ORDER FOR INVESTIGATION OF A COMPANY AND ITS DIRECTORS BY ‘NCLT’ – REASONABLE OPPORTUNITY TO BE GIVEN TO PARTIES CONCERNED

[DR.MARIAPPAN GOVINDARAJAN]

Sections 206 to 229 contained in Part XIV of the Companies Act, 2013 (‘Act’ for short) provides for the inspection, inquiry and investigation of the affairs of a company. Section 210 of the Act provides that where the Central Government is of the opinion, that it is necessary to investigate into the affairs of a company, -

• on the receipt of a report of the Registrar or inspector under section 208;
• on intimation of a special resolution passed by a company that the affairs of the company ought to be investigated; or
•  in public interest,

it may order an investigation into the affairs of the company.

Section 212 of the Act gives powers to the Central Government to direct the Serious Fund Investigating Office to investigate the affairs of a company.

Section 213 gives powers to the National Company Law Tribunal (‘NCLT’ for short) to order for causing investigation of the affairs of the company by the Central Government.  Section 213 (a) of the Act provides that the NCLT may-

1.  on an application made by-

• not less than 100 members or members holding not less than one-tenth of the total voting power, in the case of a company having a share capital; or
•  not less than one-fifth of the persons on the company's register of members, in the case of a company having no share capital,

and supported by such evidence as may be necessary for the purpose of showing that the applicants have good reasons for seeking an order for conducting an investigation into the affairs of the company; or

2. on an application made to it by any other person or otherwise, if it is satisfied that there are circumstances suggesting that-

• the business of the company is being conducted with intent to defraud its creditors, members or any other person or otherwise for a fraudulent or unlawful purpose, or in a manner oppressive to any of its members or that the company was formed for any fraudulent or unlawful purpose;
• persons concerned in the formation of the company or the management of its affairs have in connection therewith been guilty of fraud, misfeasance or other misconduct towards the company or towards any of its members; or
• the members of the company have not been given all the information with respect to its affairs which they might reasonably expect, including information relating to the calculation of the commission payable to a managing or other director, or the manager, of the company,

order, after giving a reasonable opportunity of being heard to the parties concerned, that the affairs of the company ought to be investigated by an inspector or inspectors appointed by the Central Government and where such an order is passed, the Central Government shall appoint one or more competent persons as inspectors to investigate into the affairs of the company in respect of such matters and to report thereupon to it in such manner as the Central Government may direct.

Section 213(b) provides that giving a reasonable opportunity of being heard by NCLT is mandatory before passing an order directing the Central Government to cause investigation into the affairs of the company.

In M/S UNIQUE TRAINING CORPORATION INDIA PVT LTD., SHRI. GANGAHANUMAIAH B.P. VERSUS SMT. LAKSHMI SATISH KUMAR - 2025 (4) TMI 639 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL, CHENNAI, the NCLT, Chennai passed an order in CP No. 56/BBB/2021, on 22.09.2022, under Section 213(b) of the Act directing the Central Government to cause investigation on the appellant and its directors.  The appellant company and its director challenged the said order in the appeal filed before the National Company Law Appellate Tribunal (‘NCLAT’ for short).

The appellant submitted the following before NCLAT-

• The impugned order was an ex-parte order.  No notice was given to the appellants.  The NCLT did not give a reasonable opportunity of being heard.
• The investors by virtue of portraying themselves as to be creditors and by abusing the process of law, had resorted to the process contemplated under Section 213(b) of the Act, with the intention to utilise the same as a recovery process Forum, which would stand vitiated as being driven by an ulterior motive.
• The impugned order, has been procured for the purposes of drawing the proceedings against the Appellants, by misrepresenting that the Appellants too had participated in the proceedings and that, since the order is an ex-parte order, it calls for an interference and deserves to be quashed.
• The Company Petition, filed by the Investors/petitioners suffered from various vices because of which no action is required to be initiated against the appellants/respondent under Section 213 of the Act.
• The respondents, in the present appeal, were the investors in one of the real estate projects of the Appellant Company, that owing to the delayed funding and due to the pendency of litigations over the piece of land on which the project was supposed to be implemented, the project could not be implemented as per the promised time lines which cannot be termed as commission of fraud, that for the purposes of initiation of the proceedings under Section 213(b) of the Act.
• No material is placed before NCLT which leads to order to cause investigation against the appellant and its director under Section 213(b) of the Act.
• The Impugned order is an ex-parte order.  Neither of the appellants have been heard by the NCLT and no notice has been issued to them for hearing.  Therefore, the impugned order is in violation of the principles of Natural Justice.  On this ground the impugned order is liable to be quashed.
• In the order sheet dated 28.04.2022 of the NCLT, it was shown that Ms. Jyothi Singh has appeared before NCLT on behalf of the appellants.
• The appellants have not engaged the said Jyothi Singh.  No vakalat has been filed by her before the NCLT.
• There is nothing on record which could show, that Jyothi Singh had filed any vakalat on behalf of the Appellant. 
• In the light of the findings recorded in Para 4&5 of the impugned order that, the appellants did have the knowledge and they were expected to effectively participate in the proceedings which they have not done.

