The National Company Law Appellate Tribunal (NCLAT) has held that the National Company Law Tribunal (NCLT) could not directly order an investigation by the Serious Fraud Investigation Office (SFIO) and clarified that such power rests with the Central Government under the Companies Act.
While partly allowing an appeal against an NCLT order, the Appellate Tribunal modified the direction for SFIO investigation and instead referred the matter to the Secretary, Ministry of Corporate Affairs, for investigation through an Inspector or Inspectors in accordance with law.
A Bench of Justice Mohd. Faiz Alam Khan and Technical Member Naresh Salecha, while agreeing with submissions made by advocate Anuj Tiwari for the appellants, observed that the discretion to refer matters to the SFIO lies solely with the Central Government after following the statutory procedure under Sections 212 and 213 of the Companies Act.
The Tribunal relied on an earlier NCLAT ruling holding that the Adjudicating Authority was not competent to “straight away direct” an SFIO investigation.
At the same time, the Appellate Tribunal upheld findings relating to fraudulent transactions and contribution directions passed against the appellants. The Bench observed that despite alleged sale of shares in a Singapore-based subsidiary in 2018, the investment continued to be reflected in the company’s balance sheets till 2022. According to the Tribunal, this amounted to “misguiding the creditors” and keeping the sale consideration beyond their reach.
The Tribunal further observed that the alleged agreement relied upon for diversion of sale proceeds appeared to have been subsequently drafted to siphon funds away from the corporate debtor.
It also noted that the suspended directors failed to provide satisfactory explanations regarding the transfer of sale proceeds and had remained non-cooperative during the corporate insolvency resolution process.
The appellants were represented by advocates Anuj Tiwari, Shalini Basu, Vaibhav Vats, Sameer Mishra and Shivendra Nath Mishra, while the respondent side was represented by advocates Abhishek Anand, Karan Kohli and Palak Kalra.
