Karvy Stock Broking Limited v. The Union Of India And 5 Others

HIGH COURT FOR THE STATE OF TELANGANA AT HYDERABAD FRIDAY ,THE THIRTY FIRST DAY OF DECEMBER TWO THOUSAND AND TWENTY ONE PRESENT THE HONOURABLE THE CHIEF JUSTICE SATISH CHANDRA SHARMA AND THE HONOURABLE SRI JUSTICE N.TUKARAMJI WR lT APPEAL NOS: 327 AND 328 OF 2020 WA.No. 327 of 2020:

Writ Appeal under clause 15 of the Letters Patent Appeal preferred against the order dated 26-08-2020 in WP.No.8997 ot 2020. on the file of the High Court. Between:

Karvy Stock Broking Limited, Karvy lVillennium, Plot No.31/P, Nanakramguda Financial District, Gachibowli Hyderabad Rangareddi, Telangana - 500032, lndia, Represented by its Vice-President (Legal) Mr. Ch. Viswanath ...APPELLANTMRIT PETITONER AND

1. The Union of lndia, Represented by its Secretary, Nlinistry of Corporate Affairs, having office at A Wing, Shastri Bhawan, Rajendra Prasad Road, New Delhi, Delhi 1'10001

2. Office of Director General, tr/inistry of Corporate Affairs, Kota House Annexe, 1 Shahjahan Road, New Delhi - 1 10 011.

3. Serious Fraud lnvestrgation Office,2nd floor, Pt. Deendayal Antyodaya Bhawan, CGO Complex. Lodhi Road, New Delhi-1 10003.

4. Regional Director, South East Region, having office at 3rd Floor, Corporate Bhavan, Bandlaguda, Nagole, Tattiannaram Village, Ranga Reddy District, Hyderabad - 500 068, Telangana

5. The Registrar of Companies, Having office at 2nd Floor, Corporate Bhavan, GSI Post, Thatti Annaram, Nagole, Bandlaguda, Hyderabad - 500 068

6. Assistant Registrar of Companies, Office of the Registrar of Companies, 2nd Floor, Corpoiate Bhavan, GSI Post, Thattiannaram, Bandlaguda, Hyderabad - 500 068.

...RESPONDENTS/RESPONDENTS lA NO: 1 OF 2020 Petition under Section 151 CPC praying that in the circumstances stated in the affidavit filed in support of the petition, the High Court may be pleased to suspend the operation of the notices dated 16.06.2020 and 19.06.2020 issued by Respondent No.2 by suspending the Common Order dated 26.08.2020 in WP No. 8997 of 2020 passed by the Learned Single Judge.

lA NO: 2 OF 2020 Petition under Section 151 CPC praying that in the circumstances stated in the affidavil filed in support of the petition, the High Court may be pleased to vacate the order dated 1410912020 in lA No 1 of 2020 in WA No 327 ol 2020. IA NO: 3 OF 2020 I

Petition under S lction 151 CPC praying that in the circumstances stated in the affidavit f iled in sup rcrt'ot't"ne i"titi"i ifi" ilign Court may b€: pleased to extend the tnterim order datet 14 ;9 ;b;6-i; iA ruo 1-ol 2o2o in WR t'to 327 or 2020 titt in" Ji"potrr of the pres rnt Writ Appeal'

Counsel for the Appell rnt:SRl' AVINASH DESAI Counsel for the Respo ldents: SRI' NAMAVARAPU RAJESHWAR RAO' ASST. SOLICITOR GENERAL WA NOi 328 oF 2020 Writ Appeal undt r clause '1 5 of the Letters-Patent Appeal Preferred Against the Order dated.26 tovlz[2c p"t"l i" WpL'f o'soz+ ot 2020 on the file ':f the High Court' Between:

Karvv Stock Brc <ing Limited' Karvy Millennium' Plot No'31/P Nanakramguda 'iini i.i,i- iji.t,ic, d acn io#i!; [r.*"#f (1lr:fi ifi :,41. " ff :X11a n a - 500 0 32 inJL' Reptesent rd by its Vi ...A''ELLANTMRIr pETlrtoNER AND l r he u nion of r nd a,. Repre'.?1l",.t tt*" ::fi:::ffi iyJ!'i?.ts,"J:R ff #If, i : having office at I -Wing' I Delhi 1 10001 ' Sfl:i.illl"'fi8:". R"ff'3:,Hi'il33lf"*'rate Atrairs' Kota Ho:se Annexe' I ' #3 €JJii"Xl I txl'.Pfi ::! o#trD'# jl?Bli Pr Deend ava I Antvo d ava B hawan' 4.ReoionalDirectc',southEastRegion,having.ofiiceat3rdFloor'corporate Bhivan. Bandla uda, *'il'il i;ili;;;t;;n.,Viltase' Ranga Reddv District' ftyOeraUaO - 50( 068, Telangana

