NCLT Order 1

IN THE NATIONAL COMPANY LAW TRIBUNAL
KOLKATA BENCH-I
KOLKATA
IA (IB) No.75/KB/2021
in
CP (IB) No.295/KB/2021
An application under section 60(5) of the Insolvency and Bankruptcy Code, 2016
read with rule 11 of the National Company Law Tribunal Rules, 2016.
CP (IB) No.295/KB/2022
In the matter of:
Reserve Bank of India ... Appropriate Regulator
Versus
SREI Infrastructure Finance Limited ... Financial Service Provider
And
IA (IB) No.75/KB/2022
In the matter of:
Hemant Kanoria … Applicant
Versus
1. Srei Infrastructure Finance Limited
Through its Administrator, Mr Rajneesh Sharma
2. Srei Equipment Finance Limited

Through its Administrator, Mr Rajneesh Sharma
3. UCO Bank
4. Axis Bank Limited
5. KPMG Assurance and Consulting Services LLP ... Respondents
Order reserved on: 11 March 2022

Order pronounced on: 17 May 2022
Coram:
Shri Rajasekhar V.K. : Member (Judicial)
Shri Balraj Joshi : Member (Technical)
Appearances (through hybrid mode):

For the Applicant : Mr SN Mookherjee, Ld. Advocate
General & Senior Advocate
Mr Ratnanko Banerji, Senior Advocate
Mr Rishav Banerjee, Advocate
Mr Saptarshi Mandal, Advocate
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Hemant Kanoria v SIFL & Ors
IA (IB) No.75/KB/2022 in CP (IB) No.295/KB/2021
For Respondent Nos.1 & 2/Administrator : Mr Jishnu Saha, Senior Advocate

Mr Soumyajit Mishra, Advocate
For Respondent Nos.3 & 4/Banks : Mr Abhinav Vasisht, Senior Advocate

Mr Anoop Rawat, Advocate
Mr Saurav Panda, Advocate
Mr Vishrut Kansal, Advocate
Mr Deepanjan Dutta Roy, Advocate
Ms Arushi Chandra, Advocate
Ms Maanvi Jain, Advocate
Mr Ahkam Khan, Advocate
For Respondent No.5/KPMG : Mr Ramji Srinivasan, Senior Advocate

Mr Deep Roy, Advocate
Mr Rahul Auddy, Advocate
Mr Rajshree Chaudhuri, Advocate
Ms Nivedita Bhardwaj, Advocate
ORDER
Rajasekhar V.K., Member (Judicial)
1. Prologue
1.1. This Court convened through hybrid mode.
1.2. IA (IB) No.75/KB/2022 has been filed by Mr Hemant Kanoria, shareholder of

Srei Infrastructure Finance Limited (“SIFL”) and SREI Equipment Finance
Limited (“SEFL”) and member of the suspended Board of Directors of SIFL,
under section 60(5) of the Insolvency and Bankruptcy Code (“Code”) inter
alia praying for setting aside the appointment of KPMG Assurance and
Consulting Services LLP (“KPMG”) and restraining Axis Bank Limited
(“Axis Bank Limited”) and UCO Bank (“UCO Bank”) (collectively,
“bankers”) from conducting or proceeding with the process of audit through
KPMG.
1.3. For convenience and better understanding, the prayers sought by the Applicant
are:
(a) An order and/or orders directing the Respondent Nos.3 and 4 to forthwith,
withdraw and/or rescind the process of audit of the Corporate Debtor as
being conducted by the KPMG in light of the Corporate Insolvency
Resolution Process of the Corporate Debtor;
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(b) An order and/or orders setting aside the audit process conducted by
KPMG in respect of the Corporate Debtor in light of the initiation of
CIRP of the Corporate Debtor and in light of the subsequent appointment
of BDO India LLP as an auditor by the Resolution Professional in respect
of the Corporate Debtor;
(c) Ad interim order restraining the Respondent Nos.3 and 4 banks from
conducting and/or proceeding with the process of audit of the Corporate
Debtor through KPMG during CIRP of the Corporate Debtor;
(d) An order restraining the Respondent Nos.3 and 4 from publishing any
information based on the alleged improper audit being conducted or
conducted by KPMG either in Central Repository of Information on Large
Credits (CRILC) or anywhere else or taking any action based on the said
report and/or if any action has or any steps have already been initiated,
an order restraining the Respondents from proceeding with or giving
effect to or taking any coercive steps in respect of any such action in any
manner whatsoever, directly or indirectly, till the final disposal of the
instant application;
(e) An order of injunction restraining the Respondent No.5 from continuing

