Can Other Law Enforcement Agencies Take Up Investigations Parallel to SFIO Investigations? Ashish Bhalla v. State: A Case Comment

In the decision of Ashish Bhalla v. State¹, the Delhi High Court (the Court) held that while investigations are pending with the Serious Fraud Investigation Office (SFIO) for alleged violations of the Companies Act, 2013² (the CA, 2013), parallel investigations cannot be undertaken by another investigative agency relating to the same allegations.

Although the decision holds that subsequent investigations by other investigating agencies would be impermissible where the complaint being investigated is identical to that being investigated by the SFIO, it does not offer guidance to respond to a scenario where the complaint being investigated by the SFIO gives rise to special offences recognised under different laws.

In this article, we shall examine the findings of the High Court and the possible implications of this decision which might contribute to further development of law in this area.

Facts in issue and arguments raised by the parties

Mr Vishvendra Singh (complainant) had filed a complaint with the Ministry of Corporate Affairs (MCA) alleging that Mr Ashish Bhalla and his family members were involved in siphoning off funds and running a Ponzi scheme through the WTC Group of Companies. Pursuant to this complaint, the SFIO commenced investigations into the affairs of the WTC Group of Companies.

Simultaneously, the complainant filed another complaint before the Commissioner of Police and the Economic Offences Wing (EOW). The allegations raised in this complaint were identical to those levelled in the complaint before the MCA. Although the SFIO was already seized of investigations against Mr Bhalla and others, the EOW registered a fresh first information report (FIR) against the Mr Bhalla and his family members.

In these facts, Mr Bhalla approached the Court under Section 482³ of the Code of Criminal Procedure, 1973 (CrPC), seeking that the FIR registered by the EOW be quashed.

The thrust of Mr Bhalla’s case⁴ was that the continuation of investigations by the EOW pursuant to the impugned FIR was impermissible by virtue of Section 212(2)⁵ of the CA, 2013.

Section 212(2) of the CA, 2013 provides that while the case has been assigned to the SFIO by the MCA, no other investigating agency may proceed with investigations in respect of any offences under CA, 2013. Mr Bhalla contended that by virtue of Section 212 of the CA, 2013, the SFIO investigation took precedence over the investigations under the CrPC. Accordingly, it was argued that the impugned FIR registered by the EOW ought to be quashed.

On the other hand, the complainant and the State contended that the purpose of Section 212 was to ensure active mutual cooperation between the relevant investigating agencies. Consequently, Section 212 ought not be read as disallowing proceedings or investigations that can run in parallel to the SFIO’s investigations.

In any event, it was argued that the offences under the CA, 2013 were different from those under the Penal Code, 1860⁶ (IPC). Therefore, the initiation of investigation by the SFIO could not lead to the quashing of parallel investigations by the police under the FIR.

Findings of the Court

The Court quashed the impugned FIR registered by the EOW insofar as Mr Bhalla was concerned and directed the investigation to be transferred to the SFIO.

Factually, the Court held that the two complaints were identical, including in their “language, tenor, punctuation, formation or like”. The only notable difference between the two was that while the first complaint (filed before the MCA) stated that the investigation could only be conducted by the SFIO, the second complaint (filed before the EOW and police) stated that it could only be conducted by the EOW. Further, the Court held that by asking for the complaint to be investigated by the SFIO, the complainant had effectively admitted that the SFIO was the only expert body capable of examining the allegations.

The Court concluded that Section 212 made it clear that the legislature intended for the SFIO to exclusively investigate into the affairs of the company, in relation to offences under the CA, 2013. Further, the Court placed reliance on Section 212(17)(a) of the CA, 2013 which provides that once an investigation is initiated by the SFIO, documents or information obtained from other agencies would stand transferred to the SFIO. Based on a joint reading of Sections 212(2) and (17)(a), the Court held that the SFIO investigation would take precedence over investigations being conducted by other agencies. Further, the Court relied on the decision Serious Fraud Investigation Office v. Rahul Modi⁷ where the Supreme Court had observed (in passing) that the term “assigned by the Central Government to (the SFIO)” in Section 212(3) of the CA, 2013 implies a “complete transfer” of investigation from any other agency to the SFIO.