5. The Registrar of Companies' Having. office at2ndfloor' Cor3orate Bhavan' GSI post. Thatti Arrn rram, ^ilb",r"r".

ai"dt;guda, Hyderabad - 50() 068

6. Assistant Regist ar of Companies' Office of the Registrar of rlonrpanies' 2nd Froor, corporat. enuu"Xl'35i'i;;;iiffiC;;iraml Bandtasuda' Hvderabad - 500 068, ...RESPONDENITS/RESPONDENTS IANO:1OF 2020 Petition under iection 151 CPC praying.that in the circumstances stated in the affidavit fited in sr ppoi ot'in"i'"i,tio;,liu'if'gf,Court may be pleased to direct the Respondents nol to t'f" ''"i coercive steps agarnst the Appellant includtng il;".i[ffi;;nder S< 'tion212 of ihe companies Act' 2013'

IA NO:2 oF 2020 petition under lection 151 cpc praying that in the circrumstances stated in the affidavit filed in st 'po't'o'f i# p""ilt'"t' tn" {:1 9o"t may be pltrased to suspend the operation of tn , ord"er " 'i.iJi'l)'diizoz"o i..u"o by Respondent No 2bv suspendins the comr on dti'"ti?t"J xitiuzozo in wP No 5024 01 2020' lA NO: 3 OF 2020 Between:

The Union of lndia, Represented by its Secretary' Mrnistrv of Coroorate Affairs' having office at A-wins, snr"iii"dnl'i'"', R;j;;6i' Prasad Road' New Delhi' Delhi 1 10001 Office of Director General, Ministry of Corporate Affairs, Kota House Annexe' I Shahjahan Road, New Delhi - 'l 10 01 1 '

Serious Fraud lnvestigation Office, 2nd t!gqt,.l^t Deendayal Antvodaya Bhawan' COO Comptex. Lodhi Road, New Delhi-1 10003'

Reoional Director, South East Region, having office q! 3rd Floor' Co-rporate ij;;;;,'#;;'i;;rd"nrs"l;'

raitiannaram Village' Ranga Reddv District'

Hyderabad - 500 068, Telangana TheReoistrarofCompanies,Havingofficeat2ndFloor'C-o.rpo.rateBhavan,GSl p,iit. ir{r]ii Atraiim, ttasote' Bandlaguda, Hvderabad - 500 068 AssistantReqistrarofCompanies,officeoftheRegistrarofCompanies,2nd 'ii'";;, ilrp"irG anauin, dSt poit, Thattiannaram, Bandlaguda' Hvderabad - 500 068.

,..PETiTIONERS/RESPONDENTS AND Karvv Stock Brokinq Limited, Karvy lVlillennium, Plot No.31/P, Nanakramg-uda ii;u;.;i-Diti;ici, dacr,ioowti, Hvoerabad Rangareddi, Telangana - 500032' inJL, nep*t"nted by its Vice-Prelident (Legal) lVr. Ch Viswanath ...RESPONDENT/WRIT PETITIONERYPETITIONER Petition under section 151 CPC praying that in the circumstances stated in the affidavit filed in support of the petition, the High court may be pleased to vacate the order dated 14109/2020 in lA No 2 of 2020 in WA No 328 ol 2020' IANO: 4 OF 2020 Petition under section 151 CPC praying that in the circumstances stated in the affidavit filed in support of the petition, the High court may be pleased to extend the tnterim order dated 14109t2020 in lA. No. 2 0f 2020 in wA No. 328 of 2020 till the disposal of the present Writ Appeal.

Counsel for the Appellant:SRl. AVINASH DESAI Counsel for the Respondents: SRl. NAMAVARAPU RAJESHWAR RAO, ASST' SOLICITOR GENERAL The Court delivered the following:

J THE HON'BLE THE CHIEF JUSTICE SATISH C AND HANDRA SHARMA THI HON'BLE SRI JUSTICE N. TUNARAMJI WI IT APPEAL Nos.327 AND 32A OF 2020 coMMON JUDi IMENT: [\'t tlLe ]lott bi" Ihe '-ltLel 'lL1sttt1 's rilsl ( /r'1rr''rrr s/r'r'l;r(r/ Both th' .'Iirit appeals are arising out of a common orderandaStheissueinvolvedinboththeu,ritappealsis one and the strme, thel- are being disposed of b)' this common orde '.

