Ordered investigation and the SFIO (ss.210–212): the triggers, the single-agency rule, and the bail bar

A Registrar's report points to a fraud; members pass a special resolution under section 114(2) asking for a probe; a ministry flags a scam. Sections 210 to 212 of the Companies Act 2013 turn those sparks into ordered investigations, either by inspectors appointed by the Central Government or by the Serious Fraud Investigation Office (SFIO). Once a case is assigned to the SFIO, other agencies step back on offences under the Act. For offences covered by s.447 (fraud), bail depends on tests set by s.212(6). A board should know how these sections fit together.

Legal basis: Companies Act 2013, ss.210–212, read with s.217 and s.229.

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The three triggers and the one mandatory case: s.210

Section 210(1) applies where the Central Government is of the opinion that it is necessary to investigate the affairs of a company. The three triggers are:

(a) "on the receipt of a report of the Registrar or inspector under section 208";
(b) "on intimation of a special resolution passed by a company that the affairs of the company ought to be investigated"; or
(c) "in public interest".

On any of these the Government "may order an investigation into the affairs of the company" (s.210(1)). The power is discretionary.

Section 210(2) removes the discretion in one case: "Where an order is passed by a court or the Tribunal in any proceedings before it that the affairs of a company ought to be investigated, the Central Government shall order an investigation into the affairs of that company." A judicial direction therefore binds the Government.

Section 210(3) lets the Central Government "appoint one or more persons as inspectors to investigate into the affairs of the company and to report thereon in such manner as the Central Government may direct".

Where the Registrar's report comes from: ss.206 and 208

Trigger (a) points back to s.208. Under s.208, after inspecting books of account or making an inquiry under s.206, and examining other books and papers under s.207, the Registrar or inspector "shall … submit a report in writing to the Central Government". That report "may, if necessary, include a recommendation that further investigation into the affairs of the company is necessary giving his reasons in support" (s.208).

Section 206(1) allows the Registrar, where he thinks further information, explanation or documents are necessary, to require them by written notice "within such reasonable time, as may be specified in the notice". Section 206(2) makes it the "duty of the company and of its officers concerned to furnish such information or explanation to the best of their knowledge and power and to produce the documents" within the time specified or extended by the Registrar. Under the proviso to s.206(2), officers who were in the company's employment during a past period, if called upon by written notice, "shall also furnish such information or explanation to the best of their knowledge".

The practical point is straightforward. Replies to a Registrar's notice are the material from which a s.208 report is written. A company that treats s.206 notices as routine correspondence should expect that its replies, and any gaps in them, may be read by whoever receives the report. Answer on time, in writing, and keep a copy of every notice and every reply.

The SFIO: who it is and who staffs it

Section 211(1) requires the Central Government, by notification, to "establish an office to be called the Serious Fraud Investigation Office to investigate frauds relating to a company". The proviso to s.211(1) says that until the office is established under that sub-section, the SFIO set up under the Government of India Resolution No. 45011/16/2003-Adm-I dated 2 July 2003 "shall be deemed to be the Serious Fraud Investigation Office" for the purpose of the section.

Section 211(2) says the SFIO "shall be headed by a Director and consist of such number of experts" as the Central Government appoints "from amongst persons of ability, integrity and experience in" seven named fields plus a residual one:

(i) banking;
(ii) corporate affairs;
(iii) taxation;
(iv) forensic audit;
(v) capital market;
(vi) information technology;
(vii) law; or
(viii) "such other fields as may be prescribed".

The mix of fields shows the kind of work the office is built for: following money through banks, tax records, market dealings and electronic systems.

The Director is appointed by notification and must be "an officer not below the rank of a Joint Secretary to the Government of India having knowledge and experience in dealing with matters relating to corporate affairs" (s.211(3)). The Government may appoint further experts, officers and employees as it considers necessary (s.211(4)). Their terms of service are as prescribed (s.211(5)).

