Kerala HC quashes NCLT Order directing production of statement of affairs made against Shareholder

Top Stories Kerala HC quashes NCLT Order directing production of statement of affairs made against Shareholder [Read Order] Kerala High Court quashed an NCLT Order that directed the shareholder to produce a statement of affairs, instead of the company. By Manu Sharma – On December 14, 2023 2:30 pm – 2 mins read In a recent ruling, the Kerala High Court emphasized the limits of the National Company Law Tribunal’s (NCLT) authority in directing companies to submit statements of affairs during winding-up petitions. Justice C. Jayachandran issued the order after carefully examining Section 274(1) of the Companies Act, which specifically outlines the “directions for filing statements of affairs.” The case stemmed from the NCLT, Kochi Bench’s directive to a petitioner to furnish a copy of the statement of affairs, with a stipulated payment of Rs.50,000/-.

However, the petitioner contested this order, invoking Section 274(1) of the Companies Act, 2013. This section, according to the petitioner, only permits such directives against the company itself, not individual shareholders. Section 271(1) of the Companies Act states that, “(1) Where a petition for winding up is filed before the Tribunal by any person other than the company, the Tribunal shall, if satisfied that a prima facie case for winding up of the company  is made out, by an order direct the company to file its objections along with a statement of its affairs within thirty days of the order in such form and in such manner as may be prescribed: Provided that the Tribunal may allow a further period of thirty days in a situation of contingency or special circumstances: Provided further that the Tribunal may direct the petitioner to deposit such security for costs as it may consider reasonable as a precondition to issue directions to the company.”

Upon scrutinizing the statutory provision, the court found merit in the petitioner’s argument and declared the direction as ‘per se illegal.’ The court clarified that the NCLT can only instruct the company to file objections along with the statement of affairs when a third party files a winding-up petition, excluding the company’s own initiatives. “The winding-up proceedings will continue in accordance with the law, directing the company to produce the statement of affairs if found necessary to proceed with the matter,” stated the Single Bench of Kerala High Court while disposing of the case.

The legal battle saw representation from Advocates Philip Mathew, Vinay Mathew Joseph, K.R. Jinan, K.J. Karthika, and Feba B. Panicker for the petitioner, while Advocates Anil D. Nair, K.R. Rajkumar, Telma Raju, and Aaditya Nair appeared for the respondents. This ruling establishes a clear delineation of NCLT powers, ensuring that directives for filing statements of affairs are appropriately aligned with the Companies Act’s provisions, providing a crucial precedent for future legal proceedings.

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