2. The present writ appeals are arising out of a common order dated 2't.O8.2O2O, passed in W'P Nos'5O24 and 8997 of 2O2O by tlre learned Singie Judge dismissing the u:rit petitions.

3. The facr s of the case reveal that 'Lhe appellant/ petitioner is r. companY registered under rhe Compantes Act with the Registrar of Companles' Hvderatrad and its maln cbject i; tc carry out the business as ti registered stock broker i.nd a depository participant 'lhe undisputed f acts of th e cerse reverrl that the second reslror-Ident/ Director Gene'a1, Ministry of Corporate Aflairs' t1-rrough its ioint Directc : irr exercise r-rf powers conlerre<1 under Section 212( \{al and (c) of the Conrrrarries Act' 2013 orclered inve: tigation into the affairs of thc appellant cclnpany, rrid' Or:der dated '27 't)2'2O2O and in pursi'rance of the Order rl,atr:'l 27'A2'2O2O' the investigatior officer

issued notice dated 16.06.2020 under Section 2i7 of the companies Act calling for certain information and vide communication dated 19.06.2O2O 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.5O2 4 of 2O2O challenging the Order, d,ated, 2Z.02.2020 passed by the second respondent under Section 212(l) (a) and (c) of the Companies Act, and filed another writ petition i.e., W.P.No.8997 of 2O2O challenging the notices dated 16.06.2020 and 19.06.2020, issued under Section 2lT 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 fiies and emails from the systems of Mr. c.Parthasarthy, cha,rman and Managing Director of the )

I appellant co npany as well as certain other elnploYees, using anti-fc -ensic tools. The SEBI vide its er parte ad interim order dated 22.11.2019 issued various clirections relating to th : appellant company. The SEBI prohibited tile appellant col tpany from taking new clients lor broking activities, di'ected the depositories, namety National Securities t epository Limited (NSDL) and Central Depository Sr rvices Limited (CDSL) not to act lrpon on the instructions rf the appellant company in prtrsuance of Power of Atto ney and also restricted transfer of securities from one DP e ccount of the appellant company

5. The fact ; further reveal that there were cotnplaints from the inve',tors and continuous reporting in press and visual media about the fraudulent activities of the appellalt cor lpany and in those circumstances, the Inquiry was o'dered under Section 206 of the Corrtpanies Act by the Reg strar of ComPanies.

6. The statr tory provisions, namely Sections 206' 2O8' 210 and 212 ( | of the Companies Act, which are nocessary for adjudicatio r of the present writ appeals, are reproduced as under:- "2O6. Powt,r to call for information, inspect books and conduct in luiries. - (1) Where on a strLttinv of anv clocument I led by a compan] or on ilnv inlbrrna titln received bv nitn, the Registrar is ol thc ollinton t r?rt :llr\ I

+ 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, 'a'ithin such reasonable time, as may be specificd in the notice.

(2) On the receipt of a notice under sub-section (1), it shall be rhe dury 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 vuithin 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 ivithin the time specified under sub_section (1) or if the Registrar on an examination of the documents furnished is of the opinion that the inlormation or explanation lurnished 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 lurther 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 uncier this subsection, the Registrar shall record his reasons in writing for issuing such notice.

(4) II the Registrar is satisfied on the basis of iniormation available with or furnished to him or on a representation

!

I made to lim by anv person that the business of a companv is being < arried on lor a fraudulent or unla*,ful purpose or not in co npliance rvith the provisir:ns ol'this Act or il the grievance i of investors are not being addrr.ssed, thc Registrar may, after informing the company of the allegation i made against it by a written order, call on the company to furnish in u'riting any infornration or explanatic n on matters specified in the order within such time as hr may specify therein and carry out su(--h inquiry as he dee ns fit after providing the companl,a reasonable opportunit y of being heard:

Provided that the Central Government ma1 , if it is satisfied t rat the circumstances so .tvarrant, Cirect the Registrar c: an inspector appointed by it for rhe purpose to carrv out t' re inquiry under this sub-section: Provided urther that where business of a coml;an-y has been or is being carried on lor a fraudulcn r or u niau'ful purpose, e'ery officer of the company who is irr dclerr-rlt shall be pu-rishable for fraud in the manner as provided in section 447

(5) Withor t prejudice to the foregoing provisions ol this section, the Central Government may, il it is satisfied that the circum: tances so \ /arrant, direct inspection of books and papers of a company by an inspector appointed by it for the purp rse.