Assignment to the SFIO: the extra trigger and the single-agency rule

Section 212(1) opens "without prejudice to the provisions of section 210". It applies where the Central Government is of the opinion that it is necessary to investigate the affairs of a company by the SFIO. The four triggers are:

(a) on receipt of a report of the Registrar or inspector under s.208;
(b) on intimation of a special resolution passed by a company that its affairs are required to be investigated;
(c) in the public interest; or
(d) "on request from any Department of the Central Government or a State Government".

The first three mirror s.210(1). The fourth is the addition: a department's request can itself be the ground for assignment, with no Registrar report or member resolution needed. On any of these the Central Government "may, by order, assign the investigation into the affairs of the said company to the Serious Fraud Investigation Office", and inspectors may be designated as the section provides (s.212(1)).

Section 212(2) sets the exclusivity rule. Where a case is assigned to the SFIO, "no other investigating agency of Central Government or any State Government shall proceed with investigation in such case in respect of any offence under this Act". If such an investigation has already begun, "it shall not be proceeded further with and the concerned agency shall transfer the relevant documents and records in respect of such offences under this Act" to the SFIO. Note the limit in the words: the rule bites on offences under the Companies Act. It does not, by its terms, address offences under other laws.

Section 212(3) says the SFIO conducts the investigation "in the manner and follow[s] the procedure provided in this Chapter" and submits its report to the Central Government "within such period as may be specified in the order". Section 212(11) adds that if the Central Government so directs, the SFIO shall submit an interim report.

Powers and the duty to cooperate: s.212(4)–(5) and s.229

The Director causes the company's affairs to be investigated by an Investigating Officer "who shall have the power of the inspector under section 217" (s.212(4)).

Section 212(5) puts a duty on the company and its people: "The company and its officers and employees, who are or have been in employment of the company shall be responsible to provide all information, explanation, documents and assistance to the Investigating Officer as he may require for conduct of the investigation." Former employees are expressly covered, so leaving the company does not end the duty.

Section 229 sets out what must not be done. A person required to provide an explanation or make a statement during an inspection, inquiry or investigation, or an officer or employee of a company or body corporate under investigation, is "punishable for fraud in the manner as provided in section 447" if he:

(a) destroys, mutilates, falsifies, conceals, tampers with or unauthorisedly removes documents relating to the property, assets or affairs of the company, or is a party to any of these;
(b) makes, or is a party to making, a false entry in any document concerning the company; or
(c) provides an explanation which is false or which he knows to be false.

An investigation can therefore create fresh exposure through how a person behaves during it, quite apart from the matters under inquiry.

Bail, arrest and cognizance: s.212(6)–(10)

Section 212(6) applies "notwithstanding anything contained in the Code of Criminal Procedure, 1973". The offence covered under s.447 "shall be cognizable", and no person accused of any offence under those sections "shall be released on bail or on his own bond unless" two things are met:

the Public Prosecutor has been given an opportunity to oppose the application for release; and
where the Public Prosecutor opposes the application, the court is satisfied "that there are reasonable grounds for believing that he is not guilty of such offence and that he is not likely to commit any offence while on bail".

So the prosecutor must be heard and, if the prosecutor opposes, the court must be satisfied on both limbs before bail is granted. This is stricter than ordinary bail.

The first proviso softens the rule for particular persons: one "who, is under the age of sixteen years or is a woman or is sick or infirm, may be released on bail, if the Special Court so directs".

The second proviso is on procedure: the Special Court "shall not take cognizance of any offence referred to [in] this sub-section except upon a complaint in writing" made by the Director of the SFIO or by an officer of the Central Government authorised in writing by general or special order.

Section 212(7) clarifies that the bail limitation is "in addition to the limitations under the Code of Criminal Procedure, 1973 … or any other law for the time being in force".

