PARTH MERCHANT V/S. DETOX INDIA PVT. LTD. & ORS. – NCLT DIVISION BENCH COURT-2, AHMEDABAD – ORDER DATED – 08.12.2025

 Who can seek investigation under Sections 212 & 213 of the Companies Act, 2013?

KEY RATIO

Sections 212 and 213 of the Companies Act, 2013 (“Act”) are not “public interest” gateways for outsiders to demand investigations. Unless the applicant fulfills the statutory criteria mentioned under the Act, or is otherwise directly connected with the company’s affairs, the petition filed by the applicant is not maintainable. While delivering the order, the National Company Law Tribunal, Ahmedabad Bench (“NCLT Ahmedabad”) also held that an internal authorisation, such as a board resolution, may confer procedural authority to act on behalf of an entity; however, it cannot create or substitute the statutory locus standi required to invoke Sections 212 and 213 of the Companies Act, 2013 against a company. Further, the NCLT, Ahmedabad, also held that any ongoing disciplinary proceedings against the auditors of the company under the relevant professional framework by themselves do not establish the statutory nexus or eligibility necessary for seeking an investigation under Sections 212/213 of the Act.

FACTS

The matter stemmed from a petition filed by Mr. Merchant (Petitioner) seeking an investigation into the affairs of Detox India Pvt. Ltd. (Respondent) and others, alleging financial irregularities, unpaid statutory dues and siphoning of funds. The petition was for the first time dismissed by NCLT Ahmedabad by an order dated 23.11.2023, holding that the relief sought u/s 212 was premature since the Petitioner had not approached the Registrar of Companies for its prima facie report. The Petitioner challenged this order before the NCLAT which remanded the matter back to the Tribunal by an order dated 12.11.2024, with a specific direction to first determine the issues of locus standi and maintainability u/s 212 and 213(b).

On remand while the Respondent argued that private individuals cannot directly invoke Section 212 or qualify as “any other persons” under section 213. The Petitioner tried to justify his locus on the basis of a Board Resolution dated 31.08.2022 passed by M/s Rajdeep Boiler Pvt. Ltd., (one of the Respondents in the instant petition) authorizing him to pursue legal proceedings on behalf of that company to protect its interests.

TRIBUNAL’S REASONING AND FINDINGS

The NCLT in a detailed analysis held that Section 212 is triggered only after a Registrar of Companies report under section 208 and does not confer an independent / standalone right on private individuals to seek investigation directly before the Tribunal. The Tribunal also closely examined the phrase “any other person” used under section 213(b) and held that this expression cannot be interpreted expansively to include members of the general public or unrelated third parties.

The Tribunal also addressed the Petitioner’s reliance on a Board Resolution authorizing him to initiate proceedings. It clarified that such authorization does not amount to an assignment of debt, transfer of rights, or creation of any legal privity that could confer locus standi under Section 213 assertively holding that right to invoke Section 213 is personal, statutory, and non-transferable.

By applying the principle of ejusdem generis the Tribunal conclusively held that “any other person” refers only to persons who are directly or indirectly connected with the affairs of the company, such as resolution professionals, liquidators, administrators, or independent directors, and not strangers with no legal or financial nexus. In reaching this view, the Bench relied on NCLAT’s judgment dated 22.04.2025 in case of Itesh Sanmukhlal v. Corrtech International Ltd. & Ors. where the Appellate Tribunal observed that it was not the appellant’s case that the business of Respondent was being conducted for a fraudulent or unlawful purpose or that the persons managing the affairs of the company were guilty of fraud when the appellant was neither member nor shareholder or creditor of company.

Based on its findings, the Tribunal noted that the Petitioner was neither a shareholder, nor a member, or a creditor of Respondent and had produced no document to prove any such relationship. Accordingly, the petition was dismissed. The Tribunal has extensively held that even members seeking investigation under section 213(a) are required to meet strict statutory thresholds and support their application with evidence demonstrating good reasons for investigation. Allowing an unrelated individual to invoke Section 213 would dilute these safeguards and defeat legislative intent. The Petitioner’s attempt to expand the scope of Sections 212 and 213 to include public interest complaints was held to be impermissible under the statutory scheme.

