The High Court quashed the SFIO case against fugitive Vijay Mallya and Captain R. Gopinath. The court ruled that the SFIO’s jurisdiction under the Companies Act, 2013, cannot be retrospectively applied to offences under the Companies Act, 1956, allegedly committed by the accused.
Karnataka: Recently, The Karnataka High Court dismissed the proceedings initiated by the Serious Fraud Investigation Office (SFIO) against Kingfisher Airlines, its former owner Vijay Mallya, Air Deccan founder Captain R Gopinath, and others. The allegations centered around fraud in the 2007 merger between Kingfisher Airlines and Air Deccan.
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The court held that the criminal prosecution launched by the SFIO was not permissible since the merger had been sanctioned by the court and no complaints had been filed by the alleged aggrieved parties. The SFIO case against Kingfisher Airlines and others involved allegations that the airline had acquired Air Deccan, a low-cost carrier, without meeting the eligibility conditions for such an acquisition.
It was further alleged that Kingfisher Airlines initiated the merger to secure potential capital gains and evade tax on those gains while also deceiving investors in Air Deccan. The SFIO claimed that Kingfisher Airlines created artificial entities to carry out the merger and utilized the brand value of the merged entity to obtain additional finance.
However, the Karnataka High Court, in its ruling on April 15, quashed the SFIO proceedings against the accused parties. The court emphasized that since the merger had been approved by the court and the valuation of the business had been assessed by an independent body, reopening the merger process through criminal prosecution was not warranted. The court further stated that if any party believed that the merger had been fraudulently obtained, they had the option to approach the court with a complaint.
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Justice Hemant Chandangoudar, in an order dated April 15, granted writ petitions filed by Kingfisher, Deccan Charters, Captain Gopinath, and others. Notably, the Court asserted that
The SFIO cannot initiate criminal prosecution regarding a sanctioned merger, especially when no aggrieved parties have filed complaints. The Court emphasized its acceptance of the merger scheme’s valuation by an independent body and approval by shareholders and unsecured creditors. It concluded that allegations of fraudulent mergers cannot reopen through criminal prosecution and suggested aggrieved parties approach the court for recourse.”
The High Court’s decision was based on several grounds. Firstly, it highlighted that the SFIO probes and the establishment of a special court to try SFIO-related offenses were governed by the Companies Act of 2013. However, the alleged offenses in this case were committed under the earlier Companies Act of 1956. Therefore, the jurisdiction of the special court under the 2013 Act could not be extended retrospectively to try offenses under the 1956 Act.
Additionally, the court noted that the special court had not formed an opinion on whether there was a prima facie case against the accused before issuing the process. This violated the provisions of Section 204 of the Code of Criminal Procedure (CrPC). Moreover, the trial court had issued an arrest warrant without first issuing summons, which contravened judgments passed by the Supreme Court.
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On April 15, the High Court granted writ petitions based on several grounds:
- The accused were alleged to have committed offences under the Companies Act, 1956, while SFIO probes and special courts under the Companies Act, 2013 were invoked. The jurisdiction of the special court cannot be extended retroactively to try offences under the earlier law.
- The special court did not form a prima facie opinion before issuing process, violating Section 204 of the CrPC and rendering the process invalid.
- The trial court issued an arrest warrant without first issuing summons, contrary to Supreme Court judgments.
- Prosecuting the accused under the 2013 Act for actions not punishable under the 1956 Act violates Article 20(1) of the Constitution.
Consequently, the Court quashed the criminal proceedings initiated by the SFIO and dismissed their complaint. The High Court emphasized that allowing such proceedings would constitute an abuse of legal process, especially after the court’s approval of the merger scheme, preventing revisitation of fraud allegations through criminal prosecution.
