Attempt to Use Section 213 for Cheque Recovery Rejected by NCLT Ahmedabad
Introduction
This case concerns a petition filed under Section 213(b) of the Companies Act, 2013, where the petitioner sought an investigation into the affairs of United Petrofer Ltd. The National Company Law Tribunal (NCLT), Ahmedabad, clarified that the provision cannot be used as an alternative mechanism for recovering unpaid dues or for adjudicating dishonoured cheque disputes.
Factual Background
Amit N. Kapadia, a creditor of United Petrofer Ltd., claimed that he had supplied goods to the company but the cheques issued toward payment were repeatedly dishonoured. He further alleged that the company indulged in filing fabricated documents with the Registrar of Companies, failed to hold annual general meetings, improperly appointed auditors, and filed statutory forms without mandatory attachments. He contended that such conduct constituted fraud warranting an investigation under Section 213(b).
Procedural Background
Kapadia filed the petition before the NCLT under Section 213(b), asserting that an investigation into the company’s affairs was necessary. He relied on statutory filings, dishonoured cheques, and complaints filed with ICAI and ICSI to demonstrate alleged fraudulent activity. The tribunal heard arguments from both sides before considering the maintainability of the petition.
Issues
1. Whether Section 213(b) of the Companies Act can be invoked merely on the basis of dishonoured cheques and statutory filing irregularities.
2. Whether the petitioner established a prima facie case of fraud warranting investigation into United Petrofer Ltd.
3. Whether a Section 213 petition can be used for debt recovery purposes.
Contentions of the Parties
Petitioner: Alleged fabrication of company records, false filings on the MCA portal, absence of AGMs, and improper auditor appointments. Asserted that dishonoured cheques reflected fraudulent conduct. Claimed that the statutory violations demonstrated fraudulent intent, justifying an investigation under Section 213(b).
Respondents: Argued that the petitioner’s motive was to recover dues, not to investigate fraud.
Submitted that the alleged irregularities were procedural lapses, not fraud. Contended that civil and criminal courts, not NCLT, have jurisdiction over cheque dishonour and recovery disputes.
Reasoning and Analysis
The NCLT noted that Section 213(b) is reserved for cases involving systemic fraud, mismanagement, or acts prejudicial to the interest of shareholders or public. It cannot be invoked as a substitute for civil recovery processes. The tribunal found that the petitioner’s allegations—dishonoured cheques, missing attachments in forms, possible statutory non-compliances—did not demonstrate intentional fraud, but at most reflected procedural lapses.
Relying on the scheme of the Companies Act, the tribunal emphasized that cheque dishonour disputes fall under the Negotiable Instruments Act, and recovery of dues lies in the domain of civil courts or commercial courts, not NCLT. As the petitioner failed to establish a prima facie case of fraud under Section 213(b), the tribunal held the petition to be not maintainable.
Implications
The ruling reinforces that Section 213 is not a debt recovery tool, and cannot be misused by creditors to pressurize companies. It clarifies the boundaries of NCLT’s jurisdiction, reaffirming that commercial disputes and cheque dishonour issues must be pursued before the appropriate courts. The decision further underscores that mere procedural lapses or statutory non-compliances do not automatically constitute fraud sufficient to trigger an investigation under Section 213(b).
In this case the petitioner was represented by Mr. Dhiren Dave, Advocate.