Supreme Court agrees to deliberate on SFIO's plea against the Sahara Group

Supreme Court agrees to deliberate on SFIO's plea against the Sahara Group

The Delhi High Court had stayed the operation of the investigation

The Supreme Court bench, headed by Chief Justice NV Ramana, has agreed to consider the Special Leave Petition (SLP) preferred by the Serious Fraud Investigation Office (SFIO) against the December 2021 Delhi High Court order.

The high court had stayed the operation of the investigation orders issued by the Government of India against Sahara Housing Investment Corporation Limited, Sahara India Real Estate Corporation Limited, and Amby Valley Limited.

The SLP submitted by Solicitor General Tushar Mehta stated "The matter filed by us where the lookout circular in case of Sahara was stayed, there is some apprehension. It was filed and was not listed. I will get the details."

To which, Chief Justice Ramana said, "We will list it."

In the application for urgent listing, SFIO had said that all the actions and proceedings undertaken under the October 2018 and October 2020 orders passed by the Central Government were stayed. This seriously prejudices the ongoing investigation and the proceedings.

Therefore, in the SLP, the SFIO sought a stay of the high court's December 2021 order.

In the October 2018 investigation order passed based on the August 2018 report rendered by the Registrar of Companies (ROC), Mumbai, the investigation was directed into the affairs of the three companies, Sahara Q Shop Unique Products Range Limited, Sahara Q Gold Mart Limited, and Sahara Housing Investment Corporation Limited.

The order mentioned that the investigation report should be submitted by the inspectors to the Central Government within a period of three months from October 2018.

In the October 2020 order, the investigation was ordered against the six companies Aamby Valley Limited, Qing Amby City Developers Corporation Ltd, Sahara India Commercial Corporation Limited, Sahara Prime City Ltd, Sahara India Financial Corporation Limited and Sahara India Real Estate Corporation Limited.

While assailing the two orders, Sahara Housing Investment Corporation Limited, Sahara India Real Estate Corporation Limited and Amby Valley Limited approached the Delhi High Court.

The counsel for Sahara submitted that the investigation report was not rendered within three months and despite the passage of more than three years, the investigation was still on.

He referred to the Companies Act, 2013, which stipulated that where the investigation into the affairs of a company was assigned by the Central Government to SFIO, it would submit its report to the Central Government as specified in the order.

The high court thus ruled there was a clear violation of the statutory mandate by the respondents in continuing the investigation after the lapse of the period of three months.

Regarding the October 2020 order, the counsel submitted that no reason was assigned in the order why it was considered necessary that an investigation be made against the six companies.

Relying on the Companies Act, which deals with the power of an inspector to investigate the affairs of related companies, the counsel argued it was not disclosed in the order on what basis the investigation into the affairs of the six companies was directed by the Central Government. And which conditions were not met under the Act.

In December 2021, the division bench of Chief Justice NV Ramana and Justice Jyoti Singh, while remarking that the petitioners had made out a prima facie case for grant of interim relief had stayed the operation, implementation and execution of the 2018 and 2020 orders. Also, the subsequent actions and proceedings initiated pursuant thereto, including coercive proceedings and look-out notices till January 2022, wherein the high court had said that the December interim order would continue during the pendency of the writ petition.

The bench had stayed the impugned orders on the following grounds:

Referring to the Companies Act, the bench ruled, "The investigation was not completed within the stipulated time and as asserted by the petitioners, the same is still ongoing. Prima facie, there is a violation to the direction of the Central Government."

Regarding the October 2020 order, the bench stated, "There seems to be prima facie merit in the contention of the petitioners that the companies sought to be investigated under the Act ought to have an affiliation with the Company(s) under investigation, as provided for in the Statute. The petitioners have categorically averred in the writ petition that the six companies listed in the order are neither the Subsidiary nor the Holding Companies and were never managed by the Managing Director of the earlier three companies under investigation, pursuant to the order."

"The respondents, on a pointed query, were unable to rebut the said position. Therefore, in our prima facie view, there was no justification in initiating investigation against the petitioners No.2 and No.3 vide the October 2020 impugned order," the top court added.

The bench also said, "There is also prima facie merit in the contention of the petitioners that the impugned orders do not indicate the reasons or circumstances that compelled the Central Government to form an opinion to order an investigation by the SFIO into the affairs of the petitioners. All that the orders reveal is that the Central Government has the power under the Companies Act to direct the investigation into the affairs of a company and that it has formed an opinion to do so.

"Reading of Section 212(1) leaves no doubt that the Central Government is required to look into the facts and circumstances that emanate out of a report of the Registrar or Inspection furnished under the Companies Act and then form a subjective opinion based on objective considerations. In our prima facie view nothing is discernible from the impugned orders as to what cogent material led to the formation of opinion by the Central Government that the affairs of the petitioners were required to be investigated."

Importantly, the Supreme had recently also stayed the direction of the Patna High Court by which the Bihar DGP was required to produce the Sahara India Group Head Subrata Roy in the court.