Section 211 of Companies Act., 2013 set forth the provision for the power of the Central Government to establish an office to be called the Serious Fraud Investigation Office to investigate frauds relating to a company. Until the Serious Fraud Investigation Office is established, the Serious Fraud Investigation Office set-up by the Central Government in terms of the Government of India Resolution No. 45011/16/2003-Adm-I, dated the 2nd July, 2003 shall be deemed to be the Serious Fraud Investigation Office for the purpose of this section.
Page Contents
- 1. Establishment of Serious Fraud Investigation Office — Appointment of persons having expertise in various fields
- 2. Investigation by the Serious Fraud Investigation Office (SFIO) — Section 212
- 3. Transfer of all other related investigations, related to the Companies Act, etc. to SFIO
- 4. Duties of the directors and employees to provide all information and assistance for their investigation
- 5. SFIO shall submit its report to the Central Government
- 6. SFIO Powers for arresting [1]
- 7. Copy of the SFIO investigation report may be obtained by making application to the Court
- 8. Prosecution by the SFIO
- 9. Police can also investigate if offence is punishable under Indian Penal Code
1. Establishment of Serious Fraud Investigation Office — Appointment of persons having expertise in various fields
Section 211(4) read with Rule 3 of the Companies (Inspection, Investigation and Inquiry) Rules, 2014 provides that the Central Government may appoint persons having expertise in the fields of:
- investigations,
- cyber forensics,
- financial accounting,
- management accounting,
- cost accounting, and
- any other fields
as may be necessary for the efficient discharge of Serious Fraud Investigation Office (SFIO) functions under the Act.
2. Investigation by the Serious Fraud Investigation Office (SFIO) — Section 212
Without prejudice to the provisions of Section 210, the Central Government may, by order, assign the investigation into the affairs of the company to the SFIO and its Director, if in its opinion it is necessary to investigate into the affairs of a company:
(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 [Section 212(1)]
Section 212(2) provides that where any case has been assigned by the Central Government to the Serious Fraud Investigation Office (SFIO) for investigation under the Companies Act, no other investigating agency of Central Government or any State Government shall proceed with investigation in such case in respect of any offence under the Companies 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 the Companies Act to SFIO.
4. Duties of the directors and employees to provide all information and assistance for their investigation
Section 212(5) provides that 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.
5. SFIO shall submit its report to the Central Government
The Director, SFIO 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 and the SFIO, shall conduct the investigation and submit its report to the Central Government within such period as may be specified in the order. [Section 212(3) and (4)]
The Central Government if so directs, the Serious Fraud Investigation Office shall submit an interim report to the Central Government. [Section 212(11)]
6. SFIO Powers for arresting [1]
6.1. Offence under section 447 of this Act to be cognizable and accused person cannot be ‘generally’ released on bail or bond: Notwithstanding anything contained in the Code of Criminal Procedure, 1973, [2] 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 in this sub-section except upon a complaint in writing made by—
(i) the Director, Serious Fraud Investigation Office; or
(ii) any officer of the Central Government authorized, by a general or special order in writing in this behalf by that Government.
Section 212(7) provides that the limitation on granting of bail specified in sub-section (6) is in addition to the limitations under the Code of Criminal Procedure, 1973 or any other law for the time being in force on granting of bail.
6.2. Officers who are authorized to arrest the accused person shall inform the accused the grounds of such arrest: Section 212(8) provides that if the Director, Additional Director or Assistant Director of SFIO 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 section 212(6), he may arrest such person and shall, as soon as may be, inform him of the grounds for such arrest.
6.3. Copy of arrest order and information forming basis of arrest to be forwarded to SFIO in a sealed envelope: The Director, Additional Director or Assistant Director of SFIO shall, immediately after arrest of such person under section 218(8), forward a copy of the order, along with the material in his possession, referred to the SFIO in a sealed envelope, in such manner as may be prescribed and the SFIO shall keep such order and material for such period as may be prescribed [Section 212(9)].
6.4. Arrested person to be produced before Judicial Magistrate or Metropolitan Magistrate within 24 hours: Every person arrested under section 212(8) shall within 24 hours, be taken to a Judicial Magistrate or a Metropolitan Magistrate, as the case may be, having jurisdiction, however, the period of 24 hours shall exclude the time necessary for the journey from the place of arrest to the Magistrate’s court [Section 212(10)].
6.5. Companies (Arrests in connection with Investigation by Serious Fraud Investigation Office) Rules, 2017: These rules may be called the Companies (Arrests in connection with Investigation by Serious Fraud Investigation Office) Rules, 2017 and shall come into force on the date of their publication in the Official Gazette [i.e. w.e.f. 24-8-2017].
6.5.1. Who can arrest – other than for an investigation of a Government company or foreign company: Where the:
- Director,
- Additional Director, or
- Assistant Director
of the Serious Fraud Investigation Office (herein after referred to as SFIO) investigating into the affairs of a company other than a Government company or foreign company 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 section 212 of the Act, he may arrest such person.
Provided that in case of an arrest being made by Additional Director or Assistant Director, the prior written approval of the Director SFIO shall be obtained.
The Director SFIO shall be the competent authority for all decisions pertaining to arrest. – Rule 2.
In Rohtas Industries Ltd. v SD Agarwal 39 Comp Cas 781: AIR 1969 SC 707: (1969) 1 SCC 325: (1969) 1 Comp LJ 350: (1969) 3 SCR 108 (SC 3 member bench), it was held that an investigation may seriously damage the company and should not be ordered without proper material. Investigation is a serious matter. It should not be ordered except for good and satisfactory grounds. Opinion formed by Government (for ordering investigation) is not amenable to review by Courts, but whether circumstances existed can be examined by Court.
