2020 (4) TMI 420 - AT - Companies Law

Tribunal's Decision on Ordering Investigations by Central Govt under Companies Act

Vijay Pal Garg And Ors. Versus Pooja Bahry (Liquidator in the matter of Gee Ispat Private Limited

The Tribunal concluded that the NCLT, as the Adjudicating Authority, cannot directly order an investigation by the Central Government under Section 210(2) ... Jurisdiction - Status of NCLT as Court or not - invocation of Section 210(2) of the Companies Act, 2013 while exercising jurisdiction under the provisions of ‘I&B’ Code - Appellants contends that for the purpose of exercise of jurisdiction as per Section 210(2) of the Companies Act, 2013, the meaning of term ‘Court’ or the ‘Tribunal’ has to be considered in terms of the definition specified under the Companies Act, 2013 - HELD THAT:- In the instant case, it comes to be known that the Applicant/Resolution Professional came across various instances and materials to exhibit that the business of Corporate Debtor was carried on with in intent to defraud its creditors and for fraudulent purposes by the erstwhile management of the 'Corporate Debtor'. Apart from that, the Applicant/Respondent had grounds to believe that CIRP of the ‘Corporate Debtor’ was initiated fraudulently and/or with malicious intent for a purpose other than for ‘Resolution of Insolvency’ or Liquidation of Corporate Debtor - Before the Adjudicating Authority the Applicant/Resolution Professional in the application had averred that directions (in suspension) of the Corporate Debtor had not deliberately disclosed the affairs of the 'Corporate Debtor' from time to time to the Applicant / Resolution Professional and indulged in falsification and determination of Books and 12 Records of the ‘Corporate Debtor’ and made wilful and material omissions relating to its affairs and further defrauded its creditors. In the present case it is to be pointed out that the term Adjudicating Authority, as defined in Section 5(1) of IBC cannot come within the ambit of court as defined in Section 2(29) of the Companies Act, 2013. In fact, Section 2(29)(i) of the Companies Act defines ‘Court’ the High Court having jurisdiction in relation to the place at which the registered office of the Company concerned is situated etc. Section 2(29)(ii) of the Act speaks of ‘District Court’ and Section 29(iii) deals with the Court of Session, Section 29(iv) pertains to the Special Court constituted u/s 435 and Section 29(5) is concerned with any Metropolitan Magistrate or Judicial Magistrate of the 1st Class. As per Section 60(1) of ‘I&B’ Code the ‘National Company Law Tribunal’ is an Adjudicating Authority, possessing concurrent jurisdiction under the Companies Act and also under the I&B Code, 2016. This Tribunal refers the matter to the Secretary, Ministry of Corporate Affairs, Government of India in carrying out an investigation by the Inspector or Inspectors by following the due procedure as per Section 213 of the Companies Act, 2013 etc. If the matter needs to be examined by ‘Serious Fraud Investigation Office’, the Central Government may do so, if the case of fraud is made out and proceed further in accordance with law This tribunal comes to an ‘irresistible’ and inescapable conclusion that the Adjudicating Authority (Tribunal) in Law is not empowered to order an investigation directly, to be carried out by the Central Government. Issues Involved:1. Jurisdiction of the Adjudicating Authority under Section 210(2) of the Companies Act, 2013.2. Powers of the Adjudicating Authority under the Insolvency and Bankruptcy Code (IBC).3. Validity of the investigation ordered by the Adjudicating Authority.4. Compliance with principles of natural justice.5. Allegations of fraudulent and wrongful trading by the Corporate Debtor.Detailed Analysis:1. Jurisdiction of the Adjudicating Authority under Section 210(2) of the Companies Act, 2013:The Appellants contended that the Adjudicating Authority (National Company Law Tribunal, NCLT) incorrectly invoked Section 210(2) of the Companies Act, 2013, while exercising jurisdiction under the Insolvency and Bankruptcy Code (I&B Code). They argued that the term 'Court' as defined in Section 2(29) of the Companies Act, 2013, does not encompass the NCLT when acting under the I&B Code. The Appellants emphasized that the NCLT, while acting as the Adjudicating Authority under Part-II of the I&B Code, exercises limited jurisdiction and cannot be read as a 'Tribunal' entitled to exercise jurisdiction under Section 210(2) of the Companies Act, 2013.2. Powers of the Adjudicating Authority under the Insolvency and Bankruptcy Code (IBC):The Appellants argued that the NCLT, while exercising limited powers under the I&B Code, cannot direct an investigation into the affairs of a company. They contended that the invocation of Sections 60(5), 66, 67, 70, 71, 72, 73, and 235A of the I&B Code by the former Resolution Professional does not provide for issuing directions under Section 210(2) of the Companies Act, and thus, the impugned order is beyond the ambit of the relevant provisions. The Respondent countered that Section 210(2) of the Companies Act mandates the Central Government to order an investigation when directed by a Court or Tribunal, and the NCLT, as the Adjudicating Authority, has inherent powers under Rule 11 of the NCLT Rules, 2016, to make necessary orders to meet the ends of justice.3. Validity of the Investigation Ordered by the Adjudicating Authority:The Appellants cited the judgment in Mr. Lagadapati Ramesh Vs. Mrs. Ramanathan Bhuvaneshwari, arguing that the Adjudicating Authority is not competent to directly order an investigation by the Serious Fraud Investigation Office (SFIO) without following the prescribed procedure. They asserted that the investigation ordered is akin to a fishing and roving inquiry, which is not feasible as the Corporate Debtor is undergoing liquidation. The Respondent maintained that the Adjudicating Authority rightly directed an investigation under Section 210(2) of the Companies Act, as the affairs of the Corporate Debtor warranted such an investigation due to fraudulent activities.4. Compliance with Principles of Natural Justice:The Appellants argued that the impugned order is unreasoned and arbitrary, lacking adherence to the principles of natural justice. They emphasized that an investigation should not be ordered based on mere suspicion or assumptions and that the Adjudicating Authority must issue a notice and provide a reasonable opportunity of hearing to the concerned parties. The Respondent contended that the Adjudicating Authority followed due process and that the investigation was necessary to unearth hidden materials related to fraudulent activities by the Corporate Debtor.5. Allegations of Fraudulent and Wrongful Trading by the Corporate Debtor:The Resolution Professional discovered various instances indicating that the business of the Corporate Debtor was conducted with the intent to defraud its creditors. The allegations included falsification of accounts, non-existence of debtors, fraudulent operational creditors, and destruction of records. The Resolution Professional sought reliefs including the payment of debts by the suspended directors, contribution to the assets of the Corporate Debtor, and police protection. The Respondent argued that the fraudulent actions were committed before the Corporate Insolvency Resolution Process (CIRP) and that the investigation was necessary to address these fraudulent activities.Conclusion:The Tribunal concluded that the NCLT, as the Adjudicating Authority, is not empowered to directly order an investigation by the Central Government under Section 210(2) of the Companies Act. However, it can refer the matter to the Central Government for investigation by inspectors, following the due procedure prescribed under Section 213 of the Companies Act. The Tribunal varied the impugned order and referred the matter to the Secretary, Ministry of Corporate Affairs, for investigation by inspectors. The investigation, if warranted, could be further examined by the SFIO based on the findings of the inspectors. The appeal was disposed of with these observations and directions, ensuring adherence to the principles of natural justice and the proper procedure for ordering investigations.