(6) The Ce ntral Government may, having regard to the circumstanc:s by general or special order, authorise an,v statutory aL lhority to carry out the inspection of books of account of a company or class of companies.

(7\ lf a c{ mpany fails to furnish any informarion c.,r explanation rr produce any document required under thts section, the , ompany and every officer of the comp:rrlr,, 'r'ircr is in default shatl be punishable with a llne rvhit'h rritv extend to on: lnkh rupees and in the case ol a contintting failure, with an additional fine which mav extend to i'ivc hundred rup res for everv da-v after the first during u'hich the failure co rtinues. "

2O8. 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 alfairs of the company is necessary giving his reasons in support.

21O. Investigation into affairs of company:- (1) Where the Central (iovernment is of the opinion, that it is necessary to investigate into the affairs of a company,- (a) on the receipt ol 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 iato affairs of Company by Serious Fraud Investigation Office:- ( 1) Withour prejudice to rhe provisions of scction 2l O, u'here the Central Governmcnt is of the opinion, thar it is necessary to investigate into the alfairs of a company by the Serious Fraud Invcsrigation Office-

l (a) on 'eceipt of a report of the Registrar of inspector un< er Section 2O8;

on ntimation of a special resolution passed b-u" a (b) con pany that its affairs are require<l to be invr stigated;

in t re Public interest; or on request from any Department ol the Cr:nt ral (c) (d) Go\ ?rnment or a State Government'

the Centr rl Government may' b]' order' assigr thc investigatit n into the affairs of the said comparrv to the Serious Fr rud lnvestigation Office and its Dircctor' tnav designare : uch numbcr of inspectors' as he mav cotlsidcr necessary ')r the purpose of such investigzrtion " 7 .

In the li tht of the aforesaid statutoryr provisions' the respondent Ir c.6/Assistant Registrar of Compani<:s issued a letter dated 03. l2'2['g calling for certain inlbrmation of the appellant company with regard to the currellt status and investiga ion of SEBI and the action taken against the appeliant co npany and its group companres and in pursuance o1 the same, the aPPellant comPanv submitted its replY on 3.12.2O1g. The facts further reveal that the respondent N c.6/Assistant Registrar of Compztnies issued a notlce on 14.O7.2O2O under Section 206(1) ol the Companies 1 ct calling upon the appellant rlonlpanv to furnish som{' more information and documents within seven daYS ,,f receipt of such notice and the appeliant company so -rght four weeks time vide lett(lr dated to thre aPPellant /n/ 22.O1.2O2O rut time was not granted

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.O1.2O2O and submitted a preliminary reply and sought time to submit some more documents and also prayed lor grant of opportunity of personal hearing. The appellant company at that point of time.preferred again a rvrit petition, i.e., W.P.No.3143 of 2020 before this Court stating that they li,ere not given time to respond to the letter dated 14.O1.2O2O and therefore, the action of the respondents is bad in lau,.

In the aforesaid case, the learned Assistant Soiicitor General appeared in the matter and categorically stated that the respondents wili 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.O2.2A2O.

8. The appeilant company thereafter requested the respondents vide letter dated 20.02.2020 stating that an opportunity of hearing be granted to the appeliant company and as allegedly no response was received, the

r) ) appellant co npany preferred another writ petition, i.e., W.P.No.4'.42 of 2O2O and in the aforesaid r:ase, it was brought to th: notice of this Court that based upon the Inquiry Repc:t dated 24.O2.2O2O submitted b-v- the Registrar of C rmpanies, the Office of the Director General has passed an Order dated 27.O2.2O2O clirecting investigation nto the affairs of the appellan: company under Section 212 (1)(a) and (c) of the Companies Act' g. Aggrieved by the aforesaid order. the appellant company prefe'red another writ petition, i.e., W P No'5O24 of 2O2O. The r:spondents have also issued notices under Section 217 ol the Companies Act dated 16'06 '2O2O and 19.06.2020 a rd against the aforesaid nor-ices, the appellant com )any preferred another writ petition, i'e" W.P.No.8997 o12O2O.

10. Learned c runsei for the appellant/petitioner company has vehementll argued before this Court that the appellant company has n lt been granted an opportunity as provided under Section 206(a) of the Companies Act and a Report was submitted by the Registrar of Companies rvithout granting an oI portunity to the appellant company and therefore, the order daled' 27'O2'2O2O deserr'es to be quashed. Another ground raised by the appellant compf,ny J

is that the Central Government has not formed any opinion based upon t1-re Report submitted by the Registrar of Companies AS required under Section 2lO 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.5O24 of 2O2OtPetition under Article 226 of the Constitution of lndia praying that in the circumstances stated in the affidavit filed therer.r'ith, rhe High Court may be pleased to (i) Issue u,rit of mandamus or any other appropriate writ, order or direction declaring that the action of respondcnt No.2 in issuing order dated 27.02.2O2O is in contravention of the provisions of the Companies Act, 201 3 and is illegal, arbitrary and unconsti tutional.

