NCLT Orders Investigation into Smaaash Entertainment's Affairs Amid Allegations of Fraudulent Conduct

Non-cooperation and Concealment of Records by Ex-Directors Spark Probe Under Companies Act, 2013

In a significant development, the National Company Law Tribunal (NCLT), Mumbai Bench, has ordered an investigation into the affairs of Smaaash Entertainment Private Limited following allegations of non-cooperation and fraudulent conduct by the company's ex-directors. The tribunal issued notices under Section 213(b) of the Companies Act, 2013, directing an inquiry into the company's operations during the Corporate Insolvency Resolution Process (CIRP).

The judgment, delivered on November 4, 2025, by the bench comprising Sh. Hariharan Neelakanta Iyer and Ms. Lakshmi Gurung, came in response to an interlocutory application filed by Mr. Bhrugesh Amin, the Resolution Professional (RP) for Smaaash Entertainment. The application alleged that the suspended directors failed to provide essential statutory records, such as board meeting minutes and audit reports, during the CIRP.

Key to the tribunal's decision was the respondents' admission of failing to maintain statutory records as required by law. The tribunal noted the absence of critical documents, including transfer pricing reports and tax audit reports, which raised suspicions of fraudulent business conduct aimed at defrauding creditors.

The tribunal emphasized its authority to initiate an investigation under Section 213(b) of the Companies Act even without a specific request, provided the circumstances suggest fraudulent or unlawful conduct. This decision was bolstered by evidence of transactions executed by the suspended directors that were previously declared fraudulent under Section 66 of the Insolvency and Bankruptcy Code (IBC), including the assignment of the brand "SMAAASH."

Despite these serious allegations, the tribunal refrained from ordering a full-scale investigation due to the corporate debtor's revival under an approved resolution plan. Instead, it directed statutory authorities, including the Ministry of Corporate Affairs and the Registrar of Companies, to take appropriate action against those responsible for statutory non-compliances.

This judgment underscores the NCLT's commitment to ensuring transparency and accountability in corporate governance, particularly in cases involving insolvency proceedings. It also highlights the tribunal's proactive stance in utilizing its powers to investigate potential fraud, thereby safeguarding the interests of creditors and stakeholders.

Bottom Line:

Insolvency and Bankruptcy Code - Non-cooperation by ex-directors of Corporate Debtor and concealment of statutory records during CIRP - Tribunal has power to order investigation under Section 213 of Companies Act, 2013 if circumstances suggest fraudulent business conduct or non-compliance.

Statutory provision(s): Companies Act, 2013 Sections 213, 118, 189; Insolvency and Bankruptcy Code, 2016 Sections 19, 66

Bhrugesh Amin v. Shripal Sevantilal Morakhia, (NCLT)(Mumbai Bench) : Law Finder Doc Id # 2804961