Why the Hon’ble Delhi High Court recently quashed an SFIO probe against Moser Baer in the case of: - Nita Puri v. Union of India.
- Sep 16, 2025
- 12 min read
i) Introductory Facts
This petition was filed by an ex/suspended director of Moser Baer India Ltd. (MBIL), challenging an order dated August 28, 2025, issued by the Ministry of Corporate Affairs. This order directed the Serious Fraud Investigation Office (SFIO) to investigate the affairs of MBIL and its subsidiaries under Section 212(1)(c) of the Companies Act, 2013.
MBIL, incorporated in 1983, was involved in manufacturing CDs, DVDs, and other optical media. In 2012, it sought relief under the Corporate Debt Restructuring (CDR) Scheme of the Reserve Bank of India. Following a Stock Audit and a Techno-Economic Viability (TEV) study, MBIL was classified as a "Class B" borrower and admitted into the CDR framework, notably not being categorized as "Class C" or "Class D" which are assigned to entities suspected of fraud or financial irregularities.
In 2017, MBIL entered insolvency proceedings. The Interim Resolution Professional (IRP) then commissioned a Forensic/Special Purpose Audit by Kashyap Sikdar & Co. (Sikdar Report) for financial years 2015-2016, 2016-2017, and part of 2017-2018. This report "revealed no adverse findings" regarding financial irregularities, diversion of funds, siphoning of assets, or fraudulent transactions. The Committee of Creditors (CoC) accepted the Sikdar Report in May 2018, affirming no evidence of Preferential, Undervalued, Fraudulent, and Extortionate (PUFE) transactions. Subsequently, the CoC approved M/s GSA & Associates to conduct a Forensic Audit (GSA Report) for the period between 01.04.2012 and 31.03.2015.
Meanwhile, Bank of Baroda, a financial creditor, issued a Show Cause Notice on 13.03.2020 to MBIL's erstwhile directors, including the petitioner, based primarily on the GSA Report, to explain why they should not be declared 'wilful defaulters'. The Identification Committee of Bank of Baroda declared Mrs. Nita Puri and Mr. Ratul Puri (ex-directors of MBIL) as 'Wilful Defaulters' on 19.08.2022, which was affirmed by the Review Committee on 23.03.2023.
This declaration was challenged before the High Hon’ble Court in Ratul Puri vs. Bank of Baroda (the "BOB judgment"), where, on 29.02.2024, a coordinate Bench set aside the wilful defaulter declaration, noting that banks should have investigated fraud before admitting MBIL into CDR without onerous conditions. An appeal against the BOB judgment was dismissed by the Division Bench on 08.08.2024. Separately, in Ratul Puri vs. State Bank of India (the "SBI judgment") on 20.03.2023, SBI undertook not to act on the Review Committee's findings, and the wilful defaulter proceedings were dropped, with no appeal filed.
The petitioner's grievance is that despite these judicial findings, including the binding BOB judgment, the impugned SFIO investigation order of 05.09.2024 was issued, relying upon the very same forensic audit reports. The petitioner contends that this investigation may prejudice her rights and interests.
(ii) Submissions of the Parties
Submissions on behalf of the Petitioner:
• The petitioner contended that the impugned order is ultra vires Section 212 of the Companies Act, 2013, as it fails to comply with statutory prerequisites, drawing upon the Bombay High Hon’ble Court's judgment in Parmeshwar Das Agarwal & Ors. vs. The Additional Director (Investigation) Serious Fraud Investigation Office & Ors.. This precedent mandates that an order under Section 212(1)(c) must reflect the necessity of investigation in public interest and justify SFIO's involvement.
• It was submitted that the impugned order is predicated on a fundamentally flawed assumption that the GSA and Sikdar forensic audit reports revealed "preferential, undervalued, extortionate and fraudulent transactions" (PUFE). The petitioner argued that the audit reports themselves do not support this factual premise.
• Therefore, the formation of "opinion" for Section 212(1)(c) is vitiated because it was based on "non-existence" of relevant circumstances, and the existence of such circumstances is subject to judicial review. Reliance was placed on Supreme Hon’ble Court judgments in Barium Chemicals Limited, Rohtas Industries, and Rampur Distillery, along with Parmeshwar Das Agarwal.
• The impugned order also suffers from a material infirmity due to the non-consideration of the BOB judgment dated 29.02.2024, which dealt with an identical factual context involving the same company and has a direct bearing on the current proceedings. The SBI judgment dated 20.03.2023 was also cited as similarly relevant.
