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of <h1>Forensic audit ordered amid mismanagement and fund siphoning claims under Companies Act ss. 241-242; appeal dismissed, order upheld</h1> In an appeal challenging an interim direction for a forensic audit in a pending petition under ss. 241-242 of the Companies Act, 2013, the AT held that, ... Direction to conduct Forensic audit - main Petition filed un/s 241–242 of the Companies Act, 2013 contains no specific plea or relief seeking a forensic audit - scope of interim direction for such audit - grievance of the appellant is that without forming an opinion as to if there were any acts of oppression and mismanagement on the part of the appellants herein, such an order appointing Forensic Auditor ought not to have been passed - HELD THAT:- It is found from the impugned order that while keeping the main CP under Section 241-242 of the Companies Act, 2013 pending; in view of the hostile attitude between the two groups of shareholders and also in view of allegations and counter allegations, the Ld. NCLT had passed the order to find out the truth with regard to the running of the operations of Respondent No.2 company, in order to proceed further with the main Company Petition as the said Report would enable the Ld. NCLT to appreciate the issues necessary for fair and just adjudication of the Company Petition. It is required to look into the allegations set out in the Company Petition to find out as to if there existed allegations, sufficient to exercise discretion, as is given under Section 242(4) of the Companies Act, 2013 - In the Company Petition there exist allegations against the appellants of mismanagement and siphoning of funds from the Respondent No.2 company. There is no dispute to the law laid down but what is important to note is the cited judgement is a case where the company was still doing operations but whereas in the present case admittedly the company’s operations are nil and though allegedly the Respondents have resigned from the Management of the Company, yet for paying the debts of the company, taken during the tenure when the management of the company was in the hands of appellant, the Respondent had to dispose of their assets to clear of such debts of the Bank. Thus in the circumstances when the company is not in operations and there being allegations and counter allegations, hence no fault can be found in the impugned order directing forensic audit, only to enable it to know the truth into the allegations to pass a judgement. More so when a discretion u/s. 242(4) is exercised during the pendency of company petition, on facts of the case in hand, then it would not be appropriate to set aside such discretion, only if it could have been exercised in some other manner. Hence the appeal has no merit and it is accordingly dismissed. Issues: Whether the impugned order of the NCLT appointing a forensic auditor to investigate alleged misappropriation and financial irregularities in the company was valid and sustainable in law.Analysis: The Tribunal considered the statutory scheme under Sections 241 and 242 of the Companies Act, 2013 and the procedural power under Rule 11 of the NCLT Rules, 2016 to issue interim directions. The appellate standard on discretionary orders was applied: an appellate court will not interfere with a discretionary order unless the discretion is exercised arbitrarily, capriciously or perversely, or in disregard of settled legal principles. The Tribunal examined allegations and counter-allegations of siphoning of funds, lack of proper books, undocumented loans and related-party dealings and found that, given the hostile relations between shareholders and the company being non-operational, an independent forensic audit would assist the adjudication of the main petition. Relevant precedents and principles on interim investigative relief were applied to hold that conducting a forensic audit does not determine final rights but enables fact-finding necessary for a fair adjudication of a petition under Sections 241–242.Conclusion: The impugned NCLT order appointing a forensic auditor is valid and sustainable; the issue is decided in favour of the Respondent.
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