NCLAT Upholds NCLT Order for Forensic Audit, Emphasizes Tribunal's Power in Mismanagement Cases - 2024-03-22

NCLAT Affirms NCLT's Forensic Audit Order in Joint Venture Dispute

New Delhi – The National Company Law Appellate Tribunal (NCLAT) has upheld an interim order by the National Company Law Tribunal (NCLT), Kolkata, directing a forensic audit into the affairs of LAS Goldair Handling (Bagdogra) Pvt Ltd. The appellate tribunal dismissed appeals filed by LAS Goldair Handling and LAS Ground Force Pvt Ltd, affirming the lower court’s decision to order the audit in a case alleging oppression and mismanagement.

Background of the Case

The dispute arose from a company petition filed by Goldair Handling S.A., a Greek company, against LAS Goldair Handling (Bagdogra) Pvt Ltd (Appellant 1) and LAS Ground Force Pvt Ltd (Appellant 2). Goldair Handling S.A. alleged oppression and mismanagement within LAS Goldair Handling, a special purpose vehicle (SPV) formed for ground handling services at Bagdogra Airport. Goldair Handling S.A. claimed denial of access to books of accounts, failure to convene an Extraordinary General Meeting (EGM), and questionable financial practices.

NCLT's Interim Order

On November 23, 2023, the NCLT Kolkata Bench II ordered an independent forensic audit into LAS Goldair Handling since its inception in 2021. This interim order also restrained the company from finalizing its audited financial statements for the year 2022-23 pending the petition's adjudication.

Appellants' Arguments

LAS Goldair Handling and LAS Ground Force appealed the NCLT order, arguing that it was passed without proper consideration of facts and without application of mind. Senior Counsel for the appellants contended that Goldair Handling S.A. had breached shareholder and exclusivity agreements, engaged in competitive business, and that despite providing access to accounts, the NCLT ordered a forensic audit without valid reasons. They argued the audit would harm the company's reputation and cited precedents requiring reasoned orders from tribunals.

NCLAT's Reasoning and Decision

The NCLAT bench, comprising Justice Yogesh Khanna (Judicial Member) and Mr. Arun Baroka (Technical Member), dismissed the appeals, finding no infirmity in the NCLT’s order. The tribunal highlighted that the NCLT's order explicitly stated it was based on the averments made by the petitioner (Goldair Handling S.A.) due to the appellants' failure to file a reply affidavit or submit documents before the NCLT despite being directed to do so.

The NCLAT emphasized that the NCLT had sufficient grounds to order a forensic audit based on the allegations raised by Goldair Handling S.A., which included:

Denial of inspection of accounts and records.

Rejection of a request for an EGM.

Statutory violations and questionable appointment of auditors.

Related party transactions and discrepancies in audit reports.

Loans taken without approval and subsequently repaid after the petition was filed.

Referring to previous judgments, including Archer Power System Pvt Ltd Vs. Cascade Energy Pvt Ltd & Others , the NCLAT reiterated the tribunal's inherent powers to pass orders necessary for justice and to prevent abuse of process. It affirmed that ordering a forensic audit is a legitimate interim measure to help the tribunal appreciate the issues in cases involving allegations of financial mismanagement, siphoning of funds, and improper maintenance of accounts.

The NCLAT judgment stated:

> "Para 9 of the impugned order rather says it is only in view of the averments made by the petitioner in its petition the interim order is passed."

> "Even otherwise conduct of forensic audit does not determine the rights and liabilities of the parties but merely would enable the Ld. Tribunal to appreciate the issues involved."

> "In view of the allegations of serious lapses and non-compliance in the financial statements, no proper disclosure of related party transactions, non-reporting, non-disclosure and non-compliance of statutory compliances, as alleged in the petition before Ld. NCLT, the interim order passed by the Ld. NCLT is justified and we see no reason to interfere in the impugned order."

Implications of the Judgment

The NCLAT’s decision reinforces the powers of the NCLT to order forensic audits as an interim measure in cases of alleged corporate mismanagement and oppression. It underscores the importance of reasoned interim orders, while also recognizing that in circumstances where respondents fail to present their case before the NCLT, the tribunal can rely on the petitioner’s averments to pass interim orders deemed necessary for the adjudication process. The forensic audit of LAS Goldair Handling (Bagdogra) Pvt Ltd will now proceed as directed by the NCLT.