Telangana High Court
Karvy Stock Broking Limited vs The Union Of India And 5 Others on 31 December, 2021Bench: Satish Chandra Sharma, N.Tukaramji
THE HON’BLE THE CHIEF JUSTICE SATISH CHANDRA SHARMA
AND
THE HON’BLE SRI JUSTICE N. TUKARAMJI
WRIT APPEAL Nos.327 AND 328 OF 2020
COMMON JUDGMENT: (Per the Hon’ble the Chief Justice Satish Chandra Sharma)
Both the writ appeals are arising out of a common
Order and as the issue involved in both the writ appeals is
one and the same, they are being disposed of by this
common order.
2. The present writ appeals are arising out of a common
order dated 26.08.2020, passed in W.P.Nos.5024 and 8997
of 2020 by the learned Single Judge dismissing the writ
petitions.
3. The facts of the case reveal that the appellant/
petitioner is a company registered under the Companies
Act with the Registrar of Companies, Hyderabad and its
main object is to carry out the business as a registered
stock broker and a depository participant. The undisputed
facts of the case reveal that the second respondent/
Director General, Ministry of Corporate Affairs, through its
Joint Director in exercise of powers conferred under
Section 212(1)(a) and (c) of the Companies Act, 2013
ordered investigation into the affairs of the appellant
company, vide Order dated 27.02.2020 and in pursuance
of the Order dated 27.02.2020, the investigation officer
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issued notice dated 16.06.2020 under Section 217 of the
Companies Act calling for certain information and vide
communication dated 19.06.2020 intimated the appellant
company to strictly comply with notice under Section 217
of the Companies Act with default clause. The appellant
company preferred a writ petition i.e., W.P.No.5024 of 2020
challenging the Order, dated 27.02.2020 passed by the
second respondent under Section 212(1) (a) and (c) of the
Companies Act, and filed another writ petition i.e.,
W.P.No.8997 of 2020 challenging the notices dated
16.06.2020 and 19.06.2020, issued under Section 217 of
the Companies Act.
4. The facts of the case further reveal that on
22.11.2019, the National Stock Exchange (NSE) has
reported to the Securities and Exchange Board of India
(SEBI), the findings of an inspection and forensic audit
conducted by the NSE in respect of the activities of the
appellant company and the same revealed many
misconducts on the part of the appellant company
including the unauthorised pledging of client securities
and transfer of funds raised from the above to the related
parties, stock lending scheme carried out by the company
and deletion of files and emails from the systems of Mr.
C.Parthasarthy, Chairman and Managing Director of the
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appellant company as well as certain other employees,
using anti-forensic tools. The SEBI vide its ex parte ad
interim order, dated 22.11.2019 issued various directions
relating to the appellant company. The SEBI prohibited the
appellant company from taking new clients for broking
activities, directed the depositories, namely National
Securities Depository Limited (NSDL) and Central
Depository Services Limited (CDSL) not to act upon on the
instructions of the appellant company in pursuance of
Power of Attorney and also restricted transfer of securities
from one DP account of the appellant company.
5. The facts further reveal that there were complaints
from the investors and continuous reporting in press and
visual media about the fraudulent activities of the
appellant company and in those circumstances, the
Inquiry was ordered under Section 206 of the Companies
Act by the Registrar of Companies.
6. The statutory provisions, namely Sections 206, 208,
210 and 212 (1) of the Companies Act, which are necessary
for adjudication of the present writ appeals, are reproduced
as under:-
“206. Power to call for information, inspect books and
conduct inquiries. — (1) Where on a scrutiny of any
document filed by a company or on any information
received by him, the Registrar is of the opinion that any
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further information or explanation or any further
documents relating to the company is necessary, he may
by a written notice require the company–
(a) to furnish in writing such information or explanation;
or
(b) to produce such documents,
within such reasonable time, as may be specified in the
notice.
(2) On the receipt of a notice under sub-section (1), it
shall be 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 to the Registrar within the time specified or
extended by the Registrar:
Provided that where such information or explanation
relates to any past period, the officers who had been in the
employment of the company for such period, if so called
upon by the Registrar through a notice served on them in
writing, shall also furnish such information or explanation
to the best of their knowledge.
