NCLAT Upholds NCLT's Authority to Conduct Forensic Audits Without Party Application Tribunal's Inherent Powers Affirmed in M/s. Able Automobiles Private Limited v. Smt. Rekha Singhal, Ensuring Justice and Fairness in Shareholding Dispute
In a landmark judgment, the National Company Law Appellate Tribunal (NCLAT) in Chennai has upheld the inherent powers of the National Company Law Tribunal (NCLT) to direct forensic audits of disputed documents, even without applications from involved parties. This decision, delivered by Justice Sharad Kumar Sharma and Member Indevar Pandey, came as the Appellate Tribunal dismissed the appeal from M/s. Able Automobiles Private Limited challenging the Kochi Bench’s order for a forensic audit of the company's shareholding documents.
The case stems from a dispute between M/s. Able Automobiles and Smt. Rekha Singhal, the estranged wife of one of the company's directors, concerning alleged fraudulent transfer of shares. Smt. Singhal claimed that she holds 52,500 equity shares in the company, a fact purportedly misrepresented in official documents. The NCLT Kochi Bench, recognizing the gravity of the allegations, exercised its powers under Rule 43 of the NCLT Rules, 2016, to appoint an independent auditor to verify the authenticity of the disputed documents.
The appellants argued that the Tribunal exceeded its authority by ordering the audit without an explicit application from any party, suggesting it amounted to "fishing" for evidence. However, the NCLAT clarified that Rule 43 explicitly empowers the Tribunal to call for additional evidence necessary for adjudication, emphasizing that such actions ensure justice rather than infringing on party rights.
Justice Sharma, writing for the Appellate Tribunal, stated, "The procedures adhered to by the Tribunal are governed by natural justice principles to ensure effective opportunity for parties to present their case. Rule 43 does not require a specific application for invoking forensic audits, and the Tribunal may exercise its powers independently to fulfill its adjudicatory duties."
The judgment also distinguished Rule 43 from Rule 45, explaining that while Rule 45 pertains to party appearance rights, Rule 43 is focused on evidence acquisition for fair adjudication. The Tribunal's ability to appoint auditors to verify documents accused of being fabricated or fraudulent aligns with the principles of justice and fairness, further supported by Sections 424 and 447 of the Companies Act, 2013.
Furthermore, the NCLAT affirmed the Tribunal’s authority to fix remuneration for auditors under the principle of quid pro quo, recognizing the professional services auditors provide in facilitating the judicial process.
This decision underscores the judicial authority of the NCLT in handling cases involving allegations of corporate mismanagement and fraud, ensuring that procedural rules serve justice rather than hinder it. Legal experts view this as a reinforcement of the Tribunal's role in maintaining corporate governance and accountability.
Bottom Line:
The National Company Law Tribunal (NCLT) has inherent powers under Rule 43 of the NCLT Rules, 2016, to direct a forensic audit of disputed documents even without a specific application from the parties, in order to ensure effective adjudication and dispensation of justice.
Statutory provision(s): Rule 43 of the NCLT Rules, 2016; Rule 45 of the NCLT Rules, 2016; Sections 424, 447 of the Companies Act, 2013