SIGNIFICANCE OF THIS ORDER: -

This order of the NCLT, Ahmedabad Bench has significant implications on the interpretation of locus standi and maintainability u/s 212 and 213 of the Act. The Tribunal has clearly reaffirmed that the power to seek investigation into the affairs of a company is not open-ended and cannot be invoked by any person merely on the basis of allegations, however serious they may appear.

A key impact of this order is the clear demarcation of who can approach the Tribunal u/s 212 and 213 by clearly stating that private individuals or unrelated third parties cannot directly invoke these provisions unless they fall within the specific categories recognized by the statute. This brings clarity and certainty to the law by preventing misuse of investigation provisions by persons who have no legal, financial, or managerial connection with the company concerned.

The Tribunal has underlined that investigation provisions are not automatic remedies. This ensures that the process is invoked only in deserving cases and that companies are not subjected to unnecessary scrutiny based on unsupported allegations. Overall, this order strengthens procedural discipline under the Companies Act by clearly separating genuine statutory remedies from impermissible public interest claims.

 

This article is authored by Mr. Arun Gupta and Mr. Sanyam Kohli. Mr. Arun Gupta is the Managing Partner of Factum Legal. Mr. Sanyam Kohli is a Senior Associate at the Firm.

Winding Up under Companies Act, 2013

Winding up refers to the process of closing a company and distributing its assets to settle debts. Under the Companies Act, 2013, winding up can be initiated by the National Company Law Tribunal (NCLT) if the company is unable to pay its debts. The concept of winding up is covered under Part I and II of Chapter XX (Sections 270 to 365) of the Companies Act, 2013.

However, after the introduction of the Insolvency and Bankruptcy Code (IBC), the majority of insolvency-related winding up matters - especially those based on inability to pay debts - are now governed by the IBC. As a result, winding up under the Companies Act, 2013 is currently confined to specific limited situations and modes.

 

WINDING UP BY TRIBUNAL (COMPULSORY WINDING UP)

Grounds for Winding Up by Tribunal (Section 271)

The Tribunal (NCLT) may order winding up of a company on the following grounds:

i.       Company has passed a special resolution to be wound up by the Tribunal;

ii.     The company has acted against the sovereignty and integrity of India, the security of the State, public order, etc;

iii. The company has been conducted fraudulently or for unlawful purposes or in a manner oppressive to members;

iv.   if the company has made a default in filing with the Registrar its financial statements or annual returns for immediately preceding five consecutive financial years; 

v.     When the Tribunal is of the opinion that it is just and equitable to wind up the company.

Procedure

1.     Filing of Petition (Section 272)-

                           i.     A petition for winding up is filed with the NCLT. The petition should be accompanied with grounds for winding up, statement of affairs along with the prescribed fee. The petition is filed in FORM WIN-1 as per Companies (Winding Up) Rules, 2000. 

                              ii.     Eligible persons to file:

·       The company itself,

·       Any creditor or creditors,

·       Any contributory or contributories,

·      The Registrar of Companies (with prior sanction of Central Government),

Once filed, the NCLT reviews the petition and may admit it if it is satisfied that there is a prima facie case for winding up.

 

2.    Admission of Petition and Hearing: The Tribunal evaluates the petition along with the statement of affairs, and issues notices to the company and other concerned stakeholders. After admission of the petition, the NCLT may appoint a provisional liquidator to safeguard the company’s assets while the matter is pending. A hearing is then fixed, where the parties are given an opportunity to present their case.

3.    Passing of Winding Up Order: If the Tribunal is convinced that winding up is justified, it passes a winding-up order under Section 273. At that stage, the Tribunal appoints a Company Liquidator and issues directions for publication of the winding-up order through public notice.

4.   Appointment of Company Liquidator (Section 275): Tribunal appoints a Company Liquidator from the panel maintained by IBBI. The Liquidator files a Declaration of Independence in Form WIN 7. The Liquidator’s duties include taking custody and control of the company’s assets, maintaining proper records, realising and distributing assets.

