# SERIOUS FRAUD INVESTIGATION OFFICE v. RAHUL MODI AND ANR. ETC

- **Citation:** [2019] 5 S.C.R. 91
- **Court:** Supreme Court of India
- **Decided:** 2019-03-27
- **Case number:** Criminal Appeal Nos. 538-539 of 2019
- **Bench:** Abhay Manohar Sapre, Uday Umesh Lalit
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/serious-fraud-investigation-office-v-rahul-modi-and-anr-etc-33792
- **Pages:** 48

## Headnote

Companies Act, 2013 - ss. 212(1), (2) and (3) -
Investigation into affairs of Company by Serious Fraud
Investigation Office - Period within which report is contemplated
to be submitted to the Central Government under sub-section (3),
mandatory or directory - On facts, SIFO directed to investigate
into the affairs of certain entities and furnish the report within the
period of three months - However, petitioners arrested by SIFO
after the expiry of the specified period for investigation u/s. 213(2)
- Writ petition by petitioners seeking declaration that investigation
carried out after the specified period was illegal and prayed for
writ of habeas corpus directing release from illegal arrest -
Thereafter, the petitioners released on bail - On appeal, held: Under
sub-Section (3) where the investigation is so assigned by the
Central Government to SFIO, the investigation must be conducted
in the manner and in accordance with the procedure provided in
the Chapter and a report has to be submitted to the Central
Government within such period as may be specified - Section 212(3)
by itself does not lay down any fixed period within which the report
has to be submitted - Even under sub-Section (12) which is
regarding "investigation report", there is no stipulation of any
period - Such a report is to be submitted "on completion of the
investigation" - Statute has not prescribed any period for
completion of investigation - in view thereof, prescription of
period within which a report is to be submitted by SFIO u/s. 212(3)
is not for completion of period of investigation and on the expiry of
that period the mandate in favour of SFIO does not come to an end
- Prescription of period within which a report has to be submitted
to the Central Government u/s.212(3) is purely directory - Thus, it
cannot be said that the mandate came to an end on expiry of three
 [2019] 5 S.C.R. 91
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months and the arrest effected thereafter, was in any way illegal or
unauthorised by law - Arrest was effected when the period had
expired but by the time the High Court entertained the petition and
passed the order, the orders of remand were passed by the Judicial
Magistrate as well as the Special Court, Gurugram as also order of
extension was passed by the Central Government - Thus, the High
Court was not justified in directing release of the accused - Order
passed by the High Court is set aside.
Interpretation of statutes: Provisions, when mandatory or
directory - Held: While laying down a particular procedure if no
negative or adverse consequences are contemplated for nonadherence, relevant provision is normally not taken to be mandatory
and is considered to be purely directory - Provision to be seen in
the context in which it occurs in the Statute.
Allowing the appeals and disposing of the transfer petition,
the Court
Per Uday Umesh Lalit, J:
HELD: 1.1 In Habeas Corpus proceedings a Court is to
have regard to the legality or otherwise of the detention at the
time of the return and not with reference to the institution of the
proceedings. The act of directing remand of an accused is held to
be a judicial function and the challenge to the order of remand is
not to be entertained in a habeas corpus petition. In the instant
case, as on the date when the matter was considered by the High
Court and the Order was passed by it, not only were there
orders of remand passed by the Judicial Magistrate as well as
the Special Court, Gurugram but there was also an order of
extension passed by the Central Government on 14.12.2018. The
legality, validity and correctness of the order or remand could
have been challenged by the original Writ Petitioners by filing
appropriate proceedings. However, they did not raise such
challenge before the competent Appellate or Revisional Forum.
The orders of remand passed by the Judicial Magistrate and the
Special Court, Gurugram had dealt with merits of the matter and
whether co

## Text

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SERIOUS FRAUD INVESTIGATION OFFICE
v.
RAHUL MODI AND ANR. ETC.
(Criminal Appeal Nos. 538-539 of 2019)
MARCH 27, 2019
[ABHAY MANOHAR SAPRE AND
UDAY UMESH LALIT, JJ.]