Arrest is dealt with in s.212(8) to (10). An officer of the SFIO not below the rank of Assistant Director, authorised by the Central Government, who has material giving reason to believe (recorded in writing) that a person is guilty of an offence punishable under the sections referred to in s.212(6), may arrest that person and must inform him of the grounds as soon as may be (s.212(8)). The arrested person must be taken within twenty-four hours to a Special Court or Judicial Magistrate or a Metropolitan Magistrate having jurisdiction, excluding the time necessary for the journey from the place of arrest (s.212(10)).

s.210 inspector or SFIO: reading the order

Sections 210 and 212 overlap by design, and an order under either is a formal act of the Central Government. The Act does not state a rule for which route the Government should choose in a given case. A board that receives an order should read it closely for three things: which section it is made under, who is named to investigate, and what reporting period it sets. Those details decide which provisions govern what follows: s.217 powers for inspectors, the s.212(2) one-agency rule, and the bail regime if s.447 offences are charged.

A worked scenario

Take an illustrative case. A company's new board finds that the previous promoters diverted funds. The members pass a special resolution under section 114(2) and intimate the Central Government that the company's affairs are required to be investigated (s.212(1)(b)). The Central Government assigns the investigation to the SFIO by order. A state agency's earlier inquiry into offences under the Companies Act in the same matter must stop and its documents and records on those offences are transferred to the SFIO (s.212(2)). Former finance staff are bound to give information and documents when the Investigating Officer requires them (s.212(5)). The SFIO reports within the period in the order (s.212(3)). If s.447 offences are charged, bail applications face the conditions in s.212(6).

Separately, members who face oppression or mismanagement can apply to the Tribunal under s.241. The Act does not make the two routes alternatives: s.210(2) itself contemplates a Tribunal order leading to an investigation. This scenario is for illustration only; real orders turn on their own wording.

What to do now

Next step. If a Registrar's notice under s.206 or an order under s.210 or s.212 has arrived, collect the notice or order, note who signed it and under which section, and compile the documents it asks for. A notice under s.206 must be answered "within such reasonable time, as may be specified in the notice" (s.206(1)).
Deadline. The Act sets no single deadline for cooperating with an Investigating Officer. The deadline for the report itself is the period "specified in the order" (s.212(3)), and the Registrar's notice sets its own time (s.206(1)). Read the notice or order for the actual dates.
Consequence. Officers and employees, present and former, are "responsible to provide all information, explanation, documents and assistance" (s.212(5)). Destroying, falsifying or concealing documents, or giving a false explanation, is punishable as fraud under s.447 (s.229).
Preserve records. Do not alter, remove or discard any document that could relate to the matter.

Have a CA review your facts before you act or file.

Frequently asked questions

What triggers a Central Government investigation?
A report of the Registrar or inspector under s.208, intimation of a special resolution of the company, or public interest (s.210(1)). The power is discretionary, but where a court or the Tribunal orders that a company's affairs ought to be investigated, the Central Government "shall order an investigation" (s.210(2)).

Who staffs the SFIO?
A Director not below the rank of Joint Secretary to the Government of India, plus experts in banking, corporate affairs, taxation, forensic audit, capital market, information technology, law, or other prescribed fields (s.211(2)–(3)).

What does s.212 add beyond s.210?
A fourth trigger, a request from any Department of the Central Government or a State Government (s.212(1)(d)), and the rule that other investigating agencies stop on offences under the Act once a case is assigned (s.212(2)).

Must former employees cooperate?
The duty in s.212(5) extends to employees "who are or have been in employment of the company". The Investigating Officer has the power of an inspector under s.217 (s.212(4)).

Why is bail harder for s.447 offences?
The offence is cognizable, and the Public Prosecutor must be given an opportunity to oppose bail. If the prosecutor opposes, the court must be satisfied there are reasonable grounds for believing the accused is not guilty and not likely to offend while on bail (s.212(6)). A person under sixteen, a woman, or a sick or infirm person may be released if the Special Court so directs.

Does an investigation replace the members' Tribunal remedies?
The Act does not say so. Section 241 allows a member to apply to the Tribunal in cases of oppression or prejudicial conduct, and s.210(2) deals with a court or Tribunal order that a company's affairs ought to be investigated.

How long does the SFIO get?
The period specified in the order of assignment (s.212(3)). The Central Government may also direct an interim report (s.212(11)).

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