The Court also recognised that the SFIO, being an expert body specifically established to investigate offences under the CA, 2013, was better placed to investigate the allegations. The Court recognised that the SFIO was established as an expert body considering the complexity of offences involved in relation to the affairs of companies. Consequently, no parallel proceedings before the EOW ought to be permitted if the SFIO was already seized of the investigation. The Court also found that while the EOW was unable to investigate offences under the CA, 2013, it was clear that the SFIO could proceed with investigating offences under both the CA, 2013 and IPC. In any case, as it is established law that provisions of a special law (here, the CA, 2013) override the provisions of a general law (here, CrPC), if a conflict were found between the provisions of the CA, 2013 and CrPC, the provisions of the former would override those of the latter. For these reasons, the Court found that the SFIO should exclusively investigate the allegations.

Finally, considering that the allegations in both complaints were identical, the Court found the impugned FIR liable to be quashed on grounds of procedural justice. The Court concluded that the impugned FIR was filed with ulterior motives and was nothing more than an attempt to “wreak (sic) vengeance” upon those accused. In any case, it is settled law that two FIRs cannot subsist especially when they arise out of the same set of facts and allegations.⁸ Moreover, the Court found it undesirable to leave open the possibility of different agencies investigating the same set of facts to arrive at divergent findings and conclusions.

In light of these findings, the Court directed for a part-quashing of the FIR against Mr Bhalla (the lone petitioner) while keeping the FIR open as against the other persons accused, as they were not a party to the application filed before the Court.

Possibility of parallel investigations concerning offences under different laws

It is worth mentioning that the findings of the Court appear to have turned significantly on the fact that the two complaints filed against Mr Bhalla and the accused were identical and consequently, the subsequent complaint (and consequent FIR) was impermissible as it amounted to an abuse of process.

However, this does not address scenarios where the allegations made in the complaints give rise to offences recognised under the CA, 2013 and other special laws. For instance, if the complaint before the SFIO raises allegations of bribery, would a subsequent investigation of offences under the Prevention of Corruption Act, 1988⁹ be permissible? The Court in Ashish Bhalla case¹⁰ does not offer a clear answer.

Three possible approaches to deciding the permissibility of investigations parallel to the SFIO’s investigations are discussed below.

Option 1: SFIO to have exclusive jurisdiction over all offences recognised under all laws

The Court in Ashish Bhalla case¹¹ recognised that the SFIO can permissibly investigate offences under the IPC and other laws. It could be contemplated that the SFIO should have exclusive jurisdiction over all investigations of offences recognised under the CA, 2013, IPC and other laws, once it is seized of investigations.

In the more recent decision of R.K. Gupta v. Union of India¹², the Delhi High Court, while holding that the SFIO can investigate offences under IPC and other laws, observed that investigations under IPC or any other law are to be conducted exclusively by the SFIO:

54. … If during the course of investigation under the present Act, the investigating officer concerned comes across the commission of offences punishable under the IPC or any other law relating to the transactions being investigated, then the same cannot give rise to distinct proceedings. This would imply that the SFIO would have exclusive jurisdiction over investigations over all offences under all laws as long as they “relate to the transaction being investigated.”

However, the decision in R.K. Gupta case¹³ cannot and ought not to imply that offences recognised under laws other than the CA, 2013 are to be exclusively investigated by the SFIO, and that no parallel investigations whatsoever should be permitted.

Firstly, such an interpretation would be inconsistent with the wording of Section 212(2) which only prohibits parallel investigations relating to offences recognised under the CA, 2013. Section 212(2) does not expressly prohibit parallel investigations relating to offences which are completely unrelated to those recognised under CA, 2013.

