NCLT Mumbai Upholds SFIO's Authority To Act On Behalf Of Union Of India In IL&FS Case, Rejects Locus Challenge

The National Company Law Tribunal (NCLT) at Mumbai has upheld the locus standi of the Serious Fraud Investigation Office (SFIO) to file an application on behalf of the Union of India in proceedings arising out of the IL&FS matter, rejecting objections that the agency lacked authority to institute such proceedings.

A coram of Judicial Member Sushil Mahadeorao Kochey and Technical Member Prabhat Kumar held that the application filed through SFIO was maintainable and could not be rejected on the ground that SFIO was not competent to move the tribunal.

“In view of the aforesaid discussion, we hold that the contention of contesting respondents that the present application is not maintainable on ground of lack of locus on part of SFIO or non-compliance with section 458 of the Companies Act, 2013 is not sustainable,” the tribunal observed.

The issue arose in proceedings connected with the affairs of Infrastructure Leasing & Financial Services Ltd (IL&FS) and its subsidiary IL&FS Securities Services Ltd (ISSL), which are under investigation pursuant to directions issued by the Ministry of Corporate Affairs under Section 212 of the Companies Act, 2013.

SFIO had submitted its investigation report dated July 14, 2023 to the Ministry of Corporate Affairs. After examining the report, the ministry directed SFIO to place the findings before the tribunal and seek appropriate orders, including attachment of assets and disgorgement proceedings against persons alleged to have committed fraud.

The Union of India had originally approached the NCLT in 2018 under Sections 241 and 242 of the Companies Act alleging that the affairs of IL&FS were being conducted in a manner prejudicial to public interest and seeking takeover of the management of the group companies.

In the present proceedings, the respondents raised a preliminary objection to maintainability, contending that the company petition had been filed by the Union of India through the Ministry of Corporate Affairs and that SFIO, not being a party to the original petition, had no locus to file the present application. It was also argued that only the Central Government could initiate proceedings of this nature.

Rejecting the objection, the tribunal held that the powers of the Central Government under the Companies Act are exercised through the Ministry of Corporate Affairs in accordance with the Allocation of Business Rules and Transaction of Business Rules, and that SFIO functions under the said ministry.

The bench noted that the application had been filed on behalf of the Union of India through an authorised officer of SFIO pursuant to directions issued by the competent authority, and such authorisation was administrative in nature.

Holding that a formal delegation under Section 458 of the Companies Act was not required in such circumstances, the tribunal said:

“The delegation, as referred in Section 458 of the Companies Act, 2013, does not apply to administrative order(s) requiring the departmental head to do some act on behalf of central government, as the delegation of powers vested in Central Government occurred when the powers of Central Government are allocated in terms of Allocation of Business Rules and Transaction of Business Rules, and no delegation can said to have taken place from Hon'ble Minister to one of department head as such direction is merely an administrative in nature.”

The tribunal accordingly rejected the objection to maintainability and directed that the application be listed for further hearing along with connected matters.