Serious Fraud Investigation Office vs Rahul Modi and Anr. etc.

Interpretation of statutes: Provisions, when mandatory or directory – Held: While laying down a particular procedure if no negative or adverse consequences are contemplated for nonadherence, relevant provision is normally not taken to be mandatory and is considered to be purely directory - Provision to be seen in the context in which it occurs in the Statute. Allowing the appeals and disposing of the transfer petition, the Court

Per Uday Umesh Lalit, J:

HELD: 1.1 In Habeas Corpus proceedings a Court is to have regard to the legality or otherwise of the detention at the time of the return and not with reference to the institution of the proceedings. The act of directing remand of an accused is held to be a judicial function and the challenge to the order of remand is not to be entertained in a habeas corpus petition. In the instant case, as on the date when the matter was considered by the High Court and the Order was passed by it, not only were there orders of remand passed by the Judicial Magistrate as well as the Special Court, Gurugram but there was also an order of extension passed by the Central Government on 14.12.2018. The legality, validity and correctness of the order or remand could have been challenged by the original Writ Petitioners by filing appropriate proceedings. However, they did not raise such challenge before the competent Appellate or Revisional Forum. The orders of remand passed by the Judicial Magistrate and the Special Court, Gurugram had dealt with merits of the matter and whether continued detention of the accused was justified or not. After going into the relevant issues on merits, the accused were remanded to further police custody. These orders were not put in challenge before the High Court. It was, therefore, not open to the High Court to entertain challenge with regard to correctness of those orders. The High Court, however, considered the matter from the standpoint whether the initial Order of arrest itself was valid or not and found that such legality could not be sanctified by subsequent Order of remand. Principally, the issue which was raised before the High Court was whether the arrest could be effected after period of investigation, as stipulated in said order dated 20.06.2018 had come to an end. The supplementary issue was the effect of extension of time as granted on 14.12.2018. The arrest was effected when the period had expired but by the time the High Court entertained the petition, there was as order of extension passed by Central Government on 14.12.2018. Additionally, there were judicial orders passed by the Judicial Magistrate as well as the Special Court, Gurugram, remanding the accused to custody. The High Court was not justified in entertaining the petition and passing the Order. [Para 17, 19] [116-E; 122-C-H; 123-A-B]

Basanta Chandra Ghose v. King Emperor (1945) 7 FCR 81; Naranjan Singh Nathawan v. State of Punjab [1952] SCR 395 ; Ram Narayan Singh v. State of Delhi [1953] SCR 652 ; A.K. Gopalan v. Govt. of India [1966] 2 SCR 427 ; Pranab Chatterjee v. State of Bihar and Another (1970) 3 SCC 926 ; Talib Hussain v. State of Jammu and Kashmir (1971) 3 SCC 118 ; Col. Dr. B. Ramachandra Rao v. State of Orissa and Others (1972)

3 SCC 256; Kanu Sanyal v. District Magistrate, Darjeeling and Others (1974) 4 SCC 141 : [1974] 3 SCR 279; Manubhai Ratilal Patel through Ushaben v. State of Gujarat and Others (2013) 1 SCC 314 : [2012]

8 SCR 993 ; Saurabh Kumar v. Jailor, Koneila Jail and Another (2014) 13 SCC 436 : [2014] 8 SCR 909; State of Maharashtra and Others v. Tasneem Rizwan Siddiquee (2018) 9 SCC 745 - referred to.

1.2 The first Order dated 20.06.2018 itself indicated that the Registered Office of the Principal Company was in Gurugram, Haryana. Soon after the arrest, the accused were produced before the Judicial Magistrate, Gurugram on 11.12.2018, who remanded them to custody till 14.12.2018 and directed that they be produced before the Special Court, Gurugram on 14.12.2018. Accordingly the accused were produced before the Special Court, Gurugram, who thereafter remanded them to custody first till 18.12.2018 and later till 21.12.2018. The Special Court, Gurugram would be competent to deal with the matter in terms of Section

436. Petitioners, however, submitted that since the accused were arrested in Delhi, were kept in custody in Delhi, and the SFIO office being in Delhi, the High Court of Delhi was competent to entertain and consider the writ petitions so preferred by the writ petitioners. [Para 21] [123-E-H; 124-A-B]

Navinchandra N. Majithia v. State of Maharashtra and Others (2000) 7 SCC 640 : [2000] 3 Suppl. SCR 82; Dashrath Rupsingh Radhod v. State of Maharashtra and Another (2014) 9 SCC 129 : [1999] 3 Suppl. SCR

271 - referred to.

