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2025 (5) TMI 1147 - AT - IBCRejection of Section 9 application filed by the Respondent - jurisdiction to direct for investigation against the Appellant who was arrayed as Respondent No.1 in the Section 9 application - HELD THAT - The application under Section 9 has already been rejected which was filed by the Operational Creditor against the Appellant. No issue pertaining to Section 9 has been raised in this Appeal nor needs any consideration. The judgment of the Hon ble Supreme Court in Mobilox Innovations Private Limited vs. Kirusa Software Private Limited 2017 (9) TMI 1270 - SUPREME COURT dealt with the statutory scheme under Sections 8 9 in which judgment the issues which are sought to be raised in the Appeal were not under consideration hence the said judgment does not give any support to the submission which has been raised in this Appeal by the Appellant. In Allahabad Bank vs. Poonam Resorts Limited 2020 (5) TMI 563 - NATIONAL COMPANY LAW APPEALLATE TRIBUNAL NEW DELHI this Tribunal observed that the I B Code does not envisage a pre-admission enquiry in regard to proof of default by directing a forensic audit of the accounts of the Financial Creditor Corporate Debtor or any financial institution . In the above case Adjudicating Authority has passed an order on objection raised by the Corporate Debtor that Financial Creditor has initiated proceeding fraudulently. Adjudicating Authority appointed PWC as Forensic Auditor to examine allegations raised by the Corporate Debtor and submit an Independent Report which order was set aside while allowing the appeal. This issue which was raised in the above appeal have no applicability in the facts of the present case. Now it is required to look into the judgments which have been relied by the Counsel for the Amicus Curiae. Counsel for the Amicus Curiae has also relied on judgment of this Tribunal in Lagadapati Ramesh 2019 (9) TMI 1316 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL NEW DELHI as well as M. Srinivas 2019 (11) TMI 290 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL NEW DELHI to support his submission that the Adjudicating Authority can refer or forward the order passed by the Central Government for investigation. From the scheme under Section 213 as noticed above it is clear that the Adjudicating Authority while exercising jurisdiction of the NCLT can also issue direction for investigation but said direction has to be in accordance with the statutory scheme i.e. after giving a reasonable opportunity of being heard to the parties against whom investigation is ordered. Present is not a case as observed above where Adjudicating Authority has directed any investigation under Section 213 rather has forwarded the copy of the order to the Central Government Ministry of Corporate Affairs for taking such steps as may be necessary. It is already held that direction issued by the Adjudicating Authority in paragraphs 65 and 66 cannot be read to mean any direction to Ministry of Corporate Affairs or any other statutory authorities to carry out the investigation. Conclusion - i) The Adjudicating Authority while exercising jurisdiction under Section 9 of the IBC also exercise jurisdiction of NCLT under the Companies Act 2013. ii) Adjudicating Authority in exercise of powers under Section 213 of the Companies Act 2013 can direct for investigation but the said investigation can be directed after complying the pre-condition i.e. affording a reasonable opportunity to the parties concerned. The order passed by the Adjudicating Authority in paragraphs 65 and 66 cannot be held to be an order directing any investigation. iii) NCLT can also exercise inherent jurisdiction under Rule 11 in a case where NCLT is of the view that copy of the order need to be forwarded to the relevant statutory authorities it can forward the copy for doing needful. The direction under Section 212 to carry out any investigation of company s affairs by SFIO can be made only in accordance with the statutory provisions of Section 212 and Adjudicating Authority while exercising jurisdiction under the Companies Act 2013 cannot issue any direction to SFIO for carrying out investigation. Appeal disposed off.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered by the Tribunal in this appeal are:
2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Jurisdiction of the Adjudicating Authority under Section 9 of IBC to forward order copies for investigation Relevant legal framework and precedents: Section 9 of the IBC governs the initiation of insolvency resolution by an Operational Creditor against a Corporate Debtor. The Adjudicating Authority's role is to admit or reject an application based on proof of debt and default. The Supreme Court in Mobilox Innovations Private Limited v. Kirusa Software Private Limited clarified that the Adjudicating Authority's enquiry under Section 9 is limited to verifying completeness and existence of debt and default; it cannot engage in detailed investigations or forensic audits at this stage. Court's interpretation and reasoning: The Tribunal observed that while the Adjudicating Authority rejected the Section 9 application, it issued directions to forward the order to statutory authorities like the Ministry of Corporate Affairs, ROC, Income Tax, and GST authorities. However, the Tribunal clarified that these directions do not amount to an order directing investigation. Paragraph 65 explicitly states that the contentions are "left open for the appropriate authorities" to investigate, indicating no binding directive for investigation was issued by the Adjudicating Authority. Application of law to facts: The Tribunal held that forwarding copies of the order to statutory authorities for their consideration is within the Adjudicating Authority's competence and does not amount to directing an investigation under Section 9. The Adjudicating Authority did not usurp investigative powers or bypass procedural safeguards. Treatment of competing arguments: The Appellant contended that forwarding the order without giving an opportunity to respond violated natural justice and exceeded jurisdiction under Section 9. The Amicus Curiae submitted that the Adjudicating Authority, while exercising powers as NCLT, can forward orders for appropriate action by other authorities. The Tribunal aligned with the latter view, emphasizing that no investigation was ordered by the Adjudicating Authority itself. Conclusion: The Adjudicating Authority's forwarding of the order is not an exercise of investigative jurisdiction under Section 9 but an administrative act of communication to relevant authorities. Issue 2: Powers and procedure for investigation under Sections 212 and 213 of the Companies Act, 2013 Relevant legal framework: Section 212 empowers the Central Government to cause investigation into company affairs through SFIO, but only upon receipt of a report from Registrar or Inspector