malicious intent. Thereafter, the Compliant was withdrawn
by the advocate Sourabh Luthro. Even on the basis of
Complaints, the Bankers who has lent loans has conducted
forensic audit by appointing an independent firm M/s Grant
Thorton, for Financial Year 2012-13 to 2015-16 and
revealed that no serious findings corroborating were
found as alleged by the Complainant.
During the course of Inspection, the issues were also be
examined and found that there are no other complaints
against the subject company and that the company is
doing its best to recover all the dues including the bad
debts, hence no action is proposed.
iii. The Inspecting officer has highlighted the
contraventions of sections Section 198, 269, 211 (1) r/w
Schedule VI, 211 (3A) r/w AS-16, 20, 26, 224(8), 372(3),
211(1), 295, 274(1)(g), 227(3)(d) and 227(2) of the
Companies Act, 1956 and Section 142, 129 r/w Schedule
III, 129 r/w AS016, 20, 26, 134(5), 197 & 198, of the
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companies Act, 2013 in Part-A and violations of Sections
217[2AA), 209(1)(c), 299, of the Companies Act, 1956 in
Part-B and Violations of Section 125 and 193( l ) of
Companies Act 1956 in Part-C of the inspection report.”
(Emphasis supplied)
100. The presentation to the Oversight Committee cited this report as
an independent material, however, does not disclose that evidence of
fraud was detected during the inspection or a recording that the
violation, if any, were compoundable in nature for which a separate
prosecution was recommended. It has also failed to note that the same
records that no action is proposed . The report, therefore, could not
have been the relevant material for ordering investigation by SFIO
exercising power under Section 212(1)(c) of the Companies Act .
101. A further reference has been made, as noted above, to the
supplementary report dated 31.07.2017 and a complaint made by IFC
as independent material warranting investigation by SFIO. The
scrutiny of the supplementary report reveals that the same was
prepared by the Regional Director under Section 208 after examining
the allegations of fraud, defalcation and siphoning contained in IFC
complaint which was forwarded to Regional Director under Section
206(5) of the Companies Act, 2013. However, the same indicates that
the Regional Director after examining the books of accounts, financial
records and affairs of ESL found no violation as alleged in the
complaint and did not recommend further action on those allegations.
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102. The Oversight Committee, therefore, only took note of the
report, however, failed to apply its mind to its actual findings and the
nature of the violations recorded therein.
103. During the course of arguments, a chart was submitted by Mr.
Jethmalani, learned Senior Counsel, pointing out the various
compounding orders passed by the various Courts in regard to the
violations referred in the inspection report dated 31.03.2017. The
presentation placed before the Oversight Committee specifically
referred to the alleged violations under section 211(3A)(3B) and (3C),
211 r/w Schedule VI, 227(3)(e), 198, 256, of the Companies Act, 1956
and 129, 197, 198, 142(1) of the Act. All the aforesaid violations are
stated to be regulatory and compoundable in nature and did not
involve any allegation or finding of fraud, diversion, siphoning,
misappropriation, or defalcation of company funds, which was the
prime contention of the Respondent No. 1. A separate prosecution for
these offences was also recommended by the Respondent No. 1,
wherein, all the offences referred to in the inspection report were
subsequently compounded by the competent court of law. Mr.
Jethmalani, learned Senior Counsel, in this regard has submitted a
chart and has appraised this court about compounding orders passed
by the competent court. From the said chart it is clear that:-
a) The violations found under Sections 198 and 269 of the
Companies Act, 1956; Non-compliance of 211(3A),
211(3B), 211(3C) and Section 211 read with Schedule VI of
the Companies Act, 1956, were compounded by order dated
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26.07.2021 and a penalty of ₹4,000 per financial year was
imposed on ESL.
b) The violations found under Section 129 of the Companies
Act, 2013 and were compounded by order dated 16.07.2021
and a penalty of ₹50,000 per accounting standard was
imposed on ESL.
c) The violation found under Section 142(1) of the Companies
Act, 2013 was compounded by order dated 16.07.2021 and a
penalty of ₹4,000 was imposed on ESL.
d) Violations of Section 209 and 299 of the Act were
compounded by order dated 16.07.2021.
e) Violations under Section 125 of the Act were compounded
by order dated 16.07.2021 and a penalty of ₹20,000 per year
was imposed on ESL.
f) Violation of under Section 193 of the Act were compounded
by order dated 16.07.2021 and a penalty of ₹500 was
imposed.
g) No prosecution or action was taken in respect of the
violations found under Sections 197 and 198 of the
Companies Act, 2013 and Sections 224, 134 (5), 372(9),
227(3)(d), 295, 274 (1)(g) and 217 (2AA) of the Companies
Act, 1956.
104. Thus, despite being specific reference of a compoundable
nature of the violation, noted in the inspection report, the Oversight
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Committee appears to have in a routine and mechanical manner
considered this report as a relevant material to recommend the
investigation by SFIO.
