ISSUE 3

 
Whether the National Company Law Tribunal has correctly interpreted the expression
‘reference made to it by the central government’ under section 221(1) of the Companies
act, 2013?
 
It is humbly submitted before this Hon’ble Court that in light of the framework envisaged
under the Act, two things have to be taken into consideration from the impugned sections:
a) That the Federal government of Ariloma has made a valid reference to NCLT?
b) That the NCLT can freeze assets of a company on the basis of reference thereto by the
Central Government
 
3.1    That the Federal government of Ariloma has made a valid reference to NCLT?
 
1. It is humbly submitted before this Hon’ble Court that The Companies Act, 2013 does not
define the term ‘Reference’ as to what reference means but the scope of the same can be
seen in Section 2(20) of The National Company Law Tribunal Rules, 2016- which defines
-“reference" means a reference within the meaning of rule 88 of these rules.

2. In Black's Law Dictionary, Seventh Edition, the expression "reference" is defined thus:
"The act of sending or directing to another for information, service, consideration, or
decision; specifically, the act of sending a case to a master or referee for information or
decision". 

3. It is humbly submitted that within the meaning of Rule 88 of The National Company Law
Tribunal Rules, 2016 – ‘Reference to the Tribunal’, read with Section 221(1) of The
Companies Act, 2013 which reads out ‘Where it appears to the Tribunal’, under Freezing
of assets of company on inquiry and investigation envisages certain conditions laid down:
a.      on a reference made to it by the Central Government or
b.     in connection with any inquiry or investigation into the affairs of a company
under this Chapter or
c.      on any complaint made by such number of members as specified under sub-
section (1) of section 244 or
d.     a creditor having one lakh amount outstanding against the company or
e.      any other person having a reasonable ground
  to believe that the removal, transfer or disposal of funds, assets, properties of the
company is likely to take place in a manner that is prejudicial to the interests of the
company or its shareholders or creditors or in public interest, it may by order direct
that such transfer, removal or disposal shall not take place during such period not
exceeding three years as may be specified in the order or may take place subject to
such conditions and restrictions as the Tribunal may deem fit.

4. It is humbly submitted before this Hon’ble Court that the National Company Law Tribunal
has rightly interpreting the expression ‘reference made to it by the central government’ as
in the present petition the Government of Ariloma invoked its power under Section 210(1)
of the Act and also a reference was made for freezing of Assets.  

5. It is humbly submitted that from the aforesaid provisions, it is clear that on an application
made by the Central Government alleging affairs of the Company are being conducted in a
manner prejudicial to public interest, the Tribunal can pass any order in terms of Chapter
XIV, which includes Sections 210, 221 and other provisions under the said Chapter.

3.2   That the NCLT can freeze assets of a company on the basis of reference thereto by
the Central Government

6. It is humbly submitted that the National Company Law Tribunal has been provided with
wide powers within the provisions contained in Section 221 of the Companies Act as
when it appears to the Tribunal to believe that the removal, transfer or disposal of funds,
assets, properties of the company is likely to take place in a manner that is prejudicial to
the interests of the company or its shareholders or creditors or in public interest, it may by
order direct that such transfer, removal or disposal shall not take place during such period
not exceeding three years as may be specified in the order or may take place subject to
such conditions and restrictions as the Tribunal may deem fit.

7. In case of "Union of India, Ministry of Corporate Affairs v. Gitanjali Gems Ltd. & Ors.
etc.--Company Appeal (AT) No. 103 of 2018 etc

"38. In the interest of regulating the conduct of the Company's affairs the interim
order cannot be restrictive to any particular or individual person, including the
Company/companies, existing or erstwhile Officers and employees of the Companies
if investigation for alleged fraud is pending.
 39. For the purpose of passing interim order the Tribunal cannot fix the personal
liability of delinquent Directors or Managers or Officers or other employees in
absence of any specific evidence. Therefore, during the process of investigation and
pendency of an application under Section 241(2) read with Section 242 of the
Companies Act, 2013 and in view of powers conferred under Section 221, the
Tribunal is not only empowered to pass appropriate interim order against the
Company but also against any person or individual, including the order to desist.

xxx xxx xxx

8. It is humbly submitted that from the aforesaid provisions, it is clear that the power of
Tribunal is wide enough as is evident that is open to the Tribunal to freeze the assets of
any person, including other companies and individuals, even during inquiry and
investigation of fraud under Section 212 of the Companies Act.

9.  In the case of ‘M. Srinivas v. Ramanathan Bhuvaneshwari and Ors.’ Company
Appeal (AT) (Insolvency) No. 498 of 2019 disposed on 24.07.2019 the Appellate
Tribunal held that the Apart from the power conferred by Section 213 of the
Companies Act, 2013, the 'National Company Law Tribunal' has inherent powers
under Rule 11 of National Company Law Tribunal Rules, 2016. Therefore, in public
interest, it is always open to the 'National Company Law Tribunal' after giving a
reasonable opportunity of being heard to the parties concerned refer the matter to the
Central Government for investigation, if the Tribunal/Adjudicating Authority forms a
prima facie opinion that acts of fraud have been committed by company or group of
companies or its Director(s) or officers.

10. It is humbly submitted that the Tribunal has inherent powers to make such orders as may
be necessary for meeting the ends of justice or to prevent abuse of the process of the
Tribunal under Rule 11 of the NCLT Rules, 2016.

11. It is humbly submitted that the Federal Government of Ariloma invoked its power under
Section 210 which provides for an investigation into affairs of the company and also a
reference made to the Tribunal under Sections 221 of the Companies Act, 2013. It is
humbly submitted that the National Company Law Tribunal in the Impugned Order has
candidly given directions to freeze the assets for meeting the ends of justice or to prevent
abuse of the process of the Tribunal.