What Happens in an SFIO Investigation and Can Directors Be Arrested?

What is an SFIO investigation and who orders it?

An SFIO investigation is a detailed probe into the affairs of a company by the Serious Fraud Investigation Office, a multi-disciplinary body set up under Section 211 of the Companies Act 2013. Its team draws on accountants, forensic auditors, tax officers, bank officers and police officers. It sits under the Ministry of Corporate Affairs, with its head office in New Delhi and regional offices in other cities.

The SFIO cannot pick a company on its own. Section 212(1) allows the Central Government to assign a case to it in four situations: on a report of the Registrar of Companies or an inspector under Section 208, on a special resolution passed by the company itself, in the public interest, or on a request from a Central or State government department. The assignment order names the company, often its group companies, and the period within which the report is due.

The Act has lighter tools too: Registrar inspections under Sections 206 and 207, inspectors under Section 210, and NCLT-ordered investigations under Section 213. An SFIO assignment is the heaviest, because it carries arrest powers and leads to prosecution before a Special Court.

Once a case is assigned, Section 212(2) says no other investigating agency of the Central or a State government will proceed with investigation of offences under the Companies Act in that case, and any agency already investigating must hand over its papers. Offences under other laws, such as money laundering, can still run in parallel, which is why directors often deal with more than one agency at the same time.

How an SFIO case usually begins in practice

In most files we see, the trail starts long before the SFIO letter. A Registrar of Companies inspection under Section 206 or 207 raises questions about related party loans, round tripping of funds or inflated revenue. An inspection report goes to the Ministry, and the Ministry decides that the matter needs an SFIO investigation rather than an ordinary prosecution for filing defaults.

Other common triggers are a bank declaring the company's account fraud, complaints from homebuyers or depositors, a forensic audit ordered by lenders during insolvency, or a reference from the NCLT in an oppression and mismanagement case.

Directors frequently learn of the investigation only when a summons arrives. The assignment order is not always served on them, and the first step for any lawyer is to get a copy of it. It tells you which companies are covered, the period under scrutiny and the deadline for the report, and it may itself be open to challenge if the conditions in Section 212(1) were not met.

If a bank has already classified the company's loan account as fraud, that classification has its own remedies, which we explain on our page about a loan account declared fraud or a wilful defaulter tag. Getting that classification set aside does not end an SFIO case, but it can remove one of the documents the investigation relies on.

The Companies Act sections you will see in SFIO papers

What the SFIO actually does during the investigation

The working part of an SFIO investigation is document heavy. Investigators call for board minutes, statutory registers, bank statements of the company and of related parties, loan files, emails, accounting software data and audit working papers. Expect requests to group companies, banks, auditors and vendors at the same time, so the SFIO often knows more about the money trail than any single director does when he walks in.

Statements are recorded under Section 217. A director or officer is examined on oath, the questions and answers are written down, read over and signed. Unlike a statement to the police under Section 180 of the Bharatiya Nagarik Suraksha Sanhita (old Section 161 CrPC), a signed Section 217 statement can be used in evidence against the person who made it, so a careless answer about who approved a transfer can follow you into the trial.

Searches and seizures are possible where investigators believe that records may be destroyed or altered, and the Act provides for seizure of documents during investigation. The government can also approach the NCLT under Section 221 to freeze the company's assets, and banks often freeze accounts on their own once they learn of the probe. Interim reports under Section 212(11) are common, and the final report decides who will be named as an accused.

Can directors be arrested? The SFIO arrest power under Section 212(8)

Yes, directors can be arrested in an SFIO investigation, but the power is narrower than police powers. An SFIO arrest can be made only by a Director, Additional Director or Assistant Director whom the Central Government has authorised, only for an offence under Section 447, and only where that officer has reasons to believe, based on material in his possession, that the person is guilty. Suspicion alone, or the fact that someone sat on the board, is not enough on the language of the section.

The officer must inform the person of the grounds of arrest as soon as may be. The Companies (Arrests in connection with Investigation by Serious Fraud Investigation Office) Rules 2017 add procedure on the arrest order and records. After Pankaj Bansal v. Union of India (2023) on the similar PMLA power, and Mihir Rajesh Shah (Supreme Court, 2025) on written grounds generally, the safe position is that the grounds should be given in writing. Whether a lapse makes the arrest illegal depends on the facts and on how promptly it is raised.

The arrested person must be taken to the nearest Judicial Magistrate or the Special Court within 24 hours, excluding travel time. From then on, custody is by remand order. In SFIO v. Rahul Modi (2019), the Supreme Court set aside a Delhi High Court order that had freed accused persons by habeas corpus, holding that custody under a judicial remand order is not illegal detention even if the original period in the assignment order had run out. The challenge to remand or custody has to be made in the right proceeding, usually bail, revision or a petition against the remand order.

Arrests tend to follow avoided summons, money moved abroad or missing documents. If you have been cooperating, the risk is usually lower, though never zero.

Who is really at risk of an SFIO arrest

In practice, the people arrested in SFIO cases are mostly promoters, managing directors, whole-time directors, CFOs and the person who controlled the bank accounts. These are the people whose signatures appear on the transfers, whose emails discuss the arrangement, and who can be said to have benefited.

