This Article is submitted by –
- Gaurav Thote
The Companies Act 2013 which replaced the 1956 Act introduced significant changes relating to disclosures vis-à-vis stakeholders, accountability and liability of directors, auditors and key managerial personnel, investor protection and corporate governance. The provisions introduced by virtue of the 2013 amendment imposed heavy penalties in case of default and severe punishments for offences committed under Chapter XXIX of the Act. Additionally, Section 212(6) introduced the rigours of twin conditions to apply for grant of bail where the investigation is pertaining to Serious Fraud Investigation Office (SFIO). A bare perusal of Section 212(6) reads as:
“Notwithstanding anything contained in the CrPC, 1973 an offence covered under Section 447 of this Act shall be cognizable and no person accused of any offence under those Sections shall be released on bail or on his own bond unless-
- The Public Prosecutor has been given an opportunity to oppose the Application for such release; and
- Where the Public Prosecutor opposes the Application, the Court is satisfied that there are reasonable grounds for believing that he is not guilty of such offence and that he is not likely to commit any offence while on bail. ”
Rigours of twin conditions in PMLA
Prior to the 2018 amendment of the Prevention of Money Laundering Act 2002 (PMLA), the provision of Section 45 of the PMLA which imposed the rigours of twin conditions for grant of bail for the predicate offence committed under Part A of the Schedule under PMLA, was struck down by the Supreme Court in Nikesh Tarachand Shah v. Union of India[i] on the ground that the provision was ultra vires of Articles 14 and 21 of the Constitution of India. Although the bench contemplated reading down the provision in Nikesh Tarachand Shah’s case so as to make the rigours of twin conditions applicable only for offences under the PML Act, the Court altogether struck down the provision in its entirety, observing that offences under the PML Act albeit posed a threat to the financial sovereignty of the nation, could not be considered so heinous so as to attract the rigours of the twin conditions. Despite the same, the 2018 amendment stated that the rigours of twin conditions would still apply to all the offences under Act.
Coming back to Companies Act, Section 447 of the Act observes a maximum punishment of 10 years for offences contemplated under the Act and fine which may extend upto 3 times of the amount involved in the fraud. Suffice it to say that the sentence and gravity of offences under the Act is more or less similar to the gravity of offences under the PML Act and hence the constitutional validity of Section 212(6) of the Act is a pressing concern.
The provision of Section 217 of the Companies Act contemplates the procedure, powers, etc of Inspectors investigating into offences under the Act. It empowers the Inspectors to summon and examine any officer, employees and/or agents of the concerned Company on oath and vests with him all the powers of a Civil Court under the Code of Civil Procedure while trying a suit. Sub section (6) and (8) of Section 217 are penal provisions which impose punishments in case a person does not follow the direction of a Registrar or Inspector; or if the person does not comply with or co-operate with the Registrar or Inspector. Sub section (7) of Section 217 holds that a statement made by a person before such Registrar or Inspector shall be read over to him and signed by the person examined and may thereafter be used in evidence against him.
Section 436 of the Act is a non-obstante provision which states that notwithstanding anything contained in the CrPC, every offence under the Act shall be triable only by a Special Court. Clause (b) of the provision states that where a person accused of, or suspected of the commission of, an offence under this Act is forwarded to a Magistrate under sub-section (2) of (2A) of Section 167 of the CrPC 1973, such Magistrate may authorise the detention of such person in such custody as he thinks fit for a period not exceeding fifteen days in the whole where such Magistrate is a Judicial Magistrate and seven days in the whole where such Magistrate is an Executive Magistrate. Clause (c) states that the Special Court may exercise, in relation to the person forwarded to it under clause (b), the same power which a Magistrate having jurisdiction to try a case may exerciser under Section 167 of the CrPC in relation to an accused person who has been forwarded to him under that section.
