Able Automobiles Private Limited vs Rekha Singhal

NATIONAL COMPANY LAW APPELLATE TRIBUNAL AT CHENNAI (APPELLATE JURISDICTION) Company Appeal (AT) (CH) No.60/2022 (IA No.683/2022) In the matter of: M/S. ABLE AUTOMOBILES PRIVATE LIMITED 34/1863, NH-47 Road Opp. Metro Pillar No. 482 Mamangalam, Kochi - 682 025 ... APPELLANT NO. 1/RESPONDENT NO.1 SHRI DEVAKI NANDAN SINGHAL, Managing Director 36/3178 A, 42, Nandankunj Near North Indian Charitable Trust, Udayanagar, Kathrikadavu, Kochi-682017 ... /APPELLANT NO. 2/RESPONDENT NO.2

SHRI. ARAVIND SINGHAL 36/3178 A, 42, Nandankunj Near North Indian Charitable Trust, Udayanagar, Kathrikadavu, Kochi-682017 ... APPELLANT NO. 3/RESPONDENT NO.3

SHRI. VIKAS SINGHAL 36/3178 A, 42, Nandankunj Near North Indian Charitable Trust, Udayanagar, Kathrikadavu, Kochi-682017 ... APPELLANT NO. 4/RESPONDENT NO.4

SHRI. VINAY SINGHAL 36/3178 A, 42, Nandankunj Near North Indian Charitable Trust, Udayanagar, Kathrikadavu, Kochi-682017 ... APPELLANT NO. 5/RESPONDENT NO.5

V

SMT. REKHA SINGHAL C/o T.C Goyal

Comp App (AT) (CH) No.60/2022 Page 1 of 35 21/D, Second Phase, Peenya Industrial Area, Bangalore - 560 058. ...PETITIONER/RESPONDENT NO.1

REGISTRAR OF COMPANIES, Kerala, Company Law Bhavan, Opp. NPOL, Near NGO Quarters, Thrikkakara, Ernakulam-682 021 ...RESPONDENT NO.7/RESPONDENT NO.2

SHRI. K. J. THOMAS, Bsc. FCA Chartered Accountant, Kosseril Civil Lane Road, Palarivattom Kochi-682025 ...RESPONDENT NO.6/RESPONDENT NO.3

Present : For Appellants : Mr. Judy James, Advocate For Respondents : Dr. KS. Ravichandran, PCS & Ms. S. Manjula Devi, Advocates for R1 JUDGMENT

(Hybrid Mode) [Per: Justice Sharad Kumar Sharma, Member (Judicial)] The issue of concern, as it has been vehemently canvassed by the Ld.

Counsel for the Appellant, in the instant company appeal, while he puts a

challenge to the impugned order dated 30.06.2022, rendered by the Ld. NCLT

Kochi Bench in CP/20/KOB/2021, being the proceedings under Section 59, 213,

241 & 242 of the Companies Act, 2013, read with Rule 11 of the NCLT Rules of

2016, which were preferred by Respondent No. 1, herein who is the Petitioner to

the company petition.

2. The Respondent No. 1/Petitioner, happens to be the estranged wife of

Appellant No.3/Respondent No. 3. What has been attempted to be impressed

Comp App (AT) (CH) No.60/2022 Page 2 of 35 upon by the Ld. Counsel for the Appellant is, as if the entire controversy arisen

from the personal matrimonial dispute between the Appellant No. 3 and

Respondent No. 1, which the parties to the proceedings were harbouring against

one another owing to their matrimonial discord.

3. But at this stage itself, we make it very clear that, any such type of an

impression, which is being attempted to be created regards personal dispute, will

not be having any bearing, nor would be influencing, the actual controversy,

which requires consideration in the instant company appeal, and this Appellate

Tribunal will be confining itself to the judicial and procedural propriety of the

impugned order of 30.06.2022.

4. To be precise, the Ld. Tribunal, while exercising its inherent powers, and

taking into consideration, the fact that since the inter-se controversy was

pertaining to the shares and its transfers, which were alleged to be based upon

fraudulent documents, which has been relied upon by the parties, as against one

another, the Ld. Tribunal felt, it apt that, it ought to exercise its inherent powers,

to invoke the provisions contained under Rule 43 of the NCLT Rules, 2016, in

order to enable the Ld. Tribunal to better facilitate and to effectively adjudicate

upon the principal controversy, as it engaged consideration in the company

petition, which is put to challenge in this company appeal, which is still a

proceedings to be decided by the Ld. Tribunal on its merits.

Comp App (AT) (CH) No.60/2022 Page 3 of 35

5. The consequential legal and procedural bearing of the impugned order

dated 30.06.2022, would be having a very limited implication, because it had only

resulted into, an appointment of an independent Auditor, who should not in any

manner be connected with the affairs of the company, and was expected to

conduct an impartial Forensic Audit inquiry as regards to the allegations and

counter-allegations pertaining to the financial irregularities if any with regards to

the affairs of the company and to submit his report thereafter.

6. It was further clarified in the impugned order itself that, the independent

Auditor who had been thus appointed by the Ld. Tribunal, would be determining

the issues as to whether the petitioner, who claims to be holding 52,500 equity

shares in the company, whether at all the copy of the share certificates, those has

been produced by her to establish her holding of the equity shares is at all legally

justified? And whether at all, the Respondents No. 4 and 5 to the company petition

have engaged themselves, in any act of fraudulent and illegal transfer of shares

in favour of Respondents No. 4 and 5?

7. The ultimate conclusion, which has been arrived in the impugned order by

the Ld. Tribunal, owing to the prevailing factual circumstances of the petition

was that, it had proceeded to appoint a registered Chartered Accountant, to

conduct an investigative audit and the direction for the conduct of the audit, was

to draw the accounts of the company for the financial year ending on 31.03.2019

and further to identify the cases of potential accounting fraud that, had occurred

Comp App (AT) (CH) No.60/2022 Page 4 of 35 in the financial statements of the company, i.e., M/S. Able Automobiles Private

Limited, by taking into consideration the pleading, which has been raised in the

company petition by the parties, placing reliance on the respective documents,

that were relied upon.

