The National Company Law Appellate Tribunal (NCLAT), Principal Bench, New Delhi, has refused to interfere with an order directing a Serious Fraud Investigation Office (SFIO) probe into Exclusive Capital Limited (formerly UT Leasing Ltd.).
The Bench of Justice Mohd. Faiz Alam Khan (Judicial Member) & Naresh Salecha (Technical Member) held that the NCLT had adequate material, particularly the three detailed reports submitted by the Court-appointed Observer, Justice R.K. Gauba (Retd.), which disclosed prima facie siphoning of funds, related-party transactions, fabrication of records, unsecured loans, misgovernance, and possible fraud. The Tribunal held that such material satisfies the statutory requirement of “good reasons” to trigger an investigation under Section 213(a) of the Act.
The dispute stemmed from an internal corporate conflict between the company’s majority shareholders and directors and the minority shareholders. The minority shareholders filed an Application before the NCLT u/s 213 of the Companies Act, 2013, read with Rule 11 of the NCLT Rules, 2016, seeking direction of investigation into the Company’s affairs by the Serious Fraud Investigation Office (SFIO). Minority shareholders alleged oppression and mismanagement, illegal conversion of debentures into compulsorily convertible preference shares, siphoning of over ₹300 crore, intimidation of key managerial personnel, and diversion of company funds for luxury assets. Acting on these allegations, the NCLT appointed a former High Court judge as observer and suspended the board for 180 days after noting prima facie irregularities. It has also ordered an investigation into the affairs of Exclusive Capital Ltd. u/s 213 of the Companies Act.
The order, passed by the NCLT, was challenged by the company and its directors before NCLAT u/s 421(1) of the Companies Act, 2013. Exclusive Capital and its directors contended that the NCLT lacked jurisdiction to order an SFIO probe, arguing it had become functus officio after disposing of the Section 241-242 petition. They further claimed the Observer’s report had no evidentiary value and could not form the basis of an investigation, and asserted that only the RBI, as the NBFC regulator, could examine alleged financial irregularities. They also submitted that the criminal and ED proceedings referred to were unrelated to the company and therefore irrelevant.
The NCLAT rejected the contention that the NCLT had become functus officio, noting that the Supreme Court’s interim order in the pending SLP had expressly permitted shareholders to approach the NCLT or NCLAT for further directions. The Tribunal observed that the NCLT continued to retain supervisory jurisdiction owing to the ongoing administration of the company, the pending scheme, and the requirement of monthly reporting, and therefore acted within its authority in entertaining the Section 213 application. The NCLAT has held that there has to be a prima facie case which would be sufficient.
The appellate tribunal also held that the Observer’s reports constituted valid and credible material for ordering an investigation. Since the Observer was a former High Court judge appointed by the NCLT itself, his findings carried significant weight. The law, the Tribunal noted, does not demand conclusive proof of wrongdoing at this stage; it requires only “good reasons” based on the material before the Tribunal, a threshold that the Observer’s findings comfortably met. The NCLAT has held that there has to be a prima facie case which would be sufficient.
Further, the NCLAT rejected the argument that only the RBI could probe the affairs of an NBFC. Referring to the affidavit filed by the RBI before the Supreme Court, the Tribunal emphasised that the regulator had explicitly stated it was not the appropriate authority to investigate allegations of siphoning of funds. This, the NCLAT held, directly undermined the appellants’ claim that RBI’s powers displaced the operation of Section 213. This makes it clear that SFIO investigations may extend even to RBI-regulated entities.
Appellate Tribunal further held that the NCLT has validly invoked Section 213(a). The NCLAT reiterated that the statute sets a deliberately low threshold for applications made by shareholders holding at least 10% of the share capital. Since the respondents hold 10% of the total shareholding of the company, thus, the threshold required for initiating the proceedings under Section 213 of the Companies Act appears to be satisfied.
At this stage, the law requires only the existence of material creating a credible suspicion of misconduct; it does not require proof of fraud. The Observer’s findings, which indicated conduct potentially attracting Section 447 and other penal consequences, were more than adequate. The Tribunal held that the material placed before the NCLT was more than sufficient to satisfy the statutory requirement of “good reasons” under Section 213(a), and therefore upheld the order directing an investigation into the company’s affairs.
Holding that the appellants failed to show any illegality or perversity in the NCLT’s order, the NCLAT ultimately dismissed the appeal. The order clears the way for a full-fledged SFIO investigation into the affairs of Exclusive Capital Limited.
Appearances
Appellants- Mr. Krishnan Venugopal, Sr. Advocate with Mr. Manav Goyal, Mr. Apoorv Agarwal, Ms. Ritika Gusain, Ms. Nandini Kaushik, Ms. Aastha Arora, Advocates.
Respondents- Mr. Sidhant Kumar, Ms. Manyaa Chandok, Ms. Ekssha Kashyap, Advocates