In a setback to Exalogic Solutions Private Limited, a one-person-company owned by Veena T., daughter of Kerala Chief Minister Pinarayi Vijayan, the High Court of Karnataka said there is no illegality, either statutory or procedural, in the Central Government ordering a probe by the Serious Fraud Investigation Office (SFIO) into the affairs of the company.
Justice M. Nagaprasanna made the observations in his February 16 order dismissing a petition filed by Bengaluru-based Exalogic, which had questioned the legality of the January 31, 2024 decision of the Ministry of Corporate Affairs entrusting the probe to the SFIO, which is a multi-disciplinary investigating agency created under the Companies Act to probe serious corporate fraud.
“The court cannot put shackles in the hands of the Central Government in assigning the probe to SFIO when the government finds such a necessity if Inspectors of Registrar of Companies (RoC), during their investigation, out of serendipity come across information that would prima facie touch upon skulduggery”, the High Court observed.
Rejecting the contention of Exalogic that the probe could not have handed over to SFIO under Section 212 of the Act before conclusion of an earlier probe, ordered under Section 210 and through the Inspectors of RoC, reached its logical conclusion, the court said that ordering a probe through SFIO does not amount to duplication of probe as the Act automatically stops all other probes initiated through any other agency under the Act, once a probe is ordered through SFIO.
Also, the court said that the rights of the petitioner-company is also not affected due to taking over of the probe by SFIO, as the Act has laid down elaborate procedure for SFIO to conduct an investigation.
“If the Union of India has thought it fit to entrust the investigation to the SFIO, owing to certain factors which have emerged while conduct of investigation under Section 210 and in public interest, this court in exercise of its jurisdiction under Article 226 of the Constitution of India would not by a stroke of a pen, annul such opinion of the Union of India, unless it is contrary to the statute or the action is demonstrably arbitrary. Neither of the two is present in the case at hand…,” Justice Nagaprasanna observed.
Background of the case against Exalogic
The RoC began to inspect documents of Exalogic in January 2021 under Section 206 of the Act on receipt of information from Enforcement Directorate (ED) on transactions of Exalogic with Kerala-based Cochin Minerals and Rutile Limited (CMRL), which was raised by the Income-Tax authorities in 2019.
The examination of records of CMRL by I-T authorities had found that payment of around ₹135/- crores was given away to political functionaries in Kerala and other entities, including Exalogic, without any accounting. During scrutiny of Exalogic’s accounts, RoC in August 2023 had flagged multiple violations under various provisions of the Act.
The RoC, during mid-January 2024, initiated a probe into the affairs of Exalogic under Section 210 through its inspectors as company allegedly did not part with documents sought by the RoC. However, on receipt of interim report from the inspectors, the MCA handed over the probe to SFIO, which had the power to seamless access to documents from ED and I-T authorities as RoC’s inspectors had no such power to secure documents required for the probe from other agencies.
The SFIO probe is not launched against Exalogic’s affairs alone but is also against the affairs of CMRL and Kerala State Industrial Development Corporation (KSIDC), which too had business links with CMRL, the Central government had told the Court.