Secondly, this interpretation is inconsistent with Section 212(17)(b) which recognises that in some situations the SFIO may be required to supply information to other investigating agencies which are seized of investigations. Section 212(17)(b) clearly implies that at least in some situations and in relation to some offences, parallel investigations over the same facts being investigated by the SFIO would be permissible.

Thirdly, such an interpretation could potentially lead to absurd results. For instance, where the SFIO (over the course of its investigations) finds evidence of discrepancies in the tax filings/money-laundering concerns, the above interpretation might suggest that the SFIO investigate the offences even under the relevant tax laws or the Prevention of Money-Laundering Act, 2002¹⁴. It would be difficult to accept that the SFIO would have the exclusive authority to examine such violations since specialised agencies have been set up to examine these offences. Also, these special laws have specific mechanisms to deal with offences being investigated such as powers of arrest, powers of search and seizure, attachment of assets, etc.

Fourthly, the above observations of the Court in R.K. Gupta case¹⁵ were incidental to the findings. On the facts of the case, Mr R.K. Gupta was one of the key managerial personnel and the company secretary of the company being investigated. The SFIO arrayed him as an accused party for violations of Sections 417¹⁶, 420¹⁷ and 120-B¹⁸ IPC. Mr Gupta argued, among other things, that the SFIO could not have conducted investigations into offences under the IPC. The Delhi High Court rejected this argument and held that the SFIO could look into offences under the IPC. However, the Court’s observations suggesting that the SFIO’s investigations “cannot give rise to distinct proceedings” was unnecessary for the Court to arrive at the above conclusion.

Therefore, it would be incorrect for the law to provide that the SFIO has exclusive jurisdiction to investigate all offences which relate to the facts which have been alleged by the complaint before it. Where specialised agencies have been set up to investigate special offences, the SFIO ought not to have exclusive jurisdiction to investigate such offences.

Option 2: SFIO to have exclusive jurisdiction in respect of “any offence under CA, 2013” and offences under IPC and other laws which overlap with offences under CA, 2013

The second option is for the SFIO to have exclusive jurisdiction over offences which are recognised under the CA, 2013 as well as such offences recognised under IPC and other laws which overlap with or are incidental to offences under the CA, 2013. For instance, it could be suggested that parallel investigations would be impermissible where the SFIO, while investigating the affairs of the company, finds instances of the company’s officials fraudulently forging company documents causing loss to the company. The fraud played by the company’s officials would clearly be punishable as “fraud” under Section 447¹⁹ of the CA, 2013. Apart from this, the specific instances of forgery committed by the company would be separately punishable under Section 463²⁰ IPC. The interpretation proffered in the second option would suggest that the SFIO, while investigating “fraud” committed by the company’s officials under the CA, 2013, would also have exclusive jurisdiction over the incidental offence of forgery.

Section 212(2) of the CA, 2013 provides that where a complaint has been assigned to the SFIO, no other investigating agency shall proceed with investigations “in respect of any offence under (CA, 2013) and in case any such investigation has already been initiated, it shall not be proceeded further with”. In such cases, the investigation (and relevant documents and records) would be transferred to the SFIO.

The CA, 2013 recognises a number of offences in Chapter 29. The broadest offence under the CA, 2013 lies in Section 447 which punishes “fraud”. Explanation (i) to Section 447 provides for an expansive definition of “fraud” as including any act or commission committed by any person with the intent to deceive, to gain undue advantage of or to injure the interests of the company, its shareholders, creditors, or any other person.²¹

The Court in Ashish Bhalla²² recognised that Section 447 of the CA, 2013 contains an “all-encompassing” and broad definition of “fraud”. On facts, the Court in Ashish Bhalla²³ found that the allegations raised by the complainant in the second complaint before the EOW could well be addressed by offences recognised under the provisions of the CA, 2013 (specifically, Sections 447, 448²⁴ and 452²⁵ of the CA, 2013) and that parallel investigations under IPC would be wholly unnecessary.

