NCLAT upholds tribunal's power to order independent audit in oppression case under Rule 11 NCLT Rules 2016

NCLAT Chennai dismissed an appeal challenging NCLT's order directing independent audit in an oppression and mismanagement case. The appellant contested NCLT's power to order audit without finding fraud. NCLAT held that under Rule 11 of NCLT Rules 2016, the tribunal possesses inherent powers to order audit or make necessary orders for justice without pre-conditions. The audit was deemed necessary to ascertain facts amid allegations of fund siphoning and improper book maintenance. Following precedent in Archer Power System case, NCLAT confirmed forensic audit helps tribunals appreciate issues through independent reports, ensuring due process for all parties.

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Issues Involved:
1. Maintainability of the Petition under Sections 241 & 242 of the Companies Act, 2013.
2. Appointment of an Independent Chartered Accountant for an investigative audit.
3. Tribunal's power to order an audit without a finding of fraud.

Summary:

Issue 1: Maintainability of the Petition
The National Company Law Tribunal (NCLT) Kochi Bench found the Petition maintainable as the Applicants held 19.18% equity shares of the Company, making them eligible to file under Section 241 of the Companies Act, 2013.

Issue 2: Appointment of an Independent Chartered Accountant
The NCLT Kochi, in its interim order dated 08.06.2022, directed an investigation of the Company's accounts by appointing an Independent Chartered Accountant. The Tribunal appointed Shri Rajmohan R as the Independent Auditor to conduct an audit for the financial years ending on 31.03.2016, 31.03.2017, and 31.03.2018. The Tribunal stated that the audit was necessary to identify any accounting fraud in the Financial Statements of the Company.

Issue 3: Tribunal's Power to Order an Audit
The Tribunal justified its decision under Rule 11 of the National Company Law Tribunal Rules, 2016, which allows the Tribunal to make orders necessary for meeting the ends of justice or to prevent abuse of the Tribunal's process. The Tribunal referenced the case of `Archer Power System P. Ltd. Vs. Cascade Energy P. Ltd. & Ors.` to support its inherent powers to order an audit. The Tribunal emphasized that it is not required to give a finding of fraud before ordering an audit by an independent Auditor.

Conclusion:
The Appellate Tribunal upheld the NCLT Kochi's decision, stating that the Tribunal has the inherent powers under Rule 11 of NCLT Rules, 2016, to cause an audit of accounts to meet the ends of justice. The appeal was dismissed, and no order as to costs was made.

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