NCLT Can Exercise Inherent Powers To Forward A Copy Of Its Order To Relevant Statutory Authorities For Necessary Action: NCLAT

The National Company Law Appellate Tribunal (NCLAT) New Delhi bench of Justice Ashok Bhushan (Judicial Member), Mr. Arun Baroka (Technical Member) and Mr. Barun Mitra (Technical Member) that the National Company Law Tribunal (NCLT) in exercise of its inherent jurisdiction under Rule 11 of the NCLT Rules, 2016, may direct that a copy of its order be forwarded to relevant statutory authorities for necessary action. It further held that however, any investigation by the Serious Fraud Investigation Office (SFIO) under Section 212 of the Companies Act, 2013 (Companies Act) can only be initiated in accordance with the procedure prescribed under that provision. The Adjudicating Authority, while exercising its jurisdiction under the Companies Act, is not empowered to directly order an investigation by the SFIO. Brief Facts: An application under Section 9 of the Insolvency and Bankruptcy Code, 2016 (Code) was filed by the Respondent, Enviro Home Solutions Private Limited, alleging a debt and default by the Appellant, who was arrayed as the Respondent in the Company Petition. Although the Adjudicating Authority rejected the Section 9 application, it nevertheless directed that a copy of the order be forwarded to the Central Government through the Ministry of Corporate Affairs and other relevant Central Authorities. Aggrieved by these observations and directions in the impugned order, the Appellant has preferred the present appeal. Contentions: The Appellant submitted that the Adjudicating Authority, while dismissing the Section 9 application, lacked jurisdiction to direct an investigation against the Appellant. Allegations of fraud or forgery cannot be adjudicated under Section 9. It was further submitted that for directing an investigation into a company's affairs, the Companies Act provides specific provisions. The impugned order is not in consonance with the Act's scheme. Even under Section 213, a reasonable opportunity of being heard must be given, which was not afforded to the Appellant in this case. Per contra, the Respondent submitted that even while rejecting a Section 9 application, the Adjudicating Authority, exercising its jurisdiction under the Companies Act is empowered to forward the order to statutory authorities, including the Central Government through the Ministry of Corporate Affairs, for appropriate action under law. It was further submitted that the NCLT also possesses inherent power as conferred by Rule 11 of the NCLT Rules, 2016 in exercise of which power Adjudicating Authority can forward the copy of relevant appropriate authorities in facts of particular case. Observations: The Tribunal at the outset observed that it is evident that the Adjudicating Authority did not issue any direction for investigation. Paragraphs 65 and 66 of the impugned order merely leave the matter open for appropriate statutory authorities—such as the ROC, Income Tax Department, EOW, and SFIO—to take steps under applicable laws. These observations cannot be construed as investigative directions and are only facilitative in nature. It further noted that section 213(b) of the Companies Act empowers the Tribunal to direct an investigation either on application or otherwise, indicating broad authority. However, such a direction can only be issued after giving a reasonable opportunity of being heard to the concerned parties. Based on the above, it held that since no such opportunity was afforded in the present case, the observations in paragraphs 65 and 66 cannot be construed as an investigation order under Section 213. The NCLAT in Allahabad Bank vs. Poonam Resorts Limited- 2020 held that the IBC does not require a pre-admission inquiry or forensic audit to prove default by the Financial Creditor, Corporate Debtor, or any financial institution. In this case, the Adjudicating Authority appointed PwC as a forensic auditor to investigate fraud allegations by the Corporate Debtor, but this order was set aside on appeal. However, this issue is not relevant to the facts of the present case. In Lagadapati Ramesh vs. Ramanathan Bhuvaneshwari- 2019 , it was contended that provisions of Section 212 of the Companies Act can only be invoked by the Central Government, not by the Adjudicating Authority (NCLT). Investigation under Section 212 is triggered only upon receipt of a report from the Registrar or Inspector under Section 208 or based on certain conditions like a special resolution or public interest. The NCLAT held that NCLT or Adjudicating Authority cannot directly refer matters for investigation by the SFIO, even if fraud is suspected. It further added that however, the Adjudicating Authority can exercise powers under Section 213, which allows it to issue notices and, after giving parties an opportunity to be heard, refer matters to the Central Government for investigation by Inspectors. If actionable...

NCLT Can Exercise Inherent Powers To Forward A Copy Of Its Order To Relevant Statutory Authorities For Necessary Action: NCLAT

Mohd Malik Chauhan

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