Bhushan Power: NCLT Delhi Dismisses Pleas Challenging Government's ₹5,431 Crore Recovery Petition

The National Company Law Tribunal (NCLT) at Delhi has recently held that a change in management or approval of a resolution plan under the Insolvency and Bankruptcy Code, 2016 (IBC), does not end its jurisdiction to examine allegations of past fraud if the effects of the alleged misconduct continue.

The tribunal accordingly dismissed eight applications challenging the maintainability of a petition filed by the Union of India through the Serious Fraud Investigation Office (SFIO) over the alleged diversion of funds from Bhushan Power & Steel Ltd. (BPSL).

Through the petition, the Central Government sought to hold 74 individuals and entities, along with the estate of BPSL's former auditor, personally liable for at least ₹5,431 crore allegedly diverted from the company, along with interest. It also sought attachment and sale of their movable and immovable assets to recover the amount.

The bench of President Justice Anupinder Singh Grewal and Technical Member Ravindra Chaturvedi held that the expression “are being conducted” under Section 241(2) of the Companies Act, 2013, is not limited to conduct taking place when the petition is filed.

“In view of the foregoing, we hold that the expression 'are being conducted' in Section 241(2) is not confined to conduct occurring on the date of the Petition. Read with Sections 241(3), 242(1), 242(2) and 246, and through Section 246 with Section 339, it includes a course of conduct which commenced in the past and whose prejudicial effect on public interest continues, including through the retention of the fruits of that conduct and the non-restoration of the company's assets. Neither the replacement of the erstwhile management nor the approval of the resolution plan under the IBC brings such a course of conduct to an end. The Petition, as pleaded, alleges conduct of this character and is therefore maintainable under Section 241(2). This finding is subject to the caution recorded in the preceding paragraph. The objection is accordingly rejected,” the tribunal held.

It rejected the argument by the parties challenging the petition that the completion of BPSL's corporate insolvency resolution process (CIRP), approval of the resolution plan and replacement of the erstwhile management had brought the matter to an end.

The tribunal observed that the petition did not challenge the conduct of BPSL's present management. It concerned the alleged diversion of funds and assets from the company during the tenure of the erstwhile management.

“The affairs of a company include the custody, ownership and recovery of its assets; the non-restoration of assets diverted from the company therefore continues to affect the company, its creditors and the public interest, notwithstanding that the persons now managing it are different,” the tribunal observed.

It clarified, however, that its finding did not mean every past transaction could be examined indefinitely. The Union government would have to plead and prove that prejudice to public interest continues, including by establishing that diverted funds or assets remain with identifiable persons and have not been restored.

The tribunal also held that Section 212(14A) of the Companies Act, which provides for disgorgement following an SFIO investigation, is an additional remedy and does not exclude proceedings under Sections 241, 242, 246 and 339.

It further rejected the argument that proceedings initiated by the resolution professional under Section 66 of the IBC barred the Union government's petition. The two remedies differ in their applicants, purpose, reach and relief. The tribunal directed the parties to disclose details of overlapping proceedings and provided that amounts recovered or recoverable in respect of the same transactions would be accounted for to prevent double recovery.

The tribunal also held that the petition was not, on its face, barred by limitation. It observed that the right to apply accrued when the government was in a position to form the opinion required under Section 241(2) and that Section 17(1)(a) of the Limitation Act applied to proceedings founded on fraud.

It left the parties free to establish at the merits hearing that the government had clear and definite knowledge of the alleged fraud at an earlier date.

The tribunal clarified that its findings were confined to maintainability. The burden of proving the allegations of fraud and the knowing participation of each person or entity remained on the Union government. It added that fraud must be pleaded with particulars and proved.

The tribunal held the petition maintainable before the Principal Bench and directed that replies on merits be filed within four weeks. The main petition has been listed for further proceedings on November 26, 2026.