In view of the above the appellants prayed that NCLAT to quash the impugned order. 

The respondent, in oppose to the contentions of the appellants, submitted the following before the NCLAT-

• The proceedings before NCLT were held according to merit.
• The appellants deliberately not attended before the NCLT.
• Even the appellants did not appear before NCLT the NCLT directed the respondent to send the notices by speed post vide their order dated 15.11.2021.
• The notices were sent by speed post as directed by NCLT but the same were returned ‘undelivered’. 
• Therefore, the NCLT directed the respondent to adopt the mode of substituted service of notice by giving advertisements in the newspapers.
• The advertisement of the notice of the NCLT was published in two leading newspapers viz., ‘Financial Express’ and ‘Samyuktha Karnataka’ on 26.04.2022.
• The copy of the advertisements was placed before the NCLT.
• It is a settled proposition of law, that when a party to the proceedings, despite of service of notice through the normal mode of service is deliberately fails to appear, the NCLT should resort to the process of a substitutive mode of service so as to ensure service by way of publication and that once, the said mode is resorted to, there will be a deeming conclusion/inference, that the respondent has been served with the notices in the light of the provisions contained under Rule 20(2) of Order V of the Code of Civil Procedure, 1908.
• After the confirmation of service of the notice to the appellants only, the NCLT proceeded ex-parte.
• The appellant, despite having the knowledge of the proceedings, avoided to appear before the NCLT.
• The NCLT observed that after institution of the proceedings before the on 24.02.2021, notices were issued to the appellants/respondents by normal mode and that the appellants were reported to be not residing at the given address and hence the notices could not be served, that the records show to the contrary which proves that, the respondent/petitioner herself, has several times contacted the opposite party to the proceedings the appellant’s herein on the same address, they have discussed the possibilities to explore the terms of settlement with her and they have made numerous efforts by way of phone calls to allure the petitioner to enter into a settlement.

In view of the above said submissions, the respondents contended that it cannot be said that the direction given by the NCLT, as an ex-parte order, for the investigation of the affairs of the appellant company and its director is not suffering from vices of being an order, passed ex-parte without hearing the Appellant.

The NCLAT heard the submissions of both the parties.  The NCLAT observed that adherence to that the principles of natural justice is an aspect, which has to be evaluated on differing yard sticks depending upon the facts and circumstances of each case.   The issue of notice to any party is to impart the knowledge of the proceedings taken before the Court of law.   In this case the issue of notice to the appellant by postal mode was not effected.  Therefore, the NCLT directed to serve the notice to the appellant by means of advertisement in two leading newspapers of the area in which the appellants are available.  The same was complied with by the respondents.  Therefore, the NCLAT held that it cannot be said that no opportunity was given to the appellant and the case was decided as ex-parte.

The NCLAT further held that the investigation is only a fact-finding stage, it does not require to be ventured into by this Appellate Forum, because all defences are still available to the Appellant, to be raised before the investigating agency as directed by the Impugned Order.   The ground taken by the appellant, that the proceeding happens to be in violation of the principles of natural justice is not made out from the records and from the findings which had been recorded in the impugned order about service of notice by a substitutive mode, no interference is required to be called for by it in the Company Petition in question.

In view of the above, the NCLAT dismissed the appeal.