105. In these circumstances, once the statutory inquiry into the
allegations were not substantiated, the complaint by IFC also could
not form separate and independent material so as to justify an order
under Section 212(1)(c) of the Companies Act.
106. The reliance placed by the Oversight Committee on the Internal
Fraud Monitoring Report by Yes Bank is also misplaced. The report
indicates that the Yes Bank was in the process of conducting a detail
investigation in the matter and had also filed a complaint with EOW,
New Delhi. Thus, once the investigation had already been undertaken
on the alleged fraud committed by the ESL and Yes Bank by the
Competent Authority being EOW, Delhi Police, the reliance on the
same for the purpose of starting a parallel investigation by SFIO belies
any logic, as the decision to entrust the investigation to the SFIO still
required an independent and reasoned basis in accordance with the
statutory framework.
107. In regard to the PMO references, this Court, upon examination
of the record, finds that no such complaint was annexed by the
Respondent No. 1 with the presentation made by them before the
Oversight Committee. The minutes of meeting of the Oversight
Committee though mentions representation forwarded by the PMO,
however, they do not specify the date or identify the document in
question. Thus, it is not clear as to which material came into the
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possession of the Oversight Committee which was being termed as
PMO references and why the same was mentioned in the minutes.
108. The respondents in the affidavit filed before this Court have
also not referred or acknowledged or produced any complaint referred
/ forwarded by the PMO which formed the basis for passing the
impugned order. One complaint was mentioned during the
proceedings, but the same is of a subsequent date being 16.05.2019
and, therefore, obviously cannot be the part of the material examined
by the Oversight Committee or the respondents, before passing the
impugned order on 17.08.2018. The said complaint was sent by the
Raffles Group to the PMO on a subsequent date and, therefore, could
not have any bearing on the decision-making process when no
contemporaneous PMO reference has been brought on record.
109. The other material, which as noted above, which was
considered by the Oversight Committee, are letters addressed by the
Member of Parliament and the article published in the “ the Wire ”,
which, in the opinion of this Court, were self-serving documents and
could not be the basis for any consideration for the purpose of
statutory exercise as serious as Section 212(1)(c) of the Act. The
article as well as one complaint by Member of Parliament at best can
form basis for some inquiry, however, could not be of any
independent evidentiary or probative value so as to warrant exercise of
power under Section 212(1)(c) of the Act.
110. It is clarified that this Court is refraining from commenting on
the allegations that the documents were planted at the instance of the
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corporate rival, that is, Raffles Group, though it is vehemently argued
by Mr. Jethmalani, learned Senior Counsel that the material seized
during the period of investigation, particularly the chats retrieved from
the Account of Mr. Saurabh Sharma shows that the article published
by “ the Wire ” had already been shared with him on 02.04.2018, that
is, one day prior to the publication by “ the Wire ” and, therefore, the
same was planted for the purpose of initiating the serious step under
Section 212(1)(c) of the Act.
111. This Court does not find it apposite to adjudicate on the said
allegation, since in the opinion of this Court, the article in itself cannot
constitute sufficient basis for starting of investigation without there
being any corroboration.
112. It was also pointed out that the letter written by the Member of
Parliament was immediately on the next day after the article was
published in “ the Wire ”. However, once the said material is held to be
of no significance for starting the investigation, this Court would
refrain from commenting further on the allegations made by the
petitioners .
113. The cavalier manner in which the material, as noted above, has
been cited, for justifying the entrusting of the investigation to the
SFIO, in the opinion of this Court, ought to be deprecated. The
officers appointed under the scheme of the Act are experts in the
matters of corporate governance and cannot be expected to rely upon
unsubstantiated material and the reports so as to justify the serious
action as contemplated under Section 212(1)(c) of the Act. Therefore,
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once the material clearly belies any logic to justify the investigation,
the respondents cannot be allowed to take the arguments that the
subjective satisfaction is based on such material. While the Court
ought not substitute its own opinion for that of the competent
authority, it is entitled to examine whether the statutory prerequisites
for the exercise of power have been satisfied and whether the decision
is vitiated by non-application of mind or reliance upon irrelevant
considerations.
114. At this stage, this Court also takes support of the judgment
passed by the Bombay High Court in Parmeshwar Das Aggarwal
(supra) where the Hon’ble Bombay High Court, noted that if the report
under Section 208 of the Act does not find any occasion to conduct
further investigation, the exercise of power under Section 212(1)(c) of
the Act would be unjustified.
115. Once a statutory inspection and supplementary inspection report
submitted under Section 208 of the Act does not lead to further serious
subsequent actions under Section 212(1)(c) of the Act, no support of
other material such as the newspaper report and the letter from the
Member of Parliament can form basis to justify the same.