(3) If no information or explanation is furnished to the
Registrar within the time specified under sub-section (1) or
if the Registrar on an examination of the documents
furnished is of the opinion that the information or
explanation furnished is inadequate or if the Registrar is
satisfied on a scrutiny of the documents furnished that an
unsatisfactory state of affairs exists in the company and
does not disclose a full and fair statement of the
information required, he may, by another written notice,
call on the company to produce for his inspection such
further books of account, books, papers and explanations
as he may require at such place and at such time as he
may specify in the notice:
Provided that before any notice is served under this sub-
section, the Registrar shall record his reasons in writing for
issuing such notice.
(4) If the Registrar is satisfied on the basis of information
available with or furnished to him or on a representation
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made to him by any person that the business of a company
is being carried on for a fraudulent or unlawful purpose or
not in compliance with the provisions of this Act or if the
grievances of investors are not being addressed, the
Registrar may, after informing the company of the
allegations made against it by a written order, call on the
company to furnish in writing any information or
explanation on matters specified in the order within such
time as he may specify therein and carry out such inquiry
as he deems fit after providing the company a reasonable
opportunity of being heard:
Provided that the Central Government may, if it is
satisfied that the circumstances so warrant, direct the
Registrar or an inspector appointed by it for the purpose to
carry out the inquiry under this sub-section:
Provided further that where business of a company has
been or is being carried on for a fraudulent or unlawful
purpose, every officer of the company who is in default
shall be punishable for fraud in the manner as provided in
section 447.
(5) Without prejudice to the foregoing provisions of this
section, the Central Government may, if it is satisfied that
the circumstances so warrant, direct inspection of books
and papers of a company by an inspector appointed by it
for the purpose.
(6) The Central Government may, having regard to the
circumstances by general or special order, authorise any
statutory authority to carry out the inspection of books of
account of a company or class of companies.
(7) If a company fails to furnish any information or
explanation or produce any document required under this
section, the company and every officer of the company, who
is in default shall be punishable with a fine which may
extend to one lakh rupees and in the case of a continuing
failure, with an additional fine which may extend to five
hundred rupees for every day after the first during which
the failure continues.”
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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.
210. Investigation into affairs of company:- (1) Where
the Central Government is of the opinion, that it is
necessary to investigate into the affairs of a company,-
(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,
it may order an investigation into the affairs of the
company.
(2) 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.
(3) For the purposes of this section, the Central
Government may 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.
212. Investigation into affairs of Company by Serious
Fraud Investigation Office:- (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-
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(a) on receipt of a report of the Registrar of inspector
under Section 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 Central Government may, by order, assign the
investigation into the affairs of the said company to the
Serious Fraud Investigation Office and its Director, may
designate such number of inspectors, as he may consider
necessary for the purpose of such investigation.”
7. In the light of the aforesaid statutory provisions, the
respondent No.6/Assistant Registrar of Companies issued
a letter dated 03.12.2019 calling for certain information of
the appellant company with regard to the current status
and investigation of SEBI and the action taken against the
appellant company and its group companies and in
pursuance of the same, the appellant company submitted
its reply on 13.12.2019. The facts further reveal that the
respondent No.6/Assistant Registrar of Companies issued
a notice on 14.01.2020 under Section 206(1) of the
Companies Act calling upon the appellant company to
furnish some more information and documents within
seven days of receipt of such notice and the appellant
company sought four weeks time vide letter dated
22.01.2020 but time was not granted to the appellant
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company and another notice dated 27.01.2020 under
Section 206(3) of the Companies Act was issued to the
appellant company to furnish original documents/registers
maintained by the appellant company. It has been stated
that the officers of the appellant company were physically
present on 27.01.2020 and submitted a preliminary reply
and sought time to submit some more documents and also
prayed for grant of opportunity of personal hearing. The
appellant company at that point of time preferred again a
writ petition, i.e., W.P.No.3143 of 2020 before this Court
stating that they were not given time to respond to the
letter dated 14.01.2020 and therefore, the action of the
respondents is bad in law. In the aforesaid case, the
learned Assistant Solicitor General appeared in the matter
and categorically stated that the respondents will take into
account the explanation submitted by the appellant
company and shall proceed with the enquiry in accordance
with law. The writ petition was disposed of in view of the
statement made by the learned Assistant Solicitor General,
vide order dated 14.02.2020.