8. The instant company appeal may be that, it is revolving around a

multifarious bundle of facts, based upon which independent interpretation that,

had been given by the respective parties to the proceedings; to the documents that,

had been filed by them in support of their rival contentions, while putting a

contest to the allegations that had been levelled in the company petition in context

for the relief claimed therein. But ultimately, the controversy, which boils down

herein, for our consideration and which is the precipitative grievance, as it had

been agitated by the Appellant, is that as to, "whether at all, the powers under

Rule 43 of the NCLT Rules, 2016, could be expanded to be exercised by the Ld.

Tribunal under the given set of circumstances:

(i) For the purposes to appoint an independent auditor

(ii) For the purposes of carrying out an investigative audit and to cull

out the details pertaining to the fraudulent transfer of shares and the

alleged allegations of fraudulent acts committed, while preparing

the reports for the financial year, which has been ending on

31.03.2019".

Comp App (AT) (CH) No.60/2022 Page 5 of 35 9. The Ld. Counsel for the Appellant, while questioning the impugned order

dated 30.06.2022, had made the following submissions:

(i) He submitted that the impugned order dated 30.06.2022, would be

suffering from apparent legal vices, for the reason being that, for the

purposes of invocation of the provisions as it is contained under Rule

43 of the NCLT Rules, 2016, there had been 'no independent

application' that was preferred by the Respondents, seeking a prayer

before the Ld. Tribunal for carrying out an investigative audit.

Hence, the Appellant submits that the Ld. Tribunal under Rule 43 of

the NCLT Rules, 2016, couldn't have exercised, its inherent powers

on its own for calling for an investigative audit report owing to the

set of allegations that, had been levelled in the pleading raised inter

se between the parties.

(ii) He further referred to, as to, what will be the 'ambit and scope of

the powers of Registrar of Companies', over the nature of

controversy involved herein, particularly in the light of the

provisions contained under Rule 45 of the NCLT Rules, 2016, which

would be also one of the factors required to be considered by this

Appellate Tribunal.

(iii) In elaboration to his argument, he submitted that, whether on a

conjoint reading of Rule 43, to be read with Rule 45 of the NCLT

Comp App (AT) (CH) No.60/2022 Page 6 of 35 Rules, 2016, whether the same could be permitted to be adopted by

any of the parties to the proceedings of the company petition, to be

utilized as a 'platform for fishing out evidence' in favour of any of

the parties to the proceedings.

(iv) The Ld. Counsel for the Appellant submitted that, even for the time

being, let us presume that, the Ld. Tribunal could have exercised its

powers under Rule 43 of the NCLT Rules, 2016, to call for an

investigative audit report. But for that purpose, the Ld. Tribunal,

once it is exercising its powers in the absence of there being any

application, cannot proceed to pass the impugned order merely by

recording a very vague observation that the "Ld. Tribunal is prima

facie satisfied".

(v) He submits that, the said expression as it has been given by the Ld.

Tribunal in the impugned order, where the Ld. Tribunal, records a

prima facie satisfaction justifying the invocation of Rule 43 of the

NCLT Rules, 2016. It was incumbent upon the Ld. Tribunal, which

was exercising its adjudicatory powers, 'to have considered the

material and should have recorded its findings' to justify the passing

of an order for issuing a direction for conducting a forensic

investigation. Though not relevant, the Ld. Counsel for the

Appellant has submitted that the entire proceedings apparently seem

to be vitiated because of a certain hidden inclination of the Registrar

Comp App (AT) (CH) No.60/2022 Page 7 of 35 of Companies, having submitted the reports to one of the lawyers

only, without serving the same on the Appellant's lawyer.

(vi) Ld. Counsel further contends that, the reports, which have been

submitted pertaining to the financial status of the company, up to the

financial year ending on 31.03.2019, since being false and a

fabricated document, the entire proceedings, as it has been observed

to be determined by way of conducting a forensic investigative audit,

is without any rationale.

(vii) And lastly, he even questioned the propriety of the Ld. Tribunals'

order with regard to the 'authority of Ld. Tribunal for fixation of the

fee to be paid to the Auditor', who was appointed by the Ld. Tribunal

for conducting the Forensic Audit.

10. The summary of facts, that had been referred in the impugned order, the

dispute, it has its birth from the pleadings that were raised in the company

petition, as it was preferred by Respondent No. 1, to the company appeal, by filing

the same before the Ld. Tribunal on 13.04.2021, claiming her status as to be the

shareholder of the Respondent No. 1 to the company, i.e., M/S. Able Automobiles

Private Limited, the Petitioner therein alleges that, in the communication as

submitted by Appellant No.1/the Respondent No.1 to the company petition on

01.08.2020, which was addressed to the Ld. Counsel for the Respondent

No.1/Petitioner. She has contended that, she was intimated that she is holding

Comp App (AT) (CH) No.60/2022 Page 8 of 35 52,500 fully paid up equity shares of Rs. 10/-, which comprised of 17.50% of the

total paid-up share capital of the 1st Respondent Company, that is of 30 lakhs,

comprising of 3 lakh equity shares, of Rs. 10/- each.

11. Based upon the aforesaid assertion made by the Respondent

No.1/Petitioner, she claims an exemption to sustain the procedure to file the

company petition alleging that, it overrides the bar that had been created by

Section 244 of the Companies Act, 2013. According to the Respondent

No.1/Petitioner, the list of shareholders as it was submitted along with the returns

made upto 30.09.2019 for the financial year 2018-2019 and also, the balance

sheet as of 31.03.2019, which was submitted before the Registrar of Companies,

Kerala, the annual return for the aforesaid financial year, which was made

available only on 30.09.2019, that showed that the Respondent No.1/Petitioner,

held 52,500 equity shares, as it was reflected from the information given by the

Registrar of Companies for the state of Kerala, to the Appellant No.1/Respondent

No.1 company itself.