(ii) lssue u,rit 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, 20 1 3, without following the procedures under Sections 206 to 208 of the Companies Act, 20 13, without awaiting the final decision of SEBI.

W.P.No.8997 of 2O2O:- Petition under Article 226 of the Constitution of India praving that in the circumstances stated in the affidavit flled therewith, the High Court may be pleased to (i) Issue r.r,ri t of mandamus or anv other appropriate u,rit, order or direction declaring that the action of respondent No.3 in issuing Nolice No.SFIO/ INV/ UNIT-II/ t 12t4-223lK;BLl2o2o I t /

i II 19:\89 /2O2O, dated 1610612020, Notice No.SFIO/ rN\ /uNrT-I/ 1214-1223 IKSBLI 2O2O I 1 I re93o I 20- O, dated 19/06/2o2a, is in contravention o1' the prc uisions of the Companies Act, 20 13 and is ille 1al, arbitrary and unconstitutionai zrnd cor sequenlly set aside the \otice No. IFIO / INV/ UNIT-ll / | 1 2 1 4-223 I KSBL I 20 20 I I I l9t'59 l2O2O, dated 1610612020, Notice \o.SFIO/ rN! /uNIT,r/ t214-t223 I KSBL I 2o2O I 1 I ltte3o I '202), Issr e n'rit of mandamus or any other appropriate writ order or direction restraining the ResllonCents (ii) and their agents/officers from takirtg allr cot'r<'ivc steps against the petitioner, pending W,P No.5O24 of 2 )2O before this Hon'lcle Court."

i 1. The lear ned Single Judge has dismissed the writ petitions by a Common Order dated 26.08'2020 and relevant porti( n is reproduced as under:- "81. tn the light of these allegations, the q'trr respondent initiated inquiry under Section 206 of the Act and issued lotices and the petitioner also liled a detailccl repl-"- dated )3.O2.2O2O and at during that stage, thc 2r'rr respondent vide order dated 10.01.2020 directed thc Strl respondent to conduct full-fledged inquirv under Set'tion 2O614) of th : Act and submit report And lhis r:o rrt vitie crrder clatet 14.O2.2O2O directed the re spon(l(rnts t(') conclude th I inquiry under Section 206( 1) ot the Act bl' duly taking into consideration the reply submitted tr-v the petitioner or 03.O2.2020.

Accordingly, the Stl' responcient' by consideri rg the reply of the petitioner dated 03'O2'2O2O' concluded tl e inquiry under Section 20614l of the Act and submitted r( port dated 24 .O2.

tl Section 2O6 of the Act. The said report lormed the basis for passing the impugned order dated 27.O2.2O2O, ordering investigation by SPIO into the aflairs 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 u,,hether the 2,,,r respondent is justified in forming an opinion to order for investigation by SFIO. The said report is filed along r,l,ith the material papers to the counter affidavit, and the relevan t conclusions are as under:

(14) CONCLUSTON:

filed its latest year 20IB-19 on 31.12.2019.

and directions (l a.1) The company has statements for the financial 23.12.2019 and Annual Return based on t he media reports financial only on Further from the Directorate and thc Ministry letters have been issued to the companv inclucle the latest one issued uncler Section 206(1) dated 14.01.2O2O for their comments u,ithin 7 days. The companv has furnished its reply vide letter dated 03.O'2.2020, which has been examinecl in detarl in the T:rbular Statement attached as Annexure-IV. It may be scen that the company has not provided full details on specific details called for, as may be seen from the attached report.

(14.2) In number of group view of the companies nature of allegations, the involved r.,",hich 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, rvhich is meant to be used only at the time of the client's direction to sell the securities, with a intent u,ithout the knowledge or consent of discrepancies in charge documents in this office \.l,ith thar criminal clien ts,

t f-i of the clai;:ls of bank revealed in SEBI ordcrs, signrng of stanclalone balance sheet by the continuing auditor and consolidat€ 1 balance sheet by a different auditor appointed just before AGM i.e., 3O-O9.20i9, the media reports irbout investor gr evances and to protect investrtrs mollc]' this office sugt ,ests that the Ministry ma-\' consicle;- al1 investigatio r into affairs of this compan-v, Karvl gro;p of companies and 9 companies having domain 'rante of karly.com :nd having common addresses in UGC records' as mentior ed in SEBI order dated 22-Nov-20 19 by an appropriate authority in a speedy and efficient manncr for better prote :tion of public interest "