8. The appellant company thereafter requested the
respondents vide letter dated 20.02.2020 stating that an
opportunity of hearing be granted to the appellant
company and as allegedly no response was received, the
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appellant company preferred another writ petition,
i.e., W.P.No.4742 of 2020 and in the aforesaid case, it was
brought to the notice of this Court that based upon the
Inquiry Report dated 24.02.2020 submitted by the
Registrar of Companies, the Office of the Director General
has passed an Order dated 27.02.2020 directing
investigation into the affairs of the appellant company
under Section 212 (1)(a) and (c) of the Companies Act.
9. Aggrieved by the aforesaid order, the appellant
company preferred another writ petition, i.e., W.P.No.5024
of 2020. The respondents have also issued notices under
Section 217 of the Companies Act dated 16.06.2020 and
19.06.2020 and against the aforesaid notices, the
appellant company preferred another writ petition, i.e.,
W.P.No.8997 of 2020.
10. Learned counsel for the appellant/petitioner company
has vehemently argued before this Court that the appellant
company has not been granted an opportunity as provided
under Section 206(4) of the Companies Act and a Report
was submitted by the Registrar of Companies without
granting an opportunity to the appellant company and
therefore, the order dated 27.02.2020 deserves to be
quashed. Another ground raised by the appellant company
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is that the Central Government has not formed any opinion
based upon the Report submitted by the Registrar of
Companies as required under Section 210 of the
Companies Act and therefore, the order passed by the
Central Government is bad in law. The appellant/petitioner
company has prayed for the following reliefs in the writ
petitions:-
“W.P.No.5024 of 2020:-
Petition under Article 226 of the Constitution of India
praying that in the circumstances stated in the affidavit
filed therewith, the High Court may be pleased to
(i) Issue writ of mandamus or any other appropriate
writ, order or direction declaring that the action of
respondent No.2 in issuing order dated 27.02.2020
is in contravention of the provisions of the
Companies Act, 2013 and is illegal, arbitrary and
unconstitutional.
(ii) Issue writ of mandamus or any other appropriate
writ, order or direction restraining the Respondents
and their agents/officers from taking any coercive
steps including investigation under Section 212 of
the Companies Act, 2013, without following the
procedures under Sections 206 to 208 of the
Companies Act, 2013, without awaiting the final
decision of SEBI.
W.P.No.8997 of 2020:-
Petition under Article 226 of the Constitution of India
praying that in the circumstances stated in the affidavit
filed therewith, the High Court may be pleased to
(i) Issue writ of mandamus or any other appropriate
writ, order or direction declaring that the action of
respondent No.3 in issuing Notice
No.SFIO/INV/UNIT-II/11214-223/KSBL/2020/1/
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19889/2020, dated 16/06/2020, Notice No.SFIO/
INV/UNIT-II/1214-1223/KSBL/2020/1/19930/
2020, dated 19/06/2020, is in contravention of the
provisions of the Companies Act, 2013 and is
illegal, arbitrary and unconstitutional and
consequently set aside the Notice
No.SFIO/INV/UNIT-II/11214-223/KSBL/2020/1/
19889/2020, dated 16/06/2020, Notice No.SFIO/
INV/UNIT-II/1214-1223/KSBL/2020/1/19930/
2020,
(ii) Issue writ of mandamus or any other appropriate
writ, order or direction restraining the Respondents
and their agents/officers from taking any coercive
steps against the petitioner, pending W.P.No.5024
of 2020 before this Hon’ble Court.”
11. The learned Single Judge has dismissed the writ
petitions by a Common Order dated 26.08.2020 and
relevant portion is reproduced as under:-
“81. In the light of these allegations, the 5th
respondent initiated inquiry under Section 206 of the Act
and issued notices and the petitioner also filed a detailed
reply dated 03.02.2020 and at during that stage, the 2nd
respondent vide order dated 10.01.2020 directed the 5th
respondent to conduct full-fledged inquiry under Section
206(4) of the Act and submit report. And this court vide
order dated 14.02.2020 directed the respondents to
conclude the inquiry under Section 206(1) of the Act by
duly taking into consideration the reply submitted by the
petitioner on 03.02.2020. Accordingly, the 5th respondent,
by considering the reply of the petitioner dated 03.02.2020,
concluded the inquiry under Section 206(4) of the Act and
submitted report dated 24.02.2020, and this court, while
considering the first issue, held that initiation of inquiry by
Central Government and report submitted by 5th
respondent are in conformity with sub-section (4) of
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Section 206 of the Act. The said report formed the basis for
passing the impugned order dated 27.02.2020, ordering
investigation by SFIO into the affairs of the company, and
the investigation is also ordered in public interest.
