NCLT Declines Probe Into Smaaash’s Former Management, Emphasizes Revival Over Retrospection
Introduction
The National Company Law Tribunal (NCLT), Mumbai Bench, recently refused to initiate an investigation under Section 213 of the Companies Act, 2013 against the erstwhile management of Smaaash Entertainment Private Limited, a company known for its virtual reality-based gaming and entertainment centres. The Tribunal, however, directed that a copy of the order be forwarded to government authorities for examining potential irregularities and non-compliances committed by the previous management.
Factual Background
Smaaash Entertainment Private Limited underwent Corporate Insolvency Resolution Process (CIRP), after which a resolution plan submitted by Nazara Technologies Private Limited was approved on May 7, 2025, leading to the revival of the company. The application before the Tribunal was filed by the former Resolution Professional (RP), Bhrugesh Amin, who sought directions against the suspended directors for non-cooperation and failure to provide crucial statutory and financial records during the CIRP. The RP alleged that the suspended management’s non-cooperation hindered due diligence and transaction audits, particularly concerning the company’s financial statements, internal audit reports, related-party transactions, and records of subsidiaries.
Procedural Background
The application, IA/742/2023 in C.P. (IB)/935(MB)/C-III/2020, was filed under Section 213 of the Companies Act, 2013, seeking an investigation into the affairs of the corporate debtor and alleged concealment of records. The matter was heard by a Bench comprising Judicial Member Lakshmi Gurung and Technical Member Hariharan Neelakanta Iyer, which passed its order on November 4, 2025.
Issues
1. Whether the non-cooperation and concealment of records by the suspended management warranted an investigation under Section 213 of the Companies Act, 2013.
2. Whether an investigation would serve any practical purpose given that the company’s management had already been replaced post-revival.
Contentions of the Parties
Applicant (Resolution Professional): The RP contended that the former directors and senior officers failed to provide statutory records and financial data despite repeated requests. He alleged deliberate concealment of information regarding related-party transactions, brand assignments, and asset transfers, some of which had already been declared fraudulent in prior orders. The RP argued that such concealment obstructed the CIRP and violated the directors’ obligations under the IBC and Companies Act.
Respondents (Suspended Directors): The respondents claimed that all available documents were provided and that certain records were lost due to financial distress and layoffs during the COVID-19 pandemic. They maintained that the RP could have independently accessed certain statutory information from public databases or financial creditors. The respondents also objected to the earlier notice seeking investigation, terming it vague and procedurally defective.
Reasoning and Analysis
The Tribunal acknowledged that several non-compliances and irregularities existed in the conduct of the erstwhile management, some of which had already been established as fraudulent in earlier proceedings particularly regarding the transfer of the “Smaaash” brand and payments amounting to Rs. 8.42 crore. However, it held that since the company had been successfully revived under new management pursuant to the approved resolution plan, ordering a fresh investigation would serve no practical purpose. The Bench observed that the corporate debtor, now vested with new management, would also enjoy the protection under Section 32A of the Insolvency and Bankruptcy Code (IBC), which grants immunity to the corporate debtor for prior offences once a resolution plan is approved. Nonetheless, the Tribunal directed that copies of the order be forwarded to the Ministry of Corporate Affairs (MCA), Registrar of Companies (RoC), Regional Director (Western Region), and the Income Tax Department to examine potential violations and take appropriate action against those responsible at the relevant time.
Implications
This decision underscores the Tribunal’s pragmatic approach to balancing accountability for past mismanagement with the objective of corporate revival under the IBC. While the NCLT refrained from reopening past transactions through an investigation, it ensured that government agencies could independently scrutinize any misconduct. The order reinforces that once a company is revived and new management takes over, insolvency mechanisms should not be used to pursue punitive measures that no longer serve the objective of resolution.
In this case the applicant was represented by Mr. Shyam Kapadia a/w Mr. Kunal Kaul and Mr. Virgil Braganza i/b JSA.