83. The above conclusions recorded by the 5'l' respondent needs no reiteration, and they i:lre self explanatory and one of the ailegations against the petitioner I nd its group of companies is thar ' those companies 'aised Ioans from the Bank, u'hich is p -rblic money, in L fraudulent manner detailecl above Hence' there is sufl cient amount of public interest involverl rn this case. ln th, light of these conclusions, the 511'resPOn(le11t recommend, d lbr further investigation vide his report datcd 24.O2.2020.

a4. . Jor-rg with the counter affidavit' resp':)ndents filed the mii utes of the Oversight Committec meeting he id on 25.O2.'2tt2O. The said minutes disclose tilat t1-rc Committee considering the allegations agaiust thc petitioner, d rection of this court in W P No 3143 'rf 2020 dated \4.O'. .2O2O and the report of the RoC clatcd 24 .O2.2O2O, conveyed its decision to the Central Government recommending investigation into the aflairs of the petition( r - company The decision of the O"ersight Committee is extracted as under for ready referencc: "8. De, ision of Oversight Committee:

8.1 ln view of the presentation made bv RD (SER) and the in 1uiry report, the oversight 6ommi11sg (oC) observed:

l+ t//'

a) Interest of investors (more than 80,000) , includirlg retail investors, u,hich are at stake as KSBL had prima facie abused its position as a Depository Participant. b) KSBL had prima-facie borrorT,ed fund from Banks & BFIs by citing false information.

c) There is a likelihood of diversion of public funds thrr:ugh relate d 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(l)(a\ and (c) of Companies Act, 2013 by SFIO, in public rnterest,

85. Considering the report submitted by the sth respondent dated 24.O2.2O20 and also the decision of the Oversight Committee dated 25.02.2O2O, I arr of the considered view, that there are pima facie circumstances justifying the action taken by the 2"d 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 t-hc 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 (20 18 (l) ALD 7341, the facts disclose thar rhe impugned order therein does not disclose formation of opinion with regard to necessigr 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 2 12 of the Act.

I 87 . Similarly in the order of the Division Be nch of the High ,)ourt of Bombav in Parameshu'ar Das Agarr,r'al v. Additiona Director (2016 SCC Online Bom !t27(>), thc learned ju lges after exposition ol the Ia$, ()n Section 212 of the Act, o: L facts found that there is no material q hit:h can be termcd as enough to \.\.'arrant the exercise of potrer b1' the Centri I Government by resorting to Section 2 12{ 1) of the Act of 2013. The facts in the judgment of the Division Bench, arr different from the facts of the present case, and hence exc, pt for the law laid down therein, it cannot be made appl' :able.

88. .or the foregoing reasons, the issue No.2 is aistr ansu,ered i r the affirmative.

89. ' he other contentior-r of behalf of the pctitiorler is that as th ) matter is sub judice by SEBI, the present investigatio r has to await the result ol inquiry b1' SEBI.

90. l-r the counter affidavit it is categorical:r' sLittud that the au -horities that deal with the inqlriry, inspection or investiga ion under the Ministry of Corporate Aflairs arc altogether ,lifferent and the scope of inquiry and the procedure t rat rvould be adopted by another regllliltor i.e., SEBI, is difl :rent, therefore, the case of the responCents is that the ci ntention of the petitioner is incorrect and absolute fals e.

91. Sub-section (2) of Section 212 of thc Act' mandates tl at where any case bas been assigned bv the Central Gov rrnment to SFIO for investigatiot't utlclcr this Act, no othe - investigating agenclr of central (lovernnlelll or the State iovernment shali proceed r'l'ith investigirtir>n in such case ir rerspect of :inv rlflcncc undcr t!.tis At t arlri irr case anv sr-t h invcstigation has aireird',' bct'n inil l'rit'rl lt shzrll n0t lte' ,rOce ccl i-tlrthcr $ ith ancl thc cot'l''ilrnt li itllt ti<'r' shall trar-rsi, r the re lcvant documcrts ancl rt'cr rcis it-t rospect of st r:h oflenct s under this Aci to SFI(). IrL titr':

l() 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 Ccntral Government in ordering investigation into the affairs of the company under Section 212(l\(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 follou'ed the procedure envisaged under Section 206$l of the Act and submitted the report; and the s.aid report and the ordcr of this court, and also the other material available on record, w'as examined by the Oversight Committee, and vide its minutes dated 25.02.2020 , recommended for investigation.

