Plea in Supreme Court challenges Sections 212, 217, 447 of Companies Act 2013

A petition has been filed in the Supreme Court challenging the Constitutional validity of Sections 212, 217 and 447 of the Companies Act, 2013.

The petition filed by one Deepak Shreemali assails the validity of Sections 212(1), 212(2), 212(6), 212(7), 212(8), 212(14), 212(17)(a), 212(17)(b), 217(4), 217(5)(b), 217(7), 217(8)(b), 217(8)(d) and 447 of the Companies Act.

The petition filed through advocate Aljo Joseph contends that the above provisions strike at the root of life and personal liberty and run contrary to the scheme of Article 14, 19(1)(g) and 21 of the Constitution.

The provisions above are violative of the procedure of arrest and investigation envisaged under the Criminal Procedure Code, 1973 and the jurisprudence of evidentiary law under the Indian Evidence Act, 1872, the petition contends.

Section 212 deals with an investigation into affairs of company by the Serious Fraud Investigation Office. It is the petitioner's case that Section 212(1) gives unbridled discretion to the Central government to investigate into the affairs of the company. it gives the Central government arbitrary powers to pick and choose the company it wants to initiate investigation against.

Section 212(2) requires that all investigations by any other agency be stopped during the investigation by SFIO. This, the petitioner submits, will lead to unnecessarily delay and defeat the federal structure of the Constitution.

Regarding Section 212(6), the petitioner submits that the principle of presumption of innocence in criminal law is inverted by the condition specified in Section 212(6)(ii). Ordinarily, a presumption of innocence is attached for grant of bail ordinarily.  However, for the grant of bail under Section 212(6)(ii) of the act, the presumption of innocence inverted and a threshold bar is created, which is manifestly unreasonable and violative of Articles 14 and 21 of the Constitution of India, the petitioner contends.

Moreover, the conditions for grant of bail are applicable only if the Public Prosecutor so desires. As per the language of this provision, if the Public Prosecutor does not oppose the bail application, then the court is not required to apply its mind. Hence, the application of conditions mentioned in Section 212(6) becomes dependent upon the discretion of the public prosecutor. This discretion of the public prosecutor besides impinging upon the power of the court to decide freely also renders the entire process discriminatory and uninformed.

Section 217(7) has been assailed on the ground that the accused is required to sign a statement after examination of the Inspector of SFIO and the same can be used as evidence against the accused. This is violative of Article 20(3) of the Constitution, the petitioner contends.

Section 447 of the Act prescribes punishment for offences of violation of Sections 7(5) & (6), 8(11), 34, 36, 38(1), 46(5), 56(7), 68(10), 75(1), 140(5), 206(4), 213(proviso), 229, 251(1), 266(1) (proviso), 339 (3) and 448 of the Act. .

However, it is the petitioner's case that under the garb of defining punishment under Section 447 for the aforesaid regulatory offences, the Union has exceeded its powers and defined the term “fraud” and prescribed the same punishment for the said provision.

If the Central Government wanted to enforce such a law and prescribe its punishment, the same should have been done by amending the Indian Penal Code which already defines the term ‘fraudulently’ under Section 25 of the IPC.

The petitioner has, therefore, prayed for striking down Sections 212(1), 212(2), 212(6), 212(7), 212(8), 212(14), 212(17)(a), 212(17)(b), 217(4), 217(5)(b), 217(7), 217(8)(b), 217(8)(d) and 447 of the Companies Act.

writ petition was filed pertains to the constitutional validity of Sections 212(6) (ii) and 212 (7) Companies Act on the ground of their being violative of Articles 14 and 21 of the Constitution of India. Both these provisions pertain to the grant of bail to an accused under the Companies Act wherein the context of the offence of fraud under Section 447 Companies Act, the offence has been made cognizable and the grant of bail made subject to a very high threshold of the arrested person having to prove that he is not guilty of the offence as a precondition to granting of regular bail.

According to the Petitioner (SFIO Case), a similarly worded provision of the PMLA, i.e. Section 45, was struck down by the Supreme Court as unconstitutional in Nikesh Tarachand Shah v. Union of India (2018) 11 SCC 1. It is, therefore, contended that prima facie, the Petitioner?s challenge to the vires of Sections 212 (6) (ii) and 212(7) Companies Act should succeed.

Also, the Petitioner (In SFIO Cae) filed an application for an ad-interim order for release of the Petitioner from illegal judicial custody of SIFO which was disposed off by the Hon’ble High Court after making observations on the Constitutional validity of the said sections of the Companies Act, 2013.

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