NCLT Orders Govt Probe Into Company And Ex-Management

Case Details: State Bank of India vs. Reform Ferro Cast Ltd. - [2025] 177 taxmann.com 665 (NCLT - Kolkata)

Judiciary and Counsel Details

• Siddharth Mishra, Technical Member
• Smt. Bidisha Banerjee, Judicial Member
• Ms Urmila Chakraborty, Adv. & Arun Kumar Gupta, RP in Person for the Applicant

Facts of the Case

In the instant case, the CIRP was initiated against the corporate debtor, and RP was appointed. The RP appointed Transaction Auditor to carry out the transaction audit of the corporate debtor. The Transaction Auditor submitted report observing that there were no avoidance transactions in the corporate debtor company.
The CoC of the corporate debtor approved the resolution plan submitted by the successful resolution applicant. While approving the resolution plan, the Adjudicating Authority observed that a forensic audit was conducted by SBI in 2019, prior to the initiation of the CIRP, in respect of the corporate debtor.
SBI, being lead bank in CoC, indicated several inconsistencies and irregularities in business and operations of corporate debtor concerning inflation of records, routing of sales realisations through other bank, allotment of shares to many private entities, red flag transactions in subsidiary companies, valuations etc. and significantly, observed that angle of money laundering could not be ruled out. However, the SBI made an observation that no material evidence was found to classify it as fraud.
It was noted that management had not provided access to any of their accounting records to SBI, while conducting forensic audit, which clearly indicated that non-cooperation on part of suspended board of directors of corporate debtor was not a new practice in ongoing CIRP, it was a wilful act of deliberate deception by them, which satisfied for ordering an independent and fair investigation into affairs of company as well as its erstwhile management by Government agency.

NCLT Held

The NCLT held that since the Transaction Audit Report prepared by the Transaction Auditor appointed by RP lacked any significant observation, it could not be accepted. Thus, in terms of Section 70 of the IBC, read with Section 212 of the Companies Act, 2013, and Rule 11 of the NCLT Rules, the matter was to be referred to the Regional Director to conduct an independent and fair investigation into the affairs and erstwhile management of the corporate debtor company.

List of Cases Referred to

• SEBI v. Kanaiyalal Baldevbhai Patel [2017] 85 taxmann.com 267/144 SCL 5 (SC) (para 22)
• K.D. Sharma v. Steel Authority of India Ltd. (2008) 12 SCC 481 (para 23)
• U.P. Cooperative Federation Ltd. v. Singh Consultants and Engineers (P) Ltd. (1988) 1 SCC 174 (para 24)
• BSES Ltd. v. Fenner India Ltd. (2006) 2 SCC 728 (para 24)
• Max Publicity & Communication Pvt. Ltd. v. Enviro Home Solutions Pvt. Ltd. (2025) ibclaw.in 363 NCLAT (para 31)
• State Bank of India v. Consortium of Murari Lal Jalan and Florian Fritsch [2024] 168 taxmann.com 421 (SC) (para 33)
• M. Srinivas v. Smt. Ramanathan Bhuvaneshwari [2019] 110 taxmann.com 162 (NCL-AT) (para 34).