12. Alleging that, there happens to be a fraudulent transfer of the shares, which

were said to have been held by Respondent No.1/Petitioner, she invoked the

proceedings of the aforesaid company petition being CP/20(KOB)/2021, by

invoking the provisions contained under Section 59, 213, 241 and 242 of the

Companies Act, 2013. The case of the Petitioner in the company petition was that,

Respondent No. 1, to the company petition was a registered company and as per

Comp App (AT) (CH) No.60/2022 Page 9 of 35 the provisions contained under the Companies Act, the Respondent No.1 having

so incorporated with effect from 15.04.1996. The Respondent No.1/Petitioner, as

already observed that, out of the total equity shares floated by the company, she

claims to be holding 52,500 equity shares in Appellant No.1 company. She

contended that Respondent No. 2 to the company petition, who happens to be the

managing director and the promoter of the Appellant No.1/Respondent No.1

company, and Respondent No.3 to the company petition who is yet another

promoter director of the Appellant No.1/Respondent No.1 company had acted in

connivance with Respondent No. 4 and 5, who are the directors of the Appellant

No.1/Respondent No.1 company, had acted in conspiracy with the statutory

Auditor i.e., Respondent No. 6 to the company petition, who is shown to have

audited the balance sheet and profit and loss accounts of the company for the

financial year ending on 31.03.2019, submits that, owing to the object as it was

contained in the memorandum of association of the company. It was found that,

under the compelling circumstances, because the balance sheet and the profit and

loss account of the Appellant No.1/Respondent No.1 company, for the aforesaid

accounting period was not reflecting the correct balances. Besides that, since the

list of shareholders as shown in the register too was not in conformity with the

actual shares, which was being held by them.

13. The Respondent No. 1/Petitioner is said to have issued a legal notice on

18.07.2020 to the board of directors of the company, alleging thereof that, in

Comp App (AT) (CH) No.60/2022 Page 10 of 35 accordance with the records, which has been maintained and were available with

the Registrar of Companies of the state of Kerala. Though it reflects the

Respondent No.1/Petitioner to be holding 52,500 shares, but the Petitioner has

been shown to have paid Rs 7 lakhs, which was shown as an unsecured loan to

the company in its balance sheet.

14. However, the allotment of equity shares to her doesn't correspond with the

particulars reflected in the balance sheet of the Appellant No.1/Respondent No.1

company, and she submits that, as against the total equity shares, which were

expected to be actually held by her, since it was not reflecting the correct figures,

she filed a company petition praying for a relief to the effect to declare, the

Respondent No.1/Petitioner to be the holder of 52,500 equity shares of Rs. 10/-

each, besides also making a prayer for the rectification of the register of members

under Section 59 of the Companies Act, 2013, by including the name of the

Petitioner as a member of the company with the aforesaid share holding

configuration. Also praying to pass an appropriate direction under Section 213 of

the Companies Act, 2013, and appointment of the competent inspector to

investigate into the affairs of the company, with regards to the aspect of

mismanagement, misappropriation and related party transactions, which has been

unlawfully taken by the opposite parties to the company petition, including non-

deposit of the demonetized currencies with the bank and such other allegations,

as raised by the Petitioner.

Comp App (AT) (CH) No.60/2022 Page 11 of 35

15. Consequently, the Respondent No.1/Petitioner in the company petition, has

sought that, an appropriate direction may be issued in the light of the provisions

contained under Section 242 (1) of the Companies Act, 2013, for recovering the

amount from Respondents No. 2, 3, 4 and 5 to company petition, from the undue

gain made by the said Respondents to company petition by unlawfully dealing

with the shares of the company deposited by the Respondent No.1/Petitioner, and

accordingly alleging that, they have committed a fraud on the Petitioner, as well

as upon the conduct of the affairs of the company in a manner, which has been

prejudicial to the interests of the public and it will amount to be an act of

oppression.

16. Further, the Petitioner/Respondent No.1 by invocation of the provisions

contained under Section 447 and 448 of the Companies Act, 2013, has sought a

relief in the nature of declaration as against Respondent No. 2, 3, 4 and 5 of

company petition who have intentionally committed a fraud in respect to the

documents filed with the Registrar of Companies, Kerala and to direct the

Registrar of Companies, to initiate a prosecution for the said offences by

invoking the provisions contained under Section 439 of the Companies Act, 2013,

besides imposition of cost.

17. The Respondent No. 1/Petitioner in this petition has projected before the

Ld. Tribunal, that at the stage when the impugned order was being passed, she

had submitted that as against the set of allegations that, were levelled towards her,

Comp App (AT) (CH) No.60/2022 Page 12 of 35 she had issued a legal notice on 18.07.2020, to the Board of Directors of the

Respondent company with reference to her shareholding in the company. In the

absence of there being any clarification given by the opposite party to the

company petition, she contended that the allegation levelled by her and the

shareholding as given by her in the notice of 18.07.2020, should have been taken

as to be prima facie true, since it remained unrebutted.

18. Owing to the fact that in the light of the misleading statements made orally

by Respondents No. 2 and 3 to the company petition, that the share certificates

were never issued. The Petitioner contended that, because of the stand taken by

Respondents No. 2 and 3, with regards to the status of the issuance of the share

certificate, she has requested for issuance of a duplicate share certificate, and also

for providing with the entries made in the books of accounts with respect to the

amount of Rs. 7 lakhs paid by her to the company. The allegation by the Petitioner

was, that the Respondent to the company petition, without any application, being

made by the Petitioner had on their own issued the equity shares for an amount

of Rs. 7 lakhs, as an unsecured loan to the company as it has been correspondingly

shown to be reflected in the balance sheet of the company, which was procured.

