An application was filed in the National Company Law Tribunal (NCLT) under oppression and mismanagement against the Managing Director of Jhalak Industries Private Ltd (JIPL). In the application, it was alleged that Jayna

CS Professional · Multidisciplinary Case Studies · PYQS · June 2024
An application was filed in the National Company Law Tribunal (NCLT) under oppression and mismanagement against the Managing Director of Jhalak Industries Private Ltd (JIPL). In the application, it was alleged that Jayna, the Managing Director of the Company siphoned off the money for his personal use and had purchased huge properties in the name of his family members out of the Company's funds. It was also alleged that Jayna had indulged in fiaudulent sale transactions, thereby fudging the books of accounts of the Company. It was appealed that a forensic audit be conducted for the Company since March 31, 2018 and a petition was filed under sections 59, 241 and 242 of the Companies Act, 2013 alleging oppression and mismanagement against Jayna. It was also alleged that, he has been operating the finances of the Company in an arbitrary and whimsical manner and has siphoned off crores of rupees belonging to the Company without accounting for the same. The adjudication authority allowed the application and directed that forensic audit of JIPL be conducted since March 31, 2018. The Company had filed the appeal against the order passed by the adjudication authority. In the background of above facts: Comment whether the Company will succeed in its appeal.

Answer & Explanation:

The NCLAT based on the principles laid down by the Hon'ble Supreme Court in the case of Karanti Associates Pvt. Ltd. & Ors. Vs. Masood Ahmad Khan & Ors has observed that, in India the judicial trend has always been to record reasons, even in administrative decisions, if such decisions affect anyone prejudicially. A quasi-judicial authority must record reasons in support of its conclusions. Insistence on recording of reasons is meant to serve the wider principle of justice that justice must not only be done it must also appear to be done as well. In light of the principles laid down by the Hon'ble Supreme Court, it is held that there is nothing in the order to justify the directions given by the NCLT for conducting forensic audit of accounts of the Company that too for more than 15 years. The Adjudicating Authority must record reasons in support of conclusions. Hence, the impugned order is set aside. Therefore, company will succeed in appeal in the given case.

Topics: Company Law

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