SUPREME COURT: PRIVATE COMPLAINTS FOR FRAUD UNDER COMPANIES ACT NOT MAINTAINABLE; ONLY SFIO CAN FILE:

The Supreme Court, on January 9, 2026, ruled that private complaints alleging fraud under the Companies Act, 2013, are not maintainable before a Special Court. Cognizance of such offenses can only be taken upon a complaint filed in writing by the Director of the Serious Fraud Investigation Office (SFIO) or an officer authorized by the Central Government, as stipulated under Section 212(6) of the Act.

A bench comprising Justices J.K. Maheshwari and K. Vinod Chandran held that offenses under Section 448 (false statements) qualify as offenses covered under Section 447 (punishment for fraud), given that Section 448 explicitly renders a person liable under the fraud provision of Section 447. Consequently, the statutory bar in the second proviso to Section 212(6) applies, prohibiting the Special Court from taking cognizance except through the specified official channels. The same reasoning extends to related offenses like those under Section 451 (repeated defaults linked to fraud).

The Court clarified that this restriction does not leave aggrieved individuals without recourse. A person alleging fraud in a company's affairs may approach the National Company Law Tribunal (NCLT) by filing an application under Section 213 of the Companies Act, provided they satisfy the eligibility criteria outlined in clauses (a) and (b) of that section, to seek an investigation by the SFIO.

The bench observed that the bar on cognizance in cases involving Section 447 serves as a safeguard to prevent the filing of frivolous complaints by disgruntled shareholders, members, or competitors with vested interests. It ensures an additional layer of scrutiny and preliminary investigation before a Special Court proceeds, thereby avoiding cognizance based solely on private complaints.

The dispute stemmed from a control tussle in a Hyderabad-based real estate company. The original promoter (complainant) and the appellants (former directors) had a falling out over management. The appellants were removed as directors in November 2021 following amendments to the Articles of Association and a failed re-appointment resolution. The complainant then filed a private criminal complaint, alleging that the appellants, after ceasing to be directors, illegally convened an Extraordinary General Meeting on December 1, 2021, passed forged resolutions to appoint new directors, and fraudulently uploaded Form DIR-12 on the Ministry of Corporate Affairs portal.

The Special Court for Economic Offences in Hyderabad took cognizance of offenses under Sections 448 and 451 of the Companies Act, along with various provisions of the Indian Penal Code (IPC), including Sections 420, 406, 426, 468, 470, 471, and 120B. The Telangana High Court dismissed the appellants' petition to quash these proceedings, prompting their appeal to the Supreme Court.

The appellants contended that Sections 448 and 451 fall within the ambit of "offences covered under Section 447" based on the statutory language, attracting the bar under Section 212(6). They argued that post the 2015 amendment, the restriction applies broadly to fraud-related offenses, not just Section 447 itself. The complainant countered that the bar was limited to Section 447 alone.

In its judgment, authored by Justice Maheshwari, the Court rejected the narrower interpretation and held that the linkage in Section 448 to Section 447 triggers the safeguard provision. It noted that the Telangana High Court had overlooked its own precedent in Sumana Paruchuri v. Jakka Vinod Kumar Reddy (2022), which expressed a similar view that private complaints are not maintainable for offenses intrinsically linked to fraud under Section 447. The Supreme Court allowed the appeal, set aside the impugned order of the High Court, and quashed the criminal proceedings against the appellants insofar as they related to Sections 448 and 451 of the Companies Act.