Tribunal's Power To Probe Company's Fraud Cannot Be Misused For Debt Recovery: NCLT Ahmedabad

The National Company Law Tribunal at Ahmedabad has recently held that Section 213 of the Companies Act, which empowers the tribunal to order an investigation into a company's affairs, cannot be invoked for recovery of unpaid dues.

A Bench of Judicial Member Shammi Khan and Technical Member Sanjeev Sharma, while dismissing a creditor's plea seeking an investigation into United Petrofer Ltd, observed, “The adjudication of dishonoured cheques and monetary recovery necessarily lie within the exclusive jurisdiction of appropriate civil and criminal fora, including courts dealing with negotiable instruments and contractual disputes. The use of the present petition under Section 213(b) for recovery, rather than for genuine investigation into fraudulent affairs, is therefore impermissible.”

The plea was filed by Amit N Kapadia, a creditor of Gujarat based United Petrofer, who alleged that the company and its directors fabricated statutory records, filed false forms with the Registrar of Companies and engaged in widespread non-compliance with mandatory provisions of the Companies Act. He also relied on multiple complaints filed before ICAI and ICSI, dishonoured cheques issued by the company and several statutory filings to argue that a prima facie case of fraud existed.

Kapadia submitted that he had supplied goods to the company and received cheques acknowledging the dues, all of which were dishonoured. He further alleged that the company failed to hold annual general meetings, appointed auditors based on fabricated resolutions, filed MGT and AOC forms without mandatory attachments and created false records on the MCA portal. He contended that these actions demonstrated fraudulent intent warranting a probe under Section 213(b).

The tribunal rejected these arguments after examining the documents and complaints placed on record. It held that the allegations amounted to statutory lapses and inconsistencies rather than systemic fraud.

The tribunal observed that the issues raised rimarily revolve around non-compliances in filing and certifications, which do not prima facie establish a systematic fraud targeting creditors or members. It further recorded that the dishonoured cheques have not been conclusively linked to fraudulent intent or unlawful conduct of the company within the meaning contemplated under Section 213(b).

It added that Section 213(b) is not intended to serve as a substitute or alternative recovery forum for disputed debts or commercial claims. Concluding that no prima facie case had been made out, the Tribunal dismissed the plea as not maintainable.

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