Considering the wide amplitude of the offence in Section 447 of the CA, 2013, allegations which would constitute “fraud” under Section 447 may overlap with offences ordinarily recognised under the IPC. Going by the decision of the Court in Ashish Bhalla²⁶, the recognition of such allegations under Section 447 (or for that matter any other offence in the CA, 2013) would ensure that the SFIO have exclusive jurisdiction over such offences. Therefore, where the offence would be considered an “offence under (CA, 2013)” for the purposes of Section 212(2), parallel investigations relating to similar offences by agencies other than the SFIO would be impermissible.

Although this interpretation provides close fidelity to the provision of the CA, 2013, the lack of clarity in the definition of fraud in Section 447 makes it difficult to identify offences for which parallel investigations ought to be permissible. Given the breadth of the definition of “fraud” in Section 447 of the CA, 2013, it would be difficult to weed out offences which do not constitute an “offence under CA, 2013” although they are recognised in other laws for which parallel investigations may be permissible. Offences relating to the prevention of corruption, tax fraud, or money-laundering could potentially be characterised as injuring the interests of the company, its shareholders, creditors, and stakeholders. Therefore, the wording of Section 212(2) does not assist us in providing an answer as to the kind of offences for which parallel investigations ought to be permissible.

Option 3: Parallel investigations by specialised agencies would be permissible

It may also be suggested that investigations parallel to those of the SFIO would be permitted based on the nature of offences being alleged in the complaint. Particularly, if the complaint alleges facts which give rise to offences separately recognised under special laws, which themselves identify/designate specialised investigating agencies to investigate the offences, parallel investigations ought to be permitted.

This approach is consistent with the purpose for which the SFIO was established in 2003. The Naresh Chandra Committee in 2002 recommended the setting up of a specialised investigating body to investigate corporate frauds in the backdrop of large stock market frauds and corporate governance scandals, globally.²⁷ The Committee felt that the complexity of modern financial frauds warranted the setting up of a multidisciplinary body of experts, along the lines of the SFIO in the United Kingdom. The Committee suggested that the expert body only take up investigations “characterised by complexity in the sense of having interdepartmental and multidisciplinary ramification and involving large sums of money”.

The recommendations of the Naresh Chandra Committee make it clear that the SFIO was set up to address complex investigations which have wide ramifications that adversely impact the public interest, at large. Given the multidisciplinary ambit of the SFIO, it should be capable of investigating ancillary offences (which fall within the broad definition of “fraud” in Section 447). This is consistent with the finding of the Court in Ashish Bhalla case²⁸ and R.K. Gupta case²⁹ that the SFIO may investigate offences under the IPC and other laws. However, there may be other special offences which are meant to be investigated by specialised bodies (for instance, tax authorities or the Directorate of Enforcement). For such investigations, the SFIO would not be the appropriate body to conduct investigations.

Therefore, while the SFIO ought to have exclusive jurisdiction over most white-collar offences recognised under the IPC (like forgery, cheating, or criminal breach of trust), if the allegations in the complaint give rise to entirely separate offences that are recognised under other special laws (which also recognise specialised investigation agencies), parallel investigations relating to such offences should be permissible.

Conclusion

Through the decision in Ashish Bhalla³⁰, the Court has held that in cases where investigations are ongoing with the SFIO, parallel investigations concerning the same allegations cannot be investigated by a different investigating body. As indicated earlier, the Court’s decision does not address scenarios where the allegations raised before the SFIO gives rise to special offences recognised under different laws (like bribery or money laundering). In such cases, it is unclear if the parallel investigations would be permissible. The Court has helpfully pointed out the breadth of the offence of “fraud” under Section 447 of the CA, 2013. As per our analysis above, although the SFIO has the power to investigate incidental offences under laws apart from CA, 2013, where offences recognised under special laws are being investigated by statutorily recognised specialised bodies, parallel investigations by those bodies should be permissible.