• Finally, the petitioner submitted that the respondent's counter-affidavit seeks to furnish additional reasons to justify the impugned order, which, in light of Supreme Hon’ble Court precedents (e.g., *Mohinder Circular, not the SFIO's statutory functions.
• It was emphasized that procedural irregularities, if any, by Bank of Baroda in pursuing its legal remedies cannot prejudice or constrain the SFIO's exercise of its statutory functions.
• The respondent contended that the BOB judgment did not quash the GSA Report, and merely setting aside a 'wilful defaulter' declaration does not preclude an SFIO investigation into other aspects of the company's affairs. Similarly, the limited timeframe of the Sikdar Report should not foreclose the proposed SFIO investigation's scope.
• In response to a Hon’ble Court query, it was categorically contended that the findings/reasons recorded in Para 2(a) to 2(g) of the impugned order dated 05.09.2024 are based on the Sikdar Report and GSA Report, providing specific page numbers.
• Lastly, the respondent argued that no prejudice would be caused to the petitioner by a comprehensive investigation into MBIL's affairs.
(iii) Observations of the Hon'ble Hon’ble Court of circumstances relevant for forming an opinion under Section 212(1)(c) must be "demonstrable"** and that an order under Section 212 must clearly articulate the "necessity of investigation by SFIO" and disclose the relevant circumstances. The impugned order failed to do so.
• Non-Conduct of Mandated Inquiry/Inspection: A crucial inquiry under Section 206(4) of the Companies Act, 2013, was ordered in 2018, recommending an inspection of books under Section 206(5). The Hon’ble Court noted "absolute silence" in both the impugned order and the respondent's counter-affidavit regarding whether such an inspection was conducted or its outcome, which "exacerbates the legal lacuna". The Hon’ble Court found it "incomprehensible" why the Central Government was remiss in conducting an independent inspection despite the recommendation.
• Apparent False/Mis-statement in the Impugned Order: The Hon’ble Court observed that the impugned order wrongly recorded that the forensic audit reports (GSA Report and Sikdar Report) identified "Preferential, Undervalued, Fraudulent, and Extortionate (PUFE) transactions".
◦ Upon examining the actual reports, the Hon’ble Court found this assertion "factually inaccurate and inconsistent". Specifically, the Sikdar Report "expressly negated the existence of any PUFE transactions".
◦ The GSA Report also did not conclude the existence of PUFE transactions; it explicitly stated that its review period did not present opportunities for diversion of funds and that it could not comment on fraudulent transactions from periods prior to its review.
◦ The Hon’ble Court concluded that this "demonstrates that in material respect/s, the impugned order/formation of opinion for the purpose of Section 212(1)(c), is based on 'non-existent' circumstances". The Hon’ble Court highlighted the consistent legal position that, while the formation of opinion is subjective, the existence of the circumstances forming its basis must be "demonstrable" and objectively established.
• Wholesale Disregard of Binding Judicial Pronouncements: The Hon’ble Court found it "unable to countenance a situation" where the SFIO Investigation was initiated without considering the BOB judgment dated 29.02.2024 and its subsequent appeal dismissal dated 08.08.2024.
◦ The BOB judgment had "categorically held" that the reliance on the GSA Forensic Audit Report was "misconceived" because it did not verify the source of funds for investments in subsidiaries and did not record any conclusion regarding diversion or siphoning of funds.
◦ Furthermore, the Division Bench, in dismissing the appeal, made "scathing observations" regarding the credibility of the forensic audit reports and stated that they could not be relied upon in "any cognate proceedings".
◦ The Hon’ble Court held that the non-consideration of these judicial pronouncements amounted to a failure to take into account "relevant circumstances" crucial for forming an opinion under Section 212(1)(c).
• Inadmissibility of Additional Reasons: The Hon’ble Court reiterated the settled legal position that the validity of a statutory order must be judged by the reasons stated within the order itself and cannot be supplemented by additional reasons supplied in a counter-affidavit. The respondent's attempt to furnish additional grounds in the counter-affidavit actually "corroborate[d] the point that the respondent was remiss in taking note of all 'relevant circumstances'".
Conclusion: The Hon’ble Court emphasized that an SFIO Investigation order is an "extremely serious statutory action having grave consequences" and requires "due application of mind" and consideration of "all relevant circumstances". The impugned order, appearing to be issued in a "casual manner" and "unmindful of the statutory pre-requisites," failed to withstand legal scrutiny.
Consequently, the High Hon’ble Court, on August 28, 2025, quashed the impugned order dated 05.09.2024 and all consequential proceedings pursuant thereto.
