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NCLT Cannot Direct Investigation Into Affairs Of Corporate Debtor Through SFIO Says NCLAT
The National Company Law Appellate Tribunal has said that the adjudicating authority under the Insolvency and Bankruptcy Code i.e. the National Company Law Tribunal has no power to direct for investigation in the affairs of the corporate debtor through the Serious Fraud Investigation Office (SFIO) in terms of section 213 of the Companies Act 2013.
The Appellate Tribunal has said that the NCLT can give notice to the promoters of the company and after following the due procedures given under section 213 of Companies Act, 2013 and can refer the matter to the central Government for investigation if it is found that the case needs investigation.
After such investigation if the Central Government finds that the case requires investigation through SFIO it may direct for the investigation through the SFIO, said the Appellate Tribunal.
The judgment was passed by a three-member bench of Chairperson SJ Mukhopadhaya, Justice AIS Cheema (member- judicial) and Kanthi Narahari (member-technical). This order was passed against an appeal for the order passed by the NCLT Bengaluru bench.
During the corporate resolution process of the M/S Bhuvan Infra Projects Private Limited, the resolution professional filed an application under section 66 read with section 25(2), 69 and 70 seeking to attach the properties of the promoters of the corporate debtor. He also said that the promoters had defrauded the creditors of the company and that the company was a shell company with no employees, no assets and no business.
The resolution professional also that since the company did not have any assets of its own and the only assets were the receivables from the other group companies so it was essential for the resolution professional to find out what assets were given to the group companies in return for the receivables.
After hearing the parties the NCLT directed the Central Government to refer the matter for investigation through SFIO. Meanwhile, the appellants filed an appeal against the NCLT’s order saying that the order was passed without hearing the parties and that the NCLT had no right to direct any matter to SFIO for investigation, it can only be done by the Central Government.
The Appellate Tribunal after observing the sections came to the conclusion that the NCLT could only pass an order in circumstances where the company has defrauded the creditors with an intention i.e. section 66 of the Companies Act and not beyond that.
