Serious Fraud Investigation Office v. Rahul Modi - Important Supreme Court Judgment 2019

Serious Fraud Investigation Office v. Rahul Modi - Important Supreme Court Judgment 2019


On 27th March, 2019, in the case of Serious Fraud Investigation Office v. Rahul Modi and Another. Etc. [Criminal Appeal Nos. 538-539 of 2019], the Supreme Court primarily examined the “scope, extent and the purpose of Section 212 of the Companies Act, 2013” and, “in particular, whether the compliance of sub-section (3) of Section 212 of the Act is mandatory or directory.”


Having regard to the scheme of the Act underlined in Chapter XIV (Sections 206 to 229 of the Act) dealing with the matters relating to inspection, inquiry and investigation of the companies in juxtaposition with Chapter XXIX which prescribes the punishment/penalties for commission of various offences specified under the Act, the Supreme Court held that the compliance of sub-section (3) of Section 212 of the Act is essentially directory.


The Supreme Court observed that “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, the Supreme Court was of the view that, “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.”

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