19. According to the Respondent No. /1Petitioner, she contended that upon

accessing the records from the website of the Registrar of the Companies, Kerala,

the company had filed Form No. 2, showing that the company had allotted shares

as per the Board Resolution dated 29.03.2008, and a total of 52,500 equity shares

Comp App (AT) (CH) No.60/2022 Page 13 of 35 of Rs. 10, each was allotted to the petitioner, out of the total 1,65,000 equity

shares allotted to the persons referred to therein on the said date in the website of

the Registrar of Companies. She further contended that, with regards to the

distribution of the shares and the reflection as it has been made in the website of

the Registrar of Companies, Kerala, it was not reflecting the exact holding of the

shares, as held by each of the directors, including shareholding of the Respondent

No.1/Petitioner, and had submitted that since a false statement has been made by

filing a misleading and false returns with the Registrar of Companies, Kerala.

Hence, the return Form No. 5 filed before the Registrar of Companies, Kerala,

which shows that the authorised capital stands increased from Rs 9,50,000 to Rs

30,00,000 as per the resolution passed on 31.03.2008, submitted that, the said

figure as reflected are portraying the wrong figure, because as per the provisions

contained under Section 94 of the Companies Act, 2013, it clearly prescribes for

that the power of increasing of the share capital, it shall be exercised by a

company only in a general meeting and not otherwise. Hence, the allotment of

16,500 shares which were held to be made on 29.03.2008, when the company did

not have adequate authorised capital is illegal and was done with an ulterior

motive.

20. Besides, that an allegation was also raised by the Respondent

No.1/Petitioner in the company petition, that the annual returns, which were made

up to 29.09.2018, wherein the list of shareholders has been attached, it was

Comp App (AT) (CH) No.60/2022 Page 14 of 35 carrying a note that the entries made therein was having certain errors because of

the clerical mistake which occurred in the previous year's filing of MGT 7, and

the number of shares that were actually held by the three shareholders had been

wrongly entered into, and the same deserves to be rectified while exercising

powers given for rectification of Registrar of Members provided under Section

59 of the Companies Act, 2016.

21. Based upon the aforesaid fact, ultimately the Respondent No.1/Petitioner,

analysed the controversy, contending thereof, that because of the fraud apparently

having been committed by the Respondents to the company petition, had

amounted to an act of oppression and mismanagement against the minority

shareholders and the fact of omission of the name of the Petitioner from the list

of shareholders, could only be gathered at a later stage. It is owing to the aforesaid

contention being raised by the Petitioner, the Respondents to the company

petition has answered vaguely that, the mistake has resulted into that due to

clerical mistake, which had chanced in the previous years' while filing of MGT-

7, when the number of shares, which had been held by the three shareholders had

been wrongly entered and the same has been rectified by them in the subsequent

year.

22. The Petitioner/Respondent No.1, besides also raised an allegation that the

procedure as prescribed under the Companies (Registration Offices and Fees)

Rules, 2014, was not complied with. To summarise the pleading as raised by her

Comp App (AT) (CH) No.60/2022 Page 15 of 35 before the Ld. Tribunal, she concluded that the balance sheet and profit and loss

account as reflected, as on 31.03.2019 contained number of serious anomalies.

To be precise, the CARO [Companies (Auditors Report) Order] the report by the

Auditors with regards to the title deeds of all the immovable properties are in the

name of Respondent No. 1 company, whereas in fact it does not own any

immovable property.

23. The list of the stock inventories, for the financial year 2018-19, was also

giving a wrong figure. And owing to that, she contended that the wrongful figures

were reflected in the balance sheet and the inventory of stocks as maintained,

owing to there being a collision between the Auditors and the opposite parties

who were furnishing such wrong information as regards to the particulars

pertaining to the previous financial years.

24. In the aforesaid, factual backdrop, the Ld. Counsel for the Appellant, has

put a challenge to the impugned order dated 30.06.2022, which allowed the

application under Rule 43 of the NCLT Rules, 2016, and directed the Forensic

Audit to be conducted with regards to the documents, which were, during the

course of the proceedings were alleged to be obtained by fraud or fraudulently

manufactured. The Ld. Counsel for the Appellant, primarily contended that, the

impugned order would be bad in the eyes of law for the reason being that, the Ld.

Tribunal has on its own passed an order while exercising its suo moto powers; in

the absence of there being any specific application having being preferred by the

Comp App (AT) (CH) No.60/2022 Page 16 of 35 Respondent (or any of the parties to the proceedings), making a request for

sending the documents for conducting of a Forensic Investigative Audit, the

entire proceedings under Rule 43 of Rules would be vitiated, and no such order

could have been passed in the absence of there being a prior request by way of an

application.

25. In order to better appreciate the aforesaid argument, as it has been extended

by the Ld. Counsel for the Appellant, a reference to Rule 43 of the NCLT Rules,

2016, becomes inevitable for this Appellate Tribunal. The NCLT Rules, 2016,

had been framed by the Government of India, while exercising its powers as

vested in it under Section 469 of the Companies Act, 2013. Rule 43 of the NCLT

Rules, 2016, reads as under:

"43. Power of the Bench to call for further information or evidence. -

(1) The Bench may, before passing orders on the petition or application, require the parties or any one or more of them, to produce such further documentary or other evidence as it may consider necessary:-

(a) for the purpose of satisfying itself as to the truth of the allegations made in the petition or application; or

(b) for ascertaining any information which, in the opinion of the Bench, is necessary for the purpose of enabling it to pass orders in the petition or application.

(2) Without prejudice to sub-rule (1), the Bench may, for the purpose of inquiry or investigation, as the case may be, admit such documentary and other mode of recordings in electronic form including e-mails, books of accounts, book or paper,

Comp App (AT) (CH) No.60/2022 Page 17 of 35 written communications, statements, contracts, electronic certificates and such other similar mode of transactions as may legally be permitted to take into account of those as admissible as evidence under the relevant laws.

(3) Where any party preferring or contesting a petition of oppression and mismanagement raises the issue of forgery or fabrication of any statutory records, then it shall be at liberty to move an appropriate application for forensic examination and the Bench hearing the matter may, for reasons to be recorded, either allow the application and send the disputed records for opinion of Central Forensic Science Laboratory at the cost of the party alleging fabrication of records, or dismiss such application."

