Companies Act Section 212

Companies Act, Section 212: Investigation into Affairs of a Company by the Serious Fraud Investigation Office (SFIO)

This section empowers the Serious Fraud Investigation Office (SFIO), a specialized investigative body established by the Central Government, to carry out detailed investigations into cases involving corporate fraud. It outlines the process, authority, and obligations associated with such investigations.

1) Powers of the Central Government to Assign Investigation to SFIO

The Central Government has the discretion to order an investigation into the affairs of any company to be carried out by the SFIO. This decision can be made under any of the following circumstances:

(a) Upon receiving a report from the Registrar of Companies or an inspector under Section 208;
(b) On receiving an intimation that the company has passed a special resolution stating that an investigation into its own affairs is necessary;
(c) When it is deemed necessary to act in the public interest;
(d) Upon receiving a request for investigation from any Department of the Central Government or a State Government.
Once such an opinion is formed, the Central Government may issue an order directing the SFIO to undertake the investigation. The Director of SFIO will be responsible for assigning the investigation and may designate an appropriate number of inspectors to conduct the investigation.

2) Exclusive Jurisdiction of SFIO Over Assigned Investigations

When a case is officially assigned to the SFIO by the Central Government, no other agency, whether a department of the Central Government or a State Government, can continue or initiate a parallel investigation into the same matter. If another investigative agency has already started investigating the same case under the Companies Act, it must immediately cease its proceedings and transfer all relevant documents, evidence, and records to the SFIO.

3) Investigation Process and Reporting

Once the investigation is entrusted to SFIO, the office must carry out the investigation in accordance with the procedures outlined in this Chapter of the Companies Act. SFIO is required to submit its investigation report to the Central Government within the time period specified in the order assigning the case.

4) Designation of Investigating Officer

The Director of the SFIO shall cause the investigation to be carried out by an appointed Investigating Officer, who shall be vested with the same powers as an inspector under Section 217 of the Act.

5) Obligations of the Company and Its Employees

All officers and employees of the company whether currently employed or formerly employed are legally bound to provide the Investigating Officer with:

Any relevant information or documents;
Clarifications or explanations as required;
Full cooperation and assistance during the investigation process.
6) Cognizability and Bail Provisions for Serious Offences

Offences falling under Section 447 (related to fraud) are considered cognizable, meaning the accused can be arrested without a warrant. The following conditions must be met before granting bail:

(i) The Public Prosecutor must be given the opportunity to oppose the bail application.
(ii) If opposed, the court must be satisfied that:
There are reasonable grounds to believe the accused is not guilty, and
The accused is unlikely to commit any further offence while on bail.
Exceptions: The court may grant bail even if the above criteria are not fully met if the accused is:

A woman;
Under 16 years of age;
Sick or infirm.
Additionally, no court can take cognizance of an offence under this section unless a written complaint is filed by:

The Director of SFIO, or
An officer of the Central Government specifically authorized for this purpose.
7) Additional Limitations on Bail

The restrictions and limitations outlined above are in addition to those contained in the Code of Criminal Procedure, 1973, or any other law currently in force.

8) Power of Arrest

Any officer of the SFIO, not below the rank of Assistant Director, who has been duly authorized by the Central Government by a general or special order, may arrest a person if:

He has reasons to believe (which must be recorded in writing) that the person is guilty of an offence punishable under Section 447 or related provisions.
9) Handling of Arrest Records

Upon making an arrest under subsection (8), the arresting officer must:

Immediately forward a copy of the arrest order and accompanying evidence in a sealed envelope to the SFIO, in the manner prescribed by law.
The SFIO shall retain this material for the period specified in the applicable rules.
10) Production Before a Magistrate or Special Court

Every individual arrested by SFIO must be brought before a Special Court, Judicial Magistrate, or Metropolitan Magistrate (as appropriate) within 24 hours of the arrest. This 24-hour period excludes the time taken to travel from the arrest location to the court.

11) Submission of Interim Report

If deemed necessary, the Central Government may require the SFIO to submit an interim investigation report before the final investigation is completed.

12) Submission of Final Investigation Report

Upon completion of the investigation, SFIO is required to submit a comprehensive final report to the Central Government.

13) Access to Investigation Report

Any individual directly affected by the investigation may obtain a copy of the report by making a formal application to the relevant court.

14) Initiation of Prosecution

Upon receiving and examining the SFIO’s report, and taking legal advice if necessary, the Central Government may instruct SFIO to initiate prosecution proceedings against:

The company;
Any of its current or former officers or employees;
Any other individual or entity directly or indirectly involved in the company’s fraudulent activities.
14A) Disgorgement and Personal Liability for Fraud

If the SFIO’s report confirms that a fraud has taken place, and that a director, KMP, officer, or any person has gained undue benefit whether through cash, property, assets, or any other means the Central Government may approach the Tribunal for:

Disgorgement (recovery) of such assets;
Declaration of personal liability of such individuals or entities, without any limitation on liability.
15) Equivalence of SFIO Report with Police Report

The investigation report submitted by SFIO to the Special Court for framing of charges shall be treated as equivalent to a police report filed under Section 173 of the Code of Criminal Procedure, 1973.

16) Continuation of Proceedings Under the Old Act

Any investigation or action initiated by SFIO under the Companies Act, 1956 will be deemed valid and shall continue under that Act, as though the Companies Act, 2013 had not come into force.

17) Information Sharing with Other Agencies

(a) If SFIO is conducting an investigation into an offence, then any other investigating authority, such as police, income-tax authorities, or state agencies, having relevant information or documents, shall share them with SFIO.
(b) Conversely, SFIO shall also share relevant documents or information with such agencies, if they are conducting investigations or proceedings under any other law where such information is useful.