In Andhra Pradesh State Civil Supply v Delta Oils & Fats (1997) 3 CLJ 146: 12 SCL 277: 96 Comp Cas 303 (CLB), it was held that investigation into economic working is not to be ordered unless there is material to show that fall in profits was due to illegal actions. Mere statement of facts based on auditor’s report without any corroborative evidence will not assist CLB in forming required opinion under section 235. Investigations will not be ordered unless at least prima facie evidence is produced which will lead to conclusion that an investigation is necessary – same view in A Ravishankar Prasad v Prasad Productions P Ltd. (2006) 71 SCL 87 (CLB).
In Allianz Securities v Regal Industries (2000) 37 CLA 250 (CLB), it was held that investigation can be ordered only if allegations are substantiated with particulars. Where tax authorities are already examining accounts for alleged violation of relevant statutes, further examination of accounts will result in duplication.
In Punjab Agro v Superior Genetics (2002) 35 SCL 438: (2002) 1 Comp LJ 187: 108 Comp Cas 349 (CLB), it was observed that there should be sufficient material to form a prima facie opinion that the affairs of company require to be investigated.
6.5.2. Who can arrest – for an investigation of a Government company or foreign company: Where an arrest of a person is to be made in connection with a Government company or a foreign company under investigation, such arrest shall be made with prior written approval of the Central Government.
Provided that the intimation of such arrest shall also be given to the Managing Director or the person in-charge of the affairs of the Government Company and where the person arrested is the Managing Director or person in-charge of the Government Company, to the Secretary of the administrative ministry concerned, by the arresting officer – Rule 3.
6.5.3. Signing of arrest order and personal search memo: The Director, Additional Director or Assistant Director, while exercising powers under sub-section (8) of section 212 of the Act, shall sign the arrest order together with personal search memo in the Form appended to these rules and shall serve it on the arrestee and obtain written acknowledgement of service – Rule 4.
6.5.4. Forwarding a copy of the arrest order and personal search memo: The Director, Additional Director or Assistant Director shall forward a copy of the arrest order along with the material in his possession and all the other documents including personal search memo to the office of Director, SFIO in a sealed envelope with a forwarding letter after signing on each page of these documents, so as to reach the office of the Director, SFIO within 24 hours through the quickest possible means – Rule 5.
6.5.5. Maintenance of arrest register: An arrest register shall be maintained in the office of Director, SFIO and the Director or any officer nominated by Director shall ensure that entries with regard to particulars of the arrestee, date and time of arrest and other relevant information pertaining to the arrest are made in the arrest register in respect of all arrests made by the arresting officers – Rule 6.
The entry regarding arrest of the person and information given to such person shall be made in the arrest register immediately on receipt of the documents as specified under rule 5 in the arrest register maintained by the SFIO office – Rule 7.
6.5.6. Preserving the copy of arrest order together with supporting materials: The office of Director, SFIO shall preserve the copy of arrest order together with supporting materials for a period of five years—
(a) from the date of judgment or final order of the Trial Court, in cases where the said judgment has not been impugned in the appellate court; or
(b) from the date of disposal of the matter before the final appellate court, in cases where the said judgment or final order has been impugned, whichever is later – Rule 8.
6.5.7. Provisions of Cr PC: The provisions of the Code of Criminal Procedure, 1973, relating to arrest shall be applied mutatis mutandis to every arrest made under this Act – Rule 9.
7. Copy of the SFIO investigation report may be obtained by making application to the Court
Section 212(13) provides that 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.
8. Prosecution by the SFIO
8.1. Central Government may direct SFIO to prosecute against company and its officers or employees or any other person on the basis of investigation report: Section 212(14) provides that on receipt of the investigation report, the Central Government may, after examination of the report (and after taking such legal advice, as it may think fit), direct the SFIO 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.
8.2. Investigation report filed with Special Court for framing charges shall be deemed as report filed by a police officer under Cr PC: Section 212(15) states that 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 [Cr PC].
8.3. Investigation proceedings under Companies Act, 1956 shall continue under new Act as of this new Act had not been passed: Section 212(16) states that notwithstanding anything contained in this Act, any investigation or other action taken or initiated by SFIO under the provisions of the Companies Act, 1956 shall continue to be proceeded with under that Act as if this Act had not been passed.
8.4. SFIO to share information from and with other authorities: Section 212(17) provides that:
(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.
9. Police can also investigate if offence is punishable under Indian Penal Code
There is no bar against investigation by police officer if cognizable offence punishable under Indian Penal Code is suspected to have been committed in the affairs of company – S P Gupta v State (NCT of Delhi) (2005) 61 SCL 121 (Del HC) – relying on B M Bajoria v UOI (1972) 42 Comp Cas 338: ILR 1971 Del 715 (Del HC DB).
[1] In exercise of the powers conferred by sub-section (3) of section 1 of the Companies Act, 2013 (18 of 2013), the Central Government hereby appoints the 24th day of August, 2017 as the date on which the provisions of sub-sections (8), (9) and sub-section (10) of section 212 of the said Act shall come into force – MCA Notification No. So 2751(E) [F.No.1/12/2013 Cl-V], Dated 24-8-2017
[2] Words “offence covered under section 447” substituted by the Companies (Amendment) Act, 2015, w.e.f. 29-5-2015.
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