Companies Act, 2013 - ss. 212(1), (2) and (3) -
Investigation into affairs of Company by Serious Fraud
Investigation Office - Period within which report is contemplated
to be submitted to the Central Government under sub-section (3),
mandatory or directory - On facts, SIFO directed to investigate
into the affairs of certain entities and furnish the report within the
period of three months - However, petitioners arrested by SIFO
after the expiry of the specified period for investigation u/s. 213(2)
- Writ petition by petitioners seeking declaration that investigation
carried out after the specified period was illegal and prayed for
writ of habeas corpus directing release from illegal arrest -
Thereafter, the petitioners released on bail - On appeal, held: Under
sub-Section (3) where the investigation is so assigned by the
Central Government to SFIO, the investigation must be conducted
in the manner and in accordance with the procedure provided in
the Chapter and a report has to be submitted to the Central
Government within such period as may be specified - Section 212(3)
by itself does not lay down any fixed period within which the report
has to be submitted - Even under sub-Section (12) which is
regarding "investigation report", there is no stipulation of any
period - Such a report is to be submitted "on completion of the
investigation" - Statute has not prescribed any period for
completion of investigation - in view thereof, prescription of
period within which a report is to be submitted by SFIO u/s. 212(3)
is not for completion of period of investigation and on the expiry of
that period the mandate in favour of SFIO does not come to an end
- Prescription of period within which a report has to be submitted
to the Central Government u/s.212(3) is purely directory - Thus, it
cannot be said that the mandate came to an end on expiry of three
 [2019] 5 S.C.R. 91
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months and the arrest effected thereafter, was in any way illegal or
unauthorised by law - Arrest was effected when the period had
expired but by the time the High Court entertained the petition and
passed the order, the orders of remand were passed by the Judicial
Magistrate as well as the Special Court, Gurugram as also order of
extension was passed by the Central Government - Thus, the High
Court was not justified in directing release of the accused - Order
passed by the High Court is set aside.
Interpretation of statutes: Provisions, when mandatory or
directory - Held: While laying down a particular procedure if no
negative or adverse consequences are contemplated for nonadherence, relevant provision is normally not taken to be mandatory
and is considered to be purely directory - Provision to be seen in
the context in which it occurs in the Statute.
Allowing the appeals and disposing of the transfer petition,
the Court
Per Uday Umesh Lalit, J:
HELD: 1.1 In Habeas Corpus proceedings a Court is to
have regard to the legality or otherwise of the detention at the
time of the return and not with reference to the institution of the
proceedings. The act of directing remand of an accused is held to
be a judicial function and the challenge to the order of remand is
not to be entertained in a habeas corpus petition. In the instant
case, as on the date when the matter was considered by the High
Court and the Order was passed by it, not only were there
orders of remand passed by the Judicial Magistrate as well as
the Special Court, Gurugram but there was also an order of
extension passed by the Central Government on 14.12.2018. The
legality, validity and correctness of the order or remand could
have been challenged by the original Writ Petitioners by filing
appropriate proceedings. However, they did not raise such
challenge before the competent Appellate or Revisional Forum.
The orders of remand passed by the Judicial Magistrate and the
Special Court, Gurugram had dealt with merits of the matter and
whether continued detention of the accused was justified or not.
After going into the relevant issues on merits, the accused were
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remanded to further police custody. These orders were not put
in challenge before the High Court. It was, therefore, not open
to the High Court to entertain challenge with regard to
correctness of those orders. The High Court, however,
considered the matter from the standpoint whether the initial
Order of arrest itself was valid or not and found that such legality
could not be sanctified by subsequent Order of remand.
Principally, the issue which was raised before the High Court
was whether the arrest could be effected after period of
investigation, as stipulated in said order dated 20.06.2018 had
come to an end. The supplementary issue was the effect of
extension of time as granted on 14.12.2018. The arrest was
effected when the period had expired but by the time the High
Court entertained the petition, there was as order of extension
passed by Central Government on 14.12.2018. Additionally, there
were judicial orders passed by the Judicial Magistrate as well as
the Special Court, Gurugram, remanding the accused to custody.
The High Court was not justified in entertaining the petition and
passing the Order. [Para 17, 19] [116-E; 122-C-H; 123-A-B]
Basanta Chandra Ghose v. King Emperor (1945) 7 FCR
81; Naranjan Singh Nathawan v. State of Punjab
[1952] SCR 395 ; Ram Narayan Singh v. State of Delhi
[1953] SCR 652 ; A.K. Gopalan v. Govt. of India
[1966] 2 SCR 427 ; Pranab Chatterjee v. State of Bihar
and Another (1970) 3 SCC 926 ; Talib Hussain v. State
of Jammu and Kashmir (1971) 3 SCC 118 ; Col. Dr. B.
Ramachandra Rao v. State of Orissa and Others (1972)
3 SCC 256; Kanu Sanyal v. District Magistrate,
Darjeeling and Others (1974) 4 SCC 141 : [1974] 3
SCR 279; Manubhai Ratilal Patel through Ushaben v.
State of Gujarat and Others (2013) 1 SCC 314 : [2012]
8 SCR 993 ; Saurabh Kumar v. Jailor, Koneila Jail
and Another (2014) 13 SCC 436 : [2014] 8 SCR 909;
State of Maharashtra and Others v. Tasneem Rizwan
Siddiquee (2018) 9 SCC 745 - referred to.
