Serious Fraud Investigation Office (SFIO) In India

Article by Vijay Pal Dalmia, Advocate
Supreme Court of India & Delhi High Court
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The Serious Fraud Investigation Office (SFIO) is a specialized investigative agency under the Ministry of Corporate Affairs, established to tackle serious corporate frauds. It was initially formed by executive order in 2003 (post-Stock Market Scam of 2001) and lacked clear statutory powers under the Companies Act, 1956. The Companies Act, 2013 ("the Act") gave SFIO statutory status and robust powers to investigate fraud in companies.

Section 211 of the Companies Act, 2013 formally establishes the SFIO as a multi-disciplinary organization for investigating corporate frauds.

• Constitution: The SFIO is headed by a Director (at least of Joint Secretary rank) and comprises experts in banking, corporate affairs, taxation, forensic auditing, capital markets, IT, law, etc., all appointed by the Central Government. This reflects the complex, multi-faceted nature of corporate fraud investigations.
• Continuity: The section also provided continuity by deeming the pre-2013 SFIO (set up via Government Resolution in 2003) as the SFIO under the new Act until the new office was formally established.

Assignment of Investigations: Section 212 of the Act empowers the Central Government to assign investigations into a company's affairs to the SFIO. Importantly:

• Triggering an SFIO Investigation: The Central Government "may, by order," assign a case to SFIO if it "is of the opinion" that an SFIO probe is necessary, based on one of the following grounds as per Section 212(1):
• 1. receipt of a report from the Registrar or an inspector (under Sec. 208),
  2. a company's own special resolution that its affairs require investigation,
  3. public interest, or
  4. request by any Department of Central/State Government.

The Government's order must record the necessity of an SFIO investigation, and the formation of this "opinion" is a jurisdictional duty – courts have held that an order without a proper opinion lacks merit. Once an SFIO investigation is ordered, no other agency may investigate the case under the Companies Act – any parallel probes by other agencies for offences under the Act must cease and transfer their records to SFIO. However, agencies like CBI or ED can still investigate distinct offences under other laws such as bribery or money laundering on the same facts.

• Investigative Procedure: Upon assignment, the Director, SFIO designates Investigating Officers (IOs) who have all the powers of an inspector under Chapter XIV (Investigations) of the Act. Section 217 specifically empowers an inspector to summon and examine persons on oath (including present or past officers, employees, agents) and use their statements in evidence. This is a significant power, as statements given to SFIO inspectors on oath can be used against the examinee, unlike statements to police which are inadmissible against the accused. The company's officers and employees must cooperate, providing all information and documents required by the IO.
• Exclusive Jurisdiction & Reporting: Section 212(2) reiterates the exclusivity of SFIO for that case. The SFIO is to conduct the investigation "in the manner provided and submit its report to the Central Government within the period specified in the order. Notably, there is no fixed statutory time-limit for SFIO investigations – any deadline in the Government's order is directory, not mandatory, as held by the Supreme Court in SFIO v. Rahul Modi (AIRONLINE 2019 SC 196).
• The SFIO can also be directed to submit interim reports (per Sec.212(11)). Upon completion, the final investigation report goes to the Central Government (Sec. 212(12)), and any person concerned is entitled to obtain a copy of this report by applying to the court.
• Central Govt's Action on Report: After examining the SFIO report and taking legal advice, the Central Government may direct SFIO to initiate prosecution against the company and officers/employees involved (Sec. 212(14)). The law also provides that if the investigation finds that fraud has taken place and certain persons have obtained undue benefit, the Government can approach the National Company Law Tribunal for return of such benefits (Sec. 212(14A)).
• Inspector's Search & Seizure Powers: Although not in Sec.212 itself, the SFIO's inspectors wield powers under related provisions (since Sec.212(4) invokes Chapter XIV procedures). Section 220 authorises an inspector, during the investigation, to enter and search premises and seize documents if there are reasonable grounds to believe that company records may be destroyed or altered. The inspector can take possession of books and papers (after allowing the company to make copies) and must return them once the investigation concludes. Searches/seizures under Sec.220 must comply with CrPC provisions on search/seizure. Additionally, Sec.221 allows freezing of assets by the Tribunal on a reference by the Government during investigation, and Sec.212(17) mandates information-sharing between SFIO and other agencies (reciprocal cooperation).

In summary, Sections 211 and 212 of the Companies Act, 2013 create the statutory framework for SFIO – establishing its existence and laying out the procedure for SFIO investigations, from initiation to report. These provisions, effective from 2014 (with arrest powers added in 2017), transformed SFIO into a powerful investigative body with exclusive jurisdiction over serious corporate fraud cases.

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