Tax Management India. Com
Law and Practice  :  Digital eBook
Research is most exciting & rewarding
  TMI - Tax Management India. Com
Follow us:
  Facebook   Twitter   Linkedin   Telegram

Home Case Index All Cases Companies Law Companies Law + AT Companies Law - 2020 (4) TMI AT This

  • Login
  • Cases Cited
  • Referred In
  • Summary

Forgot password       New User/ Regiser

⇒ Register to get Live Demo



 

2020 (4) TMI 420 - AT - Companies Law


Issues Involved:
1. Jurisdiction of the Adjudicating Authority under Section 210(2) of the Companies Act, 2013.
2. Powers of the Adjudicating Authority under the Insolvency and Bankruptcy Code (IBC).
3. Validity of the investigation ordered by the Adjudicating Authority.
4. Compliance with principles of natural justice.
5. Allegations of fraudulent and wrongful trading by the Corporate Debtor.

Detailed Analysis:

1. Jurisdiction of the Adjudicating Authority under Section 210(2) of the Companies Act, 2013:
The Appellants contended that the Adjudicating Authority (National Company Law Tribunal, NCLT) incorrectly invoked Section 210(2) of the Companies Act, 2013, while exercising jurisdiction under the Insolvency and Bankruptcy Code (I&B Code). They argued that the term 'Court' as defined in Section 2(29) of the Companies Act, 2013, does not encompass the NCLT when acting under the I&B Code. The Appellants emphasized that the NCLT, while acting as the Adjudicating Authority under Part-II of the I&B Code, exercises limited jurisdiction and cannot be read as a 'Tribunal' entitled to exercise jurisdiction under Section 210(2) of the Companies Act, 2013.

2. Powers of the Adjudicating Authority under the Insolvency and Bankruptcy Code (IBC):
The Appellants argued that the NCLT, while exercising limited powers under the I&B Code, cannot direct an investigation into the affairs of a company. They contended that the invocation of Sections 60(5), 66, 67, 70, 71, 72, 73, and 235A of the I&B Code by the former Resolution Professional does not provide for issuing directions under Section 210(2) of the Companies Act, and thus, the impugned order is beyond the ambit of the relevant provisions. The Respondent countered that Section 210(2) of the Companies Act mandates the Central Government to order an investigation when directed by a Court or Tribunal, and the NCLT, as the Adjudicating Authority, has inherent powers under Rule 11 of the NCLT Rules, 2016, to make necessary orders to meet the ends of justice.

3. Validity of the Investigation Ordered by the Adjudicating Authority:
The Appellants cited the judgment in Mr. Lagadapati Ramesh Vs. Mrs. Ramanathan Bhuvaneshwari, arguing that the Adjudicating Authority is not competent to directly order an investigation by the Serious Fraud Investigation Office (SFIO) without following the prescribed procedure. They asserted that the investigation ordered is akin to a fishing and roving inquiry, which is not feasible as the Corporate Debtor is undergoing liquidation. The Respondent maintained that the Adjudicating Authority rightly directed an investigation under Section 210(2) of the Companies Act, as the affairs of the Corporate Debtor warranted such an investigation due to fraudulent activities.

4. Compliance with Principles of Natural Justice:
The Appellants argued that the impugned order is unreasoned and arbitrary, lacking adherence to the principles of natural justice. They emphasized that an investigation should not be ordered based on mere suspicion or assumptions and that the Adjudicating Authority must issue a notice and provide a reasonable opportunity of hearing to the concerned parties. The Respondent contended that the Adjudicating Authority followed due process and that the investigation was necessary to unearth hidden materials related to fraudulent activities by the Corporate Debtor.

5. Allegations of Fraudulent and Wrongful Trading by the Corporate Debtor:
The Resolution Professional discovered various instances indicating that the business of the Corporate Debtor was conducted with the intent to defraud its creditors. The allegations included falsification of accounts, non-existence of debtors, fraudulent operational creditors, and destruction of records. The Resolution Professional sought reliefs including the payment of debts by the suspended directors, contribution to the assets of the Corporate Debtor, and police protection. The Respondent argued that the fraudulent actions were committed before the Corporate Insolvency Resolution Process (CIRP) and that the investigation was necessary to address these fraudulent activities.

Conclusion:
The Tribunal concluded that the NCLT, as the Adjudicating Authority, is not empowered to directly order an investigation by the Central Government under Section 210(2) of the Companies Act. However, it can refer the matter to the Central Government for investigation by inspectors, following the due procedure prescribed under Section 213 of the Companies Act. The Tribunal varied the impugned order and referred the matter to the Secretary, Ministry of Corporate Affairs, for investigation by inspectors. The investigation, if warranted, could be further examined by the SFIO based on the findings of the inspectors. The appeal was disposed of with these observations and directions, ensuring adherence to the principles of natural justice and the proper procedure for ordering investigations.

 

 

 

 

Quick Updates:Latest Updates