NCLT affirms jurisdiction to investigate alleged fraud under Companies Act

The appeal was dismissed, affirming the NCLT's jurisdiction under Section 213 of the Companies Act, 2013, and its authority to refer matters for investigation to the SFIO based on alleged fraudulent activities and financial irregularities by the Corporate Debtor and its group companies. The judgment upheld the Adjudicating Authority's directions for investigation, emphasizing the NCLT's power to act in public interest and refer cases for investigation in instances of suspected fraud.

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Issues Involved:
1. Jurisdiction of the Adjudicating Authority under Section 213 of the Companies Act, 2013.
2. Alleged fraudulent activities and financial irregularities by the Corporate Debtor and its group companies.
3. Directions for investigation by the Serious Fraud Investigation Office (SFIO).

Detailed Analysis:

Jurisdiction of the Adjudicating Authority under Section 213 of the Companies Act, 2013:
The primary issue raised by the appellant was whether the National Company Law Tribunal (NCLT), acting as the Adjudicating Authority, has the jurisdiction to pass orders under Section 213 of the Companies Act, 2013. The appellant argued that the Adjudicating Authority does not possess such power in the absence of an amendment in Schedule XI of the Insolvency and Bankruptcy Code (I&B Code).

The judgment clarified that the NCLT, having territorial jurisdiction over the place where the registered office of the corporate person is located, is empowered to deal with insolvency resolution and liquidation for corporate persons, including corporate debtors and personal guarantors. The NCLT's power under the Companies Act, 2013 does not get extinguished merely because of its additional role under the I&B Code. The tribunal referred to previous cases, including "Y. Shivram Prasad Vs. S. Dhanapal & Ors." and the Supreme Court's observation in "Swiss Ribbons Pvt. Ltd. & Anr.", to establish that the NCLT has dual and interwoven roles and can exercise powers under Section 213 of the Companies Act, 2013, read with Rule 11 of the National Company Law Tribunal Rules, 2016.

Alleged Fraudulent Activities and Financial Irregularities:
The Forensic Audit Report highlighted several irregularities and fraudulent activities by the Corporate Debtor and its group companies. Key findings include:

- Related Parties and Individuals: The Corporate Debtor and associated entities were found to be part of a network of 56 group companies, with key individuals like Mr. Pratap Kunda and Mr. Sanjay Raj involved.
- Fraudulent Loans and Mis-utilization: Loans were fraudulently obtained from the Bank of Maharashtra (BoM) and misused, including the misuse of cash credit (CC) facilities meant for working capital for purchasing fixed assets.
- Financial Manipulations: The report identified inflated revenues, suspicious cash transactions, and round-tripping transactions, suggesting potential fund diversion and generation of unaccounted cash.
- Asset Stripping and Anomalies: Significant assets were written off without proper documentation, and there were discrepancies in financial statements, suggesting asset stripping and fraudulent financial reporting.

Directions for Investigation by the SFIO:
Based on the Forensic Audit Report, the Adjudicating Authority directed the Resolution Professional to forward all relevant documents to the Central Government and to the parties involved, adhering to principles of natural justice. The Central Government was instructed to refer the matter to the SFIO for further investigation into the affairs of the Corporate Debtor, Bank of Maharashtra, and related companies.

The judgment emphasized that the NCLT, under Section 213 of the Companies Act, 2013, has the authority to refer matters for investigation if there are circumstances suggesting fraudulent or unlawful activities. The inherent powers of the NCLT under Rule 11 of the National Company Law Tribunal Rules, 2016, allow it to act in public interest and refer cases for investigation if a prima facie opinion of fraud is formed.

Conclusion:
The appeal was dismissed, affirming the NCLT's jurisdiction and its decision to refer the matter to the SFIO for further investigation. The judgment upheld the Adjudicating Authority's directions and found no merit in the appellant's arguments against the impugned order.

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