26. What we have to bear in mind is that, the procedures to be adhered to

before the Ld. Tribunal and the Appellate Tribunal, as constituted under Section

408 and 410 of the Companies Act, 2013, are procedurally governed by the

underlying basic principles of natural justice, as it has been contemplated under

Section 424 of the Companies Act, 2013. The prime object of the prescribed

procedure that, has been contemplated under Section 424 of the Companies Act,

2013, is that none of the parties to the proceedings may, at any stage of the

proceedings have any grievances that, they were not provided with an effective

opportunity to establish their case, or to enable them to establish the sanctity of

the proceedings agitated and drawn against them by their adversary. The

objective is of enabling a party to exercise its absolute rights to "establish their

case to the hilt" is the basic objective, which had been intended to be achieved by

the rules as framed under Section 469 of the Companies Act, 2013, and

Comp App (AT) (CH) No.60/2022 Page 18 of 35 particularly, the rules with, which we are concerned, which constitute to be part

of Part IV, of the NCLT Rules of 2016.

27. If the language of Rule 43 of the NCLT Rules, 2016, itself is taken into

consideration, it starts with the head, 'Power of the Bench', the reference of the

language power of the bench therein itself in the title head, is an answer to the

question raised by the Ld. Counsel for the Appellant, that it is a self-ordained

power, which has been vested with the Ld. Tribunal to ensure an effective

dispensation of justice and particularly, the objective that has been widely

contained under Section 424 of the Companies Act, 2013.

28. Even otherwise, if we scrutinize the entire provision of Rule 43 of NCLT

Rules, 2016, it nowhere stipulates or prescribes for that, there has had to be a

specific application which is required to be preferred by any party to the

proceedings for the purposes of invocation of the provision contained under Rule

43 of the NCLT Rules, 2016. In that eventuality, when the provision itself doesn't

contemplate filing of any specific application, that in itself can be explicitly

inferred that, even if a party to the proceedings intends to invoke the aforesaid

provision contained under Rule 43 of the NCLT Rules, 2016, requiring for

collection of the information or any evidence there is no specific bar which has

been created under law as such for any of the parties to the proceedings

mandatorily requiring to file an application nor there is a corresponding or

parallel bar created for the Ld. Tribunal too, to exercise its inherent power

Comp App (AT) (CH) No.60/2022 Page 19 of 35 wherever, the Ld. Tribunal feels it necessary that, a discovery of certain

documents are required in the interest of justice to be tested, on an anvil of

evidence for its justification, so as to be read in evidence, once the rule itself

doesn't prohibit the Ld. Tribunal, and it couldn't have been also, because once the

Ld. Tribunal is exercising a judicial power, which is adjudicatory in nature, it has

got, with, it all its inherent powers to ensure that, any controversy, which is being

agitated before the Ld. Tribunal by the parties to the proceedings pertaining to

the propriety of a document, which is alleged to have been fraudulently created

or being a manufactured document, nothing under the rules specifically prohibits

that the Ld. Tribunal cannot exercise its suo moto power, even when the Ld.

Tribunal feels that, it was necessary for to facilitate them to come to a plausible

and an effective conclusion about the controversy pertaining to a document,

which may be having a vital bearing on the merit adjudication of the controversy

before it.

29. In that eventuality where Rule 43 of the NCLT Rules, 2016, itself doesn't

specifically prescribe, filing of any specific application, there would be no

restriction, for the Ld. Tribunal, which could always exercise its inherent powers

and thus, taking cognizance of the invocation of Rule 43 of the NCLT Rules,

2016, for directing a Forensic Investigative Audit to be conducted, which cannot

be held to be bad merely because of the fact that there was no specific application

Comp App (AT) (CH) No.60/2022 Page 20 of 35 preferred by the Respondent's, herein. Particularly when this arguments intents to

deceive the aspect of fair and effective adjudication of a litigation.

30. The Ld. Counsel for the Appellant had in particular, referred to Rule 43 (3)

of the NCLT Rules, 2016, wherein he submits and interprets that, in accordance

with Rule 43 (3) of the NCLT Rules, 2016, it prescribes that, any party preferring

or contesting the petition of oppression and mismanagement, when they raise an

issue of forgery or of fabrication of any "statutory records", in that eventuality,

the party has been granted a "liberty" to file an application for forensic

examination. A reference to this provision for soliciting an order for conduct of

the forensic examination by the Central Forensic Science Laboratory, where the

right of a party has been reserved where, a latitude has been granted by the

aforesaid provision by using of the word "liberty" as it has been reserved for the

party to the proceedings to get a statutory record tested through a forensic

investigation. Liberty granted therein is not to be read as a restriction for exercise

of powers by the Ld. Tribunal under Rule 43(1) of NCLT Rules, 2016.

31. Yet again, it will be a reiteration of the observation, which has been made

by this Appellate Tribunal that even if this provision is taken into consideration,

the word "liberty", which has been left open to be exercised by the parties, is not

to be read in a restrictive manner, as a restraint for the Ld. Tribunal to exercise

its inherent powers to call for a document for its scientific examination, which it

feels to be just for an effective adjudication, so as to rule over the plea of fraud.

Comp App (AT) (CH) No.60/2022 Page 21 of 35 And particularly, when the aforesaid process only contemplates and rather when

it facilitates the Ld. Tribunal, which is an adjudicatory body, to arrive at a logical

conclusion before considering a document and its impact on the controversy for

the purposes of deciding the issue between the parties as to, whether at all those

documents are required to be considered to decide the dispute raised by the

parties. Hence, filing of an application in a procedural provision is not mandated

by Rule 43 of the NCLT Rules, 2016, in the absence of there being any such

provisions contained in Rule 43 of the NCLT Rules, 2016.

32. Thus, the argument raised by the Ld. Counsel for the Appellant that, there

was no specific application preferred before the Ld. Tribunal cannot in itself

restrain the Ld. Tribunal from invoking its power to call for a document and verify

its authencity, and hence the said argument as raised by the Ld. Counsel for the

Appellant is not sustainable, and the same is turned down.