116. Mr. Jethmalani, learned Senior Counsel has also referred to
various contemporaneous letters written by the Raffles Group to SFIO,
the chats recovered by the EOW and the manner in which the article
was published by “ the Wire ” and the same being made before the
respondents can justify the apprehension of the petitioners that the
investigation was vitiated at the behest of the corporate rivals.
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However, once this Court has reached the conclusion that the material,
even if taken on the face value, does not justify passing of the
impugned order, no further adjudication is necessary in that regard at
this stage.
117. Once a statutory report issued by the respondent authorities
itself did not arrive at any finding or siphoning or defalcation of funds,
the other documents being only allegations, loses significance and
cannot be relevant for the purpose of exercise of power under Section
212(1)(c) of the Act.
118. As already noted in the preceding paragraphs by this Court, that
the order passed for investigation of by the SFIO cannot be equated
with the registration of FIR.
119. The expert bodies being tasked to perform the functions under
the Companies Act are required to apply their “ expert mind” to the
material placed before them so as to reach a conclusion that a serious
action such as envisaged under Section 212(1)(c) of the Act can be
taken. The decisions, therefore, are to be tested on a touchstone of the
standard expected of an expert and not of an ordinary person.
120. The Courts have repeatedly observed that such significant
powers are deliberately vested upon the experts and, therefore, attract
personal responsibility and duty to exercise their expertise, prudence
and independent evaluation of the material. Such power cannot be
used in a mechanical manner as sought to be done in the present case.
121. Even though a lot is sought to be justified by Mr. Tiwari,
learned counsel for respondent by filing an affidavit, however, it is a
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settled law that no amount of additional reasons supplied in the form
of an affidavit or subsequent reports can justify the initial action [Ref.:
Mohinder Singh (supra) ] .
122. It is also settled law that once the foundation is found to be
defective, the superstructure raised upon it also cannot be allowed to
stand. If the initial order of investigation is found to be unjustified, all
subsequent actions cannot validate the same. [ Ref : Ritesh Tewari v.
State of U.P. : (2010) 10 SCC 677 ]
123. The minutes of Oversight Committee and the consequential
impugned order is ex facie product of non-application of mind and it
appears to be a mere formality for starting the investigation. Thus,
when the decisions are taken either on a mistake or an inadvertent
error ignoring the relevant material, the aggrieved party would be
justified in alleging arbitrariness or that the decision has been taken
for extraneous consideration at the instance of corporate rivals.
124. At this stage, it is necessary to deal with the further objection
raised on behalf of the respondents that the arguments which have
been raised, require adjudication of seriously disputed questions of
facts concerning documents, electronic records and forensic material,
which ought not to be adjudicated in the writ jurisdiction.
125. It was further contended that the learned Special Court is
already seized of the complaint filed pursuant to the investigation and
the petitioner would have a statutory remedy before the learned said
Court, to seek discharge and this Court ought not to conduct a mini-
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trial and assess the sufficiency or the probative value of the evidence
collected during the investigation.
126. This Court concurs with the general proposition that the triable
issues and the disputed questions of fact should not ordinarily be
adjudicated while exercising jurisdiction under Section 482 of the
CrPC or under Article 226 of the Constitution of India.It is well-
settled that the High Court, while exercising inherent extraordinary
jurisdiction, should be cautious and circumspect. The Court does not
contemplate enquiry or mini trial to substitute its view and where the
allegations and material disclose a prima facie case, the question in
regard to the truth and evidentiary value of such allegation and the
defence must ordinarily be left to the learned Trial Court to adjudicate
after the evidence is led by the parties.
127. However, this Court has only considered the validity of the
initiation of the investigation and therefore, has not adjudicated the
allegations and the defence, which necessarily would require a trial.
Once the Court reaches a conclusion that the very initiation of the
investigation stoodvitiateddue to non-application of mind and the
impugned order has been passed in a mechanical manner, all other
aspects/ merits would not require adjudication. Once an initial order of
investigation is found to have been passed dehors the powers
conferred under Section 212(1)(c) of the Act, all proceedings
emanating therefrom are liable to be brought to an end.
128. Additionally, once the petition is entertained by this Court by
issuing notice, the same cannot be rejected, after more than three
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years, on the ground that the disputes should be left to be decided by
the learned Trial Court.
129. The proceedings which become susceptible to interference on
their inception, do not acquire immunity merely because some water is
flown before it is finally adjudicated. The progress or the evidence
collected may have some evidentiary value in appropriate
proceedings, but cannot cure the foundational illegality. [ Ref : A.M.
Mohan v. State : (2024) 12 SCC 181].
130. Thus, in view of the foregoing, this Court holds thatthe
impugned order dated 17.08.2018, cannot be sustained in law and are
herebyquashed, along with all consequential proceedings emanating
therefrom.
131. The present petitions are allowed in the above terms. Pending
application(s), if any, also stand disposed of.
132. A copy of this Judgment be placed in both the matters.
AMIT MAHAJAN, J
OCTOBER, 16, 2026
“SK”/ KDK
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