Investigation by SFIO

SFIO Investigation Audio Podcast

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2.1. Inter-connected provisions for Investigation by SFIO

Although Section 212 of the Act exclusively and primarily deals with powers of Investigation by SFIO, there are other provisions of the Act that supplement the power as outlined under Section 212 of the Act. The provision can be termed as the “heart” to the Powers of Investigation. It is the core, from which SFIO derives its jurisdiction and authority to investigate into the affairs of any Company.

Let us dive into the provision of Section 212 of the Act. The Section comprises of 17 sub-sections. Interestingly, each sub-section has a character of it’s own. It is a provision unto itself while at the same time inter-connected to supplement the main provision of Section 212 of the Act. To de-code any Act or provision, requires an overall view of the Statute as well as other allied provisions. First it is important to only delve into Section 212 of the Act. After diving in-depth into the provision, other aspects and provisions will be looked into to join the pieces of the puzzle of one of the only Statutes in India that deals with ‘corporate crimes’.

2.2. Sub-section (1) of Section 212 of the Act- Role of Central Government to Order Investigation

Section 212 of the Act deals with –‘Investigation into the affairs of Company by Serious Fraud Investigation Office’. Sub-section (1) at the outset clarifies the ‘mandate’ of SFIO to investigation into the affairs of the Company. It provides four scenario’s wherein SFIO can commence investigation into the affairs of Company. The four scenarios are divided into sub-clauses ‘(a)’ to ‘(d)’. Prior to delving into

each of the sub-clauses, the opening words of Sub-section (1) of Section 212 of the Act sets the tone of the power and authority to order investigation, which rests with the Central Government. Opening words of Section 212 (1) are:-

1. Without prejudice to the provisions of Section 210, where the Central Government is of the opinion, that it is necessary to investigate into the affairs of a company by the Serious Fraud Investigation Office-…

The opinion of Central Government is given much emphasis and importance. The opinion of the Central Government precedes the four sub-clauses. This implies that even if the scenario’s mentioned in the four sub-clauses exists, it can be acted upon after the formation of the opinion of the Central Government. Without Central Government’s opinion that any one of the four scenario’s exist, the SFIO cannot commence investigation into the affairs of any Company. Therefore, the precedence of commencing investigation at the instance of SFIO is the opinion of SFIO. 

The first scenario under sub-clause (a) by which SFIO can commence investigation is upon receipt of a ‘report’ from Registrar of Companies under Section 208 of the Act². Sub-clause (a) to Sub-section (1) of Section 212 of the Act categorically depends upon the ‘report’ of Registrar of Companies under Section 208 2of the Act in order for SFIO to commence investigation into the affairs of a Company. The question is what is Section 208 of the Act?

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 208. Report on inspection made.—The Registrar or inspector shall, after the   inspection of the books of account or an inquiry under Section 206 and other books   and papers of the company under Section 207, submit a report in writing to the   Central Government along with such documents, if any, and such report may, if   necessary, include a recommendation that further investigation into the affairs of the   company is necessary giving his reasons in support. 

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2.3. Section 208 is linked with Section 206 and Section 207 of the Act

In the start of Chapter 2, it was mentioned that the provision of the Act in relation to Investigative powers are inter-connected. One needs to refer other sections to fully comprehend and grasp Section 212 of the Act, which is the power center for investigative powers of SFIO. Section 208 of the Act is one such provision which comes into place at the very start of the provision of Section 212 of the Act. The SFIO in it’s very first sub-clause, i.e. (a) of sub-section (1) of Section 212 of the Act will commence investigation if a report is filed by the Registrar of Companies under Section 208. Section 208 of the Act deals with- ‘Report on inspection made’. The manner, mode and procedure of ‘inspection’ as enunciated under Section 208 can be found under Section 206 and Section 207 of the Act. 

