SFIO Challenges NCLT's Order Directing Investigation Into Fraud By Companies

SFIO Challenges NCLT

The Government through Serious Fraud Investigation Office (SFIO) has moved NCLAT against NCLT Principal Bench's order directing SFIO to investigate alleged siphoning of funds by two companies undergoing insolvency proceedings, Luxury Train Pvt. Ltd. and Zynke Exports Pvt. Ltd.

The Principal Bench headed by Judicial Member M M Kumar in both the cases observed that funds were diverted by the corporate debtor companies, and no explanation was given. The directors of the companies have also fled the country. The NCLT Bench exercising its jurisdiction under section 210 read with section 212(iii)(b) of the Companies Act, 2013 (the Act), had then directed that the SFIO should probe into the matters as diversion of public funds were taking place.

Section 210 provides that when a court or Tribunal passes an order that affairs of a company the ought to be investigated, the Central Government shall order an investigation into the affairs of that company. Section 212 of the Companies Act on the other hand, empowers the Central Government to investigate into the affairs of a company by the SFIO, if the Centre is of the opinion that the investigation is necessary.

The SFIO had moved an application in NCLT for recall of the orders in both the matters. It was SFIO's contention that the Adjudicating Authority (NCLT) has no jurisdiction under section 210 read with 212 of the Act to issue directions to the probe agency to investigate matters, and such a direction for investigation can come only from the Ministry of Corporate Affairs (MCA).

NCLT Bench was however of the view that, the agency should have looked into the matter as diversion and siphoning of funds worth crores were in question. The Bench felt that instead of placing a recall application on account of 'any technical issue of obtaining permission from the Central Government.', SFIO should have carried out the probe, and disposed of the applications.

SFIO moved NCLAT against the orders passed by NCLT in the two matters, by way of an appeal.

The NCLAT bench headed by Justice S J Mukhopadhayay observed that the question for consideration in these appeals is as to whether NCLT can direct SFIO to make any investigation directly, or through some other agency i.e. Inspector appointed by the Central Government, or some other provisions of law or not.

The Appellate Bench issued notice to the companies through their respective resolution professionals, and will be deliberated upon the issue of NCLT's jurisdiction in the matter.

The Bench has stayed the operation of the orders dated 24th July, 2019 and 26th July, 2019, by which the recall applications of SFIO were dismissed by the NCLT Principal Bench, insofar as the order was related to the direction to 'SFIO' to investigate the matter.

The matter will be next heard on 22nd October, 2019.

TO DOWNLOAD THE ORDER OF NCLAT, CLICK HERE.

TO DOWNLOAD THE NCLT ORDER IN LUXURY TRAIN, CLICK HERE.

TO DOWNLOAD THE NCLT ORDER IN ZYNKE EXPORTS, CLICK HERE.