Private Complaint For Fraud U/S 447 Of Companies Act Not Maintainable Before Special Court For Economic Offences: Telangana High Court

[24 June 2022] The Telangana High Court ruled that a private complaint for fraud under Section 447 of Companies Act, 2013 is not maintainable before the Special Court. Section 212(6) of the Companies Act ensures that prosecution for fraud can only be launched after due investigation. This provides a safeguard against frivolous complaints from millions of shareholders of various companies. “If the contention of the complainant that any shareholder can file a complaint for fraud is accepted, it would open flood gates for any person commencing criminal proceedings merely by filing a complaint.”
Ruling of the court
Justice G. Radha Rani examined Section 212 (6) of the Companies Act, 2013, to hold that it provides a safeguard against frivolous complaints and ensures that a prosecution for fraud can only be launched after due investigation.
The court held that an exception is carved out under Section 439 (1) itself that every offence under the Act except the offences referred to in sub-section (6) of Section 212 of the Act shall be deemed to be non-cognizable. As such, Section 439 of the Companies Act, 2013 is not applicable to offences covered under Section 447 of the said Act. Hence, cognizance of the offence under Section 447 of the Act could not have been taken by the trial Court on a private complaint. “Under Section 206 of the Companies Act, 2013, the Registrar of Companies based on the information received by him, seek for explanation, call for production of document and conduct enquiry. If the enquiry conducted by the Registrar discloses material for further investigation, he, under Section 210 of the Companies Act, 2013 can report to the Central Government to conduct investigation into the affairs of the company. If the Central Government considers the allegations as true and considering the gravity of the offence that the matter was fit to be investigated by the SFIO, directs the matter to be investigated by the SFIO under Section 212 of the Companies Act, 2013.”
“If the complainant/respondent 2 was aggrieved, he should have resorted to the procedure as contemplated under the Act. The Registrar of Companies is a competent person to call for the records, conduct an enquiry and to arrive at an opinion. If there is any material, he would submit a report to the Government for investigation by SFIO. If SFIO is able to collect material sufficient to prosecute then it would file charge sheet after taking necessary sanctions from the Central Government.” Thus, the petitioner could not be prosecuted for the offences under Sections 447, 448 and 451 of the Companies Act, 2013 due to bar of cognizance under Section 212(6) of the Companies Act, when a complaint was not given in writing by the Director, SFIO or any Officer of the Central Government authorized in that behalf by the said Government. As a consequence, the criminal petition was allowed.