SFIO Probe Against Company Citing Public Interest 'Extremely Serious Action', Due Application Of Mind Must: Delhi High Court

The Delhi High Court has observed that Serious Fraud Investigation Office (SFIO) investigation against a company citing public interest is an extremely serious statutory action and an order to that effect must reflect due application of mind.

“An order under Section 212(1)(c) of the Act, 2013 directing investigation by the SFIO 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,” Justice Sachin Datta said.

Section 212(1)(c) of the Companies Act empowers the Central Government to assign an investigation into a company's affairs to the SFIO in public interest.

The Court held that 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.

Justice Datta quashed an order issued by the Union Ministry of Corporate Affairs under Section 212(1)(c) of the Companies Act, 2013, directing SFIO probe into affairs of Moser Baer India Limited and its subsidiaries, including joint venture and associate companies.

It was submitted that the impugned order was predicated on a fundamentally flawed assumption that the forensic audit reports of two companies revealed “preferential, undervalued, extortionate and fraudulent transactions” (PUFE).

It was also contended that the formation of “opinion” for the purpose of Section 212(1)(c) of the Act was vitiated, having been arrived at despite 'non-existence' of any relevant circumstances.

Allowing the plea, the Court said that the assertion made in the impugned order regarding identification of PUFE transactions was factually inaccurate and inconsistent with the audit reports on which the impugned order was founded.

“The above strikes at the very root of the validity of the impugned order. While it is true that an order issued by the Central Government under Section 212(1)(c) of the Act, 2013 is predicated on the “opinion” of the Central Government, the same clearly has no legs to stand on, where the formation of opinion is based on non-existent ground/s,” the Court said.

It concluded that 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 and existence of the relevant circumstances has to be “demonstrable”.

“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 emphasized enough that the power under Section 212(1)(c) must be exercised with circumspection and deliberation,” the Court said.

It set aside the impugned order passed under Section 212(1)(c), observing that it was issued in a casual manner, unmindful of the statutory pre-requisites.

Title: NITA PURI v. UNION OF INDIA

Citation: 2025 LiveLaw (Del) 1079

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