The National Company Law Tribunal (NCLT), New Delhi, has held that a petition filed by the Serious Fraud Investigation Office (SFIO) seeking recovery of approximately ₹5,431 crore allegedly siphoned off from Bhushan Power & Steel Limited (BPSL) is maintainable, rejecting eight applications filed by former promoters and other entities challenging the proceedings.
The Principal Bench, comprising Justice Anupinder Singh Grewal (President) and Ravindra Chaturvedi (Member, Technical), ruled that it has territorial jurisdiction to hear the case and that the central government had validly authorised the proceedings under the Companies Act, 2013.
In its October 30 order, the tribunal clarified that the approval of BPSL’s resolution plan under the Insolvency and Bankruptcy Code (IBC) does not bring the allegations of financial wrongdoing to an end.
It held that Section 32A of the IBC does not protect former directors or third parties from proceedings seeking the return of properties allegedly diverted through fraudulent transactions.
The SFIO’s petition, filed in April 2023 under Sections 241, 242, 246 and 339 of the Companies Act, names 76 respondents, including the company’s former promoters, associated companies and individuals.
It seeks to hold the respondents personally liable for at least ₹5,431 crore, besides interest, for allegedly participating in the fraudulent conduct of BPSL’s business and causing losses to its creditors and other stakeholders.
According to the SFIO’s investigation, funds were allegedly siphoned off from BPSL through a network of associated companies and individuals from 2009-10 onwards.
The agency alleged that the former promoter, chairman and managing director, Sanjay Singal, along with his wife and other associates, orchestrated the diversion of funds and used them to acquire movable and immovable assets. The investigation report also alleged that the company’s financial dealings were structured to facilitate the infusion of capital and obtain credit facilities from banks.
The tribunal rejected the argument that the petition could not proceed because the alleged transactions were in the past. It held that the expression “are being conducted” under Section 241(2) of the Companies Act must be read alongside Sections 242, 246 and 339.
Consequently, proceedings can cover past transactions where their adverse effects continue, including where allegedly diverted funds and properties remain with the beneficiaries.
It also held that disgorgement, or the recovery of wrongful gains, is a civil and equitable remedy that can be sought under Sections 241 and 242. The remedy is not restricted to Section 212(14A) of the Companies Act, which separately provides for disgorgement following an SFIO investigation.
On territorial jurisdiction, the tribunal ruled that the location of the registered office of the company whose affairs are under scrutiny determines which NCLT bench can hear the petition.
The registered offices of other individuals and companies arrayed as respondents do not determine jurisdiction. Since BPSL’s registered office falls within the jurisdiction of the New Delhi bench, the tribunal held that it was competent to hear the proceedings.
The bench further rejected objections based on pending proceedings before the Delhi High Court, limitation and parallel insolvency proceedings under Section 66 of the IBC. It said appropriate credit would be given for amounts recovered in respect of the same transactions in other proceedings, ensuring that no respondent is made to pay twice.
However, the tribunal emphasised that its ruling concerns only the maintainability of the petition and does not establish that fraud was committed. The SFIO will have to establish the allegations and demonstrate the specific involvement of each respondent.
The agency has been directed to file, within four weeks, a consolidated statement detailing the role attributed to each respondent, the transactions involved and the corresponding portions of its investigation report. The respondents have also been given four weeks to file their replies on the merits.
The interim directions, including those relating to the preservation of assets, will continue until further orders. The matter has been listed for further hearing on November 26.