1.2 The first Order dated 20.06.2018 itself indicated that
the Registered Office of the Principal Company was in Gurugram,
SERIOUS FRAUD INVESTIGATION OFFICE v. RAHUL MODI
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Haryana. Soon after the arrest, the accused were produced
before the Judicial Magistrate, Gurugram on 11.12.2018, who
remanded them to custody till 14.12.2018 and directed that they
be produced before the Special Court, Gurugram on 14.12.2018.
Accordingly the accused were produced before the Special Court,
Gurugram, who thereafter remanded them to custody first till
18.12.2018 and later till 21.12.2018. The Special Court, Gurugram
would be competent to deal with the matter in terms of Section
436. Petitioners, however, submitted that since the accused were
arrested in Delhi, were kept in custody in Delhi, and the SFIO
office being in Delhi, the High Court of Delhi was competent to
entertain and consider the writ petitions so preferred by the writ
petitioners. [Para 21] [123-E-H; 124-A-B]
Navinchandra N. Majithia v. State of Maharashtra and
Others (2000) 7 SCC 640 : [2000] 3 Suppl. SCR 82;
Dashrath Rupsingh Radhod v. State of Maharashtra
and Another (2014) 9 SCC 129 : [1999] 3 Suppl. SCR
271 - referred to.
1.3 In the instant case, it cannot be said that the High Court
completely lacked jurisdiction to entertain the petition. However,
since the challenge was with respect to the detention pursuant
to valid remand orders passed by the Judicial Magistrate and
the Special Court, Gurugram, the High Court should not have
entertained the challenge. If the act of directing remand is
fundamentally a judicial function, correctness or validity of such
orders could, if at all, be tested in a properly instituted
proceedings before the appellate or revisional forum. In the
circumstances even if the arrests were effected within the
jurisdiction of the High Court, since the accused were produced
before a competent court in pursuance of Sections 435, 436 of
2013 Act, the High Court ought not to have entertained the writ
petition. However, since the High Court considered the matter
from the standpoint whether the initial Order of arrest itself was
valid or not and then found that such illegality could not be
sanctified by subsequent Order of remand. [Para 24] [125-G-H;
126-A-C]
1.4 Reading of the provisions of 2013 Act shows that
certain Sections in Chapter XXIX prescribe punishment for
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offences such as fraud, false statement, false evidence and
withholding of property under Sections 447, 448, 449 and 452
respectively. The punishment for fraud involving an amount of at
least Rs.10 lakhs or 1 per cent of the turnover of the Company,
is imprisonment for a term which may extend to 10 years. The
offence of fraud in relation to the affairs of a Company is
considered to be a grave offence and the writ petitioners were
allegedly guilty of such offence. Chapter XIV of 2013 Act deals
with Inspection, Inquiry and Investigation. Under Section 210,
investigation into the affairs of a Company can be undertaken.
Section 211 contemplates establishment of Serious Fraud
Investigation Offence (SFIO) which is to be headed by a
Director and is to consist of Experts with ability, integrity and
experience in fields like Banking, Corporate Affairs, Taxation,
Forensic Audit, Capital Market, Information Technology, Law or
such other fields. SFIO headed by a Director is thus a compact
and competent unit consisting of experts in various domains.
Section 212 empowers the Central Government to assign the
investigation into the affairs of a Company to SFIO. Upon such
assignment the Director SFIO may designate such number of
inspectors under sub-Section (1) and shall cause the affairs of
the Company to be investigated by an Investigating Officer
under sub-Section (4). The expression used in sub-Section (1) is
"assign the investigation". Sub-Section (2) incorporates an
important principle that upon such assignment by the Central
Government to SFIO, no other investigating agency of the
Central Government or any State Government can proceed with
investigation in respect of any offence punishable under 2013
Act and is bound to transfer the documents and records in
respect of such offence under 2013 Act to SFIO. [Para 26]
[132-C-H]
1.5 Under sub-Section (3) where the investigation is so
assigned by the Central Government to SFIO, the investigation
must be conducted in the manner and in accordance with the
procedure provided in the Chapter and a report has to be
submitted to the Central Government within such period as may
be specified. This provision contemplates submission of a report
within the period as may be specified. The subsequent
provisions then contemplate various stages of investigation
SERIOUS FRAUD INVESTIGATION OFFICE v. RAHUL MODI
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including arrest under sub-Section (8) and that SFIO is to submit
an interim report to the Central Government, if it is so directed
under sub Section (11). Further, according to sub-Section (12),
on completion of the investigation, SFIO is to submit the
"investigation report" to the Central Government. This report
under sub-Section (12) may lead to further follow up actions.
