NCLAT New Delhi Upholds Forensic Audit Of Mufin Green Over ₹1.34 Cr. Gensol Security Deposit Dispute

The New Delhi Bench of the National Company Law Appellate Tribunal (NCLAT), on 30 October, upheld an order directing a forensic audit of Mufin Green Finance Ltd.'s records to ascertain when it appropriated a security deposit of Rs. 1.34 crore in connection with the Corporate Insolvency Resolution Process (CIRP) of Gensol Engineering Ltd.

A Bench of Judicial Member Justice Mohd Faiz Alam Khan and Technical Member Arun Baroka dismissed Mufin Green's appeal against the order passed by the Ahmedabad Bench of the National Company Law Tribunal (NCLT), holding that the audit was warranted because the company had provided contradictory dates for the appropriation. It held:

“The necessity, in our considered opinion, for appointment of a forensic auditor has emerged only on account of the fact that contradictory stand has been taken by the Appellant with regard to the date of appropriation of the security.”

The appeal arose from an order directing an independent forensic auditor to examine Mufin Green's books of accounts, ledger entries, vouchers and other accounting records.

The dispute originated from an electric vehicle services agreement and a connected purchase agreement executed between Gensol Engineering and Mufin Green on 24 March 2023 for the supply of 100 electric vehicles. Under the arrangement, Gensol deposited Rs. 1.34 crore as security.

Mufin claimed that Gensol subsequently defaulted on its payment obligations, following which it forfeited the security deposit, terminated the lease arrangement and repossessed 92 of the 100 vehicles.

The CIRP of Gensol commenced on 13 June 2025, following which the Resolution Professional (RP) invited and verified claims from creditors. The issue concerned the date on which Mufin appropriated the security deposit. In its correspondence with the RP, Mufin initially stated that it had adjusted the deposit on 21 July 2025, after commencement of the CIRP and during the moratorium period.

Subsequently, Mufin changed its position, claiming that the adjustment had taken place on 16 April 2025, before commencement of the insolvency proceedings. Citing these contradictory statements, the RP sought a refund of the security deposit, correction of Mufin's claim and consequential reliefs. He also sought an independent forensic audit to establish the actual date of appropriation.

The NCLT held that the date of adjustment required factual verification and directed an independent forensic audit.

Before the NCLAT, Mufin argued that the NCLT had exceeded its jurisdiction under Section 60(5) of the Insolvency and Bankruptcy Code, 2016, by ordering a forensic audit of an independent third-party non-banking financial company (NBFC). It contended that the NCLT's jurisdiction was confined to matters arising out of the corporate debtor's CIRP.

Further, it submitted that the RP had not sought such relief in the original application and had introduced the request for a forensic audit only at the rejoinder stage. It also expressed concern that the audit could expose confidential business information.

Opposing the appeal, the RP argued that the audit was necessary because Mufin had provided contradictory information about the appropriation date. He also pointed out that a similar forensic audit direction had been issued against Mufin in a related insolvency proceeding involving a group entity, which Mufin had not challenged.

Further, he disputed Mufin's claim that the deposit had been adjusted on 16 April 2025, contending that the security deposit had not even matured on that date.

The Appellate Tribunal observed that the forensic audit became necessary because Mufin had provided two different dates for the appropriation of the same security deposit, one before commencement of the CIRP and the other after its commencement.

It held that the NCLT was justified in directing a limited audit to establish the actual date of appropriation.

Accordingly, the NCLAT found no infirmity in the NCLT's order and dismissed Mufin's appeal, upholding the direction for a forensic audit.

For Appellants: Senior Advocate Gaurav Mitra with Advocates Dhruv Dewan, Prashant Jain, Varun Garg, Komal Bihani, Swapnil Jain & Aishwarya Modi Seth