1.3 In the instant case, it cannot be said that the High Court completely lacked jurisdiction to entertain the petition. However, since the challenge was with respect to the detention pursuant to valid remand orders passed by the Judicial Magistrate and the Special Court, Gurugram, the High Court should not have entertained the challenge. If the act of directing remand is fundamentally a judicial function, correctness or validity of such orders could, if at all, be tested in a properly instituted proceedings before the appellate or revisional forum. In the circumstances even if the arrests were effected within the jurisdiction of the High Court, since the accused were produced before a competent court in pursuance of Sections 435, 436 of 2013 Act, the High Court ought not to have entertained the writ petition. However, since the High Court considered the matter from the standpoint whether the initial Order of arrest itself was valid or not and then found that such illegality could not be sanctified by subsequent Order of remand. [Para 24] [125-G-H; 126-A-C]

1.4 Reading of the provisions of 2013 Act shows that certain Sections in Chapter XXIX prescribe punishment for offences such as fraud, false statement, false evidence and withholding of property under Sections 447, 448, 449 and 452 respectively. The punishment for fraud involving an amount of at least Rs.10 lakhs or 1 per cent of the turnover of the Company, is imprisonment for a term which may extend to 10 years. The offence of fraud in relation to the affairs of a Company is considered to be a grave offence and the writ petitioners were allegedly guilty of such offence. Chapter XIV of 2013 Act deals with Inspection, Inquiry and Investigation. Under Section 210, investigation into the affairs of a Company can be undertaken. Section 211 contemplates establishment of Serious Fraud Investigation Offence (SFIO) which is to be headed by a Director and is to consist of Experts with ability, integrity and experience in fields like Banking, Corporate Affairs, Taxation, Forensic Audit, Capital Market, Information Technology, Law or such other fields. SFIO headed by a Director is thus a compact and competent unit consisting of experts in various domains. Section 212 empowers the Central Government to assign the investigation into the affairs of a Company to SFIO. Upon such assignment the Director SFIO may designate such number of inspectors under sub-Section (1) and shall cause the affairs of the Company to be investigated by an Investigating Officer under sub-Section (4). The expression used in sub-Section (1) is “assign the investigation”. Sub-Section (2) incorporates an important principle that upon such assignment by the Central Government to SFIO, no other investigating agency of the Central Government or any State Government can proceed with investigation in respect of any offence punishable under 2013 Act and is bound to transfer the documents and records in respect of such offence under 2013 Act to SFIO. [Para 26] [132-C-H]

1.5 Under sub-Section (3) where the investigation is so assigned by the Central Government to SFIO, the investigation must be conducted in the manner and in accordance with the procedure provided in the Chapter and a report has to be submitted to the Central Government within such period as may be specified. This provision contemplates submission of a report within the period as may be specified. The subsequent provisions then contemplate various stages of investigation including arrest under sub-Section (8) and that SFIO is to submit an interim report to the Central Government, if it is so directed under sub Section (11). Further, according to sub-Section (12), on completion of the investigation, SFIO is to submit the “investigation report” to the Central Government. This report under sub-Section (12) may lead to further follow up actions. Under sub-Section (13) a copy of the “investigation report” could be obtained by any concerned person by making an application in that behalf to the Court while under sub-Section (14) on receipt of said “investigation report” the Central Government may direct SFIO to initiate prosecution against the Company. The “investigation report” under sub-Section (12) is to be submitted on completion of the investigation whereas report under sub-Section (11) is in the nature of an interim report and is to be submitted if the Central Government so directs. The provisions of Section 43(2) of 2008 Act do not postulate any such period and the assignment in the present case to SFIO was under the concerned provisions of 2013 Act as well as under 2008 Act. [Para 27] [133-A-F]