Under sub-Section (13) a copy of the "investigation report" could
be obtained by any concerned person by making an application in
that behalf to the Court while under sub-Section (14) on receipt
of said "investigation report" the Central Government may
direct SFIO to initiate prosecution against the Company. The
"investigation report" under sub-Section (12) is to be submitted
on completion of the investigation whereas report under
sub-Section (11) is in the nature of an interim report and is to be
submitted if the Central Government so directs. The provisions
of Section 43(2) of 2008 Act do not postulate any such period and
the assignment in the present case to SFIO was under the
concerned provisions of 2013 Act as well as under 2008 Act.
[Para 27] [133-A-F]
1.6 Section 212(3) of 2013 Act by itself does not lay down
any fixed period within which the report has to be submitted.
Even under sub-Section (12) which is regarding "investigation
report", again there is no stipulation of any period. In fact such a
report under sub-Section (12) is to be submitted "on completion
of the investigation". There is no stipulation of any fixed period
for completion of investigation which is consistent with normal
principles under the general law. If the investigation proceeds
for a longer period, under Section 167 of the Code certain rights
may flow in favour of the accused. But it is certainly not the idea
that in case the investigation is not over within any fixed period,
the authority to investigate would come to an end. Sub-Section
(2) of Section 213 of 2013 Act does not speak of any period for
which the other Investigating Agencies are to hold their hands,
nor does the provision speak of any re-transfer of the relevant
documents and records from SFIO back to said Investigating
Agencies after any period or occurring of an event. [Para 28]
[133-F-H; 134-A-C]
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1.7 The very expression "assign" in Section 212(3) of 2013
Act contemplates transfer of investigation for all purposes
whereafter the original Investigating Agencies of the Central
Government or any State Government are completely denuded
of any power to conduct and complete the investigation in
respect of the offences contemplated therein. The idea under
sub-Section (2) is complete transfer of investigation. The
transfer under sub-Section (2) of Section 213 would not stand
revoked or recalled in any contingency. If a time limit is
construed and contemplated within which the investigation must
be completed then logically, the provisions would have dealt with
as to what must happen if the time limit is not adhered to. The
Statute must also have contemplated a situation that a valid
investigation undertaken by any Investigating Agency of Central
Government or State Government which was transferred to SFIO,
must then be re-transferred to said Investigating Agencies. But
the Statute does not contemplate that. The transfer is
irrevocable and cannot be recalled in any manner. Once assigned,
SFIO continues to have the power to conduct and complete
investigation. If that be so, can such power stand curtailed or
diminished if the investigation is not completed within a
particular period. The Statute has not prescribed any period for
completion of investigation. The prescription in the instant case
came in the order of 20.06.2018. [Para 29] [134-D-G; 135-A]
Kazi Lhendup Dorji v. State of Sikkim & Ors (1994) 2
Suppl. SCC 116 - referred to.
1.8 It is well settled that while laying down a particular
procedure if no negative or adverse consequences are
contemplated for non-adherence to such procedure, the relevant
provision is normally not taken to be mandatory and is
considered to be purely directory. Furthermore, the provision
has to be seen in the context in which it occurs in the Statute.
There are three basic features which are present in this matter;
absolute transfer of investigation in terms of Section 212(2) of
2013 Act in favour of SFIO and upon such transfer all documents
and records are required to be transferred to SFIO by every other
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Investigating Agency; for completion of investigation,
sub-Section (12) of Section 212 does not contemplate any
period; and under sub-Section (11) of Section 212 there could be
interim reports as and when directed. In the face of the salient
features 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, 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. Even after the
expiry of such stipulated period, the mandate in favour of the
SFIO and the assignment of investigation under sub-Section (1)
would not come to an end. The only logical end as contemplated
is after completion of investigation when a final report or
"investigation report" is submitted in terms of sub-Section (12)
of Section 212. It cannot therefore, be said that the mandate came
to an end on 19.09.2018 and the arrest effected on 10.12.2018
under the orders passed by Director, SFIO was in any way illegal
or unauthorised by law. In any case, extension was granted in the
instant case by the Central Government on 14.12.2018. But that
is completely besides the point since the original arrest itself
was not in any way illegal. The High Court completely erred in
proceeding on that premise and in passing the order under
appeal, and thus, is set aside. [Para 30, 31] [135-B-H; 136-A-D]
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Case Law Reference
(1945) 7 FCR 81
 referred to
Para 17
[1952] SCR 395
 referred to
Para 17
[1953] SCR 652
 referred to
Para 17
[1966] 2 SCR 427
 referred to
Para 17
(1970) 3 SCC 926
 referred to
Para 17
(1971) 3 SCC 118
 referred to
Para 17
(1972) 3 SCC 256
 referred to
Para 17
[1974] 3 SCR 279
 referred to
Para 17
[2012] 8 SCR 993
 referred to
Para 18
[2014] 8 SCR 909
 referred to
Para 18
(2018) 9 SCC 745
 referred to
Para 18
[2000] 3 Suppl. SCR 82 referred to
Para 21
[1999] 3 Suppl. SCR 271 referred to
Para 23
(1994) 2 Suppl. SCC 116 referred to
Para 29
Per Abhay Manohar Sapre, J: (Supplementing):
HELD: Having regard to the scheme of the Companies
Act, 2013 underlined in Chapter XIV (Sections 206 to 229)
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 compliance of subsection (3) of Section 212 of the Act is essentially directory. If
the submission of the counsel for the respondents that the
compliance of sub-section (3) of Section 212 of the Act in relation
to the submission of the report be held mandatory is accepted
(which cannot be accepted) the very purpose of enacting Section
212 of the Act would get defeated and will become nugatory. When
the well-known principle of purposive interpretation is applied
while interpreting the relevant provisions in juxtaposition and
SERIOUS FRAUD INVESTIGATION OFFICE v. RAHUL MODI
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hold that sub-section (3) of Section 212 of the Act is directory in
nature, it serves the legislative intent for which Chapter XXIX is
enacted. The reasoning and the conclusion arrived at on the
interpretation of sub-section (3) of Section 212 of the Act is
concurred with. [Para 4-7] [138-A-E]
CRIMINAL APPELLATE JURISDICTION: Criminal Appeal
Nos. 538-539 of 2019.
