NCLAT Rules That The NCLT Cannot Straight Away Direct A Probe Into Affairs Of Any Corporate Debtor By The SFIO

The NCLAT has clarified that under the National Company Law Tribunal (NCLT) has no power under the Insolvency and Bankruptcy Code,2016 (IBC) to straightaway order a probe a corporate debtor by the Serious Fraud Investigation Office (SFIO), which is governed by Section 213 of the Companies Act, 2013.

The National Company Law Appellate Tribunal (NCLAT) has clarified that the NCLT may refer the matter to the central government, after giving notice to the promoters of the debtor company, as laid down in Section 213 of the Companies Act.

It may refer the matter to the central government for investigation if a prima facie case is made out.

If central government inspectors come across any actionable material and the central government feels that the matter requires investigation through SFIO, it may ask the SFIO to investigate, the NCLAT has stated.

Addressing the issue of referring the matter to SFIO, the Appellate Tribunal analyzed Section 212 of the Companies Act and observed that an investigation into affairs of a company could be made only on receipt of a report of the Registrar or Inspector under Section 208 of the Companies Act, 2013 or on intimation of a special resolution passed by a company that its affairs are required to be investigated or in the public interest or on request from any Department of the Central Government or a state government.

“Section 212 does not empower the National Company Law Tribunal (NCLT) or the adjudicating authority to refer the matter to the central government for investigation by the Serious Fraud Investigation Office even if it notices the affairs of the company of defrauding the creditors and others,” the NCLAT emphasized.

However, the NCLAT added that in terms of an application made to the NCLT by 'any other person' (Resolution Professional) or otherwise (suo motu) under Section 213(b) of Companies Act, the NCLT may order an investigation into affairs of a company by “an Inspector or inspectors” appointed by the central government after giving to the parties, a “reasonable opportunity” of being heard.

The judgment was passed by a three-member Bench of Chairperson, Justice SJ Mukhopadhaya, Member (Judicial) Justice AIS Cheema and Member (Technical) Kanthi Narahari in an appeal against an order passed by the NCLT’s Bengaluru Bench.

During the Corporate Insolvency Resolution Process against the Corporate Debtor, M/s Bhuvana Infra Projects Private Limited, the Resolution Professional filed an application under Section 66 read with Sections 25(2), 69, 70 and other applicable Sections of the IBC, seeking to attach the personal assets of the Promoters of Corporate Debtors for the recovery of total dues of Rs 461,163,402.

The Resolution Professional had argued that promoters of the corporate debtor had defrauded the creditors and the corporate debtor was made a shell company with no employees, no business and no assets.