By virtue of Section 208 of the Act, the Registrar of Companies prepares a ‘Report’ after an inquiry or inspection of books of accounts of the concerned company, which is the subject-matter of such exercise. The Report would include the inquiry conducted by the Registrar and further the recommendations for further investigation into the affairs of the Company. Such a recommendation, the provision provides, must be supported by reasons. It is to be noted that Section 208 of the Act³ facilitates the submission of Report of Inquiry or Inspection of Books to the Central Government. It does not lay down the procedure for such an inquiry or inspection of books. The procedure for the same can be found under Section 206 or Section 207 of the Act.  

By virtue of Section 208 of the Act, the Registrar of Companies⁴ prepares a

‘Report’ after an inquiry or inspection of books of accounts of the concerned

company, which is the subject-matter of such exercise. The Report would include the

inquiry conducted by the Registrar and further the recommendations for further

investigation into the affairs of the Company. Such a recommendation, the provision

provides, must be supported by reasons. It is to be noted that Section 208 of the Act

facilitates the submission of Report of Inquiry or Inspection of Books to the Central

Government. It does not lay down the procedure for such an inquiry or inspection of

books. The procedure for the same can be found under Section 206 or Section 207

of the Act.

Therefore, essentially, sub-clause (a) of sub-section (1) of Section 212 of the Act ‘rebounds’ to Section 206 or Section 207 of the Act, depending on the circumstances by routing through Section 208 of the Act. Section 206 or Section 207 defines the procedure and manner of inquiry or books of accounts. It is submission of this inquiry in a Report format that is enabled by virtue of Section 208 of the Act at the instance of Registrar. While the inquiry itself is not conducted under Section 208 of the Act, it is only the option of submission of the ‘inquiry report’ under Section 208 of the Act contemplates. Therefore, the inquiry under Section 206 or Section 207 can be termed as the ‘primary thrust’ of sub-clause (a) of sub-section (1) of Section 212 of the Act, i.e. to commence investigation by SFIO into the affairs of the company.  

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FAQ: Serious Fraud Investigation Office (SFIO) Investigations in India

What is the primary legislation governing SFIO investigations?

The Companies Act of 2013 is the principal legislation that grants the SFIO its investigative powers, specifically under Section 212. This section outlines the circumstances and procedures under which the SFIO can initiate an investigation into a company's affairs.

What role does the Central Government play in SFIO investigations?

The Central Government holds the authority to order an SFIO investigation. While Section 212 outlines scenarios where investigations can occur, it's the Central Government's opinion that ultimately triggers an investigation. The SFIO cannot proceed without the Central Government's authorization.

What is the first scenario under which the SFIO can initiate an investigation?

The SFIO can commence an investigation upon receiving a report from the Registrar of Companies under Section 208 of the Companies Act. This report, based on an inspection of a company's books and accounts, would highlight potential irregularities and recommend further investigation by the SFIO.

How does Section 208 relate to Sections 206 and 207 of the Companies Act?

While Section 208 deals with the submission of an inspection report, the actual process of inspection and inquiry is governed by Sections 206 and 207. These sections detail the procedures the Registrar of Companies follows when inspecting a company's books and accounts. Section 208 simply facilitates the formal submission of the findings to the Central Government.

What is the significance of Sections 206 and 207 in an SFIO investigation?

Sections 206 and 207 form the foundation for an SFIO investigation triggered under Section 212(1)(a). The inquiry conducted under these sections provides the primary evidence and rationale for the Registrar of Companies to recommend further investigation by the SFIO.

What does the term "inter-connected provisions" signify in the context of SFIO investigations?

"Inter-connected provisions" refers to the fact that various sections within the Companies Act 2013 work together to enable SFIO investigations. Understanding Section 212 requires an appreciation of its connection to other sections like 206, 207, and 208, which lay the groundwork for the investigative process.

Can the SFIO initiate an investigation without a report from the Registrar of Companies?

Yes, but it's not the primary route. While Section 212(1)(a) specifically addresses investigations based on the Registrar's report, other sub-clauses within Section 212 outline additional scenarios that may trigger an investigation. However, the Central Government's opinion remains crucial in all cases.