Independent directors and nominee directors of lenders are in a different position. Section 149(12) protects them unless the act happened with their knowledge through board processes, or with their consent or connivance, or because they did not act diligently. Their defence is built from the board papers: what was placed before the board, what questions they asked, whether they recorded dissent. If you resigned, the date of resignation and the Form DIR-11 and DIR-12 filings matter a great deal.

Auditors and company secretaries are usually summoned as witnesses first, and move into the accused column only if investigators conclude they certified accounts they knew were false.

In SFIO v. Aditya Sarda (Supreme Court, 2025), anticipatory bail granted to accused persons who had evaded warrants and proclamation proceedings was set aside, and the Court held that the twin conditions of Section 212(6) apply to Section 447 offences at the anticipatory bail stage as well. The message is plain: a director who stays away from the process damages his own bail prospects.

SFIO arrest and bail: how the twin conditions work

Bail for a Section 447 offence runs through Section 212(6). The Public Prosecutor must be given a chance to oppose, and if he does, the court must be satisfied that there are reasonable grounds to believe the accused is not guilty and is not likely to commit an offence on bail. The structure is the same as Section 45 of the PMLA, which we explain in our guide to the twin conditions for bail under Section 45 PMLA.

A person under sixteen, a woman, or a sick or infirm person may be released if the Special Court so directs. This is not automatic, but for an elderly or unwell director the medical records become the core of the application.

Twin conditions do not mean bail is impossible. Courts look at the role attributed to the accused, whether he personally received money, the documents already seized, whether the complaint has been filed, how long he has been in custody, and how long the trial will take. In long-pending company fraud trials, with hundreds of witnesses, prolonged custody has itself been treated as a ground under Article 21, in line with the reasoning in K.A. Najeeb (2021) and later bail cases.

Regular bail after arrest is sought before the Special Court first and then before the Delhi High Court under Section 483 BNSS (old Section 439 CrPC). Anticipatory bail is sought under Section 482 BNSS (old Section 438 CrPC). Our page on anticipatory bail in the Delhi High Court explains that procedure; in SFIO cases the application must also deal with Section 212(6) head-on.

Which court hears SFIO matters, and why the Delhi High Court is often involved

The trial court for Companies Act offences is the Special Court under Section 435, a Sessions Judge or Additional Sessions Judge designated by the government with the consent of the High Court. The Special Court takes cognizance only on a written complaint by the SFIO Director or an officer authorised by the Central Government. In Delhi, check which court complex currently hosts the designated Special Court for your case, because designations change by notification.

The Delhi High Court comes in at several points. It hears bail applications and appeals from the Special Court, petitions to quash the complaint or summoning order under Section 528 BNSS (old Section 482 CrPC), and writ petitions under Article 226 against the assignment order, Look Out Circulars and freezing of accounts. Because the Ministry of Corporate Affairs passes the assignment order in New Delhi and the SFIO head office is in Delhi, part of the cause of action for a writ against those decisions arises here, a point we explain in our guide on filing a writ in Delhi when you live elsewhere.

Where the company and the alleged fraud are in another state, that state's High Court may also have jurisdiction, and the Delhi High Court can decline on the ground of forum conveniens.

The Supreme Court held in Parvinder Singh v. ED (May 2026) that the accused must be heard before cognizance is taken on a complaint under Section 223 BNSS. Whether and how this applies to SFIO complaints filed after 1 July 2024 is a live question that has been argued before the courts, so check the current position before the Special Court takes up your complaint.

Step by step: how an SFIO investigation moves, from assignment to trial

Every case differs, but the stages usually run in this order.

1. Assignment order under Section 212(1)

   The Ministry of Corporate Affairs assigns the case to SFIO and fixes a period for the report. Get a copy, even if you have to ask for it in writing or through your lawyer, because the scope and dates in it shape everything that follows.

2. Requisitions and summons under Section 217

   SFIO writes to the company, banks and auditors for records, then summons directors and officers. Calendar each date, reply in writing to every document request and keep a copy of what you hand over with an acknowledgement.

3. Examination on oath

   You appear, answer questions and sign the notes. Read every page before signing, ask for corrections in your own words, and request a copy of your statement in writing if one is not given.

4. Searches, freezing and travel restrictions

   Investigators may seize records, the government may seek a freeze of assets before the NCLT, and a Look Out Circular may be opened. Each of these has its own remedy and its own deadline, so deal with them as they come rather than waiting for the final report.

5. Arrest, if any, under Section 212(8)

   If arrested, you must be told the grounds and produced within 24 hours. The bail application then goes to the Special Court, and if refused, to the Delhi High Court.

6. Investigation report and sanction of prosecution

   SFIO sends its report to the government under Section 212(12), and the government directs prosecution under Section 212(14). Interim reports can lead to partial prosecution earlier.

7. Complaint before the Special Court

   The complaint is filed, the court decides whether to take cognizance and issues summons. This is the stage for a petition to quash the summoning order if the complaint does not make out your role.