From the Judgment and Order dated 20.12.2018 of the High Court
of Delhi at New Delhi in WPCRL Nos. 3842 and 3843 of 2018
With
Transfer Petition (Crl.) No.35 of 2019
Tushar Mehta, SG, Amit Mahajan, Rajat Nair, Manan Popli,
Ranvijay Singh, Rajeev Ranjan, Neeraj Kumar Sharma, Advs. for the
Appellant.
Kapil Sibal, Mukul Rohtagi, Sidharth Luthra, V. Giri, Sr. Advs.,
Aditya Singla, Adit Pujari, Ms. Priya Puri, Pallav Gupta, Kartik Venu,
Ranjay Duhbey, Ms. Vinita Meghrajani, Ravi Pathak, Ms. Supriya Juneja,
Ms. Cheshta Jetly, Ms. Varsha Poddar, Himanshu Gupta, Akshay Sehgal,
Saifuddin S., Sayantan Talapatra, Krishna Kumar Singh, Advs. for the
Respondents.
The Judgments of the Court were delivered by:
UDAY UMESH LALIT, J. 1.Leave granted.
2. These Appeals challenge the correctness of the common
interim order dated 20.12.2018 passed by the High Court of Delhi at
New Delhi in Writ Petition (Crl.) Nos.3842 and 3843 of 2018.
3. In exercise of powers conferred by Section 212(1)(c) of the
Companies Act, 2013 ("2013 Act", for short) and under Section 43(2)
and (3)(c)(i) of the Limited Liability Partnership Act, 2008 ("2008 Act",
for short), the Central Government vide order No.07/115/2018/CL-II
(NWR), directed investigation into the affairs of Adarsh Group of
Companies and LLPs ('The Group', for short) by Officers of Serious
Fraud Investigation (SFIO) as nominated by Director, SFIO. The
relevant part of the Order dated 20.06.2018 was as under:-
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"Whereas the Central Government is empowered under Section
212(1)(c) of the Companies Act, 2013 (the Act) to order
investigation into the affairs of a company in public interest by the
Serious Fraud Investigation Office (SFIO).
2. And whereas the Central Government is also empowered to
order investigation into the affairs Limited Liability Partnerships
(LLPs) under Section 43 (2) & (3) (c) (i) of the Limited Liability
Partnership Act, 2008.
3. AND whereas on the basis of opinion formed by the Central
Government, it has been decided to investigate the affairs of
following companies:-
4. Now, therefore, in exercise of powers conferred under Section
212 (1) (c) of the Companies Act, 2013 and under Section 43 (2)
& (3) (c) (i) of the LLP Act, 2008 the Central Government hereby
orders investigation into the affairs of the above named companies
and LLPs to be carried out by officers of the Serious Fraud
Investigation Office (SFIO) as nominated by Director, SFIO.
5. The SFIO shall investigate into following areas (above
mentioned companies and LLPs) in addition to any other issues
that it may come across during the investigation.
S
NO
CIN
COMPANY /
LLP NAME
NEW
ADDRESS
REGION
PAN_
NUMBER
STATUS
1.
U45201HR
2000PLC0
45738
ADARSH
BUILDESTATE
LIMITED
1ST FLOOR,
BLOCK-B,
VATIKA
ATRIUM GOLF
COURSE
ROAD,
SECTOR-53
GURGAON
Haryana
AAJCA190
7A
ACTV
2 to
124
..
...
...
...
...
...
