Centre can't launch SFIO probe at whim against firm of Kerala CM's daughter: Arvind Datar to Karnataka High Court

Exalogic Solutions Pvt. Ltd, the company owned by Kerala Chief Minister Pinarayi Vijayan's daughter Veena Thaikkandiyil told the Karnataka High Court on Monday that the Central government cannot launch a probe by the Serious Fraud Investigation Office (SFIO) into the company based on a whim [Exalogic Solutions Private Limited v. Director SFIO]..Senior Advocate Arvind Datar appeared for Exalogic and told the Court that a probe by the Registrar of Companies (RoC) under Section 210 of the Companies Act is already ongoing and that a parallel investigation by the SFIO is not permissible.These submissions were countered by the Central government's counsel, who argued that since the SFIO probe has been launched, there is no question of parallel proceedings.The earlier inquiry under Section 210 would stand halted and the files concerning the Exalogic case have already been handed over to the SFIO, he added.The Court was hearing a plea by Exalogic challenging the SFIO probe launched against it through an order dated January 31, 2024..Justice M Nagaprasanna has reserved his verdict in the matter today after hearing rival submissions. He also orally instructed that no coercive steps should be taken against Exalogic until the Court pronounces its order.In reply, the counsel representing the SFIO assured that the matter is only at a preliminary stage where certain documents have been sought from Exalogic. He added that there was no need to record in the order that coercive steps should not be taken.The Court further instructed Exalogic to submit the documents sought by the SFIO. Exalogic's counsel responded by informing that time was given till February 15 to submit these documents and that the same would be done..During the hearing today, Senior Advocate Datar argued that the matter involves a larger question of whether the Central government can launch an SFIO probe at its whims against Exalogic under Section 212 of the Companies Act. He argued that the only allegation against Exalogic is that it had related party transactions worth ₹1.76 crores with Cochin Minerals and Rutile Limited (CMRL) which went unreported. There was no fraud necessitating the launch of an SFIO probe in such a case, particularly when the SFIO is meant to be an organ that looks into cases where "hundreds of crores" of money are involved like in the case of the Sahara case or the Satyam scam. He added that an SFIO probe involves draconian consequences, whereby a person may be arrested, their properties seized, and where bail becomes next to impossible like in UAPA cases. This process cannot be reversed, he argued. "Bail is virtually impossible. Section 212 is an extraordinary provision, only to be used in cases like the Sahara case. Not to be used where the allegation is only that I gave software to a related party and did not report it," Datar submitted.When a probe by the RoC is already underway, an SFIO probe could not have been launched on January 31, 2024, Datar asserted. .On the other hand, the government counsel asserted that there were serious offences and public interest involved in the Exalogic case which necessitated an inquiry by a multi-disciplinary agency like the SFIO. Unlike the inspectors carrying out an inquiry under Section 210 of the Companies Act, the SFIO can seamlessly secure information from various agencies and authorities, he explained.Exalogic's case, he went on to submit, is tied to a revelation by the Income Tax Department that CMRL had distributed an amount of ₹135 crores to political functionaries which it later claimed were "expenses." Of this amount, ₹1.76 crores were paid to Exalogic, although no corresponding software services were provided, the government counsel said. While so, a government entity known as the Kerala State Industrial Development Corporation (KSIDC) has a 13.4% stake in CMRL. CMRL itself was found to have undertaken several "shady" transactions, the Court was told. It was in such circumstances that the SFIO probe was launched, the government counsel said. There was no need to get the concurrence of Exalogic to launch an SFIO probe against and the matter is only at a preliminary stage, the counsel added. There is no reason for the Court to interfere at this stage, he contended. .After hearing both sides today, the Court reserved the matter for orders. Advocate Manu Prabhakar Kulkarni filed the petition on behalf of Exalogic. .[Read live-coverage of hearing today]