82. As the report dated 24.02.2020 is relied upon by
the 2nd respondent to pass the impugned order, it is
necessary to examine the said report, to see whether the
2nd respondent is justified in forming an opinion to order
for investigation by SFIO. The said report is filed along
with the material papers to the counter affidavit, and the
relevant conclusions are as under:
(14) CONCLUSION:
(14.1) The company has filed its latest financial
statements for the financial year 2018-19 only on
23.12.2019 and Annual Return on 31.12.2019. Further
based on the media reports and directions from the
Directorate and the Ministry letters have been issued to the
company include the latest one issued under Section
206(1) dated 14.01.2020 for their comments within 7 days.
The company has furnished its reply vide letter dated
03.02.2020, which has been examined in detail in the
Tabular Statement attached as Annexure-IV. It may be
seen that the company has not provided full details on
specific details called for, as may be seen from the attached
report.
(14.2) In view of the nature of allegations, the
number of group companies involved which are under
jurisdictions of various ROCs, the prima facie findings that
the company has raised their loan capital by pledging
shares of their clients and diverted the money to group
companies using a power of attorney taken from the
clients, which is meant to be used only at the time of the
client’s direction to sell the securities, with a criminal
intent without the knowledge or consent of clients,
discrepancies in charge documents in this office with that
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of the claims of bank revealed in SEBI orders, signing of
standalone balance sheet by the continuing auditor and
consolidated balance sheet by a different auditor appointed
just before AGM i.e., 30.09.2019, the media reports about
investor grievances and to protect investors money, this
office suggests that the Ministry may consider an
investigation into affairs of this company, Karvy group of
companies and 9 companies having domain name of
karvy.com and having common addresses in UGC records,
as mentioned in SEBI order dated 22-Nov-2019 by an
appropriate authority in a speedy and efficient manner for
better protection of public interest.”
83. The above conclusions recorded by the 5th
respondent needs no reiteration, and they are self
explanatory, and one of the allegations against the
petitioner and its group of companies is that, those
companies raised loans from the Bank, which is public
money, in a fraudulent manner detailed above. Hence,
there is sufficient amount of public interest involved in this
case. In the light of these conclusions, the 5th respondent
recommended for further investigation vide his report dated
24.02.2020.
84. Along with the counter affidavit, respondents
filed the minutes of the Oversight Committee meeting held
on 25.02.2020. The said minutes disclose that the
Committee considering the allegations against the
petitioner, direction of this court in W.P.No.3143 of 2020
dated 14.02.2020 and the report of the ROC dated
24.02.2020, conveyed its decision to the Central
Government recommending investigation into the affairs of
the petitioner – company. The decision of the Oversight
Committee is extracted as under for ready reference:
“8. Decision of Oversight Committee:
8.1 In view of the presentation made by RD (SER)
and the inquiry report, the oversight committee (OC)
observed:
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a) Interest of investors (more than 80,000), including
retail investors, which are at stake as KSBL had prima
facie abused its position as a Depository Participant.
b) KSBL had prima-facie borrowed fund from Banks
& BFIs by citing false information.
c) There is a likelihood of diversion of public funds
through related parties.
d) Specialized/Technical/Complex nature of the
alleged fraud.
8.2 Taking into consideration all these factors, the
Oversight Committee unanimously recommended
investigation into the affairs of KSBL and their 9 companies
mentioned in para 44 above, by SFIO under Section
212(1)(a) and (c) of Companies Act, 2013 by SFIO, in public
interest.
85. Considering the report submitted by the 5th
respondent dated 24.02.2020 and also the decision of the
Oversight Committee dated 25.02.2020, I am of the
considered view, that there are prima facie circumstances
justifying the action taken by the 2nd respondent in forming
opinion with regard to necessity for ordering investigation
into the affairs of by the company by SFIO, as large public
interest is involved.
86. In the judgments relied on by the learned Senior
Counsel appearing for the petitioner in Medak Diocese of
Church of South India Trust Association vs. Union of India
(2018 (1) ALD 734), the facts disclose that the impugned
order therein does not disclose formation of opinion with
regard to necessity for ordering investigation by SFIO.