33. This controversy could also be visualized and, as already referred to, that

Section 424 of the Companies Act, 2013, prescribes the principles governing the

proceedings before the Ld. Tribunals, as created under the provisions of the

Companies Act, 2013. Those, Tribunals which had been vested with the powers

to, govern its proceeding and according to the provisions contained under the

Code of Civil Procedure, as provided under Section 424 of the Companies Act,

2013, can exercise its inherent powers to do an act for a just decision.

Comp App (AT) (CH) No.60/2022 Page 22 of 35

34. In that eventuality, the provision contained under Order XI, Rule 14 of the

Code of Civil Procedure (CPC), which to be read with Section 30(a) of the Code

of Civil Procedure (CPC), the same are extracted hereunder:

"Section 30. Power to order discovery and the like. Subject to such conditions and limitations as may be prescribed, the Court may, at any time, either of its own motion or on the application of any party,--

(a) make such orders as may be necessary or reasonable in all matters relating to the delivery and answering of interrogatories, the admission of documents and facts, and the discovery, inspection, production, impounding and return of documents or other material objects producible as evidence;

(b) issue summonses to persons whose attendance is required either to give evidence or to produce documents or such other objects as aforesaid;

(c) order any fact to be proved by affidavit."

"14. Production of documents.--It shall be lawful for the Court, at any time during the pendency of any suit, to order the production by any party thereto, upon oath, of such of the documents in his possession or power, relating to any matter in question in such suit, as the Court shall think right; and the Court may deal with such documents, when produced, in such manner as shall appear just. "

35. The aforesaid provision itself provides for that under Order XI, Rule 14 of

the Code of Civil Procedure (CPC), it would be the court who can exercise its

powers during the pendency of the proceedings of the suit (herein would be

company petition), to call for a party to the proceedings to produce a document

and further the court may send the documents for its verification through an

Comp App (AT) (CH) No.60/2022 Page 23 of 35 investigating agency. Apart from the aforesaid object of the provisions contained

under Rule 43 of the NCLT Rules, 2016, to be read with, Order XI, Rule 14 of

the Code of Civil Procedure (CPC), to be read with Section 30 of the of the Code

of Civil Procedure (CPC).

36. We are of the view that, the procedures to be followed before the court, are

handmade of justice. They are not to be rigidly construed to lead to deprivation

and is not to be followed in a straight-jacketed formula, so as to restrict their

application and to defeat the very object of dispensation of an effective justice by

rendering a decision after appreciation of the documents, which may have a vital

bearing, on the proceedings and the right of the parties before the Ld. Tribunal or

the Hon'ble Court. Hence, no such procedural law, which only regulates the

proceedings, can be restrained to be attracted and applied only on an application

by the parties to the proceedings, and not by the Ld. Tribunal itself, because it's

always the satisfaction of the Ld. Tribunal, which plays a predominant role, that

is, when the Ld. Tribunal feels that any such document is required to be tested by

a scientific investigation, no prohibition as such could be imposed upon the Ld.

Tribunal, as it has been argued by the Ld. Counsel for the Appellant, restricting

the powers of the Ld. Tribunal for not to summon the documents and call for

Forensic Investigative Audit even if the Ld. Tribunal is determined that those

documents are required to be tested. Thus, the argument extended by the Ld.

Counsel for the Appellant in that context is not acceptable.

Comp App (AT) (CH) No.60/2022 Page 24 of 35

37. The issue pertaining to the exercise of powers by the Ld. Tribunal under

Rule 43 of the NCLT Rules, 2016, is being sought to be argued by the Ld. Counsel

for the Appellant, in context of its portrayed implications contained under Rule

45 of the NCLT Rules, 2016, contending thereof that the impugned order as it

was passed by the Ld. Tribunal, would be in derogation to the intention of the

provision contained under Rule 45 of the NCLT Rules, 2016. In fact, the manner

in which the provisions contained under Rule 45 of the NCLT Rules, 2016, has

been attempted to be interpreted by the Ld. Counsel for Appellant, with regards

to the issue pertaining to the ambit and scope of exercise of powers of the

Registrar of Companies. The Ld. Counsel for the Appellant as contended by

virtue of written submissions filed by the Appellants is that the Ld. Tribunal

issued an Impugned order based on unsolicited Registrar of Companies reports

without recording reasons, which is contrary to Rule 45(4) of NCLT Rules, 2016,

and also contended that the Registrar of Companies may be called for to submit

the reports but they cannot express any opinion on merits.

38. The justification for the aforesaid observation is that, if the provisions

contained under Rule 43 of the NCLT Rules, 2016, is taken into consideration,

which is restricted to for the purposes of calling for the information or evidence,

the aspects pertaining to calling for an information or an evidence is altogether

distinct in its application, than to the powers which are contemplated to be

exercised by the Ld. Tribunal in accordance with the provisions contained under

Comp App (AT) (CH) No.60/2022 Page 25 of 35 Rule 45 of the NCLT Rules, 2016, which independently pertains to conferring of

a right upon every party to the proceedings for his entitlement to appear before

the Ld. Tribunal in person or through an authorized representative. For the

purposes of substantiating his case, 'appearance in person' and 'calling for an

information or an evidence', are entirely two distinct aspects, as information

pertains to seeking or soliciting of an information, which is otherwise outside the

domain or knowledge of the party to the proceedings or outside the records of the

case, or if they are within the domain or knowledge of the parties to the

proceedings if they are controverted by an adversary to the proceedings, these

documents or information may be required to be tested in accordance with the

implications contained under Rule 43 of the NCLT Rules, 2016. Hence Rule 45

of the NCLT Rules, 2016, exclusively mandates a right of appearance in person

for recording a statement in the manner as prescribed under the rule itself before

the Ld. Tribunal. The provisions contained under Rule 45 of the NCLT Rules,

2016, cannot be read to be in any manner, derogating the provisions contained

under Rule 43 of the NCLT Rules, 2016, as they have independent and distinct

application.

