2024 (3) TMI 189 - AT - Companies Law

Oppression and Mismanagement - inherent powers of NCLT to cause audit of accounts or to make such orders as may be necessary - Section 241 242 of the Companies Act, 2013 - allegations of siphoning funds, breach of agreements, and failure to maintain proper books of account - whether NCLT is empowered to direct audit and is it required to give a finding of fraud before ordering the audit by independent Auditor? - HELD THAT - As per Rule 11 of the National Company Law Tribunal Rules, 2016, Tribunal may make such Order as may be necessary for meeting the ends of justice or to prevent, abuse of the process of Tribunal - It is seen that no pre-conditions are given in the said Rules for exercising of these inherent powers by the Tribunal. The Tribunal has directed conduct of audit through independent Auditor to ascertain the correct facts in the light of allegations and counter allegations by the parties to the dispute in Company Petition filed under Section 241 242 of the Companies Act, 2013, which was being adjudicated upon by them. The issues raised in this appeal were considered by Three Member Bench of this Tribunal in the case of Archer Power System P. Ltd. Vs. Cascade Energy P. Ltd. Ors. 2020 (8) TMI 583 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL, NEW DELHI where it was held that We are of the opinion that imposition of forensic audit and calling for the report of forensic audit before the Tribunal is a measure to help the Tribunal to appreciate the issue on the basis of an independent report so as to ensure that the case is processed with due regard to rights and obligations of contesting parties would be in the interest of justice. The Tribunal under Rule 11 of NCLT Rules, 2016 has the inherent powers to cause audit of accounts or to make such orders as may be necessary for meeting the ends of justice and there are no fault in the impugned order on this account - the present Appeal fails and is accordingly dismissed.

Summary

Issues Involved:
1. Maintainability of the Petition under Sections 241 & 242 of the Companies Act, 2013.
2. Appointment of an Independent Chartered Accountant for an investigative audit.
3. Tribunal's power to order an audit without a finding of fraud.

Summary:

Issue 1: Maintainability of the Petition
The National Company Law Tribunal (NCLT) Kochi Bench found the Petition maintainable as the Applicants held 19.18% equity shares of the Company, making them eligible to file under Section 241 of the Companies Act, 2013.

Issue 2: Appointment of an Independent Chartered Accountant
The NCLT Kochi, in its interim order dated 08.06.2022, directed an investigation of the Company's accounts by appointing an Independent Chartered Accountant. The Tribunal appointed Shri Rajmohan R as the Independent Auditor to conduct an audit for the financial years ending on 31.03.2016, 31.03.2017, and 31.03.2018. The Tribunal stated that the audit was necessary to identify any accounting fraud in the Financial Statements of the Company.

Issue 3: Tribunal's Power to Order an Audit
The Tribunal justified its decision under Rule 11 of the National Company Law Tribunal Rules, 2016, which allows the Tribunal to make orders necessary for meeting the ends of justice or to prevent abuse of the Tribunal's process. The Tribunal referenced the case of `Archer Power System P. Ltd. Vs. Cascade Energy P. Ltd. & Ors.` to support its inherent powers to order an audit. The Tribunal emphasized that it is not required to give a finding of fraud before ordering an audit by an independent Auditor.

Conclusion:
The Appellate Tribunal upheld the NCLT Kochi's decision, stating that the Tribunal has the inherent powers under Rule 11 of NCLT Rules, 2016, to cause an audit of accounts to meet the ends of justice. The appeal was dismissed, and no order as to costs was made.