Notices To ED, CBI For Investigating Company Affairs Can Be Issued Only After Hearing Parties: NCLAT

The National Company Law Appellate Tribunal (NCLAT) at Delhi has ruled that an investigation into a company's affairs cannot be initiated merely because an application has been filed.

The tribunal must first satisfy itself that the circumstances required under Section 213(b) of the Companies Act exist. It must also give the affected parties a reasonable opportunity to hear.

Judicial Member Justice Sharad Kumar Sharma and Technical Members Arun Baroka and Indevar Pandey were dealing with two appeals filed by Salma Moosa and Srinivasan Vivek. The appeals challenged orders passed by the National Company Law tribunal, Kolkata Bench in December 2025 and February 2026.

The appellate tribunal found that the Kolkata Bench had issued directions concerning the Enforcement Directorate in the first order. A later order also contained directions concerning the Central Bureau of Investigation. The tribunal had not recorded the satisfaction required under Section 213(b), and the appellants were not heard before those directions were issued.

The bench observed, "Section 213 (b) of the Companies Act, 2013, provides for the vesting of the powers of the Tribunal, who could direct an investigation into the affairs of the company. For the said purpose, the straight jacket prescription has been contemplated under sub-Section (b) of Section 213 of the Companies Act, 2013. The first part of sub-Section (b) of Section 213 lays down the parameters for resorting to the steps to be followed by the Tribunal in order to 'satisfy' itself that upon receipt of the set of allegations and the circumstances that are placed before the Tribunal, the investigation is required, if at all. Meaning thereby, an investigation cannot be ordered merely because the Tribunal is in receipt of an application"

“It's only upon the satisfaction of the three ingredients that the Tribunal will have to satisfy itself that those parameters exist and thereafter give a reasonable opportunity of being heard to the parties, and it's only after hearing the parties that the Tribunal could have issues notices to the ED or to the CBI in the case at hand.”, it added.

The proceedings concerned Startups Club Services Private Limited and Startups Club Networks LLP. As per the order, the lenders had provided loans to Startups Club Services Private Limited and the appellant directors.

The appellants' Director Identification Number was deactivated in November 2017. This affected filings with the Registrar of Companies, including share allotment filings.

The lenders then approached the National Company Law tribunal, alleging fraud. The case was later transferred to the National Company Law tribunal, Kolkata Bench.

In December 2025, the Kolkata Bench directed its registry to issue notice to the Enforcement Directorate and place the tracking information relating to the notice on record.

In February 2026, the Kolkata Bench again directed notice to the Enforcement Directorate. It also directed notice to the Central Bureau of Investigation and asked the registry to place the tracking information on record.

Salma Moosa and Srinivasan Vivek challenged these directions before the National Company Law Appellate Tribunal.

According to the appellants, the directions were premature. They argued that the parties should first have been heard and that the tribunal had to apply its mind to the facts before considering the need to involve an external investigative agency.

They also submitted that the tribunal had to record its satisfaction that the statutory requirements were met before taking such a step. Issuing the directions without hearing the affected parties, they contended, violated the principles of natural justice.

Section 213(b) allows the National Company Law tribunal to order an investigation into a company's affairs where it is satisfied that circumstances specified in the law exist. These include circumstances suggesting that a company's business is being conducted to defraud creditors, members, or others, or for a fraudulent or unlawful purpose.

The provision also covers alleged fraud, misfeasance, or other misconduct by persons concerned with the formation or management of the company. It further applies where members have not been given information about the company's affairs that they could reasonably expect to receive.

Before ordering an investigation, the tribunal must give the parties concerned a reasonable opportunity of hearing. The appellate tribunal held that these requirements had to be met before steps towards an investigation could be taken.

Examining the directions concerning the Enforcement Directorate, the appellate tribunal found that the Kolkata Bench had not recorded its satisfaction that the requirements of Section 213(b) were met. It had also not explained why the Enforcement Directorate was required to be involved at that stage.

The bench observed, “Even if it is presumed that some tracking report was at all required to be called for, it could have been done by the Adjudicating Authority only after accessing the entire circumstances and inevitable necessity of getting the tracking information on record, and that too, after recording as to under what circumstances the ED was required to be called upon for the said purpose.”

The appellate tribunal reached the same conclusion regarding the subsequent directions concerning the Enforcement Directorate and the Central Bureau of Investigation. It found that the directions suffered from the same procedural defects.

The bench also noted that such directions could have civil consequences and an economic bearing on the company's business. They could adversely affect its functioning or cast a social stigma. An order of this nature, it observed, could be passed only after hearing the affected party, considering its defence and recording the rationale for the decision.

The appellate tribunal found that the impugned orders did not disclose a rational application of mind to the requirements of Section 213(b). No reasons had been recorded to justify the directions, and the appellants' arguments had not been considered.

It therefore ruled, “Because of the fact that the impugned order doesn't disclose the rational applicability of mind within the frame work of Section 213 (b) of Companies Act, 2013 to justify the issuance of notice to the Director of Enforcement Directorate, to place the tracking information on record, coupled with the fact that it didn't justify the provisions contained under Section 213 (b) of the Companies Act, 2013, it doesn't justify passing of the order without hearing the appellant.”

The appellate tribunal accordingly quashed the directions concerning the Enforcement Directorate and the Central Bureau of Investigation. It sent the matter back to the National Company Law tribunal, Kolkata Bench.

The Kolkata Bench may reconsider whether the tracking information is required. Any fresh order on issuing notices to the agencies must be passed after hearing the appellants and in accordance with Section 213(b) of the Companies Act.