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.

Voluntary Liquidation under Section 59 of the Insolvency and Bankruptcy Code, 2016

 

Voluntary liquidation under Section 59 of the Insolvency and Bankruptcy Code, 2016 read with Insolvency and Bankruptcy Board of India (Voluntary Liquidation Process) Regulations, 2017 allows a solvent company to close its operations on its own. This means the company is not in financial distress and is able to pay off all its dues. It is a formal process that a company chooses to follow when it decides to shut down business activities permanently, usually due to internal business decisions or the end of its purpose.

Requirements

To initiate voluntary liquidation under this section, a company must meet the following key conditions:

1.   The company must not be in financial default. It should be in a position to pay all its debts from its existing assets.

2.  A majority of directors must formally declare that the company is solvent. They must confirm they have reviewed the company's financial position and believe that the company can pay off its debts fully and is not closing to deceive or harm anyone.

3.  The declaration of solvency by the directors must be supported by documents including recent audited financial statements, a report from a registered valuer on the company’s assets (if any), and disclosures of any legal or regulatory matters still pending.

 

4.  A special resolution must be passed by the shareholders in a general meeting approving the voluntary liquidation and appointing a liquidator to carry out the process.

5.  If the company owes any money to any creditor, the approval of creditors representing at least two-thirds of the total debt value is also required.

Procedure

Once the requirements are met, the following steps are followed:

1. The directors make a formal declaration of solvency with supporting documents in a duly held Board Meeting of the Company.

2.  The shareholders approve the decision through a special resolution and appoint a professional liquidator in the General Meeting, within 04 weeks of the Declaration by Directors.

 

3.   If the company has creditors, their approval must also be obtained within 07 days after the shareholders’ resolution.

 

4.  The decision to liquidate is then reported to the Registrar of Companies and the Insolvency and Bankruptcy Board of India, within 05 and 07 days respectively.

 

5.    A public advertisement is issued within 05 days inviting any claims from the stakeholders of the company within 30 days. The liquidator receives and verifies these claims and prepares a preliminary report within 45 days followed by a list of stakeholders of the company within 75 days from the liquidation commencement date.

 

6.   The liquidator then proceeds to sell the company’s assets (if any), settle debts, and distribute any remaining funds to the shareholders.

 

7.   Once everything is completed, the liquidator prepares a final report and submits it to the relevant authorities including the National Company Law Tribunal, along with the dissolution application.

 

8.  After reviewing the submitted dissolution application, the tribunal passes an order formally dissolving the company.

 

9.  A copy of the dissolution order is sent to the Registrar of Companies, and the liquidator is responsible for maintaining the records for a fixed period after closure.

Time Limit

The voluntary liquidation process as per the regulations is stipulated to be completed within a defined period. If the company has creditors involved, the process should ideally be completed within 270 days from the date of approval. If there are no creditors, it must be completed in about 90 days.

Strike-Off under Section 248 of the Companies Act, 2013

Strike-off is a simplified process under the Companies Act, 2013, through which a company that is no longer active can apply to have its name removed from the official register of companies. This method is typically used when a company has stopped operating and wishes to close without undergoing a full liquidation process.

A company may be struck off in the following cases:

a) a company has failed to commence its business within one year of its incorporation 

b) a company is not carrying on any business or operation for a period of two immediately preceding financial years and has not made any application within such period for obtaining the status of a dormant company

c) the subscribers to the memorandum have not paid the subscription which they had undertaken to pay at the time of incorporation of a company 

d) the company is not carrying on any business or operations, as revealed after the physical verification carried out.

Modes of Strike Off-

A.  Voluntary Strike Off (by Company) – Section 248(2)

Applicable when the company:   

• has not commenced its business within one year of incorporation; or
• is not carrying on any business or operation for the last two financial years and has not applied for the status of a dormant company.

The company files Form STK-2 with the RoC along with:

• Indemnity bond (STK-3)
• Statement of accounts (not older than 30 days)
• Special resolution/consent of 75% members in terms of paid-up share capital
• Affidavit from directors (STK-4)

B.    Compulsory Strike Off (by RoC) – Section 248(1)

The RoC may remove a company’s name if it has reasonable cause to believe that:

• The company has failed to commence its business within one year of incorporation; or
• The company is not carrying on any business or operation for the preceding two financial years and has not applied for the status of a dormant company; or
• The subscribers to the memorandum have not paid the subscription money and a declaration has not been filed within 180 days; or
• The company is not carrying on any business as per the information received.

RoC sends notice to the company and its directors in Form STK-1.

