Delhi High Court | SFIO Probe Under Section 212(1)(c) Companies Act Quashed | Investigation Order Vitiated by Non-Existent Grounds and Misreading of Audit Reports
Safiya Malik
The High Court of Delhi Single Bench of Justice Sachin Datta set aside an order of the Ministry of Corporate Affairs dated 05.09.2024, which had directed the Serious Fraud Investigation Office to investigate the affairs of Moser Baer India Ltd. and its subsidiaries. The Court held that the order under Section 212(1)(c) of the Companies Act, 2013 suffered from legal infirmities, including reliance on non-existent grounds and failure to establish the statutory necessity for SFIO involvement. The Court consequently quashed the impugned order and allowed the petition.
The matter originated from a petition filed by an ex-director of a company incorporated in 1983, engaged in the manufacture of CDs, DVDs, and optical media. The petitioner challenged the order dated 05.09.2024, by which the Ministry of Corporate Affairs invoked Section 212(1)(c) of the Companies Act, 2013, directing the Serious Fraud Investigation Office to conduct an investigation into the affairs of the company, its subsidiaries, joint ventures, and associate companies.
The company had entered into the Corporate Debt Restructuring Scheme in 2012. The Corporate Debt Restructuring Empowered Group had commissioned a stock audit and a techno-economic viability study, leading to classification of the company as a “Class B” borrower. In 2017, insolvency proceedings commenced before the National Company Law Tribunal, and a forensic audit was commissioned. Kashyap Sikdar & Co., who prepared the Sikdar Report, found no adverse findings of diversion or siphoning of funds. The Committee of Creditors accepted this report. Later, GSA & Associates was appointed to conduct a forensic audit for the period between 2012 and 2015, and the report was submitted to the liquidator in June 2019.
Based on these reports, Bank of Baroda issued a show cause notice in March 2020 to the directors of the company, proposing to declare them as wilful defaulters. In August 2022, the Identification Committee of the Bank declared the petitioner and another director as wilful defaulters, a decision affirmed by the Review Committee in March 2023. This declaration was challenged before the High Court in another writ petition, where a coordinate bench, in February 2024, set aside the order declaring wilful default. The court held that the company had been admitted into CDR without any onerous conditions and that no evidence of diversion, siphoning, or fraudulent transactions was established. An appeal against this judgment was dismissed in August 2024. In another writ petition filed earlier against State Bank of India, the proceedings for wilful default were dropped, which attained finality.
The petitioner argued that the impugned order of September 2024 was issued despite binding judicial pronouncements, relying on the same audit reports that had been considered earlier. It was submitted that the formation of opinion under Section 212(1)(c) was based on circumstances that did not exist, and thus, the order was unsustainable. Reliance was placed on precedents including the judgment of the Bombay High Court in Parmeshwar Das Agarwal v. Additional Director (Investigation) SFIO, where it was held that the existence of circumstances relevant for forming an opinion must be demonstrable.
The respondent Union of India argued that the issues considered in the earlier judgment were different, relating only to wilful default, and that forensic audit reports remained valid for other statutory purposes. It was further contended that the SFIO’s powers could not be constrained by procedural lapses on the part of banks in earlier proceedings.
The court considered the rival submissions, the statutory framework under Chapter XIV of the Companies Act, 2013, and the judgments cited.
Justice Sachin Datta recorded that “the impugned order is in contravention of the dicta laid down in the judgment of the Bombay High Court in Parmeshwar Das Aggarwal & Ors. vs. Additional Director (Investigation) Serious Fraud Investigation Office & Ors.” The judgment of the Bombay High Court, approved on merits by the Supreme Court, held that “existence of circumstances relevant to the inference as to the sine qua non for action must be demonstrable.”
The court observed that the impugned order failed to articulate the necessity of investigation by SFIO, contravening mandatory requirements. It further noted that despite an inquiry ordered under Section 206(4) in 2018 recommending inspection under Section 206(5), there was complete silence as to whether such inspection had been conducted.
Justice Datta recorded that “upon examination of the actual forensic audit reports (GSA Report and Sikdar Report) it becomes evident that the said assertion made in the impugned order (regarding identification of PUFE transaction/s) is factually inaccurate and inconsistent with the very audit reports, on which the impugned order is founded.” The Sikdar Report expressly stated that no preferential, undervalued, fraudulent, or extortionate transactions were found, while the GSA Report concluded that most transactions predated the review period and did not establish diversion of funds.
The court noted that the impugned order contained an apparent misstatement when it recorded that PUFE transactions were noticed in the forensic audit reports. Justice Datta stated, “it is incomprehensible as to why the impugned order contains such an apparent mis-statement.” He further observed that paragraphs of the order were verbatim reproductions from selective portions of the Sikdar Report, despite the report’s disclaimer that it was not an audit or expression of opinion.
Justice Datta stated, “the wholesale disregard/ non-consideration of a binding judicial pronouncement which makes copious observations as regards the very same Audit Report/s on which the impugned order is founded, cannot be countenanced.”
Citing Mohinder Singh Gill v. Chief Election Commissioner, the court recorded that “when a statutory functionary makes an order based on certain grounds, its validity must be judged by the reasons so mentioned and cannot be supplemented by fresh reasons in the shape of affidavit or otherwise.”
Ultimately, the court held that the impugned order was issued in a casual manner, unmindful of statutory prerequisites. Justice Datta recorded, “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.”
The High Court directed that “the impugned order dated 05.09.2024 (and all consequential proceedings pursuant thereto), is hereby quashed.” The petition stood allowed in these terms, with all pending applications disposed of.
Advocates Representing the Parties
For the Petitioners: Dr. Abhishek Manu Singhvi (Senior Advocate), Mr. Vaibhav Mishra, Mr. Ekansh Mishra, Mr. Avishkar Singhvi, Mr. Rajeev Goyal, Mr. Vijay Aggarwal, Mr. Rachit Bansal, and Mr. Shubham Tiwari, Advocates.
For the Respondents: Ms. Rupali Bandhopadhyay (CGSC), Mr. Abhijeet Kumar, Advocate for UOI.
Case Title: Nita Puri v. Union of India
Neutral Citation: 2025: DHC:7433
Case Number: W.P.(C) 261/2025
Bench: Justice Sachin Datta
