2019 (12) TMI 1634 - AT - Companies Law

Winding up petition under Section 271-272 of Companies Act, 2013 - reasonable opportunity of making representation - Whether the Central Government has accorded the sanction as per law? - HELD THAT - Undisputedly the Central Government ordered investigation into the affairs of M/s NKS Holdings Pvt Ltd to SFIO and the report was submitted on 31.03.2016 to the Ministry of Corporate Affairs. It is nowhere on record that during the investigation Respondent No.1 company was noticed. Therefore, the argument advanced by the Learned Sr. Counsel of Respondent No.1 that Respondent No.1 received notice on 07.07.2017 then only they came to know that in the report involvement of Respondent No.1 was found. The SFIO s report runs in more than 7000 pages incriminating 49 companies including Respondent NO.1. The Respondent No.1 company in reply to notice dated 07.07.2017 requested for supplying the copy of such report but copy has not been supplied to Respondent No.1. That even without considering this reply which was received on 01.08.2017 by the Respondent No.2 on 29.08.2017 sanction was accorded against the Respondent No.1. This sanction order does not contain what are the allegations against the Respondent No.1 company and to substantiate the allegations what documents were placed before him. It is also not mentioned that before according sanction the company has been given reasonable opportunity of making representations. It is also not mentioned that the sanctioning authority prima facie satisfied with the allegations against the Respondent No.1 company. It is apparent that without giving reasonable opportunity of representation to Respondent No.1 the sanction has been granted that too without applying the mind thus we find no ground to interfere in the order passed by the NCLT - Appeal dismissed.

Summary

Issues:
1. Sanction for winding up proceedings without proper representation.
2. Allegations of money laundering and non-compliance with Companies Act.
3. Validity of the sanction granted by the Central Government.

Issue 1: Sanction for winding up proceedings without proper representation

The Registrar of Companies (ROC) filed an appeal against the National Company Law Tribunal's (NCLT) order dismissing a winding up petition under Sections 271-272 of the Companies Act, 2013 against a company. The Respondent No.1 company contended that it was not given a reasonable opportunity to represent before the sanction was granted. The Respondent requested a copy of the Serious Fraud Investigation Office (SFIO) report to understand the allegations against the company but was not provided with it. The NCLT found that the petition was filed without proper sanction and without giving a reasonable opportunity of being heard, thus dismissing the petition with a notional cost to be paid by the Department to the Prime Minister's Relief Fund.

Issue 2: Allegations of money laundering and non-compliance with Companies Act

The SFIO investigation revealed that the Respondent No.1 company was involved in transactions related to money laundering and non-compliance with financial regulations. The Central Government sanctioned winding up proceedings against the company along with 49 other entities based on the SFIO report. The Respondent argued that the sanction was invalid as it was granted without providing specific allegations and documents considered. The Respondent highlighted that the company, under different management, was legally operating and flourishing. The Respondent emphasized that winding up would adversely affect shareholders' interests.

Issue 3: Validity of the sanction granted by the Central Government

The appeal raised the issue of whether the Respondent company was given a reasonable opportunity to make representations and whether the Central Government accorded the sanction as per law. The Central Government sanctioned the winding up proceedings without providing the Respondent No.1 with a reasonable opportunity for representation. The sanction order lacked details of the allegations against the company and did not mention if the company had been given a fair chance to respond. The Tribunal found that the sanction was granted without proper consideration and without giving the Respondent No.1 a reasonable opportunity to represent, leading to the dismissal of the appeal. The judgement emphasized the importance of providing companies with a fair chance to respond before initiating winding up proceedings.

This detailed analysis covers the issues of improper representation, allegations of money laundering, and the validity of the sanction granted by the Central Government in the context of the Companies Act, 2013, as addressed in the legal judgment by the National Company Law Appellate Tribunal, New Delhi.