2025 (4) TMI 639 - AT - Companies Law

NCLAT Chennai upholds government investigation order against company directors despite natural justice claims

M/s UNIQUE TRAINING CORPORATION INDIA PVT LTD., SHRI. GANGAHANUMAIAH B.P. Versus SMT. LAKSHMI SATISH KUMAR

NCLAT Chennai dismissed an appeal challenging NCLT Bengaluru's order directing Central Government investigation into the appellant company and its ... Challenge to order from the National Company Law Tribunal (NCLT), Bengaluru, which directed the Central Government to investigate the affairs of the appellant company and its directors - Violation of principels of natural justice - HELD THAT:- This Appellate Tribunal is of the view, adherence to that the principles of natural justice is an aspect, which has to be evaluated on differing yard sticks depending upon the facts and circumstances of each case. The term ‘notice’ under legal connotation means imparting the knowledge to the party, of an proceedings being taken up before a court of law. In the instant case, the knowledge is attributable to the Appellant in the light of the findings which has been recorded in para-4, coupled with the findings which has been recorded in Para-5 as regards the service of notice on the Appellants/Respondents by a publication. Hence, the ground taken by the Appellant that the order happens to be exparte will not be acceptable to this Appellate Tribunal. Further, since the Appellant had deliberately with a malicious intent at his own volition attempted not to appear before the Learned Tribunal, it cannot be said that the Impugned Order was passed exparte (or) having been passed without hearing the Appellant particularly when despite of several opportunities, being granted to him, he has deliberately avoided to appear before the Tribunal and to participate in the proceedings, apprehending the consequences, which may flow from the matters which were being considered by the Tribunal, made in its observations in the impugned order from para – 5 onwards, about the act of misconduct which, the Appellant was found to be involved. The Impugned Order has been assailed on the solitary ground of being in violation of principle of natural justice, which is not being made out owing to the findings which are recorded in the Impugned Order. Besides since the consequential effect of the Impugned Order, would only result in carrying out of an investigation into the conduct of the Appellant, Company including its directors in its business operations based on a complaint, filed by the Respondent, normally, the courts/tribunals should keep their hands off in such process of investigation which has been directed under law to be carried against a party or person, so as to arrive at a conclusion about the veracity of the said allegations levelled by the Complainant. Since, the investigation is only a fact-finding stage, it does not require to be ventured into by this Appellate Forum, because all defences are still available to the Appellant, to be raised before the investigating agency as directed by the Impugned Order. This Appellate Tribunal is of the considered view that the ground taken by the Appellant, that the proceeding happens to be in violation of the principles of natural justice is not made out from the records and from the findings which had been recorded in the Impugned Order about service of notice by a substitutive mode, no interference is required to be called for by this Appellate Tribunal in the Company Petition in question. Conclusion - The Tribunal found no violation of natural justice principles, and the investigation order is upheld as a necessary measure to address the allegations. Appeal dismissed. The judgment from the National Company Law Appellate Tribunal (NCLAT), Chennai, addresses an appeal against an order directing an investigation under Section 213(b) of the Companies Act, 2013. The appeal was filed under Section 421 of the Companies Act, 2013, challenging an order from the National Company Law Tribunal (NCLT), Bengaluru, which directed the Central Government to investigate the affairs of the appellant company and its directors.1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered were:Whether the order directing an investigation under Section 213(b) was passed ex parte and without notice to the appellants, thus violating principles of natural justice.Whether the appellants were deliberately avoiding participation in the proceedings, and if the order was justified despite their absence.Whether the investigation order was appropriate given the allegations of misconduct and the process followed by the NCLT.2. ISSUE-WISE DETAILED ANALYSISEx Parte Order and Principles of Natural JusticeRelevant Legal Framework and Precedents: The appeal was based on the claim that the order violated principles of natural justice, specifically the right to be heard (audi alteram partem). The appellants argued that they were not served notice and were not heard in the proceedings.Court's Interpretation and Reasoning: The Tribunal found that the appellants were aware of the proceedings and had opportunities to participate. The Tribunal noted that notices were issued, and when they were returned unserved, a substitute service through newspaper publication was executed.Key Evidence and Findings: The Tribunal highlighted that the appellants were contacted at the given address and had discussions with the respondent about settlement terms, indicating awareness of the proceedings. The Tribunal also noted the publication of notices in newspapers as evidence of service.Application of Law to Facts: The Tribunal applied Rule 20(2) of Order V of the Code of Civil Procedure, 1908, which allows for substitute service through publication when normal service fails. This was deemed sufficient to satisfy the requirement of notice.Treatment of Competing Arguments: The appellants' claim of not being heard was countered by evidence of attempts at service and their knowledge of the proceedings. The Tribunal found no merit in the argument of an ex parte order.Conclusions: The Tribunal concluded that the order was not ex parte and did not violate principles of natural justice, as the appellants were deemed to have been properly notified and chose not to participate.Appropriateness of the Investigation OrderRelevant Legal Framework and Precedents: Section 213(b) of the Companies Act, 2013, allows for investigation into company affairs if there are allegations of misconduct.Court's Interpretation and Reasoning: The Tribunal emphasized that the investigation is a fact-finding process and does not determine guilt or innocence. The appellants can present their defenses during the investigation.Key Evidence and Findings: The Tribunal noted that the investigation was based on allegations of misconduct, and the order for investigation was a preliminary step to ascertain the facts.Application of Law to Facts: The Tribunal found that the NCLT's order was justified given the allegations and the procedural steps followed, including substitute service.Treatment of Competing Arguments: The appellants' argument against the investigation was dismissed, as the Tribunal held that the investigation was necessary to determine the validity of the allegations.Conclusions: The Tribunal upheld the investigation order, stating that it was a necessary step to examine the allegations and that the appellants could defend themselves during the investigation process.3. SIGNIFICANT HOLDINGSPreserve verbatim quotes of crucial legal reasoning: The Tribunal stated, 'The term 'notice' under legal connotation means imparting the knowledge to the party, of a proceeding being taken up before a court of law.'Core principles established: The judgment reinforced the principle that substitute service through publication is valid when normal service fails, and that an investigation order is a preliminary step not determining liability.Final determinations on each issue: The appeal was dismissed as the Tribunal found no violation of natural justice principles, and the investigation order was upheld as a necessary measure to address the allegations.