2022 (5) TMI 992 - Tri - Insolvency and Bankruptcy

Seeking to give directions to appropriate authorities to investigate into the affairs of the corporate debtor - Section 210(2) and 213(b) of the Companies Act, 2013 - HELD THAT - As per the scheme of 213(b) of the Companies Act, 2013, there are three instances in which this Tribunal can refer the matter to Central Government for investigation into the matter of affairs of the company. The instances on the basis of which the applicant wants this Tribunal to refer the matter for investigation, are carefully perused. The applicant has failed to prove that prima-facie the business of the corporate debtor is being conducted with an intent to defraud its creditors, members or any other person or otherwise for a fraudulent or unlawful purpose, or in a manner oppressive to any of its members or that the company was formed for any fraudulent or unlawful purpose. Furthermore, there is no evidence placed before this Tribunal to show prima-facie that the persons concerned in the formation of the company or the management of its affairs have in connection therewith been guilty of fraud, misfeasance or other misconduct towards the company or towards any of its members. Moreover, there is no single evidence placed before this Tribunal to show that the members of the company have not been given all the information with respect to its affairs which they might reasonably expect, including information relating to the calculation of the commission payable to a managing or other director, or the manager, of the company. The contention of the applicant that this Tribunal has directed to file an appropriate application cannot survive as the application should stand on its own feet and application should be accompanied by prima-facie evidence, which is not the case in the present application. Hence, this Tribunal is not inclined to allow the present application. Application dismissed.

Issues Involved:
1. Maintainability of the application under Sections 210(2) and 213(b) of the Companies Act, 2013.
2. Allegations of fraudulent activities and misconduct by the Corporate Debtor (CD) and its Key Managerial Personnel (KMP).
3. Sufficiency of evidence provided by the Liquidator to support the allegations.
4. Jurisdiction of the Tribunal to direct an investigation by the Serious Fraud Investigation Office (SFIO).

Detailed Analysis:

1. Maintainability of the application under Sections 210(2) and 213(b) of the Companies Act, 2013:
The application was filed by the Liquidator under Sections 210(2) and 213(b) of the Companies Act, 2013, seeking directions for an investigation into the affairs of the Corporate Debtor (CD). The respondents contested the maintainability, arguing that only the Ministry of Corporate Affairs could direct such an investigation and that the application was filed with an oblique motive to harass them. The Tribunal noted that the application should stand on its own merits and be supported by prima facie evidence, which was not provided in this case.

2. Allegations of fraudulent activities and misconduct by the Corporate Debtor (CD) and its Key Managerial Personnel (KMP):
The Liquidator cited several instances of alleged misconduct and fraudulent activities during the Corporate Insolvency Resolution Process (CIRP) and liquidation period, including:
- Shifting of plant and machinery/stock without lenders' consent.
- Sceptical relationships between employees of Gallium Industries Ltd. and other associated companies.
- Non-cooperation in providing necessary information and documents to the forensic auditor.
- Questionable claims received during liquidation proceedings.

3. Sufficiency of evidence provided by the Liquidator to support the allegations:
The Tribunal emphasized the necessity of prima facie evidence to support allegations for an investigation under Section 213(b). The Liquidator failed to provide sufficient evidence to substantiate the claims of fraud, misfeasance, or misconduct. The Tribunal referred to previous judgments, including the Hon'ble NCLAT and Supreme Court rulings, which underscored the requirement of concrete evidence before ordering an investigation.

4. Jurisdiction of the Tribunal to direct an investigation by the Serious Fraud Investigation Office (SFIO):
The Tribunal acknowledged its competence to pass orders under Section 213 of the Companies Act, 2013, but reiterated that it could only refer the matter to the Central Government for investigation if prima facie evidence of fraud or misconduct was presented. The Tribunal cited the NCLAT judgment in Lagadapati Ramesh vs. Ramanathan Bhuvaneshwari, which clarified that an Adjudicating Authority could not directly order an SFIO investigation without following the due process and establishing a prima facie case.

Conclusion:
The Tribunal concluded that the Liquidator failed to provide prima facie evidence to support the allegations of fraud and misconduct. Consequently, the application for directing an investigation by the SFIO was dismissed. The Tribunal reiterated the importance of presenting concrete evidence to justify the need for an investigation, in line with established legal precedents. The order was pronounced through virtual mode.

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