125
U45201RJ2
013PTC
042465
WATER-FALL
REAL
ESTATES
PRIVATE
LIMITED
J 7, MOTI
DOONGRI
ROAD, JAIPUR
Rajastha
n
AABCW38
26E
ACTV

SERIOUS FRAUD INVESTIGATION OFFICE v. RAHUL MODI
[UDAY UMESH LALIT, J.]
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(i) To ascertain and unearth rotation of funds or identification of
quantum of diversion of funds of siphoning including beneficiaries
thereof:
(ii) To identify instances of mismanagement, negligence or fraud;
(iii) To ascertain the role of auditors, KMPs or independent
directors or any other person in the alleged fraud:
(iv) To examine role of any other entity used as conduit in the
alleged fraud;
(v) To identify non-compliance of the statutory provisions of the
Act and its impact on Corporate Governance.
6. That the Inspector(s) so appointed shall exercise all powers
available to them under Section 217 of the Companies Act, 2013
and Chapter IX of LLP Act, 2008. The inspector(s) shall complete
their investigation and submit their report to the Central Government
within a period of 03 (Three) months from the date of issue of this
order.
7. This order is issued for and on behalf of the Central Government.
 Sd/-
 (Santosh Kumar)
 Joint Director"
4. On the same date, i.e. on 20.06.2018 an Order was passed by
the Director, SFIO. The relevant portion of said order was as under:-
 "3. Now, therefore, in exercise of powers conferred under
Section 212(1) of the Companies Act 2013, the following
Officers are designated as Inspectors to carry out the
investigation into the affairs of the above-mentioned entities and
shall exercise all the powers available to them under the
Companies Act, 2013:
1. • Shri P.C. Maurya, Addl. Director
2. Shri Prashant Baliyan, Deputy Director
3. Shri G. L. Meena, Sr. Asst. Director
4. Shri Kumar Gautam, Asst. Director
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4. And further, in exercise of powers conferred under Section
212(4) of the Companies Act, 2013, Sh. Prashant Baliyan, Dy.
Director is appointed as Investigating Officer to carry out the
above noted investigation. The Investigating Officer shall have
the powers of Inspector as enumerated under Section 217 of the
Companies Act, 2013. As per the investigation order, following
issues are specifically to be examined along with other issues
which may come across during the investigation:
(i) To ascertain and unearth rotation of funds or identification of
quantum of diversion of funds or siphoning including beneficiaries
thereof;
(ii) To identify instances of mismanagement, negligence or fraud;
(iii) To ascertain the role of auditors, KMPs or independent
directors or any other person in the alleged fraud;
(iv) To examine role of any other entity used as conduit in the
alleged fraud; and
(v) To identify non-compliance of the statutory provisions of the
Act and its impact on Corporate Governance.
5. The Inspectors and the Investigating Officer shall complete
the investigation and submit the report within three months hereof."
5. The period mentioned in Clause 6 of the Order dated 20.06.2018
came to an end on 19.09.2018. Based on the material gathered during
investigation, an approval was sought under Rule (2) of the Companies
(Arrests in connection with Investigation by Serious Fraud Investigation
Office) Rules, 2017 ("2017 Rules", for short) from the Director, SFIO
to arrest three accused persons namely Rahul Modi, Mukesh Modi and
Vivek Harivyasi. The approval was granted by the Director, SFIO on
10.12.2018. The arrest order issued under Rules 4 and 5 of 2017 Rules
made reference to the proceedings, "07/115/2018 CL-II (NWR)
Dt. 20.06.2018"
The accused were accordingly arrested on 10.12.2018. The
compliance in terms of 2017 Rules was effected and they were produced
before the Duty Magistrate, District Courts, Gurugram, Haryana on
11.12.2018.
SERIOUS FRAUD INVESTIGATION OFFICE v. RAHUL MODI
[UDAY UMESH LALIT, J.]
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6. After hearing Counsel for the appellant as well as for the
accused, the Judicial Magistrate First Class, Gurugram by order dated
11.12.2018 granted remand till 14.12.2018 and directed they be produced
before the Special Court (Companies Act), Gurugram on 14.12.2018.
The application seeking remand had sought to make out a case for custody
of the accused. The matter was dealt with by the Judicial Magistrate as
under:-
"5. Counsel for accused Nos.1 and 2 argued that these persons
have already been co-operated with the investigation since 20th
June and their office have been sealed. Despite this, now remand
has been sought without any reason, therefore, kindly it be declined.