8. Trial, appeal and parallel cases

   The trial is long, with documentary evidence and many witnesses. Appeals against conviction or acquittal go to the High Court, while any ED, CBI or NCLT proceedings run alongside on their own timetable.

How long each stage takes and what it costs

Documents a director should collect now

Facing SFIO questioning: what to do before you walk in

The first appearance shapes the case. Prepare a short written chronology of your role: when you joined, which meetings you attended, what you signed and on whose advice. Match it against the minutes and emails so that your answers are consistent with the documents the SFIO already has. Inconsistency, more than any single admission, is what leads investigators to treat a witness as a suspect.

When Advocate B.K. Singh prepares a director for an SFIO examination, he asks for the board papers before he asks for the client's version, because the client's memory of a meeting five years ago is rarely as reliable as the agenda note that was circulated. The practical tip is to answer from the record where you can, and to say plainly when you do not remember rather than guessing.

There is no general right to have a lawyer sit beside you during the examination, though courts have in some cases allowed a lawyer at a visible but not audible distance. Your lawyer's role is mainly before and after: preparing you, writing to the SFIO about dates and documents, and recording any objection to how the statement was taken. Our guide on preparing for questioning by the ED or CBI covers the same discipline, much of which applies equally to SFIO.

If you genuinely cannot attend, write before the date with a reason and proof, and offer alternative dates. Non-appearance is the factor most often cited when SFIO later seeks warrants or opposes bail.

SFIO, ED, CBI and NCLT at the same time

A large company fraud rarely stays with one agency. Fraud under Section 447 is a scheduled offence under the Prevention of Money Laundering Act 2002, so an SFIO case can lead the Enforcement Directorate to register an ECIR and attach property. Where public sector banks have lost money, the CBI may register its own case for cheating and corruption. Our guide on how ED, CBI and EOW cases differ explains which agency does what.

Each agency records its own statements, and contradictions between what you told SFIO and what you later tell the ED are used against you. Keep one master chronology and give consistent answers across all of them.

The NCLT can run alongside, with freezing of assets under Section 221, oppression and mismanagement petitions under Sections 241 and 242, and insolvency proceedings against the company. The tribunal side has its own rules and timelines; for those, our network site on NCLT cases has more detail. Decisions there, such as a finding on fraudulent transactions in insolvency, can feed back into the SFIO report.

Travel is often the first practical problem. SFIO commonly asks for Look Out Circulars against directors, and a director who lives abroad may be stopped at IGI airport. Our guide on removing a Look Out Circular sets out how such circulars are challenged.

Mistakes directors make in an SFIO investigation

• Treating the summons as a formality. A Section 217 statement is signed and can be used against you. Walking in unprepared, with no papers, is the most common and most costly error.
• Speaking for the whole company. Answer about what you did and saw. Guessing about what the promoter intended, or vouching for transactions you did not handle, turns you into the witness who confirmed the prosecution's theory.
• Leaving the country after the summons. Travel abroad after a summons, without informing the SFIO, is read as evasion and can lead to warrants and an LOC. If you live abroad, write to the SFIO with your address and availability.
• Destroying or editing records. Deleting emails or changing accounting data after the investigation starts is a separate offence and the strongest ground for arrest.
• Waiting for arrest before taking advice. Anticipatory bail, an LOC challenge or a writ against an overbroad order is best filed early, with the record already organised.

If you are a shareholder, lender, depositor or employee

You cannot ask the SFIO directly to investigate a company. The route is through the Registrar of Companies or the Ministry of Corporate Affairs, by a complaint with documents, or through the NCLT by seeking an investigation under Section 213 or relief for oppression and mismanagement. Groups of homebuyers or depositors often succeed in getting attention when they file together with clear numbers and documents.

Once an SFIO investigation is under way, a complainant has no formal role in it. You may be called as a witness, and you can send documents in writing. Recovery of your money comes through other proceedings, such as civil suits, insolvency claims or orders of the NCLT, not from the SFIO report itself.

Employees should cooperate with summons as witnesses and take independent advice if the company's lawyers are also representing the promoters. A junior accountant who is asked to explain entries made on instructions should say so, with the emails or chats that carry those instructions. Advocate B.K. Singh's practical advice to employees in this position is simple: keep copies of your instructions from the day the investigation is announced, because access to company email can be cut without notice.

What to do this week

If you have received an SFIO summons, write down the date and place, gather your appointment and resignation papers, pull the board minutes you received, and get your personal bank statements for the period. Do not discuss the investigation on email or chat with other directors in a way that reads as coordinating answers.

If a colleague has been arrested, check whether your signature appears on the same documents and whether you have attended every summons. Anticipatory bail in an SFIO case needs a full answer to Section 212(6), so draft it with the record, not in a rush.

If you are abroad, tell the SFIO in writing where you are and when you can appear, and check whether a Look Out Circular has been opened before you book a flight to India. Our page on SFIO investigation and company fraud cases sets out how we handle summons, bail and writs for directors, and you can also read more about representation through each stage on the same SFIO service page.

For advice on your summons, assignment order or bail papers, or for updates on how the courts are reading Section 212, you can contact Advocate B.K. Singh.