Eventually, the 2"d respondent, considering the report dated 24 .O2.2O2O, and in exercise of his jurisdiction under Section 2l2(1)(al 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 invoived. In these circumstances, no cxception can be taken to the impugned order.

93. For the foregoing reasons, I do not find any infirmity in the impugned order warranting interlerence of this court under Article 226 of the Constitution of India for cxcrcise ol pou.er ol judicial review, and in vieu. of the same, W.P.No.5024 of 2O2O is liable to be dismissed. 94 . I t is made clear that the prese nt 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 thre 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

t t7 investigatic r and the further proceedings as per law' Hence, thr investigation and the proceedings lher(laftcr shall be st ictly in accordance with law and uninflucnced by observat ons or findings, if any, made in this orcler' 95.

.or the foregoing reasons, the impugncd :rclcr dated 27.O ).2020 is confirmed and the \\:rit petrtlc)n ln W.P.No.502 1 is dismissed, and consequently' W P No 8997 notices is also of 2O2O, v hich has been filed challenging the issued in pursuance of the impugned order'

dismissed.

96. \4iscellaneous petitions pending'' if an1 ' shirll stand close( No order as to costs "

12. The aptr ellant company belore this Court \'"'hile challenging the order passed by the learned Single Judge has raisecl twt grounds:- (i) that no opportunitr' of hearing as required ur der Section 20614l of the Companies Act u'as granted to th r appellant company; and (ii) the Central Government has not formed any opinion keeping in view Section 2lO of the Companies Act for clirecting investigation ir Ito the affairs of the appellant compan;u'

13. In respett ol the first ground of not conducting an inquiry and n( t providing an opportunity of hearing to the appellant coml)any as required under Section 206(4) of the Companies At t is concerned' the stand of th('- Llnion of India is that under Section 208 of the Companies Act' the Registrar or in spector after inspection of books of ztccount'

to 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 aloresaid 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(41 of the Companies Act. In the present case, keeping in view the complete material on record, the Registrar of Companies has foru,arded 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 subsection (4) of Section 206 of the Companies Act dispenses with other requirements of sub-section (4) of Section 206 of the Companies Act.

l9 l Companies \ct is in public interest and there.lore, the first ground argrLed by the learned counsel for the appellant companv is rf no help to the appellant comparry.

14. In the :onsidered opinion of this Court, f<_:: ordering an investiga .ion and further action bv the SFIC) under Section 272 ol the Companies Act, the recluirement ol' obtaining a I eport of the Registrar of Companies is not at all warranteci

15. The inv:stigation can be ordered on th(-. basis of - (a) on receipt tf a report of the Registrar or insp,ector under Section 208; (b) on intimation of a special resolution passed by a :ompany that its affairs are required to be investigated; ( :) in the public interest.

16. In the considered opinion of this (lourt, the investigation l as been ordered by the Central Cor,<:rnment in public inter est and therefore, this Court dot,rs not find any reason tr interfere with the Order passed by the learned Single ludge.

17. Much ha: been argued by the learnecl coursel for the appellant com )arv that no opinion rnas lormed bv the Central Goverrment as required under Section ')1C) of the Companies Act In this context. it is relevant to reproduce

the Order d.ated. 27.02.2020 passed by the respondent No.2/Office of the Director General, Ministry of Corporation Affairs, is reproduced as under:- ,,";il:ffi::,':i;?",."

Office of Director General No.o7 / 341 I 2o1s-CL.ll (SER) Kota House Annexe, 1, Shahjahan Road, New Delhi - 110 01 1 Dated: 27.O2.2O20

ORDER

Whereas the Central Governmeni is empowered under Section 2l-2 of the Companies Act, 20 13 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, Hyderabaci through RD (SER) has submitted Inquiry Report dated 24.O2.2O2O to the Central Government under Section 208 of the Companies Act, 20 13 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, (ir,) 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. Noir., thcrefore, in exercise of powers conferred under Secrion 2t2(tl (a) & (c) of the Companies Acr, 2013, thc Central Government has formed an opinion that the a ffairs of the investigated to above referred examine the companies need serious nature of to be fraud

l1 committe( as large public interest is involved and thereby orders inr -'stigalion into the affairs of Karvy Stock Broking Limited ( iSBL), its Group of Companies ancl 9 other companies namely (i) Karvy Consultants Limited, (ii) Wizarcl Insurance Services Private Limited, (iii) Zenith Insurancc Services I rivate Limited, (iv) Buoyant Insurance' St'rvices Private Li nited, (v) Nova Wealth Management Service's Private Li nited, (vi) Vitalink Wealth Aclvisorv Services Private Lir rited, (vii) Classic Wealth Management Services Private Lin ited, (viii) Champion lnsurance Servict:s Privarte Limited, (x) Pelican Wealth Advisory Scrvice:r Private Limited to be carried out by officers of the Serious liraud lnvestigati< n Office as may be designated bl Director, SFIO.