Therefore, the learned single Judge has remitted the matter
back for passing fresh orders in exercise of jurisdiction
under Section 212 of the Act.
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87. Similarly in the order of the Division Bench of
the High Court of Bombay in Parameshwar Das Agarwal v.
Additional Director (2016 SCC OnLine Bom 9276), the
learned judges after exposition of the law on Section 212 of
the Act, on facts found that there is no material which can
be termed as enough to warrant the exercise of power by
the Central Government by resorting to Section 212(1) of
the Act of 2013. The facts in the judgment of the Division
Bench, are different from the facts of the present case, and
hence except for the law laid down therein, it cannot be
made applicable.
88. For the foregoing reasons, the issue No.2 is also
answered in the affirmative.
89. The other contention of behalf of the petitioner is
that as the matter is sub judice by SEBI, the present
investigation has to await the result of inquiry by SEBI.
90. In the counter affidavit it is categorically stated
that the authorities that deal with the inquiry, inspection
or investigation under the Ministry of Corporate Affairs are
altogether different and the scope of inquiry and the
procedure that would be adopted by another regulator i.e.,
SEBI, is different, therefore, the case of the respondents is
that the contention of the petitioner is incorrect and
absolute false.
91. Sub-section (2) of Section 212 of the Act,
mandates that where any case bas been assigned by the
Central Government to SFIO for investigation under this
Act, no other investigating agency of Central Government
or the State Government shall proceed with investigation in
such case in respect of any offence under this Act and in
case any such investigation has already been initiated, it
shall not be proceed further with and the concerned agency
shall transfer the relevant documents and records in
respect of such offences under this Act to SFIO. In the
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light of sub-section (2) of Section 212, the contention of the
petitioner in this regard is rejected.
92. Before parting with the case it is to be noticed
that this court is not sitting in appeal over the decision of
the Central Government in ordering investigation into the
affairs of the company under Section 212(1)(a) and (c) of
the Act, and scope of this court under Article 226 of the
Constitution of India, with regard to judicial review, is
limited to the examination of decision making process, and
not the decision. In the preceding paragraphs, this court,
on examining the said process, found that ROC has
followed the procedure envisaged under Section 206(4) of
the Act and submitted the report; and the said report and
the order of this court, and also the other material available
on record, was examined by the Oversight Committee, and
vide its minutes dated 25.02.2020, recommended for
investigation. Eventually, the 2nd respondent, considering
the report dated 24.02.2020, and in exercise of his
jurisdiction under Section 212(1)(a) and (c) of the Act, and
forming an opinion with regard to necessity for ordering
investigation into the affairs of the company by SFIO,
ordered investigation vide the impugned, as large public
interest is involved. In these circumstances, no exception
can be taken to the impugned order.
93. For the foregoing reasons, I do not find any
infirmity in the impugned order warranting interference of
this court under Article 226 of the Constitution of India for
exercise of power of judicial review, and in view of the
same, W.P.No.5024 of 2020 is liable to be dismissed.
94. It is made clear that the present writ petitions
are confined to the jurisdiction of the 2nd respondent in
ordering investigation into the affairs of the company by
SFIO under Section 212 of the Act, and this court has not
expressed any opinion on merits, and the truth or
otherwise of the allegations are subject to the result of the
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investigation and the further proceedings as per law.
Hence, the investigation and the proceedings thereafter
shall be strictly in accordance with law and uninfluenced
by observations or findings, if any, made in this order.
95. For the foregoing reasons, the impugned order
dated 27.02.2020 is confirmed and the writ petition in
W.P.No.5024 is dismissed, and consequently, W.P.No.8997
of 2020, which has been filed challenging the notices
issued in pursuance of the impugned order, is also
dismissed.
96. Miscellaneous petitions pending, if any, shall
stand closed. No order as to costs.”
12. The appellant company before this Court while
challenging the order passed by the learned Single Judge
has raised two grounds:- (i) that no opportunity of hearing
as required under Section 206(4) of the Companies Act was
granted to the appellant company; and (ii) the Central
Government has not formed any opinion keeping in view
Section 210 of the Companies Act for directing
investigation into the affairs of the appellant company.