5.     Intimation of Winding Up Order: After the winding-up order is passed, the NCLT sends a copy of the order to the Registrar of Companies (RoC) within 7 days and to the Company Liquidator and in the Official Gazette for publication. The RoC makes an entry and the status of the company changes to "in liquidation."

6.     Submission of Reports and Claims: Liquidator submits preliminary report within 60 days of Winding Up Order (Form WIN-9) and subsequent progress reports every six months (Form WIN-10).

7.    Realisation and Distribution of Assets: The liquidator collects and realises assets of the company, pays off the liabilities, distributes surplus (if any) to the shareholders. A dedicated liquidation bank account is also opened and operated with a scheduled bank for handling all receipts and payments during the liquidation process.

8.   Final Report and Dissolution (Section 302): Once the winding up is completed, the Liquidator prepares the final report in Form WIN-11 and submits it to the NCLT. If the Tribunal is satisfied, it issues an order for dissolution. This order is then filed with the RoC in Form INC-28. After filing, the RoC removes the company’s name from the register of companies, and the company is deemed dissolved. 

Regulatory Body

●   The National Company Law Tribunal (NCLT) is the primary authority responsible for hearing and deciding winding up petitions.

●   The Registrar of Companies (RoC) is responsible for maintaining the company’s status and records during winding up.

●    The Official Liquidator, an officer appointed by the NCLT, manages the liquidation process.

Section 10 - Corporate Insolvency Resolution Process (CIRP) under IBC, 2016

 

Section 10 of the Insolvency and Bankruptcy Code, 2016 permits the corporate debtor to file for initiation of the corporate insolvency resolution process on the occurrence of default. This provision enables a financially stressed company to proactively seek resolution through the adjudicating authority, rather than waiting for creditors to initiate action.

Requirements:

The corporate debtor is required to furnish clear evidence of default in debt repayment, such as loan agreements, credit facility documents, and records demonstrating non-fulfilment of payment obligations. The minimum default amount must be ₹1 crore.

Before filing, the corporate debtor must obtain formal authorization—either through a special resolution passed by shareholders, a board resolution, or, in the case of an LLP, by approval of at least three-fourths of its total partners.

Along with the application, the corporate debtor must submit detailed financial information, including audited financial statements, a list of creditors, and particulars of all outstanding debts. The consent of a proposed Interim Resolution Professional (IRP), who must declare the absence of any conflict of interest, should also be enclosed.

Procedure:

1. The corporate debtor begins by passing a formal resolution – either a special resolution by the shareholders or a board resolution – authorizing the initiation of insolvency proceedings.
2. The company then prepares an application and compiles necessary documents including evidence of default, financial statements, and details of all creditors. Simultaneously, the corporate debtor selects and obtains consent from an Interim Resolution Professional who will manage the process in Form 2.
3. The application is then filed with the National Company Law Tribunal.
4. The NCLT scrutinizes the application to verify if all procedural and documentary requirements are met. During this phase, the tribunal may seek clarifications or reject incomplete applications.
5. The NCLT shall decide on admission within 14 days.
6. Upon admission, moratorium is declared under Section 14, and the tribunal appoints the Interim Resolution Professional who takes over management of the corporate debtor and commences the corporate insolvency resolution process under court supervision.

Time Limit:

The National Company Law Tribunal (NCLT) shall decide whether the application should be admitted or rejected within 14 days from the date it is received. During this period, the Tribunal reviews the evidence of default, checks whether the application and documents submitted are complete, and verifies that there are no disciplinary proceedings pending against the proposed IRP. If all requirements are satisfied, the application is admitted. If any shortcomings are found, the applicant is given 7 days to rectify them before a final decision is taken.

Section 8 & 9 - Corporate Insolvency Resolution Process (CIRP) under IBC, 2016

 

Section 8 of the Insolvency and Bankruptcy Code, 2016 deals with the process to be followed by an Operational Creditor before initiating Corporate Insolvency Resolution Process (CIRP) against a corporate debtor. This section mandates that an operational creditor must first deliver a demand notice or invoice demanding payment to the corporate debtor before filing an application to NCLT.

An operational creditor (e.g., supplier or service provider) can issue a demand notice to the company if they owe money and have defaulted.