under Section 208 or on other specified grounds. Section 213 empowers the Tribunal (NCLT) to order investigation into a company's affairs if satisfied that there are circumstances suggesting fraud, misfeasance, or oppressive conduct, but only after giving reasonable opportunity of being heard to the concerned parties. Court's interpretation and reasoning: The Tribunal noted that the Adjudicating Authority cannot directly order investigation by SFIO under Section 212, as that power is reserved for the Central Government. However, under Section 213, the Tribunal can order investigation after following due process, including hearing the parties. The impugned order did not comply with these procedural safeguards and did not constitute an order of investigation under Section 213. Key findings: The Tribunal referred to precedents where the NCLT was held to have inherent jurisdiction to forward matters to the Central Government after following due process, but not to directly order SFIO investigations. The Tribunal also held that the impugned order's references to EOW and SFIO were inappropriate and deleted those references. Application of law to facts: Since the Adjudicating Authority did not give the Appellant an opportunity to be heard before making adverse observations or forwarding the order, it could not be treated as an order directing investigation under Section 213. The procedural requirements were not met. Treatment of competing arguments: The Appellant emphasized violation of natural justice and lack of jurisdiction to order investigations. The Amicus Curiae argued that forwarding copies for appropriate action is within the Adjudicating Authority's inherent powers. The Tribunal distinguished between ordering investigation and forwarding orders for consideration, endorsing the latter. Conclusion: Investigation orders under Sections 212 and 213 require strict compliance with statutory procedures, including hearing. The impugned order did not constitute such an order and was within jurisdiction to forward copies. Issue 3: Inherent powers of NCLT under Rule 11 of the NCLT Rules, 2016 Relevant legal framework: Rule 11 confers inherent powers on the NCLT to make orders necessary to meet ends of justice or prevent abuse of process. Court's interpretation and reasoning: The Tribunal held that NCLT, while exercising jurisdiction under the Companies Act, can exercise inherent powers to forward copies of orders to statutory authorities if it deems it necessary for appropriate action. This does not amount to directing investigation but is a procedural step to enable authorities to take cognizance. Application of law to facts: The forwarding of the impugned order to the Ministry of Corporate Affairs and other authorities was a valid exercise of inherent powers and not an overreach. Conclusion: The Adjudicating Authority's action in forwarding the order is supported by inherent powers under Rule 11 and does not violate jurisdictional limits. Issue 4: Observations and directions beyond the scope of Section 9 application Relevant legal framework and precedents: The Supreme Court and Tribunal have held that the Adjudicating Authority's role under Section 9 is limited to admission or rejection based on debt and default, and it cannot conduct pre-admission inquiries or forensic audits to determine fraud or forgery. Court's interpretation and reasoning: The Tribunal observed that the Adjudicating Authority made adverse observations about the Appellant's involvement in alleged sham transactions and fraud related to CSR obligations. However, such observations cannot be treated as findings of fraud or as directions for investigation without following due process. Key findings: The Tribunal clarified that the impugned order "may not be read as recording any finding of fraud." It also emphasized that such matters require separate investigation through appropriate legal channels and cannot be adjudicated under Section 9. Treatment of competing arguments: The Appellant argued that adverse observations without opportunity to respond violated natural justice. The Amicus Curiae contended that observations were necessary to highlight concerns for other authorities. The Tribunal balanced these views by limiting the effect of observations and deleting directions for investigation. Conclusion: Observations in Section 9 proceedings should not be construed as conclusive findings or orders for investigation without adherence to procedural safeguards. Issue 5: Requirement of natural justice before directing investigation Relevant legal framework: Section 213 mandates that before ordering investigation, the Tribunal must give a reasonable opportunity of being heard to the parties concerned. Court's interpretation and reasoning: The Tribunal emphasized that the impugned order did not afford the Appellant any opportunity to respond to the adverse observations or proposed investigation. Hence, the order cannot be treated as a valid direction for investigation under Section 213. Conclusion: Natural justice is a mandatory pre-condition before ordering investigation. The impugned order failed this test. 3. SIGNIFICANT HOLDINGS "The Adjudicating Authority while exercising jurisdiction under Section 9 of the IBC also exercise jurisdiction of NCLT under the Companies Act, 2013." "Adjudicating Authority in exercise of powers under Section 213 of the Companies Act, 2013 can direct for investigation but the said investigation can be directed after complying the pre-condition i.e. affording a reasonable opportunity to the parties concerned. The order passed by the Adjudicating Authority in paragraphs 65 and 66 cannot be held to be an order directing any investigation." "NCLT can also exercise inherent jurisdiction under Rule 11 in a case where NCLT is of the view that copy of the order need to be forwarded to the relevant statutory authorities, it can forward the copy for doing needful." "The direction under Section 212 to carry out any investigation of company's affairs by SFIO can be made only in accordance with the statutory provisions of Section 212 and Adjudicating Authority while exercising jurisdiction under the Companies Act 2013 cannot issue any direction to SFIO for carrying out investigation." "The observations and directions made in paragraphs 65 and 66 are not to be treated any direction for carrying out any investigation by the statutory authorities referred to therein." "There was no occasion to make any observation or referring the matter to EoW or SFIO to investigate and reference of EoW and SFIO in paragraph 65 stands deleted." "The direction in paragraph 66 to forward the copy of the order to statutory authorities for taking appropriate steps under the Companies Act, 2013 are upheld." "We have clarified that the above direction in no manner be read any kind of direction to fetter the discretion of appropriate authority to take steps as per law."
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