Frequently Asked Questions
What is the core issue being debated in this legal case?
The central dispute revolves around the validity of an order issued by the Ministry of Corporate Affairs, Government of India, directing the Serious Fraud Investigation Office (SFIO) to investigate Moser Baer India Ltd. (MBIL) and its associated companies. The petitioner, an ex/suspended director of MBIL, challenges this order, arguing that it was issued without proper legal justification and based on flawed premises, including misinterpretations of previous audit reports and a disregard for earlier judicial findings.
What are the legal grounds on which the petitioner is challenging the SFIO investigation order?
The petitioner's primary arguments for challenging the SFIO order are multifaceted:
Ultra Vires to Section 212 of the Companies Act, 2013: The petitioner contends that the order fails to comply with statutory prerequisites under Section 212(1)(c) of the Act, which mandates that such an order must demonstrably reflect the necessity of investigation in public interest and provide reasons for SFIO's involvement. The impugned order allegedly lacks this specific justification for SFIO's role.
Flawed Premise Regarding Forensic Audit Reports: The order is based on the assumption that forensic audit reports (Sikdar Report and GSA Report) revealed "Preferential, Undervalued, Fraudulent and Extortionate" (PUFE) transactions. However, the petitioner argues that a close examination of these reports shows no such adverse findings; in fact, the Sikdar Report explicitly negated the existence of PUFE transactions, and the GSA Report did not reach such conclusions for the period it reviewed.
Non-Existence of Demonstrable Circumstances: The "opinion" formed by the Central Government for the investigation is vitiated because it relies on non-existent circumstances. Legal precedent, particularly in cases like Barium Chemicals Limited and Rohtas Industries, establishes that while the government's opinion may be subjective, the existence of the circumstances forming the basis of that opinion must be objectively demonstrable and subject to judicial review.
Disregard of Prior Judicial Findings: The impugned order allegedly failed to consider two crucial High Court judgments (Ratul Puri vs. Bank of Baroda (BOB judgment) and Ratul Puri vs. State Bank of India & Anr. (SBI judgment)). These judgments, dealing with similar factual contexts and the same audit reports, had set aside declarations of "wilful defaulter" against ex-directors of MBIL, effectively questioning the reliability and conclusions drawn from these forensic reports.
What were the findings of the earlier forensic audits commissioned for Moser Baer India Ltd.?
Two key forensic audits were commissioned for MBIL:
Kashyap Sikdar & Co. (Sikdar Report): This audit covered financial years 2015-2016, 2016-2017, and part of 2017-2018. Its primary aim was to ascertain instances of financial irregularities, specifically Preferential, Undervalued, Fraudulent, and Extortionate (PUFE) transactions under the Insolvency and Bankruptcy Code, 2016. Crucially, the Sikdar Report revealed no adverse findings regarding any PUFE transactions. It explicitly stated that no such transactions were identified.
M/s GSA & Associates (GSA Report): This audit covered the period between April 1, 2012, and March 31, 2015. While the impugned SFIO order claimed it identified PUFE transactions, the GSA Report itself concluded that "the period of our review did not present an opportunity for any diversion of funds" and that most transactions related to assets and leases were prior to their review, preventing comments on fraudulent or extortionate transactions.
Both reports, contrary to the assertions in the impugned SFIO order, did not conclusively establish the existence of PUFE transactions or diversion of funds by MBIL during their respective review periods.
How do previous court judgments, particularly the BOB and SBI judgments, relate to the current SFIO investigation?
The BOB and SBI judgments are highly relevant because they dealt with similar allegations against MBIL's ex-directors, primarily based on the same forensic audit reports (GSA Report and Sikdar Report) that underpin the current SFIO investigation.
BOB Judgment (Ratul Puri vs. Bank of Baroda): This judgment, affirmed by a Division Bench, set aside the declaration of MBIL's ex-directors as "wilful defaulters" by Bank of Baroda. The court found material irregularities in the bank's procedure and critically examined the GSA Forensic Audit Report. It concluded that the report did not verify the source of funds for investments in subsidiaries, and thus could not form the basis for alleging "diversion" or "siphoning of" borrowed funds as required for a "wilful defaulter" declaration. The Division Bench even doubted the overall credibility of the forensic audit reports for "cognate proceedings."
SBI Judgment (Ratul Puri vs. State Bank of India & Anr.): In this case, SBI dropped wilful defaulter proceedings against Ratul Puri, indicating a similar lack of robust grounds for such a declaration.
