NCLT Ahmedabad Directs Morakhia Copper's SRA To File NFRA Complaint Against CA For Falsifying Company Accounts

The National Company Law Tribunal (NCLT), Ahmedabad, has recentlydirected Shreenathji Rasayan Pvt. Ltd., the successful resolution applicant of Morakhia Copper & Alloys Pvt. Ltd., to file a complaint against a Chartered Accountant before the National Financial Reporting Authority (NFRA) and the Institute of Chartered Accountants of India (ICAI) for assisting in the falsification of the company's accounts.

“The Applicant is directed to file a complaint against Arun Bagaria Chartered Accountant with the National Financial Reporting Authority and the ICAI and for taking necessary action for assisting the Corporate Debtor in falsifying the accounts of the Corporate Debtor. The Applicant is directed to attach all the relevant documents with the compliant.”

The order was passed by Judicial Member Shammi Khan and Technical Member Sanjeev Sharma.

In the same ruling, the tribunal held the erstwhile directors and persons in control of the corporate debtor liable for fraudulent trading and directed them to jointly and severally contribute Rs 32.49 crore to the assets of the corporate debtor, along with 12% interest.

The tribunal found that the company's financial records were repeatedly manipulated through emails, ledger entries and revised financial statements to present a misleading financial position to lenders. It noted that receivables were inflated, liabilities were reclassified, and different versions of balance sheets were circulated to banks to enhance drawing power.

“Financial statements prepared to satisfy a bank rather than reflect actual accounts are manifestly misrepresented statements.”

Rejecting the defence that the discrepancies were merely draft adjustments or internal workings, the Tribunal held that the repeated circulation of revised figures, adjustment entries, and confirmations of doubtful balances formed a consistent pattern of deceitful accounting.

“Where multiple versions of accounts are circulated post year-end and the same directly affect drawing power with banks, the burden lies upon the management to establish which figures were genuine and on what basis the competing figures arose.”

The tribunal held that such conduct demonstrated intent to defraud creditors and satisfied the requirements of fraudulent trading under Section 66 of the Insolvency and Bankruptcy Code, noting that the persons in control had knowingly participated in the scheme.

On quantification, the Tribunal found that ₹32.49 crore, reflected as receivables from a related entity, had become unrecoverable due to fraudulent structuring and adjustment of accounts, and was directly attributable to the conduct of the respondents.

“This Tribunal is satisfied that such amount constitutes the loss caused to the Corporate Debtor, directly attributable to the fraudulent conduct of the Respondents.”

Clarifying the nature of liability, the Tribunal held that proceedings under Section 66 are not in the nature of recovery but are meant to restore losses caused by wrongful conduct and ensure contribution to the assets of the corporate debtor.

“This Tribunal also notes that proceedings under Section 66 are not in the nature of recovery proceedings but are in the nature of contribution to the assets of the Corporate Debtor as held in Anuj Jain Interim Resolution Professional for Jaypee Infratech Limited v. Axis Bank Limited. Hence are not barred by any moratorium applicable to personal guarantors or individuals..”

The tribunal also rejected reliance on statutory audit as a defence, holding that the existence of an audit does not legitimise falsified accounts where management structures financial statements to meet banking requirements or to satisfy lenders rather than reflect a true and fair view.

“Where management itself generates distorted figures or withholds material facts, the existence of an audit report cannot sanitize underlying falsification.”, it observed.