Tribunal denies SFIO investigation request due to lack of evidence, stresses importance of due process

The Tribunal dismissed the application for directing an investigation by the SFIO as the Liquidator failed to provide prima facie evidence to support allegations of fraud and misconduct by the Corporate Debtor and its Key Managerial Personnel. The Tribunal emphasized the necessity of concrete evidence to justify such investigations, citing legal precedents and highlighting the importance of due process in such matters.

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Issues Involved:
1. Maintainability of the application under Sections 210(2) and 213(b) of the Companies Act, 2013.
2. Allegations of fraudulent activities and misconduct by the Corporate Debtor (CD) and its Key Managerial Personnel (KMP).
3. Sufficiency of evidence provided by the Liquidator to support the allegations.
4. Jurisdiction of the Tribunal to direct an investigation by the Serious Fraud Investigation Office (SFIO).

Detailed Analysis:

1. Maintainability of the application under Sections 210(2) and 213(b) of the Companies Act, 2013:
The application was filed by the Liquidator under Sections 210(2) and 213(b) of the Companies Act, 2013, seeking directions for an investigation into the affairs of the Corporate Debtor (CD). The respondents contested the maintainability, arguing that only the Ministry of Corporate Affairs could direct such an investigation and that the application was filed with an oblique motive to harass them. The Tribunal noted that the application should stand on its own merits and be supported by prima facie evidence, which was not provided in this case.

2. Allegations of fraudulent activities and misconduct by the Corporate Debtor (CD) and its Key Managerial Personnel (KMP):
The Liquidator cited several instances of alleged misconduct and fraudulent activities during the Corporate Insolvency Resolution Process (CIRP) and liquidation period, including:
- Shifting of plant and machinery/stock without lenders' consent.
- Sceptical relationships between employees of Gallium Industries Ltd. and other associated companies.
- Non-cooperation in providing necessary information and documents to the forensic auditor.
- Questionable claims received during liquidation proceedings.

3. Sufficiency of evidence provided by the Liquidator to support the allegations:
The Tribunal emphasized the necessity of prima facie evidence to support allegations for an investigation under Section 213(b). The Liquidator failed to provide sufficient evidence to substantiate the claims of fraud, misfeasance, or misconduct. The Tribunal referred to previous judgments, including the Hon'ble NCLAT and Supreme Court rulings, which underscored the requirement of concrete evidence before ordering an investigation.

4. Jurisdiction of the Tribunal to direct an investigation by the Serious Fraud Investigation Office (SFIO):
The Tribunal acknowledged its competence to pass orders under Section 213 of the Companies Act, 2013, but reiterated that it could only refer the matter to the Central Government for investigation if prima facie evidence of fraud or misconduct was presented. The Tribunal cited the NCLAT judgment in Lagadapati Ramesh vs. Ramanathan Bhuvaneshwari, which clarified that an Adjudicating Authority could not directly order an SFIO investigation without following the due process and establishing a prima facie case.

Conclusion:
The Tribunal concluded that the Liquidator failed to provide prima facie evidence to support the allegations of fraud and misconduct. Consequently, the application for directing an investigation by the SFIO was dismissed. The Tribunal reiterated the importance of presenting concrete evidence to justify the need for an investigation, in line with established legal precedents. The order was pronounced through virtual mode.

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