New development: NCLT’s power to direct forensic examination of documents

Posted On - 8 February, 2023 • By - Renjith Nair


The provisions regarding ‘oppression and mismanagement’[i] in companies under the Companies Act, 2013 (Companies Act) are an integral part of the corporate governance structure in India. Where the affairs of the company are being conducted in a manner where the rights of some shareholders are being adversely affected or there is serious or continuous mismanagement of the affairs of the company, then the aggrieved shareholder may approach the National Company Law Tribunal (NCLT) to seek reliefs. The NCLT has very wide powers under the Companies Act to pass any order as it may deem fit to bring an end to the matters complained of.

A highly debated topic has been whether the NCLT can hear and decide on allegations of fraud, forgery, fabrication of documents in a case of oppression and mismanagement. In P.L.G. Manu and Another v. Shashi Distilleries P. Ltd. and Others, the Karnataka High Court held that relief against the allegation of forgery and fabrication of documents cannot be considered by company courts such as NCLT[ii]. However, in B.K. Seetharamaiah v. Associated Oxides (P.) Ltd. and Other, the Karnataka High Court upheld the order of the company court that held that the transfer of shares based on forged transfer forms is a nullity.

In this background, the National Company Law Appellate Tribunal (NCLAT) in the case of Channel Foods Pvt. Ltd. v. A.K. Nowshad (Channel Foods) has clarified that the NCLT has powers to direct forensic examination of a disputed document alleging forgery of signature before hearing the main petition of oppression and mismanagement. In the present article, we discuss the NCLAT’s order.

Facts of the case

Mr. A.K. Nowshad (Shareholder No.1) and Mr. A. K. Mansoor, (Shareholder No.2) were the only shareholders of Channel Foods Pvt. Ltd. (Company). In March 2018, Shareholder No.1 filed a petition in NCLT alleging oppression and mismanagement by Shareholder No.2. As Shareholder No.1 had apprehension that his signatures appended to the financial statements of the Company and a power of attorney were forged, he filed an application for forensic investigation of his signatures on these disputed documents.

The NCLT allowed the application filed by Shareholder No.1 directing that the above documents be sent to the Central Forensic Science Laboratory at the cost of Shareholder No.1. The main petition was to be heard after receipt of the forensic report. The NCLT’s order was challenged by Shareholder No. 2 before the NCLAT on grounds that NCLT could not have directed forensic examination of the signatures.

NCLAT unequivocally held that the NCLT has very wide powers under the Companies Act[iii] and the NCLT Rules, 2016[iv] to enquire into the allegation of oppression and mismanagement and sending disputed documents for forensic investigation is also part of this enquiry. NCLT noted that forgery was pleaded by Shareholder No.1. Shareholder No.2 had also confirmed to the variance in Shareholder No.1’s signatures appended to the disputed documents, and therefore it was a fit case to have a forensic examination of the signatures. NCLAT further held that in the present case, the forensic examination was only a fact-finding study necessary to determine certain facts of the case, the cost of which was to be borne by Shareholder No.1. As the main petition was to be heard and decided only after receipt of the forensic report, the NCLAT found that the NCLT’s order does not affect the rights of Shareholder No.2 in the main petition in any way. Therefore, NCLAT dismissed the appeal and upheld the NCLT’s order.

Our thoughts

The Companies Act and the NCLT Rules, 2016 empowers the NCLT to pass such orders as it deems fit to bring an end to the misconduct complained of. Therefore, the NCLT’s power to grant reliefs is extremely wide. In the present case, it was vital for the NCLT to order forensic examination in order to decide the truth behind the allegations of oppression and mismanagement along with forgery.

The authors are of the view that there should not be a complete ouster of jurisdiction of NCLT where the petition involves a question of fraud and forgery. Rather, the NCLT should use its discretionary powers to determine whether the dispute involves allegations of forgery and fabrication of records, which could only be resolved after cross-examination of witnesses and investigation. If yes, then the parties should be relegated to a civil court. However, where the dispute requires only a prima facie investigation on the authenticity of the documents and can be adjudicated on the written averments of the parties, then such cases should be decided by the NCLT. Otherwise, every case which involves an allegation of forgery will be sent to the civil courts, thereby delaying the outcome of the matter. Therefore, the authors are of the view that the Channel Foods judgment is a step in the right direction.

Authors: Renjith Nair and Altamash Qureshi

The information contained in this document is not legal advice or legal opinion. The contents recorded in the said document are for informational purposes only and should not be used for commercial purposes. Acuity Law LLP disclaims all liability to any person for any loss or damage caused by errors or omissions, whether arising from negligence, accident, or any other cause.

[i] Section 241 to 246 of the Companies Act

[ii] A similar view was also taken by Indian Courts / Tribunals in Devi Engineering and Constructions Pvt. Ltd. v. Sidhvi Infrastructures Projects Ltd. and Ganesh Bindal v. Harmandeep Singh

[iii] Section 424 of Companies Act

[iv] Rule 43 of NCLT Rules, 2016