NCLAT upholds NCLT’s Power to Refer Fraud Cases to SFIO

M. Srinivas Vs Smt. Ramanathan Bhuvaneshwari (NCLAT Delhi)

National Company Law Appellate Tribunal (NCLAT), Delhi, has dismissed an appeal filed by M. Srinivas, a majority shareholder of M/s. Bhuvana Infra Projects, affirming the National Company Law Tribunal (NCLT) Bengaluru’s authority to direct the Central Government to refer corporate fraud allegations to the Serious Fraud Investigation Office (SFIO). The NCLT’s order, dated April 16, 2019, was issued during the Corporate Insolvency Resolution Process (CIRP) of M/s. Bhuvana Infra Projects, following a forensic audit report that revealed alleged widespread financial irregularities and fraud.

The core question before the NCLAT was whether the Adjudicating Authority (NCLT), which holds dual jurisdiction under the Companies Act, 2013, and the Insolvency and Bankruptcy Code, 2016 (IBC), could exercise powers under Section 213 of the Companies Act, 2013, to initiate an SFIO investigation based on a forensic audit report.

Background of the Case:

During the CIRP of M/s. Bhuvana Infra Projects, the Resolution Professional (RP) initially filed an application under Section 66 of the IBC for the recovery of Rs. 46 crores from the company’s group entities and directors. However, the NCLT dismissed this application on October 24, 2018, finding no prima facie case for discrepancies under Section 66 and noting that parallel proceedings for such allegations were inappropriate.