1.6 Section 212(3) of 2013 Act by itself does not lay down any fixed period within which the report has to be submitted. Even under sub-Section (12) which is regarding “investigation report”, again there is no stipulation of any period. In fact such a report under sub-Section (12) is to be submitted “on completion of the investigation”. There is no stipulation of any fixed period for completion of investigation which is consistent with normal principles under the general law. If the investigation proceeds for a longer period, under Section 167 of the Code certain rights may flow in favour of the accused. But it is certainly not the idea that in case the investigation is not over within any fixed period, the authority to investigate would come to an end. Sub-Section

(2) of Section 213 of 2013 Act does not speak of any period for which the other Investigating Agencies are to hold their hands, nor does the provision speak of any re-transfer of the relevant documents and records from SFIO back to said Investigating Agencies after any period or occurring of an event. [Para 28] [133-F-H; 134-A-C]

1.7 The very expression “assign” in Section 212(3) of 2013 Act contemplates transfer of investigation for all purposes whereafter the original Investigating Agencies of the Central Government or any State Government are completely denuded of any power to conduct and complete the investigation in respect of the offences contemplated therein. The idea under sub-Section (2) is complete transfer of investigation. The transfer under sub-Section (2) of Section 213 would not stand revoked or recalled in any contingency. If a time limit is construed and contemplated within which the investigation must be completed then logically, the provisions would have dealt with as to what must happen if the time limit is not adhered to. The Statute must also have contemplated a situation that a valid investigation undertaken by any Investigating Agency of Central Government or State Government which was transferred to SFIO, must then be re-transferred to said Investigating Agencies. But the Statute does not contemplate that. The transfer is irrevocable and cannot be recalled in any manner. Once assigned, SFIO continues to have the power to conduct and complete investigation. If that be so, can such power stand curtailed or diminished if the investigation is not completed within a particular period. The Statute has not prescribed any period for completion of investigation. The prescription in the instant case came in the order of 20.06.2018. [Para 29] [134-D-G; 135-A]

Kazi Lhendup Dorji v. State of Sikkim & Ors (1994) 2 Suppl. SCC 116 - referred to.

1.8 It is well settled that while laying down a particular procedure if no negative or adverse consequences are contemplated for non-adherence to such procedure, the relevant provision is normally not taken to be mandatory and is considered to be purely directory. Furthermore, the provision has to be seen in the context in which it occurs in the Statute. There are three basic features which are present in this matter; absolute transfer of investigation in terms of Section 212(2) of 2013 Act in favour of SFIO and upon such transfer all documents and records are required to be transferred to SFIO by every other Investigating Agency; for completion of investigation, sub-Section (12) of Section 212 does not contemplate any period; and under sub-Section (11) of Section 212 there could be interim reports as and when directed. In the face of the salient features it cannot be said that the prescription of period within which a report is to be submitted by SFIO under sub-Section (3) of Section 212 is for completion of period of investigation and on the expiry of that period the mandate in favour of SFIO must come to an end. If it was to come to an end, the legislation would have contemplated certain results including re-transfer of investigation back to the original Investigating Agencies which were directed to transfer the entire record under sub-Section (2) of Section 212. In the absence of any clear stipulation, an interpretation that with the expiry of the period, the mandate in favour of SFIO must come to an end, will cause great violence to the scheme of legislation. If such interpretation is accepted, with the transfer of investigation in terms of sub Section (2) of Section

212 the original Investigating Agencies would be denuded of power to investigate and with the expiry of mandate SFIO would also be powerless which would lead to an incongruous situation that serious frauds would remain beyond investigation. That could never have been the idea. The only construction which is, possible therefore, is that the prescription of period within which a report has to be submitted to the Central Government under sub-Section (3) of Section 212 is purely directory. Even after the expiry of such stipulated period, the mandate in favour of the SFIO and the assignment of investigation under sub-Section (1) would not come to an end. The only logical end as contemplated is after completion of investigation when a final report or “investigation report” is submitted in terms of sub-Section (12) of Section 212. It cannot therefore, be said that the mandate came to an end on 19.09.2018 and the arrest effected on 10.12.2018 under the orders passed by Director, SFIO was in any way illegal or unauthorised by law. In any case, extension was granted in the instant case by the Central Government on 14.12.2018. But that is completely besides the point since the original arrest itself was not in any way illegal. The High Court completely erred in proceeding on that premise and in passing the order under appeal, and thus, is set aside. [Para 30, 31] [135-B-H; 136-A-D]