6. Perusal of documents on record shows that there are serious
allegations and as per order dated 20.06.2018, investigation was
ordered to be initiated and now accused has been produced before
this court under Section 167 Cr.P.C. seeking SFIO remand. This
court is to exercise the power of Magistrate in terms of Section
436(1)(B). At this stage, remand has been sought. The offence
alleged is definitely serious in nature and the arrest orders are
placed on record. Consequential to these documents, accused
were arrested and produced. Undoubtedly, they have been
appearing on notices issued by the SFIO but still the investigation
has not been completed because some part of investigation needs
personal involvement. This case prima facie attracts Section 447
of Companies Act, which certainly makes this offence cognizable
and no bailable. The main grounds for which the investigation is
to be conducted in custody is ascertainment of further trail qua
withdrawn money and to locate the beneficiaries. In addition to
this, identification of properties and explanation about loans and
advances mentioned in the books of accounts can only be given
by accused but they have not come up with any such explanations
till now. Even the persons who are in custody are not going to
facilitate the investigation in proper manner so that the real facts
can be established. These grounds definitely require detained
and comprehensive investigation so it would be proper to grant
the custody of these accused to SFIO for three days. Accused
be produced before the Special Court under Companies Act on
14.12.2018. Copy of this order be handed over to the IO and
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accused as they have requested. Custody of all three accused
namely Mukesh Modi, Rahul Modi and Vivek Harivyasi is given
to SFIO for three days. File be sent to the Special Court under
the Companies Act."
7. On 13.12.2018 a proposal was made by SFIO seeking approval
of the Central Government for extension of time for completing
investigation and submission of investigation report in respect of 57 cases
which were at various stages of completion and the period granted for
completion of investigation had either expired or was near the expiry.
One of the cases referred to was that of the Group at Sl. No.24 of the
list. On 14.12.2018 the accused were produced before the Special Court
with a fresh application for remand. The prayer for extension of
custody was opposed by the accused inter alia on the grounds that the
period of completion of investigation as stipulated in the order dated
20.06.2018 had expired and as such all further proceedings were illegal.
During the course of proceedings, the proposal seeking extension in
respect of said 57 cases, where investigation had not been completed,
was placed before the Special Court. After going into the record, the
Special Court found that the application seeking further remand was
justified. It, therefore, extended the police custody of the accused till
18.12.2018. Para 6 of the Order dated 14.12.2018 passed by the
Special Court was:-
"6. Admittedly as per the provisions of Section 212(3) of the
Companies Act, the investigations ordered are required to be
completed within the specified time. But the issue is even if it not
so done, what should be consequences and whether further
proceedings or investigations shall be unlawful. The answer to
the mind of this court is simply no because the time frame
mentioned is to complete the investigations in a time bound
manner but the said time can be extended from time to time by
the same authority. And in this case all, after investigations when
the team submitted report to competent authority, which is the
Director of SFIO, he permitted the team to arrest the accused
and go for further investigations, which in the given facts and
circumstances amount to extension. Then the purpose of section
212(3) is just to grant sanction to investigate as per the procedure
provided under Chapter XIV of the Companies Act, 2013 and as
SERIOUS FRAUD INVESTIGATION OFFICE v. RAHUL MODI
[UDAY UMESH LALIT, J.]
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per sub-Section 6, the offence alleged is cognizable and
non-bailable and thus power has been granted to the SFIO to
arrest the persons involved and see their remand and then to file
a final report to the Central Government. And thus the issue of
filing a report before the court after arrest is mandatory but doing
so before the arrest of the accused is not a time bound exercise
that too violation of which can be legal impediment for further
investigation."
The proposal was accepted vide order dated 14.12.2018 passed
by the Central Government in respect of the Group and extension was
granted upto 30.06.2019.
8. On 17.12.2018 Writ Petition (Criminal) Nos.3842 & 3843 of
2018 were filed under Articles 226 & 227 of the Constitution of India
read with Section 482 of Cr.P.C. by Rahul Modi and Mukesh Modi
respectively in the High Court of Delhi. It was submitted that with the
expiry of period within which the investigation had to be completed in
terms of order dated 20.06.2018, all further proceedings including the
arrest of the respondents were illegal and without any authority of law.
The Writ Petitions therefore prayed for declaration that the investigation
carried out after 19.09.2018 was illegal and without jurisdiction and also
prayed for Writ of Habeas Corpus directing release from illegal arrest
made on 10.12.2018. The prayers in both the petitions were almost
identical and were as under:
A. "Issue a writ of mandamus or any other appropriate
writ/direction/order in the nature of a writ declaring that the
power of Respondents No.2 to 4 to carry out investigation
under Section 2012(2) Companies Act, 2013 after the expiry of
the time period is illegal and unconstitutional.
B. Issue a writ of mandamus or any other appropriate
writ/direction/order in the nature of a writ declaring that the
investigation carried out after 19.09.2018 in File No.SFIO/INV/
AOI/2018-19-AGC & L/842-966 vide order No.07/115/2018CL-II dated 20.06.2018 as illegal and without jurisdiction.
C. Issue a writ/direction/order declaring the arrest of the Petition
dated 10.12.2018 at New Delhi in the office of Respondent
No.2 by Respondent No.3, and proceeding emanating
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therefrom being without jurisdiction and illegal and the Petitioner
Rahul Modi be released forthwith.