The Act does not contemplate any rules with respect to incriminating statements and confessions recorded by the Registrar or Inspector of SFIO. Though Section 438 envisages that the provisions of the CrPC are to apply to proceedings before a Special Court, the provisions of the Special Statute would supersede the provisions of the CrPC in the event of any inconsistencies.
Juxtaposing the provisions of the Act with relevant provisions of the Code, Section 161(2) of the CrPC unequivocally states that a person being examined by a Police Officer is not bound to answer any questions which are likely to expose him to a criminal charge or penalty or forfeiture. As is held by a full bench of the Supreme Court in Nandini Satpathy v. PL Dani[ii], the said provision is underpinned by Article 20(3) which states-
“No person accused of an offence shall be compelled to be a witness against himself.”
Section 164 of the CrPC empowers a Magistrate to record confessions of Accused persons and contemplates the conditions precedent and requisites[iii] before proceeding to record such confessions. That the same have to strictly be followed failing which the confession would have to be discarded.
Even the draconian Maharashtra Control of Organised Crime Act which is applicable in other territories as well like New Delhi, empowers Police Officers to record confessions of Accused Persons. However, there are checkpoints contemplated at every step to ensure that the confession is recorded voluntarily in a free atmosphere. Additionally, there are guidelines issued by a constitution bench[iv] of the Supreme Court which ought to be scrupulously followed in such offences failing which the confession may be rendered in admissible.
At the cost of repetition, there are no rules under the Companies Act with respect to incriminating statements and confessions. In fact, it is provided that every statement recorded may be used as evidence against that person.
Section 212(8) of the Act empowers authorised officers to arrest a person accused of a cognizable offence prescribed under the Act and given that 436 of the Act empowers the Magistrate to authorise ‘custody’ of a person accused of committing an offence under the Act, the empowered officer being an officer in authority can coerce/threaten and or/pressurise the person, when in custody of the officer, to make an incriminating statement or confession with a malafide intent of procuring his conviction and the same would be admissible in evidence by virtue of the provision of Section 217(7) of the Act. Furthermore, if such a statement even prima facie implicates the arrested person, it would be very difficult for him/her to satisfy the rigors of twin conditions when he applies for bail.
In State of UP v. Deoman Upadhyaya[v], a constitution bench of the Supreme Court explained the intention of the legislature while incorporating Section 25 and 26 of the Indian Evidence Act which state that a confession made before a Police Officer shall not be proved as against a person accused of any offence. The constitution bench observed that a confession made by an accused before a Police Officer is tainted having regard to its tainted source and is therefore inadmissible in evidence.
Section 67 of the Narcotic Drugs and Psychotropic Substances Act 1985 empowers an authorised officer to record statements and confessions under the Act. However, in Noor Aga v. State of Punjab[vi] and Nirmal Singh v. Inspector of Customs[vii], the Supreme Court has held that a statement amounting to a ‘confession’ made before an investigating officer under the NDPS Act would be hit by Section 25 and 26 of Indian Evidence Act. Although the issue is pending before a full bench of the Supreme Court[viii], it is logical to infer the forethought of the Court in the abovementioned judgments.
As regards Companies Act, the lawmakers seem to have not taken into consideration certain practical issues while drafting the Companies Bill. In my opinion, although the 2013 Act substantially covers most aspects fairly, the said provisions of Sections 212, 217 and 436 when cumulatively taken into consideration, do not pass the constitutional muster and are ultra vires of Articles 14, 20(3) and 21 of the Constitution of India.
“The views of the authors are personal“
[i] 2017 AIR (SC) 5500
[ii] 1978 AIR (SC) 1025
[iii] Sarwan Singh v. State of Punjab (Three-Judge-Bench of the Hon’ble Supreme Court) 1957 AIR (SC) 637
[iv] 1994 (3) SCC 569
[v] 1960 AIR (SC) 1125
[vi] 2008 (16) SCC 417
[vii] 2011 (12) SCC 298
[viii] Tofan Singh v. State of Tamil Nadu (Judgment reserved by a bench presided by R.F.Nariman, J)