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NEW DELHI: The National Company Law Tribunal has cleared the way for the Serious Fraud Investigation Office to pursue a 5,431 crore rupee recovery plea in the Bhushan Power and Steel Limited fraud case, dismissing objections raised by former promoters and associated entities. In its October 30 order, the Principal Bench ruled that the successful resolution of an insolvent firm under the Insolvency and Bankruptcy Code does not shield former directors, promoters, or third parties from recovery proceedings involving allegedly diverted assets.
A two-member bench comprising NCLT President Justice Anupinder Singh Grewal and Technical Member Ravindra Chaturvedi held that the recovery petition filed by the SFIO is legally maintainable. The tribunal dismissed eight separate applications brought by former promoters and co-respondents challenging the proceedings. The tribunal clarified that its decision deals strictly with maintainability and the Central government’s valid authorisation under the Companies Act, 2013, leaving substantive allegations of fraud to be adjudicated during subsequent hearings.
Scope of Insolvency Law and Continuing Consequences
The probe agency initiated proceedings in April 2023 under Sections 241, 242, 246, and 339 of the Companies Act against 76 respondents, including former chairman and managing director Sanjay Singal, his wife, associated companies, and related individuals. The SFIO seeks to hold them personally liable for at least 5,431 crore rupees, alongside interest, for orchestrating fund diversions that caused substantial losses to creditors and other stakeholders. According to the investigation, funds were siphoned through a network of affiliated entities beginning in the 2009-10 financial year to acquire movable and immovable properties, as well as to artificially support capital infusions and secure bank credit.
Addressing arguments that past transactions could not be scrutinized under Section 241(2), the tribunal ruled that the statutory phrasing must be read together with Sections 242, 246, and 339. The bench held that past transactions remain actionable where their adverse consequences persist, particularly when allegedly diverted assets remain in the hands of the beneficiaries.
Legal Grounds for Disgorgement and Jurisdiction
The tribunal addressed protections under Section 32A of the Insolvency and Bankruptcy Code, noting that the approval of a resolution plan does not grant blanket immunity to former management or third parties facing asset recovery actions. The completion of the corporate insolvency process cannot extinguish claims against individuals or entities that allegedly siphoned corporate wealth beforehand.
The bench also affirmed that disgorgement serves as an equitable and civil remedy under Sections 241 and 242 of the Companies Act. It rejected claims that such relief could only be pursued under Section 212(14A), emphasizing that the availability of a specific investigation-linked provision does not curb the general powers of the tribunal. Additionally, the bench upheld its territorial authority, noting that the registered office of the company under investigation, rather than that of individual respondents, determines jurisdiction.
Timelines for Pleadings and Interim Measures
The tribunal rejected challenges regarding parallel insolvency proceedings under Section 66, limitation periods, and matters pending before the Delhi High Court. To prevent unjust double recovery, the bench recorded that any sums realized through parallel proceedings on identical transactions would be adjusted against the final liabilities.
To structure the upcoming trial on merits, the bench ordered the SFIO to file a consolidated statement within four weeks detailing the precise role, transactions, and corresponding investigation report extracts for each of the 76 respondents. The respondents were granted four weeks thereafter to submit their replies on the merits of the case. All existing interim preservation orders will continue until further directions, with the tribunal scheduling the next hearing for November 26.