D. Issue a writ of Habeas Corpus directing immediate release of
the Petitioner herein Sh. Rahul Modi from the illegal arrest dated
10.12.2018 at New Delhi and consequent illegal custody from
Respondent No.2 to 4 at;
9. These Writ Petitions came up before the High Court on
18.12.2018 and following order was passed:
"At request of Ms. Maninder Acharya, learned ASG appearing
on behalf of the Union of India, in order to enable her to obtain
instructions qua the extension of time for the submission of report
by the SFIO, the hearing of the petitions is adjourned."
On the same day the accused were produced before the Special
Court and after being satisfied that further custody was required in
order to complete investigation, the accused were remanded to police
custody till 21.12.2018. The relevant part of the Order of the Special
Court was:-
"2. The SFIO has placed before the undersigned complete noting
proceedings showing the investigations carried out by it from the
last date till today. As submitted by the counsel for the
complainant and after going through the case diary in the form of
noting sheets from the day the accused were handed to the
custody of the complainant till today, it comes out that admittedly
some more disclosures about the entire scam has been disclosed
by the accused persons relating to some new issues leading to
disclosure about undisclosed wealth and thus the request for
further custody of accused persons is required to trail and
confront them with the subsequent evidence and events and to
investigate the matter further as per the disclosures made by the
accused to unearth real facts of siphoning of the huge money, in
view of this investigations in the order dated 14.12.2018. As such,
finding the request to be genuine and the plea of custodial
interrogation to be necessary for the logical end of the entire
investigations, the application in hand is allowed and all the three
accused persons are remanded to further custody of the SFIO till
21.12.2018 upto 2.00 p.m."
SERIOUS FRAUD INVESTIGATION OFFICE v. RAHUL MODI
[UDAY UMESH LALIT, J.]
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10. The Writ Petitions came up before the High Court on
20.12.2018. The High Court issued notice making it returnable on
31.01.2019. The High Court thereafter proceeded to consider whether
immediate release of the respondents by way of ad interim relief was
called for. Both the sides were heard and the issues which arose for
consideration in the Writ Petitions were framed as under:
"a) Whether the ex post facto extension granted on behalf of the
Competent Authority is valid in law; and
b) Whether the vested rights created in favour of the applicants,
in the interregnum, when there was purportedly no legal sanction
to carry out the investigation against the applicants, renders the
said action, and in particular their arrest illegal, without
jurisdiction and contrary to law."
11. While considering the matter from the perspective of grant of
ad interim relief, as prayed for in applications, Crl. M.A. No.50033 of
2018 in Writ Petition (Criminal) No.3842 of 2018 and Criminal M.A.
No.50035 of 2018 in Writ Petition (Criminal) No.3843 of 2018 the
following points were framed:
"15. In view of the submissions made on behalf of the parties, the
issues that arise for consideration in the present applications are:-
"a) Whether this Court can in a proceeding for habeas corpus
under Article 226 of the Constitution of India, test the
correctness, legality and validity of an order of remand, passed by
a Competent Magistrate/ and
b) Whether this Court has the territorial jurisdiction to adjudicate
the present habeas corpus proceedings, in view of the
circumstance that the remand orders were rendered by a Competent Magistrate at Gurugram, which have not been specifically
assailed in these proceedings?"
12. The High Court by its order dated 20.12.2018 directed
release of said Rahul Modi and MukeshModi on interim bail, during the
pendency of the writ petitions, on their furnishing personal bond in the
sum of Rs.5 lakhs each with 2 local sureties in the like amount subject to
conditions stipulated in the order. During the course of its order
following observations were made by the High Court in paragraphs
22 to 30:-
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"22. On a conspectus of the above decisions and in the light of
the arguments advanced on behalf of the parties, what we are
called upon to determine at this stage is whether the arrest of the
applicants was illegal and without the authority of law; and whether
the subsequent remand orders, which are cited to sanctify the
arrest, are beyond the pale of examination by this Court in the
present applications.
23. There is no denying the fact that, the Competent Authority
vide its order dated 20.06.2018 directed the SFIO to conduct an
investigation into the affairs of the subject entities, in public
interest. There is also no quarrel with the circumstance that, the
period specified by the Competent Authority in the said order dated
20.06.2018 lapsed on 19.09.2018. There is also no dispute with
regard to the fact that, the SFIO sought an extension of time,
from the Competent Authority, to carry out further investigation
under the mandate of the provisions of Section 212 of the said
Act, only on 13.12.2018, admittedly two and half months after
the period granted to them by the Competent Authority for the
said purpose, had come to an end by efflux of time.
24. There is also no quarrel with the circumstance that, the ex
post facto extension granted by the Competent Authority,
retrospectively, was granted only on 14.12.2018.