4. T: .e inspectors appointed by Director, SFiO to investigate into the affairs of thc abo','e nlclrtiotlecl company, s hall exercise all the por.T'ers available to them under the Companies Act, 2013. The inspectors shall complete tl eir investigation and submit the repor-t t(r the Central Gor :rnment.

5. Th is order is issued for and on behall o1' the Central Gov :rnment.

(A.M.ManaPatra) Joint Director"

18. The afor:said Order makes it very clear that the Central Gover lment has formed an opinion based upon the serious nr ture of fraud committed in the matter as larger public interest is involved in the affairs of the appellant com )any and the opinion was formeci based upon the mate ial forwarded by the Registrar of Companies to the Central t iovernment.

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 Indiar. 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 invest.igate the affairs of the company.

2. And whereas RoC (Chennai)/RD, Southern Region, vide their report dated 2ud.)une , 2016 submitted to the Central Government Under section 20g ol the Companies Act, 20 13 has also recommended investigation into the alfairs o1' the company i.e., M/s. Church of South India Trust Association.

3. Nou,, therefore, in exercise of powers conferred under section 212 (1)(a) of the Companies Act, 2013 the Central Government hereby orders investigation into the alfairs 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 cluring the course of investigation, you are requestecl to depute some olficer to coordinate with the Ministry for obtaining the desired documen ts/informat ion.

' 20 t7 scc ont-ine Hyd 388 :2018 ( t) ALT 260

rl i

6. This r rder is issued for and on behall ol the Central Governmen , sd/- (Himanshu Shekhar) DePutY Director"

20. Keeping n view the aforesaid order' it can be safely gathered that n the aforesaid case, there was no lormation of the opinior by the Central Government and in those circumstances the learned Single Judge has delivered the Judgment hol< ing that no case was formed bY the Central the requirement of folmation of Government vhereas opinion has reen fulfilled in the present case' and therefore, the luestion of interference on this g:ound also does not artse.

2L.Thelearn':dcounselhasalsoplacedrelianceuponthe Judgment deli rered in the case of Mohinder singh Gill v' Chief Election C rmmissioner2 '

22. This Court has gone through the aforesaid 'Judgment and the presel tt case is a case where the documunts on record establis'Ies that the action was not only initiated by theresponden.sbaseduponthelnquiryReportunder Section 2O8 o' the Companies Act by the Registrar of Companies bur aiso based on the other material involving public interes' , as stated clearly in the order dated I ( tglS) t scc qo:

tr#{

-l+ I 27.O2.2O2O and therefore, the Judgment relied upon, does not help the appeilant 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 Oflice to investigate into the affairs of the appellant company.

23. The matter is only at the stage of investigation and otherwise also the appeliant 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 2L2 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 i

t:

learned Singl'' Judge and the writ appeals are ac<;ordinglv dismissed.

Misceliareouspetitions,ifanypencling,slrr-rllstand dismissed. T rere shall be no order as to costs' 'r,.9,ry*$=[t?HIA //TRUE COPY'

SECTION OFFICER ' o', r h e s e c reta ry, ^' "'.fl?:i",i,T,,:ifl'{#: lift ffi :,.", H ;hl;- l } "1, '

Shastri Bhawar Rai'

2. Office of Direct< r Ge :Bltfl t{ril1""+:Fi'ld::"#i:J:"#*mDeendavaAn'1vodavaBhawan . A'i''o."::'ui:i ii$;a'iR;s o" ':'lt;[iE i:lii"i:ffi"JtTll: Erh.\/2n Bandl quoa' Nagole Tattiannaram vttt : lffi rus"xt#rqr,":m:r*-ii*.?ffi;* Floor, Corpora e Bt , ?t333i; s6 r vinash Desai' Advocat:l?t^Y"i*, solicitor General toPucl l o.';a; to sri Namavarapu Ra'ieshwar xao' t

9. Two CD CoPie s'

,rfo.one Spave COPY'

SW t\$.

HIGH COURT DATED:3111212021 COMMON JUDGMEI IT ORDER WA.Nos.327 & 328 c'2020 6ffi / r tr\l l '-., a_;r-./ , Dismissing th r WAs Without costs \\ )-a)- k\lrO\