2021 (4) TMI 771 - AT - Insolvency and Bankruptcy

Reference of matter to SFIO - It is argued that the Adjudicating Authority could not have directly asked the Central Government to refer the matter to SFIO as there is a procedure required to be followed under Section 213(b) of the Companies Act, 2013 - HELD THAT - An error has occurred when Adjudicating Authority gave directions to send matter to SFIO which needs to be corrected so that the proper procedure as required under Section 213 of the Companies Act, is followed. The Central Government is directed to adopt procedure under Section 213 (b) of The Companies Act, 2013 and Central Government may get the affairs of the Companies investigated by an Inspector or Inspectors appointed by the Central Government and take further necessary steps as per law - Appeal allowed - decided in favor of appellant.

Summary

Issues involved:
1. Appeal against part of the Order passed by the Adjudicating Authority under Section 66 of Insolvency and Bankruptcy Code, 2016.
2. Direction given by the Adjudicating Authority to refer the matter to SFIO for further investigation.
3. Procedure required to be followed under Section 213 of the Companies Act, 2013 for investigation into the company's affairs.
4. Corrective action needed to ensure the proper procedure is followed.

Analysis:
1. The appeal was filed by the Ministry of Corporate Affairs against part of the Order passed by the Adjudicating Authority under Section 66 of the Insolvency and Bankruptcy Code, 2016. The Resolution Professional had sought orders and directions regarding writing off receivables from a party. The Adjudicating Authority gave directions, including forwarding material documents to the Central Government and referring the matter to SFIO for further investigation. The appeal raised concerns about the direct referral to SFIO without following the procedure outlined in the Companies Act, 2013.

2. The main grievance in the appeal was regarding Direction No.2, where the Central Government was directed to refer the matter to SFIO for investigation. The appellant argued that the Adjudicating Authority should have followed the procedure under Section 213(b) of the Companies Act, 2013, which involves giving parties a reasonable opportunity to be heard before deciding on an investigation. It was contended that the Central Government should decide on referring the matter to SFIO only after following the necessary procedure.

3. Section 213 of the Companies Act, 2013 outlines the procedure for investigating a company's affairs. It empowers the Tribunal to order an investigation if there are circumstances suggesting fraudulent activities, misconduct, or lack of transparency within the company. The procedure includes giving parties a reasonable opportunity to be heard before appointing inspectors to investigate the company's affairs. The judgment cited in the appeal emphasized the importance of following this procedure before referring a matter to SFIO.

4. The Appellate Tribunal allowed the appeal and modified the direction given by the Adjudicating Authority. The modified order directed the Central Government to adopt the procedure under Section 213(b) of the Companies Act, 2013 for investigating the company's affairs. It was emphasized that the correct procedure must be followed to ensure compliance with the law. Additionally, the Resolution Professional was instructed to retrieve the matter sent to SFIO. The appeal was disposed of accordingly to rectify the error in the initial direction.