Official liquidator's fraud allegations insufficient to warrant SFIO investigation without substantiated evidence from company records

The Allahabad HC recalled its order directing SFIO investigation into a company in liquidation after an ex-director's application. The court found the official liquidator failed to provide specific evidence of fraud, misfeasance, or fund diversion despite having access to company records and a panel of chartered accountants. The court held that mere allegations without substantiation from balance sheets and books of account were insufficient to warrant SFIO referral. The official liquidator possessed adequate powers and resources to detect irregularities independently, making external investigation unnecessary. The recall application was allowed.

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Issues Involved:
1. Recall of the order directing SFIO investigation.
2. Adequacy of cooperation by ex-directors with the Official Liquidator.
3. Evidence of fraud or misconduct by the ex-directors.
4. Powers of the Official Liquidator under the Companies Act, 1956 and 2013.

Summary:

Recall of the order directing SFIO investigation:
The application was filed by an ex-director to recall the order dated 13.12.2019, which directed the SFIO to investigate the affairs of the company in liquidation. The court had initially referred the matter to the SFIO based on the Official Liquidator's reports indicating clandestine asset transfers and lack of resources to investigate.

Adequacy of cooperation by ex-directors with the Official Liquidator:
The ex-directors had shown full cooperation, as evidenced by orders dated 6.5.2009 and 6.7.2012, where they appeared before the Official Liquidator, submitted statements of accounts, and deposited Rs. 1 crore to show bona fides. The Official Liquidator's reports, including Judicial/42 of 2018, detailed the assets and properties of the company as provided by the ex-directors.

Evidence of fraud or misconduct by the ex-directors:
The learned counsel for the applicant argued that there was no material evidence indicating fraud or misconduct by the ex-directors. The Official Liquidator's reports did not demonstrate any intention to defraud creditors or members. The court noted that vague allegations without specific references to the company's balance sheets and accounts could not justify an SFIO investigation.

Powers of the Official Liquidator under the Companies Act, 1956 and 2013:
The court reviewed the extensive powers granted to the Official Liquidator under Sections 235, 237, 456, and 457 of the Companies Act, 1956, and corresponding provisions in the Act, 2013. These powers include taking custody of the company's properties and investigating its affairs. The court found that the Official Liquidator had the necessary resources, including a panel of Chartered Accountants, to detect any diversion of funds without needing an SFIO investigation.

Conclusion:
The court concluded that the Official Liquidator's request for an SFIO investigation was unsubstantiated and that the ex-directors had cooperated adequately. Therefore, the order dated 13.12.2019 was recalled, and the Recall Application No. 235 of 2020 was allowed.

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