Is Section 212 (2) of the Companies Act Flawed in Mandating Transfer of Investigations to SFIO?

For a proper analysis of Section 212(2) of the Companies Act, it is pertinent to first understand certain foundational provisions of the Act. To appreciate the present discussion, we must also comprehend the exact mandate of one of India’s premier investigating agencies, the Serious Fraud Investigation Office (SFIO). It is equally important to examine what kinds of offences the SFIO can investigate, what powers it wields, and what sanctity the statements recorded before an SFIO officer hold.

Let us begin by reproducing Section 212(2) of the Companies Act:

(2) Where any case has been assigned by the Central Government to the Serious Fraud Investigation Office for investigation under this Act, no other investigating agency of Central Government or any State Government shall proceed with investigation in such case in respect of any offence under this Act and in case any such investigation has already been initiated, it shall not be proceeded further with and the concerned agency shall transfer the relevant documents and records in respect of such offences under this Act to Serious Fraud Investigation Office.

On a bare perusal, the provision seems logical. It essentially provides that any offence under the Companies Act should only be investigated by the agency specifically empowered to do so, i.e., the SFIO. However, the complexity arises when we examine what offences the SFIO actually has the mandate to investigate.

For that, let us turn to Section 211 of the Companies Act:

211. Establishment of Serious Fraud Investigation Office.—(1) The Central Government shall, by notification, establish an office to be called the Serious Fraud Investigation Office to investigate frauds relating to a company.......

So, Section 211 of the Companies Act gives us further clarity that SFIO can investigtate fraud relating to a company.

Now, to further break it down, let's analyse how is fraud defined under the Companies Act? Explaination to Section 447 defines fraud as under:

(i) “fraud”, in relation to affairs of a company or any body corporate, includes any act, omission, concealment of any fact or abuse of position committed by any person or any other person with the connivance in any manner, with intent to deceive, to gain undue advantage from, or to injure the interests of, the company or its shareholders or its creditors or any other person, whether or not there is any wrongful gain or wrongful loss

To one’s disappointment, this definition is as vague as it can get. It fails to clarify what exactly constitutes “injuring the interests of” the company, or who qualifies as “any other person” whose interests could be injured. The legislature, in an attempt to cast a wide net, appears to have made the definition deliberately broad, encompassing elements of offences such as cheating, criminal breach of trust, and misappropriation of property, all of which are already well-defined under the Indian Penal Code (IPC).

And herein lies the real problem.

In an attempt to widen SFIO’s mandate, the legislature has inadvertently created a dangerous overlap.

Take, for example, one of my clients — a former CFO of a company accused of bank fraud. The case was initially being investigated by the Economic Offences Wing (EOW). During the EOW’s investigation, my client fully cooperated, appeared for questioning, and provided all documents. Crucially, there was no documentary evidence linking him to the alleged fraud — only certain self-serving statements from co-accused individuals attempting to deflect blame.

However, the Central Government later authorized the SFIO to investigate the same company’s affairs. By virtue of Section 212(2), the ongoing investigation by EOW was transferred to SFIO.

Now, consider the prejudice this causes to my client.

Even though there was no fresh evidence against him, his previous statements — as well as those of co-accused persons — suddenly became admissible under Section 217 of the Companies Act. This transforms a previously routine investigation into a potential trap. The same set of facts and transactions that were earlier scrutinized by the police are now being re-examined by SFIO officers with quasi-police powers — but without the same procedural safeguards that apply to criminal investigations under the CrPC.

The fairness of an investigation conducted by police officers, which requires cogent, independent evidence to incriminate a person is diluted when SFIO officers can rely solely on statements recorded under Section 217. Further, the accused now faces the threat of arrest, coupled with stringent twin conditions for bail under Section 212(6), similar to those under PMLA.

This situation also undermines the jurisdiction of trained investigative agencies such as the police and the CBI, which have institutional expertise in handling complex financial crimes. The fundamental issue stems from an overbroad definition of “fraud”, which allows SFIO to encroach into areas traditionally governed by the IPC.

Unlike other specialized statutes, such as the NDPS Act, the Customs Act, or the PMLA , where agencies like the NCB, DRI, and ED deal with clearly defined offences, the SFIO has been given unfettered powers to investigate even those offences that properly fall within the domain of the IPC. This overlapping jurisdiction not only leads to confusion but also causes grave prejudice to accused persons who are effectively subjected to double jeopardy in spirit, if not in law.

Now what I feel should be the remedial actions:

• The definition of “fraud” under Section 447 requires urgent amendment. It must be narrowed to include only those acts that directly relate to the offences under the Companies Act, rather than borrowing from general criminal law concepts already covered under the IPC.

• Statements recorded before SFIO officers should not be treated as admissible evidence. They should be placed on the same footing as statements made before police officers under the CrPC i.e., not admissible as substantive evidence against the accused.

The growing powers of the SFIO, coupled with a vaguely worded definition of fraud, have created a legal regime that blurs the lines between corporate and criminal investigations. While the intention behind empowering SFIO was to strengthen corporate accountability and curb large-scale financial frauds, the current framework risks eroding fundamental principles of fairness and due process. The Companies Act must strike a balance empowering SFIO to act swiftly against genuine cases of corporate deceit while ensuring that individuals are not subjected to overlapping investigations, coerced statements, and procedural inequities. Until this balance is restored, the investigation process itself risks becoming a punishment, rather than a path to justice.