Supreme Court: Private Complaint vs. Fraud – SFIO Filing Only

The Supreme Court ruled Friday that individuals can’t file fraud complaints directly under the Companies Act, 2013. Courts can only consider cases initiated by the Director of the Serious fraud Investigation Office (SFIO) or an officer authorized by the Central Government, as outlined in Section 212(6) of the Act.

However, the court clarified that individuals aren’t without recourse. They can petition the National Company Law Tribunal (NCLT) under Section 213 of the Act, requesting an SFIO investigation if they meet the eligibility requirements.

“As such, the offense under Section 448 of the Companies Act is an ‘offence covered under Section 447’ as mentioned in Section 212(6) of the Companies Act and therefore, the bar against taking cognizance under the second proviso of Section 212(6) of the companies Act, unless specific conditions are met, is attracted in the present case. Cognizance, therefore, in such a case, cannot be taken merely by filing of a private complaint by the Complainant. However,it is not to say that the Complainant is left absolutely remediless. The right recourse for a person, who makes an allegation of fraud in the affairs of a company is to file an application under Section 213 of the Companies Act before the NCLT upon satisfying the eligibility under Section 213(a) and 213(b) of the Companies Act.”

Justices JK Maheshwari and K Vinod Chandran made the observation while dismissing criminal proceedings against former directors of a company accused of offenses under Sections 448 (false statement) and 451 (repeated default) of the Companies Act.

the case stemmed from a dispute over control of a real estate company in Hyderabad. The complainant, the company’s original promoter, and the former directors clashed over management. The directors were removed in November 2021 following changes to the company’s articles of Association and a failed attempt to reinstate them.

The complainant then filed a private criminal complaint alleging the former directors illegally convened a meeting, passed resolutions appointing new directors, and fraudulently submitted documents to the Ministry of Corporate Affairs. The Special Court for Economic offences in Hyderabad initially took up the case,citing violations of Sections 448 and 451 of the Companies Act,along with other offenses including fraud and forgery.