Requirements:

Before filing an application under Section 9, an operational creditor must:

1. Deliver a Demand Notice of unpaid operational debt or copy of invoice demanding payment to the corporate debtor. The notice must clearly state the details of operational debt and the amount in default.
2. The notice can be sent by:

a) Hand delivery, registered post, or speed post at the registered office of the corporate debtor, or

b)  Electronic mail (email)

This notice must comply with the format prescribed under the Code, including clear identification of the debt and outstanding amount. The operational creditor must also ensure that the corporate debtor has not paid the amount or raised a valid dispute within 10 days of receiving the notice.

Procedure:

The operational creditor initiates the process by issuing a formal demand notice or invoice to the corporate debtor specifying the outstanding amount payable. This notice must be served in the manner prescribed by law and should include details such as the amount due, invoice date, and nature of the debt. Once served, the operational creditor must wait for a period of ten days, during which the corporate debtor can either pay the amount or respond by raising a legitimate dispute supported by documents. If the corporate debtor fails to make payment or raise a valid dispute within this time frame, the operational creditor is entitled to move to the next step of filing an application under Section 9 to initiate insolvency proceedings.

Time Limit:

If no payment or dispute, proceed to file an application under Section 9.

Section 7- Corporate Insolvency Resolution Process (CIRP) under IBC, 2016

Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC) empowers a Financial Creditor to initiate the Corporate Insolvency Resolution Process (CIRP) against a Corporate Debtor in case of default. The objective of this provision is to provide a time-bound mechanism for the resolution of insolvency to maximize value and ensure financial discipline among debtors. A financial creditor (e.g., a bank or lender) can request the National Company Law Tribunal (NCLT) to start the insolvency process if the company owes them money and has defaulted on repayment.

As per Section 5(7) of the IBC, a financial creditor is any person to whom a financial debt is owed and includes an assignee or transferee of such debt.

Requirements:

Existence of Default: There must be a default by the Corporate Debtor in repayment of a financial debt.

Minimum Threshold:

• The default amount should be at least ₹1 crore (as per the current notification under Section 4 of IBC).
• For real estate allottees (homebuyers), at least 100 allottees or 10% of total allottees, whichever is less, must jointly apply.

The financial creditor must furnish records from an Information Utility (IU) or other documentary evidence of default.

In addition, the financial creditor is required to nominate an Interim Resolution Professional (IRP) to oversee the affairs of the corporate debtor during the insolvency proceedings. The proposed IRP must submit a written consent to act in the role, along with a declaration confirming the absence of any conflict of interest. All these documents must be duly compiled and attached to the application submitted to the NCLT to meet the statutory requirements for its admission.

Procedure:

1.     Filing of Application with NCLT

The Financial Creditor files an application in Form 1 before the Adjudicating Authority (NCLT) along with the prescribed fee and documents.

2.     Service of Copy to Corporate Debtor & IBBI

A copy of the application is served to the Corporate Debtor and the Insolvency and Bankruptcy Board of India (IBBI).

3.     Admission or Rejection by NCLT

The NCLT may determine the existence of a default within 14 days of receiving the application. If the Tribunal is satisfied that a default has occurred and the application is complete in all respects, it shall admit the application and commence the CIRP. If any deficiencies are found, the applicant is allowed 7 days to rectify them.

4.     Commencement of CIRP

The CIRP commences from the date the NCLT admits the application. A moratorium under Section 14 is imposed, restricting legal proceedings, recovery actions, and enforcement of security interests. A public announcement is then made inviting claims from creditors, and the Interim Resolution Professional (IRP) assumes control of the Corporate Debtor’s management.

Time Limit:

The NCLT may form its view on the application within 14 days from the date of its receipt.

Once the application is admitted and CIRP begins, the entire resolution process is to be completed within a period of 180 days. This timeline can be extended by a further period of up to 90 days, but only once, and only if the Committee of Creditors (CoC) approves the extension with the prescribed majority and NCLT grants such extension.

Thus, the maximum statutory time limit for completion of CIRP is within 330 days, including time taken for litigation process. The objective of this fixed timeline is to ensure speedy resolution and avoid prolonged insolvency situations.