13. In respect of the first ground of not conducting an
inquiry and not providing an opportunity of hearing to the
appellant company as required under Section 206(4) of the
Companies Act is concerned, the stand of the Union of
India is that under Section 208 of the Companies Act, the
Registrar or inspector after inspection of books of account,
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submits a report in writing to the Central Government and
such report may, if necessary, include a recommendation
for further investigation into the affairs of the company.
The aforesaid statutory provision makes it very clear that
the Registrar of Companies can forward matter after
inspection of books of accounts to the Central Government
or he can forward the matter after conducting an inquiry
as required under Section 206(4) of the Companies Act. In
the present case, keeping in view the complete material on
record, the Registrar of Companies has forwarded the
matter to the Central Government in public interest.
Keeping in view the larger public interest, the Inquiry was
not conducted by the Registrar of Companies under
Section 206(4) of the Companies Act. Proviso to sub-
section (4) of Section 206 of the Companies Act dispenses
with other requirements of sub-section (4) of Section 206 of
the Companies Act. The Inquiry under Section 206 of the
Companies Act by the Registrar of Companies and the
investigation under Section 212 of the Companies Act by
the Serious Fraud Investigation Office (SFIO) operate in
different fields and the information gathered by the
Registrar of Companies under Section 206 of the
Companies Act can be used as a tool for further
investigation and an investigation under Section 212 of the
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Companies Act is in public interest and therefore, the first
ground argued by the learned counsel for the appellant
company is of no help to the appellant company.
14. In the considered opinion of this Court, for ordering
an investigation and further action by the SFIO under
Section 212 of the Companies Act, the requirement of
obtaining a report of the Registrar of Companies is not at
all warranted.
15. The investigation can be ordered on the basis of –
(a) on receipt of a report of the Registrar or inspector under
Section 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.
16. In the considered opinion of this Court, the
investigation has been ordered by the Central Government
in public interest and therefore, this Court does not find
any reason to interfere with the Order passed by the
learned Single Judge.
17. Much has been argued by the learned counsel for the
appellant company that no opinion was formed by the
Central Government as required under Section 210 of the
Companies Act. In this context, it is relevant to reproduce
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the Order dated 27.02.2020 passed by the respondent
No.2/Office of the Director General, Ministry of
Corporation Affairs, is reproduced as under:-
“Government of India
Ministry of Corporate Affairs
Office of Director General
No.07/341/2015-CL.II (SER)
Kota House Annexe,
1, Shahjahan Road,
New Delhi – 110 011
Dated: 27.02.2020
ORDER
Whereas the Central Government is empowered
under Section 212 of the Companies Act, 2013 to order
investigation into the affairs of any company in Public
Interest and to appoint one or more competent persons as
inspectors to investigate the affairs of the company.
2. AND where as ROC, Hyderabad through RD (SER)
has submitted Inquiry Report dated 24.02.2020 to the
Central Government under Section 208 of the Companies
Act, 2013 and recommended investigation into the affairs
of the Karvy Stock Broking Limited (KSBL), its Group of
Companies and 9 other companies namely (i) Karvy
Consultants Limited, (ii) Wizard Insurance Services Private
Limited, (iii) Zenith Insurance Services Private Limited, (iv)
Buoyant Insurance Services Private Limited, (v) Nova
Wealth Management Services Private Limited, (vi) Vitalink
Wealth Advisory Services Private Limited, (vii) Classic
Wealth Management Services Private Limited, (viii)
Champion Insurance Services Private Limited, (ix) Pelican
Wealth Advisory Services Private Limited.
3. Now, therefore, in exercise of powers conferred
under Section 212(1) (a) & (c) of the Companies Act, 2013,
the Central Government has formed an opinion that the
affairs of the above referred companies need to be
investigated to examine the serious nature of fraud
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committed as large public interest is involved and thereby
orders investigation into the affairs of Karvy Stock Broking
Limited (KSBL), its Group of Companies and 9 other
companies namely (i) Karvy Consultants Limited, (ii) Wizard
Insurance Services Private Limited, (iii) Zenith Insurance
Services Private Limited, (iv) Buoyant Insurance Services
Private Limited, (v) Nova Wealth Management Services
Private Limited, (vi) Vitalink Wealth Advisory Services
Private Limited, (vii) Classic Wealth Management Services
Private Limited, (viii) Champion Insurance Services Private
Limited, (ix) Pelican Wealth Advisory Services Private
Limited to be carried out by officers of the Serious Fraud
Investigation Office as may be designated by Director,
SFIO.
