The Delhi High Court has overturned a previous decision that stopped the Serious Fraud Investigation Office (SFIO) from taking legal action against the former management of Assotech Limited, a company that is being closed down. This change shows the court's view on following the official rules for investigations and legal actions under the Companies Act.
The SFIO was first told to look into Assotech Limited because of worries from the Official Liquidator (OL) about possible bad management and misuse of funds. The investigation was ordered on November 8, 2016, after problems were found, like moving assets without permission and not following the OL's instructions.
"The SFIO may be appointed to investigate the affairs of the company and submit its report to this Hon'ble Court within a time-bound manner."
The SFIO challenged a decision that stopped it from taking legal action against the former management until the court looked at its report. There was a 48-day delay in filing this challenge, which the court allowed because Assotech Limited and others did not oppose it.
The issue came up when a single judge said that the SFIO couldn't start legal actions against Assotech's former management until the court reviewed the investigation report. This was seen as going against the process set by the Companies Act.
"The SFIO shall refrain from launching any prosecution against the Ex-Management/directors of the company in liquidation till such time this Court considers the report filed by the SFIO."
The SFIO argued that the Companies Act requires an investigation process that should not be stopped by court orders. They said that once an investigation is ordered, it must follow the law, leading to legal actions if needed.
The division bench, including Justice Anil Kshetrapal and Justice Harish Vaidyanathan Shankar, ruled that the earlier decision was not correct. They stressed that courts cannot change the official process set by the Companies Act.
"The Impugned Judgment dated 23.04.2024 is unsustainable in law. The directions issued therein by the learned Single Judge not only travel beyond the scope of the Act but also seek to expropriate powers that find no place in the statutory framework."
The appeal was approved, and the SFIO can now move forward with its legal actions as per the official rules. This decision highlights the importance of following legislative rules in company investigations and legal actions.
