Pranav B Prem

The National Company Law Tribunal (NCLT) at Ahmedabad has held that complaints of professional misconduct made against auditors or company secretaries before their respective regulatory bodies cannot form the basis for seeking an investigation into the affairs of a company under Sections 212 or 213 of the Companies Act, 2013. The Bench comprising Judicial Member Shammi Khan and Technical Member Sanjeev Sharma dismissed a petition filed by Parth Merchant seeking an SFIO investigation into Detox India Private Limited, holding that the petitioner had no locus whatsoever to maintain the proceedings.

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The petition, filed on September 29, 2022, alleged manipulation of statutory records, false certification, unauthorised reduction of share capital and diversion of funds. Merchant claimed that he was filing the petition “on behalf of” Rajdeep Boiler Private Limited, relying on a Board Resolution dated August 31, 2022, and contended that complaints he had filed before ICAI and ICSI against professionals who certified statutory forms for Detox India revealed deep irregularities warranting a probe.

The Tribunal had earlier dismissed the matter in November 2023, but the NCLAT, by an order in November 2024, remanded the case for reconsideration on the limited issue of locus and maintainability. On remand, Merchant argued that he qualified as “any other person” under Section 213(b) and therefore had standing to seek an investigation. He submitted that his complaints before ICAI and ICSI indicated that the statutory filings of Detox India were unreliable and that the professional misconduct of the concerned individuals reflected larger corporate wrongs.

Detox India opposed the petition, submitting that Merchant was a complete outsider with no connection to the company, and that Rajdeep Boiler Pvt. Ltd.—the entity on whose behalf he purportedly acted—was not a shareholder, creditor or member of Detox India. It contended that the Board Resolution relied upon could not confer locus because rights under Section 213 belong only to persons who statutorily qualify, and such rights are not transferable. Detox India further submitted that Rajdeep Boiler had not produced any document to show that it had any claim or legal relationship with Detox India.

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After reviewing the material on record, the Tribunal held that the petitioner failed to establish any legal relationship with the company. It found that the Board Resolution “merely authorizes proceedings but does not assign debt or create privity,” and that such authorization “does not create any legal relationship between the petitioner and Respondent No.1 Company.” The Tribunal also noted the absence of any document showing that Rajdeep Boiler was a creditor of Detox India, observing that “why it authorized the petitioner and did not file the petition through its authorised person say director or its official remains unexplained.”

A central argument advanced by Merchant was that his complaints before ICAI and ICSI against the company’s professionals justified an investigation. The Bench rejected this contention outright, holding that disciplinary proceedings by professional bodies “pertains solely to professional misconduct and liability of those individuals under the respective professional regulation.” The Tribunal made it clear that such findings do not create any legal injury in favour of a third party nor confer standing to seek an investigation into the affairs of a company. It emphasised that complaints regarding professional misconduct “do not give the complainant any right to demand a probe into the affairs of a company.”

On the interpretation of the expression “any other person” in Section 213, the Tribunal held that the phrase must be construed narrowly, applying only to individuals having a direct or indirect connection with the company’s affairs. Treating Section 213 as a form of public-interest jurisdiction, the Bench warned, “is impermissible.” It reiterated that the petitioner “squarely falls within the category of complete alien.”

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The Tribunal also clarified that Section 212, which allows the Central Government to order an SFIO investigation, can be invoked only on the basis of a report submitted by the Registrar of Companies under Section 208. It does not permit an outsider to directly seek an SFIO probe. Since there was no RoC report, no nexus of the petitioner to the company, and no legal injury shown, the Tribunal held that there was no statutory basis for the petition. Finding no locus standi, no legal injury, and no grounds under Sections 212 or 213, the Tribunal dismissed the petition in its entirety.

Appearance

For Applicant: Advocate Dhiren Dave

For Respondents: Advocates Nipun Singhvi, Mayur Jugtawat, and Varun Lamb.

Cause Title: Parth Merchant v. Detox India Pvt. Ltd. and Ors.

Case No: Item No. 304 CP/39(AHM)2022

Coram: Judicial Member Shammi Khan, Technical Member Sanjeev Sharma