4. The inspectors appointed by Director, SFIO to
investigate into the affairs of the above mentioned
company, shall exercise all the powers available to them
under the Companies Act, 2013. The inspectors shall
complete their investigation and submit the report to the
Central Government.
5. This order is issued for and on behalf of the
Central Government.
(A.M.Mahapatra)
Joint Director”
18. The aforesaid Order makes it very clear that the
Central Government has formed an opinion based upon
the serious nature of fraud committed in the matter as
larger public interest is involved in the affairs of the
appellant company and the opinion was formed based
upon the material forwarded by the Registrar of Companies
to the Central Government.
22
19. The learned counsel for the appellant company has
placed reliance upon the Judgment delivered by the
learned Single Judge of this Court in the Medak Diocese of
Church of South India Trust Association v. the Union of India1.
The Order impugned in the aforesaid case is reproduced as
under:-
“Whereas the Central Government is empowered under
section 212 of the Companies Act, 2013 to order
investigation into the affairs of any company and to appoint
one or more competent persons as Inspectors to investigate
the affairs of the company.
2. And whereas RoC (Chennai)/RD, Southern Region,
vide their report dated 2nd June, 2016 submitted to the
Central Government Under section 208 of the Companies
Act, 2013 has also recommended investigation into the
affairs of the company i.e., M/s. Church of South India
Trust Association.
3. Now, therefore, in exercise of powers conferred under
section 212 (1)(a) of the Companies Act, 2013 the Central
Government hereby orders investigation into the affairs of
M/s. Church of South India Trust Association, to be
carried out by the Serious Fraud Investigation office.
4. The Inspectors appointed by Director, SFIO to
investigate into the affairs of the above mentioned
company, shall exercise all the powers available to them
under the Companies Act, 2013. The Inspectors shall
complete their investigation and submit the report to the
Central Government within a period of six (6) months from
the date of issue of this order.
5. Further, if any information is required during the
course of investigation, you are requested to depute some
officer to coordinate with the Ministry for obtaining the
desired documents/information.
1
2017 SCC OnLine Hyd 388 : 2018 (1) ALT 260
23
6. This order is issued for and on behalf of the Central
Government.
Sd/-
(Himanshu Shekhar)
Deputy Director”
20. Keeping in view the aforesaid order, it can be safely
gathered that in the aforesaid case, there was no formation
of the opinion by the Central Government and in those
circumstances, the learned Single Judge has delivered the
Judgment holding that no case was formed by the Central
Government whereas the requirement of formation of
opinion has been fulfilled in the present case, and
therefore, the question of interference on this ground also
does not arise.
21. The learned counsel has also placed reliance upon the
Judgment delivered in the case of Mohinder Singh Gill v.
Chief Election Commissioner2.
22. This Court has gone through the aforesaid Judgment
and the present case is a case where the documents on
record establishes that the action was not only initiated by
the respondents based upon the Inquiry Report under
Section 208 of the Companies Act by the Registrar of
Companies but also based on the other material involving
public interest, as stated clearly in the order dated
2
(1978) 1 SCC 405
24
27.02.2020 and therefore, the Judgment relied upon, does
not help the appellant company in any manner. Not only
this, the conduct of the appellant company reveals that at
every stage, all possible hindrances are being created by
the appellant company in order to stop investigation by
SFIO right from day one on some pretext or the other, writ
petitions have been filed, interim orders were granted and
the matter is not proceedings forward at all, meaning
thereby not permitting the investigating agency i.e.,
Serious Fraud Investigation Office to investigate into the
affairs of the appellant company.
23. The matter is only at the stage of investigation and
otherwise also the appellant company has not been able to
point out the prejudice caused to the appellant company in
the matter. The respondents have adopted a transparent
process. They have given an opportunity of hearing to the
appellant company right from initial stages and the
respondents are under obligation to follow the procedure
prescribed under Section 212 of the Companies Act and
the Companies Act is a complete code in itself.
24. In the light of the aforesaid, this Court does not find
any reason to interfere with the Order passed by the
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learned Single Judge and the writ appeals are accordingly
dismissed.
Miscellaneous petitions, if any pending, shall stand
dismissed. There shall be no order as to costs.
_____________________________
SATISH CHANDRA SHARMA, CJ
________________
N.TUKARAMJI, J
31.12.2021
Pln
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