39. Another question, which incidentally falls for consideration and it was

fashioned to be argued in a manner that, resort to the process contemplated under

Rule 43 of the NCLT Rules, 2016, for sending of the documents submitted by

either of the parties to the proceeding for its examination through an Independent

Comp App (AT) (CH) No.60/2022 Page 26 of 35 Auditor, will amount to 'fishing and roving of evidence', which may not be a

scope, which would be exercised by the Ld. Tribunal for accumulation of

evidence in favor or against any of the parties to the proceedings, because the Ld.

Tribunals being judicial forum cannot dilute its proceedings to be identified to be

in favour of any one of the parties to the proceedings. We are afraid to accept this

argument of the Ld. Counsel for the Appellant for the reason being that Rule 43

of the NCLT Rules, 2016, when it confers the powers on the Ld. Tribunal, in that

eventuality it falls in the exclusive domain of the Ld. Tribunal, itself to justify for

testing the evidence through an expert so as to provide its admissibility in

evidence for establishing a case. When the powers under Rule 43 of the NCLT

Rules, 2016, as we have already dealt with, while dealing with the issue, which

the Appellant had argued that, there was no independent application and since we

have already held that the provisions contained under Rule 43 of the NCLT Rules,

2016, is exclusively a power which has been vested with the Ld. Tribunal, if that

be the intention of the Rule 43 of the NCLT Rules, 2016, its when the Ld.

Tribunal feels it necessary according to its judicial wisdom to test a document

through an expert as to decide the question of its admissibility to be read in

evidence. It cannot be said that a judicial exercise of powers by the Ld. Tribunal

for testing the alleged fabrication of the documents or calling for a document to

be placed on the record to be considered in evidence, can at all be confused to be

read, as if the provisions contained under Rule 43 of the NCLT Rules, 2016, has

been adopted by the Respondent, as a measure to facilitate to collect evidence.

Comp App (AT) (CH) No.60/2022 Page 27 of 35 That may not be the situation herein for the reason being that, the documents

which were being sent for its examination were the documents that are already

available, only question which fell for consideration was that, the propriety and

genuineness of the said document and its fraudulent creation, that was a question

which was required to be decided after making a reference of these documents in

a proceeding, to be tested by the Independent Auditor. If this recourse is adopted

by the Ld. Tribunal, it cannot be taken that, as if any report, which is thus to be

submitted by the Independent Auditor in compliance with the directions issued

by the Ld. Tribunal under Rule 43 of the NCLT Rules, 2016, will amount to

collection of an evidence in favor of either of the parties to the proceedings.

40. This argument could also be answered from yet another perspective, that

may not be a logical inference, which could be drawn at this premature stage

particularly when the need for the documents to have been referred to be tested

by the Independent Auditor, for the reason, being that even after the examination

of these documents, when the Independent Auditor furnishes its investigative

audit report, either supporting or denouncing the contents of the documents and

its propriety, it is not that the Ld. Tribunal will outrightly accept the report thus

submitted and accept the documents directed to be examined by the experts to be

read in evidence. Because procedurally, when the Auditor furnishes an

investigative audit report in a proceedings before the Ld. Tribunal, the adversary

to the proceedings will always get an opportunity to controvert the observations

Comp App (AT) (CH) No.60/2022 Page 28 of 35 that had been made by the Independent Auditor in relation to the documents,

which has been placed before it on record and tested by the Independent Auditor

in its report.

41. The acceptance of the document, and the acceptance of the Independent

Auditor's Report to be read in evidence, under law would only be made when the

Ld. Tribunal provides sufficient opportunity to the party against whom the report

has been submitted to controvert its contents, and under law of consideration of

evidence submitted in shape of Auditors Report, there cannot be any deprivation

as such to enable the party to deny the contents of the document, as well as, the

report itself to refrain it from being read in evidence. Thus, the resort to the said

process of taking the documents on record on the basis of the exercise of inherent

powers by the Ld. Tribunal cannot be construed in the manner as it has been

argued that it will amount to fishing out or collecting evidence for any one of the

parties to the proceedings.

42. Questioning the impugned order, the Ld. Counsel for the Appellant had

submitted that if the impugned judgment is taken into consideration in its entirety,

in fact, the Ld. Tribunal doesn't record any prima facie satisfaction, to justify

passing of the order, directing the alleged fraudulent documents to be tested by

the Independent Auditor. The argument extended that in the absence of there

being a prima facie satisfaction recorded by the Ld. Tribunal, the order in itself

Comp App (AT) (CH) No.60/2022 Page 29 of 35 could not be justified to be accepted and that in itself could be a ground sufficient

to set aside the order.

43. We are of the view that in the judicial proceedings, recording of a prima

facie satisfaction sometimes while exercise of powers in the shape of an inherent

exercise of powers, where the court records its findings, only prima facie

justifying the necessity to test a document is sufficient, because detailed

deliberation for testing of documents, which may have a bearing on the merits of

the matter. For the aforesaid purpose, a detailed analysis or a scrutiny is not

required to be assigned by the Ld. Tribunal at that initial stage, to justify the

passing of an order appointing an Independent Auditor to test documents,

particularly when the contents of the same have been denied. Prima facie

deliberative satisfaction required to be recorded by the Ld. Tribunal may not be

even the intention of the law also, because the provisions under Rule 43 of the

NCLT Rules, 2016, under which the documents had been directed to be tested by

the Independent Auditor, in itself do not prescribe any mandatory provision,

which is necessarily required to be complied with by the Ld. Tribunal, prior to

sending a document to be tested by an Independent Auditor. The prima facie

satisfaction could at times in a judicial proceedings be a self-ordained powers,

which are required to be exercised by the Ld. Tribunal or the courts with self

restraint, and particularly in those circumstances where any conclusion, which

has been arrived at to get documents tested by expert Auditor will not be attaching

Comp App (AT) (CH) No.60/2022 Page 30 of 35 a finality to the proceedings of compliance with the provisions contained under

Rule 43 of the NCLT Rules, 2016, because that would be still left open to be

tested in the proceedings by providing an opportunity to the parties to the

proceedings to controvert the reprt, if at all its not acceptable by any of the parties

to the proceedings.

