Pending Civil, Criminal Cases No Bar To LLP Investigation If Independent Probe Warranted: NCLT Jaipur

The Jaipur National Company Law Tribunal (NCLT), has held that the mere pendency of civil and criminal proceedings between parties cannot prevent an investigation into the affairs of a Limited Liability Partnership (LLP) if the material on record indicates circumstances requiring independent scrutiny.

A Bench of Judicial Member Reeta Kohli and Technical Member Kavita Bhatnagar directed an investigation into the affairs of RKM Merchandise LLP under Section 43 of the Limited Liability Partnership Act, 2008 (which allows investigation into an LLP's affairs where there are circumstances suggesting fraudulent, unlawful or prejudicial conduct). The Tribunal held:

“Mere pendency of civil/criminal proceedings cannot by itself be a ground to reject the prayer for investigation if the material placed before the Tribunal otherwise discloses circumstances warranting independent scrutiny.”

Chinmay Dangayach, a designated partner holding a 70% stake in RKM Merchandise LLP, filed the petition seeking an investigation into the LLP's affairs. He alleged that Deepak Pachauri, Pankaj Bharti, Gopal Pachauri and Sanjay Pachauri, who managed the day-to-day affairs of the LLP, diverted its business, stock and goodwill to another entity, Nimbarkji Export, allegedly controlled by them and their family members.

He further alleged that the respondents disposed of the LLP's stock without authority, shifted its customers, employees and business activities to Nimbarkji Export and diverted the LLP's funds while carrying on an identical business. He also relied on an FIR lodged against the respondents alleging cheating and criminal breach of trust.

The respondents contended that Dangayach, being the majority partner, exercised effective control over the LLP's affairs and mismanaged its business. They denied diverting the LLP's assets or business to Nimbarkji Export and argued that Dangayach had already filed an application under Section 9 of the Arbitration and Conciliation Act, 1996 (which permits parties to seek interim measures from a court before or during arbitration proceedings) before the Commercial Court, Jaipur.

The Tribunal examined the scope of Section 43 of the LLP Act and observed that the provision does not require a conclusive finding of fraud before ordering an investigation. It held that an investigation aims to ascertain the true state of affairs where the available material raises a reasonable suspicion regarding the manner in which the LLP has been conducted. It observed:

“the Tribunal is not expected to record a conclusive finding of fraud. The purpose of investigation is to ascertain the true state of affairs where the available material discloses circumstances giving rise to a reasonable suspicion that the affairs of the LLP may not have been conducted in a lawful, transparent or bona fide manner.”

Further, the Bench rejected the respondents' contention that the petition should be dismissed due to pending civil and criminal proceedings and held that such proceedings cannot, by themselves, bar an investigation where the material before it warrants independent examination. 

It noted that both sides had levelled serious allegations against each other and that it could examine the rival claims only through the LLP's books of account, bank statements, stock registers, GST records, vendor records, invoices, employee records and other financial documents. It held that it could not determine the truthfulness of the allegations without an independent inquiry and observed:

“This Tribunal ultimately cannot record the truthfulness of these allegations without investigation. The material placed on record discloses sufficient circumstances suggesting that the affairs of the LLP require examination by an independent authority.”

Accordingly, the NCLT directed an investigation into the affairs of RKM Merchandise LLP under Section 43 of the LLP Act and directed the Ministry of Corporate Affairs to appoint inspectors within 45 days to conduct the investigation.

For Applicant: Advocates Amol Vyas and Abhishek Purohit

For Respondents: Advocates Palash Srivastav, Vijit Saxena, Uddeshya Vijayavargiya and Yash Takkar