Once the company is struck off, it is no longer considered a legal entity.

 

Procedure

The general steps for strike-off are as follows:

1. Board Meeting: The board of directors approves the proposal by passing of a resolution in the Board Meeting for strike off.

2. Settlement of Liabilities: All the liabilities are cleared off and settled including any loans or statutory dues. All the bank accounts of the company are closed, and NOC is obtained from Creditors for their approval.

3. Shareholder Consent: A resolution is passed by shareholders with atleast 75% members approving the resolution (in terms of their share capital) confirming their agreement to apply for strike-off.

4. Filing the Application: The company submits an application to the Registrar of Companies in Form STK-2 (Govt Fees for STK-2 is ₹ 10,000), along with supporting documents such as:

·    A copy of the board and shareholder resolutions 

·   A statement of accounts (not older than 30 days and certified by a Chartered Accountant)

·   Affidavits (in STK-4) and indemnity bonds from all directors (in STK-3)

·    Confirmation of no legal disputes or pending obligations

5. Public Notice by RoC: RoC issues a public notice in Form STK-6, allowing objections from the public, creditors, or stakeholders (timeframe: 30 days).
   
   
6. Final Notice & Strike Off: After 30 days, if no objection is received, the RoC strikes off the name and publishes the notice in the Official Gazette in Form STK-7.
    

Revival of the company after Strike Off: Once the name of the company is struck off under Section 248, and the notice is published in the Official Gazette, the company stands dissolved and ceases to exist as a legal entity. However, under Section 252 of the Companies Act, 2013, if the Registrar is satisfied that the name of the company has been struck off based on incorrect information, he may file an application before the tribunal within a period of three years from the date of passing of order dissolving the company, seeking restoration.  

Further if the company, any member, creditor, or aggrieved person may apply to the National Company Law Tribunal (NCLT) for restoration of the company’s name within twenty years from the date of publication in the Official Gazette of the Notice. If the Tribunal is satisfied that the removal was unjustified, it may order the restoration of the company’s name to the register, and the company shall be deemed to have continued as if its name had never been struck off.

"EXIT STRATEGIES FOR MULTINATIONAL COMPANIES IN INDIA: A COMPARATIVE LEGAL ANALYSIS OF CLOSURE MECHANISMS UNDER THE IBC AND COMPANIES ACT"

India’s corporate landscape includes a significant number of Multinational Companies (MNCs) operating through wholly owned subsidiaries, joint ventures, or branch/liaison offices. These entities may at some stage consider closure or exit from the Indian market due to strategic realignment, financial distress, regulatory challenges, or other commercial considerations.

Exit strategies for MNCs in India involve a range of legal, financial, and operational considerations to ensure a smooth and compliant withdrawal from the market. The primary objective is to present a comprehensive and comparative analysis of the legal framework governing the closure of Multinational Companies (MNCs) operating in India, based on their solvency status. In the dynamic and evolving landscape of global business, MNCs often reassess their market presence and may choose to exit jurisdictions for strategic, financial, or operational reasons. In such instances, understanding the legal options and procedural requirements for closure becomes critical.

There are two principal legislative frameworks governing corporate exit in India- Insolvency and Bankruptcy Code, 2016 (IBC), and the Companies Act, 2013. Their primary focus is to delineate the exit mechanisms available to multinational corporations, both in situations of solvency and insolvency, through a critical analysis of the key legal processes prescribed under these statutes.

Through a detailed examination of these legal pathways, it is aimed to provide clarity on the conditions, procedural timelines, regulatory authorities involved (such as the National Company Law Tribunal (NCLT), Registrar of Companies (ROC), and Insolvency and Bankruptcy Board of India (IBBI)), and compliance requirements relevant to each mode of closure.

By bridging the legal and procedural understanding of company closure mechanisms, this study aims to contribute to better strategic decision-making for MNCs contemplating an exit from the Indian market, while also offering policy insights that may inform future legislative reforms.

Classification of Companies Based on Solvency

Legal procedures vary based on the financial position of the company:

a) Solvent Companies

Entities that can pay off their debts as they fall due. Closure mechanisms include:

●     Strike-off under Section 248 of the Companies Act, 2013

●     Voluntary Liquidation under Section 59 of the IBC, 2016

●     Winding Up of Companies under Section 271 of the Companies Act

b) Insolvent Companies

Entities unable to pay debts. Closure is initiated through:

● Corporate Insolvency Resolution Process (CIRP), followed by liquidation under IBC followed by liquidation

●     Winding Up of Companies- Section 271 of the Companies Act