NCLAT Dismisses Plea Challenging Investigation Into Alleged Siphoning By Exclusive Capital, Promoters

The National Company Law Appellate Tribunal (NCLAT) at Delhi has recently dismissed an appeal filed by Exclusive Capital Ltd. and its promoters, upholding the National Company Law Tribunal (NCLT) Delhi's decision directing a full investigation into the company's affairs.

The probe concerns allegations that the management siphoned funds through related-party transactions and diversion of assets, including unsecured loans worth more than Rs 21 crore and luxury vehicles valued at over Rs 16 crore, allegedly causing financial loss to the Delhi-based non-banking financial company and its stakeholders.

The NCLAT bench of Judicial Member Mohd. Faiz Alam and Technical Member Naresh Salecha held that the NCLT was justified in ordering an investigation based on the material before it, including multiple reports submitted by former Delhi High Court judge Justice R K.Gauba.

Justice Gauba had initially been appointed as Administrator and later designated as Observer to examine allegations raised in earlier proceedings relating to oppression and mismanagement.

"It would be sufficient if the Tribunal, on the basis of taking into consideration the material/evidence produced on record, may form an opinion subjectively to satisfy itself that there are good grounds and reasons and prima facie case to order such investigation and such satisfaction must also be reflected in the order.”

The dispute arose from an application filed by minority shareholders who alleged diversion of funds, related-party dealings, violation of RBI directions and loans given at below-market rates to entities linked to the promoters. After reviewing the Observer's findings, the appellate tribunal noted persistent patterns of unexplained lending and accepted the conclusion that the promoters appeared to be working to denude the company of assets through siphoning of funds to the detriment of members and creditors.

Exclusive Capital argued that the NCLT had become 'functus officio' after disposing of the earlier petition and also claimed that as an NBFC, the company fell solely under the regulatory domain of the RBI. The NCLAT rejected both submissions, noting that the Observer's reports and management scheme were still pending consideration before the NCLT and therefore proceedings had not concluded.

The tribunal held that the NCLT had acted within its jurisdiction in forming a subjective opinion based on available material indicating possible fraud, mismanagement and diversion of funds, and that minority shareholders need only demonstrate sufficient grounds to trigger an investigation under Section 213 of the Companies Act.

With this, the NCLAT dismissed the appeal and upheld the direction for a full investigation into the affairs of Exclusive Capital.

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