NCLT Can Exercise Inherent Powers to Forward a Copy of its Order for Necessary Action: NCLAT [Read Order]

The National Company Law Appellate Tribunal (NCLAT) New Delhi bench stated that the NCLT may, in the exercise of its inherent jurisdiction under Rule 11 of the NCLT Rules, 2016, direct that a copy of its decision be forwarded to the relevant statutory authorities so that the required action can be taken.

The Respondent, Enviro Home Solutions Private Limited, filed an application under Section 9 of the Insolvency and Bankruptcy Code, 2016 (Code), claiming that Max Publicity & Communication Pvt. Ltd, the Appellant, who was named as the Respondent in the Company Petition, owed money and had defaulted.

Despite rejecting the Section 9 application, the Adjudicating Authority ordered that the Ministry of Corporate Affairs and other pertinent Central Authorities submit a copy of the ruling to the Central Government. The appellant has chosen the current appeal because they were offended by the observations and instructions in the contested order.

Stay Updated with the Latest Audit Report Formats & Audit Trials Requirements! Click here

In rejecting the Section 9 application, the appellant argued that the adjudicating authority lacked the authority to order an investigation into the appellant. Section 9 does not provide for the adjudication of fraud or forgery allegations.

It was further argued that the Companies Act contains particular measures for directing an investigation into a company's affairs. The contested order does not follow the plan of the Act. In this instance, the appellant was not given a reasonable opportunity to be heard, even under Section 213.

In contrast, the Respondent argued that the Adjudicating Authority, in the exercise of its authority under the Companies Act, has the authority to forward the order to statutory authorities, such as the Central Government through the Ministry of Corporate Affairs, for appropriate legal action even when it rejects a Section 9 application.

Furthermore, it was argued that the NCLT also has inherent authority granted by Rule 11 of the NCLT Rules, 2016, which allows the Adjudicating Authority to provide copies of pertinent authorities in a given instance.

The Tribunal noted that it is clear that no investigational directive was issued by the adjudicating authority.  The ROC, Income Tax Department, EOW, and SFIO are among the relevant statutory authorities that are simply left to act in accordance with applicable laws under paragraphs 65 and 66 of the contested order.  These observations are just facilitative in nature and should not be interpreted as instructions for further investigation.

According to the NCLAT, the NCLT or Adjudicating Authority cannot refer matters directly to the SFIO for investigation, even when fraud is suspected.

It further stated that the Adjudicating Authority may, nevertheless, use its authority under Section 213 to send notifications and, following a hearing for all parties, to forward cases to the Central Government for Inspectors to look into. The Central Government may then send the case to SFIO under Section 212 if actionable information emerges from the investigation and it is judged necessary.

Following due process under Section 213 and in light of the aforementioned debate, the NCLAT issued the contested ruling directing that the matter be forwarded to the Central Government for an inquiry by inspectors.

According to Rule 11 of the NCLT Rules, 2016, the NCLAT has inherent powers under Section 213 of the Companies Act. It was confirmed that the NCLT can refer the case to the Central Government for inquiry after providing the parties involved with a fair chance to be heard.

Gratuity With Interest falls within definition of Operational Debt u/s 5(21) of IBC: NCLAT [Read Order]

The bench of Justice Ashok Bhushan (Judicial Member), Mr. Arun Baroka (Technical Member) and Mr. Barun Mitra (Technical Member) found that the Adjudicating Authority had the NCLT's authority under the Companies Act in addition to its jurisdiction under Section 9 of the IBC. Under Section 213 of the Companies Act, it may order an investigation, but only after giving the parties involved a fair chance to do so. The contested order, specifically paragraphs 65 and 66, does not constitute an investigational directive.

It further concluded that the Serious Fraud Investigation Office (SFIO) may only begin an investigation in compliance with the process outlined in Section 212 of the Companies Act, 2013 (Companies Act). Although the Companies Act grants the Adjudicating Authority competence, it lacks the authority to explicitly direct the SFIO to conduct an investigation.

It further held that the NCLT may submit copies of orders to the appropriate statutory authorities for necessary action by using its inherent powers under Rule 11. However, the Adjudicating Authority cannot directly order the SFIO to conduct an investigation; instead, Section 212 can only be used to direct the SFIO to do so in compliance with legislative provisions.

To Read the full text of the Order CLICK HERE

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates