2021 (5) TMI 874 - AT - Companies Law

Appellate tribunal emphasizes need for detailed reasoning in decisions

VIJAY SAI POULTRIES PVT. LTD. Versus VEMULAPALLI SAI PRAMEELA, VEMULAPALLI HARI KISHORE, V. VASUNDRA, CH DHANALAXMI, CH ANNAPURNAMMA

The appellate tribunal set aside the Impugned Order due to the absence of sufficient justification for the forensic audit and the failure to provide ... Illegal transfer of shares without any consideration - forged signatures - siphoning of funds - HELD THAT:- In the application, there is a vague allegation of fabricating, share transfer deeds and the resignation letter. In the application, it is not mentioned that in what manner Mr. Naveen Kishore siphoned off the money from the Appellant Company and when has he purchased 50 properties in the name of his family members out of the funds of the Company. Even in the application it is not mentioned as to how and when the Respondents got the knowledge that Mr. Naveen Kishore has indulged in fraudulent sale transactions. Further, in support of said allegations the Respondents have not place any document on record. There is nothing in the order to justify the directions for conducting forensic audit of accounts of the Company that too for more than 15 years. The Adjudicating Authority must record reasons in support of conclusions. However, in the Impugned Order no reasons are mentioned for the said directions. The order is cryptic and non-speaking; therefore, it cannot be sustained. Appeal allowed. Issues:- Allegations of oppression and mismanagement by the Managing Director- Direction for forensic audit of the company since 31.03.2004- Prima facie findings of oppression or mismanagement under Companies Act- Lack of reasoning in the Impugned Order for forensic audit- Sufficiency of stamped affidavit filed in support of the application- Applicability of Rule 131 of NCLT Rules 2016 for forensic audit- Allegations of forgery, cheating, and criminal breach of trust- Justification for forensic audit based on financial irregularities- Compliance with the principles of recording reasons in judicial decisionsAnalysis:The case involved allegations of oppression and mismanagement by the Managing Director, leading to a petition under Sections 59, 241, and 242 of the Companies Act, 2013. The petitioners sought a forensic audit of the company since 31.03.2004, alleging illegal share transfers, misappropriation of funds, and unauthorized property transactions. The Managing Director contested the application, denying the allegations and arguing against the need for a forensic audit. The Tribunal allowed the application, directing a forensic audit without providing detailed reasoning, prompting the appeal.The appellant challenged the Impugned Order, highlighting the lack of prima facie findings of oppression or mismanagement under the Companies Act. The appellant contended that the order lacked reasoning, citing the necessity for recorded reasons in judicial decisions to prevent arbitrariness. Additionally, concerns were raised regarding the sufficiency of the stamped affidavit filed in support of the application and the applicability of Rule 131 of NCLT Rules 2016 for ordering a forensic audit.The respondent defended the Impugned Order, asserting that the Managing Director engaged in oppressive practices, including illegal share transfers and financial irregularities. The respondent argued that the Tribunal's decision for a forensic audit was justified based on the alleged misconduct and non-compliance with corporate governance norms. However, the appellate tribunal found the Impugned Order lacking in detailed reasoning, contravening the principles of recording reasons in judicial decisions as outlined by the Hon'ble Supreme Court.In conclusion, the appellate tribunal set aside the Impugned Order due to the absence of sufficient justification for the forensic audit and the failure to provide detailed reasoning. The decision emphasized the importance of recording reasons in judicial orders to ensure transparency, fairness, and accountability in the decision-making process. The appeal was allowed, with no order as to costs, highlighting the significance of adherence to legal principles and procedural fairness in such matters.