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2016 Supreme(Bom) 1318
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
S.C. DHARMADHIKARI & B.P. COLABAWALLA, JJ.
Parmeshwar Das Agarwal – Petitioner
Versus
The Additional Director (Investigation) Serious Fraud Investigation Office, Ministry of Corporate Affairs – Respondent
Writ Petition No. 2025 of 2016 With Notice of Motion (LODG) No. 554 of 2016
Decided On : 05-10-2016
For the Petitioners: Mr. Girish Godbole with Dr. Abhinav Chandrachud, Ms. Monisha Mane-Bhangale, M/s. ALMT Legal.
For the Respondents: Mr. Rajneesh Agarwal with Ms. Shalaka Gujar-Karande.
The Central Government must form an opinion that it is necessary to investigate into the affairs of a company in public interest before it can order an investigation under section 212(1)(c) of the Companies Act, 2013.
Headnote:
The Court quashed the order passed by the Central Government directing an investigation into the affairs of a private limited company by the Serious Fraud Investigation Office (SFIO) on the ground that the opinion formed by the Central Government was not based on any material and was vitiated by non-application of mind.
Fact of the Case:
The petitioners, who were shareholders of a private limited company, challenged an order passed by the Central Government directing an investigation into the affairs of the company by the SFIO. The petitioners contended that the order was passed at the behest of a rival group of shareholders and that there was no public interest involved in the matter. The Central Government, on the other hand, contended that the order was passed in public interest and that the opinion formed by it was based on a report submitted by the Registrar of Companies.
Finding of the Court:
The Court held that the Central Government had not formed an opinion that it was necessary to investigate into the affairs of the company in public interest. The Court further held that the opinion formed by the Central Government was based only on the complaint of a Member of Parliament to the CVC and with regard to which report was called for from the Registrar. The Court also held that the contents of that report had been misread and totally misinterpreted.
Issues: Whether the Central Government had formed an opinion that it was necessary to investigate into the affairs of the company in public interest.
Ratio Decidendi: The Court held that the Central Government had not formed an opinion that it was necessary to investigate into the affairs of the company in public interest. The Court further held that the opinion formed by the Central Government was based only on the complaint of a Member of Parliament to the CVC and with regard to which report was called for from the Registrar. The Court also held that the contents of that report had been misread and totally misinterpreted.
Final Decision: The Court quashed the order passed by the Central Government directing an investigation into the affairs of the company by the SFIO.
S.C. DHARMADHIKARI, J.
1. By this writ petition under Article 226 of the Constitution of India, the petitioners seek the following relief:
"A. This Hon'ble Court be pleased to issue a writ of Certiorari under Article 226 of the Constitution of India or any other writ/order/direction in the nature of Certiorari calling for the records and proceedings in respect of the proceedings related to the investigation ordered by the Respondent and after going through the same, to quash and set aside the Order dated 6th May, 2016 passed by the Respondent No. 2.”
2. Since the petitioners as also the respondents counsel have been heard at great length, on conclusion of arguments, we dispose of this writ petition finally by the present judgment and order.
3. Rule. Respondents waive service. By consent, heard forthwith.
4. It is necessary to set out certain facts in order to appreciate the challenge raised in this writ petition. The petitioner Nos. 1 to 6 and 9 are shareholders of petitioner No. 8, namely, Singhal Enterprises Private Limited (for short “the company”). That company is a Kolkata based company. The version of the petitioners is that they hold altogether 1849200 equity shares in this company constituting 89.58% of the total paid up share capital of this company. The petitioner Nos. 1 to 6 and the petitioner No. 7 are also Directors of the company. They are related inter-se. We are not concerned with their relationship, but suffice it to state that these petitioners claim to be permanent residents of Raipur, the capital of the State of Chattisgarh. The first respondent to this writ petition is the Additional Director (Investigation) of Serious Fraud Investigation Office (for short "SFIO"). It initially issued a summons dated 26th May, 2016. The claim is that it was wrongly issued to the Managing Director of the petitioner No. 9, but that company does not have any Managing Director. We will refer to the role of the SFIO and the respondent No. 2 - Union of India a little later.
5. The petitioners state that the company carries on business of manufacturing sponge iron. The company has a factory located at two geographical locations, one at village Taraimal in District Raigarh in the State of Chattisgarh and one at village Hirma in District Jharsuguda in the State of Odisha. This company was originally incorporated in 1997 to take over the business activity of a partnership firm Singhal Enterprises. The partners of that firm were petitioner Nos.1 and 2, one Radha Krishan Agarwal and one Parmanand Agarwal. They are brothers of petitioner No. 1 (hereinafter referred to as the said Radha Krishan and Parmanand). However, the company could not take over the business of partnership and undertook a distinct activity of business of manufacturing sponge iron.
6. It is the claim of the petitioners that the Raigarh unit was looked after and managed by petitioner Nos. 3 and 5 while the Jharsuguda unit was looked after and controlled by the said Radha Krishan and his sons Hemant and Gaurav. The said Radha Krishan and his family held the remaining 215100 equity shares in the company constituting 10.42% of the total paid up share capital of the company. Thus, the entire shareholding of and in the company is held by the said Radha Krishan and his family and the petitioner Nos. 1 to 6 and 9. There are no other or public shareholders in the company. It is claimed that petitioner No. 1 and Radha Krishan and Parmanand with their families were involved in several other businesses. Sometime prior to 24th April, 2007, there were disputes between the parties with regard to the division of various of businesses and assets between the family members. With an intention to settle all such disputes, three Memorandums of Understanding were entered into by the three brothers and their groups on 24th April, 2007. Relying on the clauses of this MOU it is submitted that the businesses were to be divided in accordance therewith. The allegation is that Radha Krishan
