The Supreme Court of India on 04.05.2020 in Usha Ananthasubramanian vs Union of India has authoritatively laid down the limits of jurisdiction of the National Company Law Tribunal under Chapter XVI of the Companies Act, 2013. The judgment is significant for the banking and corporate sector as it prevents the misuse of oppression and mismanagement proceedings to target third parties.
The factual background is that the Central Government invoked Section 241(2) before NCLT alleging oppression and mismanagement in the affairs of Gitanjali Gems Ltd. This was in connection with the PNB fraud involving fraudulent issuance of Letters of Undertaking. In those proceedings, NCLT passed wide orders freezing assets of directors of Gitanjali and also of Ms. Usha Ananthasubramanian who was the then MD & CEO of Punjab National Bank. The basis for roping in the appellant was that she failed to take preventive steps to stop the fraud. The NCLAT affirmed the said order. The appellant challenged the same before the Supreme Court.
The core legal issue before the Court was whether Section 339 of Companies Act permits NCLT to declare personal liability and attach assets of an officer of a company other than the company whose mismanagement is alleged. Mr. C.S. Vaidyanathan for the appellant argued that the language of Section 339 is clear and specific. It refers to "business of the company" and "creditors of the company" and therefore cannot travel beyond Gitanjali Gems. Mr. Sanjay Jain for Union of India contended that Section 339 uses the expression "any person" and must be given wide amplitude to include officials of banks who were knowingly party to the fraud.
Justice R.F. Nariman speaking for the Bench examined the statutory scheme. Section 241(2) refers to affairs of the company. Section 339(1) refers to business of the company and creditors of the company. The repeated use of the definite article "the" shows legislative intent to confine the provision to the specific company whose mismanagement is the subject matter of proceedings. The Court held that Sections 337 and 339 are penal and quasi-penal in nature. Such provisions must be construed strictly and cannot be extended beyond their plain meaning. To hold that NCLT can attach assets of officials of other entities would be to confer roving powers not contemplated by Parliament. It would also blur the distinction between separate legal entities which is a fundamental principle of company law.
The Court further observed that if Parliament intended to cover third parties, it would have used express language to that effect. Accordingly the appeal was allowed and the orders of NCLT and NCLAT freezing the appellant’s assets were set aside. The Court was careful to clarify that this decision does not come in the way of criminal investigation by CBI or regulatory action by SFIO.
Conclusion:
This judgment on nclt powers section 241 companies act 2013 limits 2020 is a landmark clarification. It establishes that NCLT jurisdiction under Section 339 is confined to the company whose affairs are alleged to be mismanaged. Asset freeze orders cannot travel beyond to officials of other entities such as banks. The Supreme Court has thus drawn a clear boundary that while Section 241 and 242 confer wide powers to deal with oppression and mismanagement, they must be exercised strictly within the statutory framework. The decision brings certainty in law and protects professionals from arbitrary action.