44. Thus, recording of the prima facie satisfaction in the absence of there being

any specific requirement under law may not be a reason for interference by this

Appellate Tribunal and that too, when the furnishing of a document to be tested

by the Independent Auditor happens to be in the exercise of an inherent powers

and we are of the view that any provision of law, which prescribes with an

inherent power with the Ld. Tribunal to do an act, there is no necessity for the Ld.

Tribunal to specifically record an analytical finding for justifying the passing of

an order to call for a document to be sent to the Independent Auditor as it may

affect the functioning of the Auditor itself, there could be as possibility of bias to

prevail in when Auditor, tests the documents. More particularly, when its tests

and admissibility of report are still controlled when the documents are placed to

be considered in evidence in the ultimate conclusive hearing of the proceedings.

45. Another argument, which has been extended by the Ld. Counsel for the

Appellant, while putting a challenge to the impugned order by culling out certain

facts from the proceedings that, has already been taken place owing to the fact

that incidentally, the Registrar of the Companies has furnished some documents

Comp App (AT) (CH) No.60/2022 Page 31 of 35 to one of the counsels for the parties, while not furnishing the same to the other

counsels, that in itself may not attach any stigma or procedural bias to the

proceedings because such type of a situation may have incidentally happened, but

still that in itself will not be a deprivation, because that would be a rectifiable

error because if at all, the Appellant felt that the documents or the report thus

submitted by the Registrar of the Companies, to one of the parties counsels, if at

all it would be having any bearing on the proceeding, it was always open for the

Appellant to have requested the Ld. Tribunal to direct the Registrar to furnish the

report, as it had been furnished to the counsel for the other side which is complaint

of, to them also, so that, they may also avail an equitable relief of scrutinizing the

report and then presentation of their case in correlation to the Investigative Audit

report as submitted by the Independent Auditor in context of the documents,

which had been directed to be tested, which were alleged to have been

fraudulently procured or fraudulently manufactured.

46. It needs no special reference that procedures are handmade to justice and

should never be made as a weapon to be utilized with fatality to deny justice or

to perpetuate any justice. At every stage of the proceedings the procedural defects

or irregularities would not incapacitate a party to the proceedings to be denied

with an effective opportunity. As such fatalities would always be curable and it

ought not to be utilized to defeat the substantive right or to cause an injustice to

a party to the proceedings.

Comp App (AT) (CH) No.60/2022 Page 32 of 35

47. Ultimately and very vaguely too, the Ld. Counsel for the Appellant had

tried to attach a bias to the impugned order, on the ground that under law, the Ld.

Tribunal is not vested with the powers to fix a fee, which would be payable to the

Independent Auditor, for the purposes of furnishing of a report after investigation

into the propriety of the documents, which were alleged to have been fraudulently

manufactured or procured. It is a true trifle an issue, which could impeach the

judicial proceedings or which could at all impeach the inherent exercise of powers

of the Ld. Tribunal to fix a fee which was to be parted to the expert, who was

facilitating in the decision-making process of the Ld. Tribunal or who would be

facilitating the Ld. Tribunal in a reading of the document, which may be taken as

to be a foundation of the proceedings too. Since the rules in itself do not anywhere

restricts the powers of the Ld. Tribunal of fixing a fee to be paid to the

Independent Auditor, and more particularly when the fixation of a fee is based

upon the principles of quid pro quo.

48. In that eventuality, a reasonable remuneration is required to be settled by

the Ld. Tribunal which was required to be paid to the Independent Auditor, who

acts as an expert and who is a professional too in the eyes of law, who renders an

expertise service to facilitate the Ld. Tribunal to effectively discharge its judicial

functioning. When an Independent Auditor facilitates the Ld. Tribunal to

discharge the judicial functions and he himself performs a duty within the

exercise of powers of his professional expertise, he is required to be remunerated

Comp App (AT) (CH) No.60/2022 Page 33 of 35 for the services to be rendered. In that eventuality, the Ld. Tribunal will have its

inherent powers. Hence, the Ld. Tribunal and for that purpose any other court

will have an inherent power within itself to fix an appropriate remuneration to be

paid to the professional rendering the services under the principles of quid pro

quo.

49. This could be also very well visualized from yet another perspective

because the question, which has been raised by the Ld. Counsel for the Appellant,

he is not himself questioning the quantification of the fee made by the Ld.

Tribunal alleging to be disproportionate, to be paid to the Independent Auditor.

If the quantification is not a serious issue, in that eventuality, the exercise of

inherent powers by the Ld. Tribunal directing to pay the fee to the Independent

Auditor for the services to be rendered by him as an expert in itself could not be

such a crucial issue, which could lead to setting aside of an order, which otherwise

basically aims at to obtain a laudable object of dispensation of an effective justice

by providing an ample of opportunity to both the parties to the proceedings to

lead their evidence in support of the respective case.

50. Owing to the above grounds, and for the reasons as given by this Appellate

Tribunal above, we are of the view that the impugned order where the Ld.

Tribunal has justified its reasoning for appointment of an Independent Auditor to

meet out the objection taken by the parties to the proceedings regarding the

sanctity of the documents which were being relied upon, we think that since it

Comp App (AT) (CH) No.60/2022 Page 34 of 35 doesn't infringe any of the legal rights of the Appellant, thus it doesn't call for any

interference by this Appellate Tribunal in the exercise of its appellate jurisdiction.

The 'company appeal' lacks merit, and the same is accordingly 'dismissed'.

[Justice Sharad Kumar Sharma] Member (Judicial)

[Indevar Pandey] Member (Technical)

23/12/2025 SN/MS/AK

Comp App (AT) (CH) No.60/2022 Page 35 of 35