The petitioner argues that the impugned SFIO order failed to consider these binding judicial pronouncements, which had already cast significant doubt on the very reports now being used to justify a new investigation.
What is the significance of "formation of opinion" under Section 212(1)(c) of the Companies Act, 2013, and how does it apply here?
Section 212(1)(c) of the Companies Act, 2013, grants the Central Government the power to order an investigation by the SFIO if it forms an "opinion" that such an investigation is necessary, for example, in the public interest. While this "opinion" is considered subjective, legal precedent (like Barium Chemicals Limited and Rohtas Industries) dictates that the existence of circumstances relevant to forming this opinion must be objectively demonstrable and not merely assumed.
In this case, the court found that the Central Government's opinion was flawed because it was based on an "apparent false / mis-statement" regarding the findings of the GSA and Sikdar Reports. The order wrongly asserted that these reports identified PUFE transactions, which was demonstrably untrue from the reports themselves. This "non-existence of demonstrable circumstances" directly vitiated the formation of the required opinion under Section 212(1)(c).
Why did the court find the "cut and paste" of findings from the Sikdar Report problematic in the impugned order?
The court found the direct lifting of paragraphs from the Sikdar Report into the impugned order "disconcerting" for several reasons:
Disclaimer in Sikdar Report: The Sikdar Report itself contained an express disclaimer stating that it was prepared on a "test check basis," was not an audit or an expression of opinion on financial statements, and was meant solely for a limited mandate. Presenting these sections as conclusive findings in the SFIO order disregarded the inherent limitations of the original report.
Failure to Conduct Independent Inspection: Despite an earlier inquiry recommending an inspection under Section 206(5) of the Companies Act, 2013, the Central Government apparently did not conduct such an inspection. Relying solely on a limited-scope, disclaimed report without its own comprehensive investigation was deemed a significant legal lacuna.
Non-Consideration of Judicial Pronouncements: The "cut and paste" approach meant the impugned order failed to factor in the judicial treatment and critical observations made in the BOB judgment concerning the very same Sikdar Report and GSA Report. This indicated a failure to consider "relevant circumstances" for forming an opinion.
Essentially, the mechanical reproduction of parts of the report without acknowledging its limitations or the impact of prior judicial scrutiny showed a lack of due application of mind by the Central Government.
Why were additional reasons provided by the respondent in their counter-affidavit disregarded by the court?
The court disregarded the additional reasons and grounds provided by the respondent in their counter-affidavit to justify the impugned order, citing established legal principles. The Supreme Court's judgments in cases like Mohinder Singh Gill & Another and Opto Circuit India Ltd. clearly state that:
Validity judged by stated reasons: The validity of a statutory order must be judged solely by the reasons explicitly mentioned within the order itself, not by new justifications provided later in affidavits or other submissions.
Orders are not "old wine": Allowing subsequent justifications would permit an order that was initially flawed to be retroactively validated, which is contrary to legal principles. Orders do not improve with age or by the addition of post-hoc rationalizations.
Therefore, the court held that any new grounds offered by the respondent could not retrospectively fix the deficiencies in the original impugned order.
What are the key takeaways regarding the proper exercise of power under Section 212(1)(c) for SFIO investigations?
The judgment highlights several critical aspects for the proper exercise of power under Section 212(1)(c) of the Companies Act, 2013:
Demonstrable Circumstances are Paramount: While the Central Government's "opinion" is subjective, the underlying circumstances forming that opinion must be objectively existing and "demonstrable." Vague or non-existent grounds are insufficient.
Mandatory Disclosure of Necessity: The order must clearly articulate the "necessity of investigation by SFIO" and provide specific reasons for assigning it to this specialized agency, not just a general need for investigation.
Due Application of Mind: The Central Government must apply its mind diligently, considering all relevant circumstances, including previous audit reports, their limitations, and any binding judicial pronouncements related to the company or the audit findings. Wholesale disregard of such material renders the opinion flawed.
Avoidance of Misstatements and Extrapolations: Orders should not contain factual misstatements or wrongly attribute conclusions to source documents. Relying on "cut and pasted" information without proper analysis, especially from reports with disclaimers, indicates a lack of deliberation.
SFIO Investigation is a Serious Action: An SFIO investigation is not a routine administrative step but a "serious statutory action having grave consequences." Therefore, the power must be exercised with "circumspection and deliberation," not in a "casual or perfunctory manner."
Procedural Propriety: Adherence to the statutory scheme, including conducting necessary preliminary inquiries and inspections (like under Section 206), is crucial. Abandoning recommended statutory courses without explanation can exacerbate legal deficiencies.
