“Good Reasons” Sufficient for NCLT to Order SFIO Probe; NCLAT Upholds Investigation Into NBFC
Pranav B Prem
The National Company Law Appellate Tribunal (NCLAT), Principal Bench, New Delhi has upheld the order of the National Company Law Tribunal (NCLT), New Delhi Bench – Court II, directing a probe by the Serious Fraud Investigation Office (SFIO) into the affairs of Exclusive Capital Limited (formerly UT Leasing Ltd.), and has refused to interfere with the decision of the NCLT.
A Bench comprising Justice Mohd. Faiz Alam Khan (Judicial Member) and Naresh Salecha (Technical Member) held that the NCLT had adequate and credible material to invoke Section 213(a) of the Companies Act, 2013. The Tribunal observed that three detailed reports submitted by the Court-appointed Observer, former High Court Judge Justice R.K. Gauba (Retd.), disclosed prima facie siphoning of funds, diversion of assets, unsecured loans, possible fabrication of records, related-party transactions and instances of misgovernance. The Tribunal concluded that such material satisfied the statutory requirement of “good reasons” for directing an investigation under Section 213(a).
The controversy originated from internal disputes between majority shareholders and directors on one side and minority shareholders on the other. Alleging oppression and mismanagement, the minority shareholders filed an application under Section 213 read with Rule 11 of the NCLT Rules, 2016, seeking direction for an SFIO investigation into the affairs of the Company. The allegations included siphoning of over ₹300 crore, diversion of company funds for luxury assets, illegal conversion of debentures into compulsorily convertible preference shares, intimidation of key managerial personnel and misuse of authority. Acting on these allegations, the NCLT suspended the board for 180 days and appointed Justice R.K. Gauba (Retd.) as Observer to oversee the functioning of the Company and furnish periodic reports.
Challenging the order, the Company and its directors approached the NCLAT under Section 421(1) of the Companies Act. They contended that the NCLT had become functus officio after disposal of the original petition under Sections 241–242, and therefore lacked jurisdiction to entertain the Section 213 application. They also argued that the Observer’s report had no evidentiary value and could not form the basis of an investigation, and further asserted that only the Reserve Bank of India (RBI), as regulator of NBFCs, had the power to examine alleged financial irregularities. The appellants additionally submitted that criminal and ED proceedings were unrelated to the present dispute and could not justify an SFIO probe.
The NCLAT rejected the argument of functus officio after noting that the Supreme Court, through an interim order passed in the pending SLP, had expressly permitted the parties to approach the NCLT or NCLAT for further reliefs. It further observed that since administration of the company and monthly reporting were ongoing, and a scheme was still under consideration, the NCLT continued to retain supervisory jurisdiction. As such, entertaining an application under Section 213 did not exceed its authority.
On the evidentiary value of the Observer’s reports, the NCLAT held that the findings of the Observer, who was a former High Court judge appointed by the NCLT itself, constituted valid and credible material. The Appellate Tribunal highlighted that the law does not demand conclusive proof of wrongdoing at the stage of ordering an investigation under Section 213. The requirement is only the existence of “good reasons” supported by prima facie material, and the Observer’s findings comfortably met that statutory threshold.
The contention that only the RBI could examine irregularities in an NBFC was also rejected. The NCLAT relied on the affidavit filed by the RBI before the Supreme Court, which clarified that the RBI was not the appropriate authority to investigate allegations of siphoning of funds. The Tribunal held that this submission directly contradicted the appellants’ argument and made it clear that the mechanism under Section 213 of the Companies Act can extend to NBFCs when material indicating potential fraud is placed before the Tribunal.
The NCLAT reiterated that Section 213(a) requires only a prima facie case, not proof of fraud, and pointed out that the respondents held at least ten percent of the Company’s shareholding. Therefore, the statutory threshold for invoking Section 213 stood satisfied. It held that the material placed before the NCLT was more than adequate to create a credible suspicion of misconduct that warranted further investigation.
Finding no illegality, perversity or infirmity in the NCLT’s view, the NCLAT dismissed the appeal and upheld the direction for a full-fledged SFIO investigation into the affairs of Exclusive Capital Limited. The order finally clears the way for a comprehensive probe into allegations of siphoning of funds, fabrication of Company records, diversion of assets and related-party transactions.
Appearance
For Appellant: Mr. Krishnan Venugopal, Sr. Advocate with Mr. Manav Goyal, Mr. Apoorv Agarwal, Ms. Ritika Gusain, Ms. Nandini Kaushik, Ms. Aastha Arora, Advocates.
For Respondent: Mr. Sidhant Kumar, Ms. Manyaa Chandok, Ms. Ekssha Kashyap, Advocates for R-1 & 2.
Cause Title: Exclusive Capital Ltd. & Ors. V. Kanta Agarwala & Anr.
Case No: Company Appeal (AT) No. 166 of 2025
Coram: Justice Mohd. Faiz Alam Khan (Judicial Member), Naresh Salecha (Technical Member)
