Supreme Court rejects Centre's review petition against verdict on private complaints in Companies Act fraud cases

The Supreme Court on Monday dismissed a review petition filed by the Central government against its judgment holding that a special court cannot take cognisance of certain Companies Act offences linked to fraud based on private complaints. [Union of India v. State of Telangana]

A Bench of Chief Justice of India (CJI) Surya Kant and Justices K Vinod Chandran and Joymalya Bagchi was dealing with the Centre's plea seeking review of the Court's January 9 judgment concerning the bar contained in the second proviso to Section 212(6) of the Companies Act, 2013.

While declining to reconsider the judgment, the Court clarified that the Central government was at liberty to exercise its powers under the second proviso to Section 212(6) and authorise any officer, by a general or special order in writing, to institute the complaint.

The clarification assumes significance since Section 212(6) permits cognisance upon a written complaint by the Director of the Serious Fraud Investigation Office (SFIO) or an officer of the Central government authorised by a general or special written order.

Additional Solicitor General Aishwarya Bhati, appearing for the Centre, raised concerns over the implications of the judgment for investigations which were not conducted by the SFIO, including those involving the Registrar of Companies (ROC).

The Court indicated that the Centre could address such situations by exercising its statutory power to authorise an officer to institute the complaint. It made clear that its earlier ruling concerning the maintainability of a private complaint did not prevent the government from using the route expressly provided under Section 212(6).

The judgment under review had been delivered by a Bench of Justices JK Maheshwari and K Vinod Chandran in January this year.

The case arose from a dispute concerning the management and control of a private company. A private complaint alleged, among other things, that former directors had illegally convened a meeting, fabricated resolutions and made false statutory filings with the ROC.

The Special Court for Economic Offences at Hyderabad had taken cognisance of offences under Sections 448 and 451 of the Companies Act along with several offences under the Indian Penal Code (IPC). The Telangana High Court subsequently declined to quash the criminal proceedings.

The Supreme Court, however, held that Section 448, which concerns false statements, could not be read in isolation since the punishment prescribed for the offence is linked to Section 447, which deals with fraud.

It consequently held that an offence under Section 448 was an offence "covered under Section 447" for the purposes of Section 212(6). The statutory restriction on taking cognisance therefore applied, and cognisance could not be taken merely on the basis of a private complaint.

The Court had accordingly quashed the proceedings insofar as the offences under Sections 448 and 451 of the Companies Act were concerned. It had, however, allowed the prosecution concerning the IPC offences to continue before the appropriate court.

In dismissing the review petition today, the Court maintained this position while expressly preserving the Centre's power to authorise an officer to institute a complaint in accordance with Section 212(6).