The ) Principal Bench in New Delhi has ruled that the ’s petition seeking to recover approximately ₹5,431 crore allegedly diverted from is . In a significant judgment delivered on , President Justice Anupinder Singh Grewal and Member (Technical) Ravindra Chaturvedi dismissed eight separate applications filed by the company’s former promoters, their associated entities, and various individuals who had challenged the legal standing of the government’s recovery action.
The ruling addresses a core question in corporate litigation: whether a successful and a change in company management serve as a "" that shields former promoters from civil recovery actions for pre-insolvency fraud. The has clearly answered in the negative, asserting that the change in management does not erase the prejudice caused by the alleged siphoning of public funds.
The Alleged Diversion of Funds The Union of India, acting through the , initiated the petition under . The government alleged that the former management of BPSL—including erstwhile promoters Sanjay Singal and Aarti Singal—orchestrated a systematic diversion of company funds through a web of shell entities. According to the SFIO, these siphoned amounts were utilized by the promoter family to acquire movable and immovable assets and to maintain specific financial ratios required for continued bank financing, thereby duping public lenders and other stakeholders.
The respondents had challenged the maintainability of the petition on multiple grounds, including territorial jurisdiction, the scope of the government's opinion under Section 241(2), and the contention that the provides an exhaustive code for recovery that bars these proceedings. They also argued that the allegations involved historical transactions occurring prior to , which should not fall under the statutory purview of "" in a manner.
Continuing Prejudice and Statutory Reach The Tribunal firmly rejected the argument that the resolution process or the passage of time had rendered the allegations stale. The Bench observed that while the replacement of management under the IBC might end control, it does not absolve those who allegedly took funds from accountability.
“The replacement of the erstwhile management may have brought its control over the company to an end, but it does not, by itself, undo the alleged diversion or remove the prejudice that may have been caused to the company and the public interest,” the Tribunal noted. Elaborating further on the nature of the alleged wrong, the judgment stated: “The affairs of a company include the custody, ownership and recovery of its assets; the non-restoration of assets diverted from the company therefore continues to affect the company, its creditors and the public interest, notwithstanding that the persons now managing it are different.”
The Tribunal emphasized that the provisions of Chapter XVI of the , are designed to remedy prejudice to public interest. It ruled that the expression "are being conducted" in Section 241(2) is not restricted to conduct occurring on the date of the petition. Instead, read in conjunction with the Tribunal's wide remedial powers under Section 242 and the liability provisions of Section 339, it covers conduct that commenced in the past but whose effects—such as the continued loss of assets—subsist.
Addressing Jurisdictional Objections On the issue of jurisdiction, the clarified that the territorial authority of a Bench is fixed by the location of the registered office of the "concerned company"—which, in this case, is BPSL, located in New Delhi. The joinder of other companies and individuals from various jurisdictions was deemed appropriate because they are alleged to have knowingly participated in the diversion scheme. The Tribunal stressed that impleading parties who allegedly profited from fraud is a matter of , ensuring that those who may face have a full opportunity to defend themselves.
The Bench also dispelled concerns regarding the government's authority, holding that the SFIO's role in filing the petition was a performed on behalf of the , which had already taken the substantive decision to initiate action. Citing the decision in , the Tribunal affirmed that such authorizations are distinct from the delegation of powers that would necessitate notification under Section 458 of the Companies Act. Furthermore, it noted that Section 212(14A) is an additional tool for the government and does not prevent the invocation of the broader powers granted under Sections 241 and 339.
Procedural Safeguards and Next Steps While upholding the maintainability of the petition, the took care to insulate the process from claims of procedural unfairness. The Tribunal underscored that the present order is strictly limited to the threshold of maintainability and does not imply any finding on the merits of the fraud allegations.
To ensure clarity, the Tribunal has directed the SFIO to file a consolidated statement within four weeks. This statement must specifically outline the role alleged against each respondent, the specific transactions where their involvement is claimed, and the relevant portions of the SFIO investigation report. Additionally, the Tribunal ordered that any recoveries made in parallel proceedings under the IBC must be accounted for to prevent double recovery.
The respondents have been granted four weeks to file their replies on the merits, after which the Petitioner may file a rejoinder. The has also stipulated that the must file an affidavit ratifying the institution of the petition by the authorized officers. The interim orders previously passed, which restrain the alienation of the respondents' assets, remain in force. The matter is next listed for further proceedings on .
corporate governance - fraudulent fund diversion
