The National Company Law Appellate Tribunal (NCLAT) has upheld a directive requiring an independent forensic audit of Mufin Green Finance Ltd. ’s financial records, citing the company’s submission of contradictory dates regarding the appropriation of a ₹1.34 crore security deposit held by Gensol Engineering Ltd. The decision follows a legal challenge brought by the non-banking financial company against an order issued by the National Company Law Tribunal (NCLT) Ahmedabad , which sought to clarify whether the security deposit was confiscated before or after the commencement of the Corporate Insolvency Resolution Process (CIRP) .

The dispute stems from an operating lease agreement signed on March 24, 2023 , between Mufin Green Finance and Gensol Engineering for the supply and eventual purchase of 100 electric vehicles. Under the contract, Gensol Engineering provided a security deposit of ₹1,34,14,800. In April 2025, following a period of default by the debtor, Mufin initiated the repossession of 92 vehicles and moved to terminate the agreement. However, the exact timeline of the financial adjustment became a focal point of contention when the CIRP against Gensol Engineering was initiated on June 13, 2025 .

Discrepancies in Appropriation Dates

The Resolution Professional (RP) managing the insolvency of Gensol Engineering identified a significant inconsistency in the information provided by the appellant. Initially, in email correspondence with the RP, Mufin Green Finance indicated that the security deposit was adjusted on July 21, 2025 —a date occurring after the insolvency proceedings had commenced and the moratorium period was already in force. Subsequently, the company revised its position, asserting that the adjustment occurred on April 16, 2025 , prior to the initiation of the CIRP.

This pivot prompted the RP to seek judicial intervention, arguing that a factual audit was required to determine the actual status of the transaction. The NCLT Ahmedabad, addressing the plea, concluded that an independent examination of the underlying books of accounts, ledger entries, and electronic vouchers was essential to resolve the conflicting representations. In its ruling, the NCLAT affirmed this logic, stating: “The necessity, in our considered opinion, for appointment of a forensic auditor has emerged only on account of the fact that contradictory stand has been taken by the Appellant with regard to the date of appropriation of the security.”

Tribunal Rejects Jurisdictional Challenges

During the appellate proceedings, Mufin Green Finance challenged the NCLT’s authority to order a forensic audit of a third-party entity. The appellant argued that the adjudicating authority ’s jurisdiction, under Section 60(5) of the Insolvency and Bankruptcy Code , was confined to issues arising directly from the resolution process of the corporate debtor and did not extend to conducting forensic examinations of external financial records. Furthermore, the appellant contended that the RP’s request for an audit was improperly introduced during the rejoinder stage rather than in the original application, and raised concerns regarding the potential exposure of sensitive, confidential business information.

The NCLAT bench, comprising Justice Mohd. Faiz Alam Khan and Technical Member Arun Baroka, dismissed these contentions. The court emphasized that the authority to verify the timing of a transaction that potentially impacts the insolvency estate is within the scope of the NCLT’s duty to ensure the transparency and integrity of the resolution process. The bench observed that the contradictory information provided by the appellant rendered standard verification methods insufficient. “Due to the contradictory stand taken by the appellant, the Ld. Adjudicating Authority has not committed any illegality in directing the audit,” the court noted in its order.

Implications for Insolvency Resolution Processes

The RP’s position was bolstered by the fact that a similar forensic audit had been ordered against the same appellant in a separate proceeding involving a group entity, an order that Mufin Green Finance had reportedly not challenged at the time. The RP argued that the security deposit in question had not actually matured by the alleged date of April 16, 2025 , as the termination of the lease was contingent upon valid communication, which the RP claimed was not properly served to the corporate debtor.

By directing the audit, the tribunal has underscored the importance of accurate reporting by creditors during the CIRP. The ruling reaffirms that when a creditor provides inconsistent data that directly impacts the valuation of a corporate debtor’s estate or the classification of assets under moratorium, the adjudicating authority possesses the requisite power to commission an independent forensic investigation to uncover the truth.

The NCLAT’s dismissal of the appeal clears the way for the appointed auditor to proceed with the examination of the records. This development serves as a significant signal to financial institutions participating in insolvency proceedings that transparency in accounting for security deposits and other financial adjustments is paramount. As the forensic audit proceeds, the findings are expected to play a critical role in the RP's determination of the validity of the claim filed by the appellant and the subsequent distribution of assets during the resolution phase. The order does not provide for a stay on the investigation, and the appellant remains subject to the original directions of the NCLT to submit the requested accounting data for professional scrutiny.