with any audit of the Corporate Debtor pursuant to the appointment of
13th April 2021 or from publishing any report or publishing any
information in connection with the said audit.
1.4. SIFL and SEFL are under Corporate Insolvency Resolution Process (“CIRP”)
from 08 October 2021, and Mr Rajneesh Sharma was appointed as the
Administrator of SIFL and SEFL.
1.5. Notice was sent to the Respondents. The Respondent Nos.1 & 2 filed their
reply on 14 February 2022, Respondent Nos.3 & 4 also filed their reply on 14
February 2022 and the Respondent No.5 filed its reply on 11 February 2022.
Prior to filing of the min reply, there was a preliminary reply filed by
Respondent No.5 vide their letter 31 January 2022. There was another reply
filed by Respondent No.5 vide their letter dated 03 February 2022, which was
filed on 04 February 2022.
1.6. Axis Bank Limited and UCO Bank appointed KPMG as auditor for SIFL on
23 March 2021 in terms of the Circular dated 01 July 2016 bearing
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No.RBI/DBS/2016-17/28DBS.CO.CFMC.BC.No.1/23.04.001/2016-17 issued
by the Reserve Bank of India (“RBI”) as updated on 03 July 2017 (“RBI
Circular”).1 Following the initiation of CIRP against SEFL and SIFL, the
Administrator appointed BDO India LLP (“BDO”) as the transaction auditor
of SEFL and SIFL under the Code on 02 November 2021 to probe vulnerable
transactions.
1.7. As per the RBI Circular, KPMG was required to complete the audit and give a
report within a period of three months from the date of the Joint Lenders
Forum (“JLF”) meeting authorising the same. In the present case, the Core
Committee Meeting was held on 24 March 2021. Thus, KPMG was required
to complete the audit within 24 June 2021. However, KPMG continued with
the audit of SIFL even after the initiation of CIRP.
1.8. The Applicant wrote to KPMG on several occasions, requesting KPMG to

share the preliminary report for comments by the suspended Board of
Management and to stop the finalisation of the report in view of the
commencement of CIRP.
1.9. At the commencement of the hearing, Mr Abhinav Vasisht, learned Senior

Counsel appearing for the Respondent Nos.3 and 4 submitted that the final
report of KPMG (“KPMG Report”) has been circulated among the lead
bankers by Axis Bank Limited as on 28 December 2021 and UCO Bank
circulated the same on 29 December 2021 to thirty-six lenders, including ECB
lenders.
1.10. Mr Ramji Srinivasan, learned Senior Counsel appearing on behalf of the

Respondent No.5, submitted that the KPMG report was completed on 22
December 2021 with the participation of the suspended management and the
KPMG report had already been circulated on 28 December 2021 and 29
December 2021.
1
Pages 36-70 of the IA
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2. Submissions of Mr S.N. Mookherjee, learned Advocate General and Senior

Counsel appearing for the Applicant
2.1. Mr S.N. Mookherjee, Ld Advocate General & Senior Counsel appearing for
the Applicant, submitted that the only issue involved in the present IA is that
an audit being conducted by KPMG at the instance of some bankers, cannot be
continued after commencement of CIRP which was itself initiated at the
instance of RBI, and the appointment of transactional auditors by the
Administrator. Mr Mookherjee briefly outlined the three points that he sought
to argue, as follows:
a. Appointment of KPMG and BDO

KPMG was appointed by a communication dated 13 April 20212 by the
consortium of bankers. The period under review was 01 April 2016 to 30
September 2020. The timeline for completion was eight weeks.3 RBI, as the
regulator of the Corporate Debtor, appointed an Administrator and instituted
proceedings under section 227 read with section 239 of the Code, which was
admitted on 08 October 2021. On 02 November 2021, BDO was appointed as
the transactional auditor under section 25(2)(j) of the Code.
b. Timeframe for KPMG to file the report

Mr Mookherjee pointed out the period within which KPMG was supposed to
file a report, was within three months, which they did not. He led us through
clause 8.9.5 of the RBI circular dated 01 July 2016 issued under section 35A
of the Banking Regulation Act, 1949, which envisages completion of forensic
audit within a period of three months. Clause 8.9.6 of the RBI circular
stipulates that the overall time allowed for the entire exercise to be completed
is six months from the date when the first member bank reported the account
as RFA or Fraud.4
c. Parallel audits
The Applicant’s grievances are two-fold: firstly, KPMG conducted an audit
without consulting the management. Secondly, once a transactional auditor
has been appointed under the Code, a previous audit cannot continue. There
cannot be a parallel forensic audit without consulting the management at the
instance of the bankers. The Insolvency and Bankruptcy Code is recognised as
2
Page 24 of the IA
3
Page 25 of the IA
4
Page 61 of the IA
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a complete Code and has overriding effect. That being the position, the
Applicant is seeking an order of restraint against the bankers from proceeding
with the audit being conducted by KPMG.
2.2. Mr Mookherjee stated prayer (d) supra of the Applicant was to restrain
KPMG from publication of any information. But KPMG had already
circulated their report to the members of the consortium. Hence publication
had already happened to a limited extent by making available the report to the
bankers.
2.3. Mr Mookherjee then concentrated on the reply affidavits of the respondents.
Submissions with regard to the reply affidavit of Respondent Nos.3 & 4

2.4. Mr Mookherjee first referred to the reply of the Respondent No.4 wherein a letter
dated 28 December 2021 of the Respondent No.5/KPMG has been annexed.5 The
relevant portions are extracted below for ready reference:
“The procedures in the forensic review did not include the forensic investigation
(such as forensic collection and review of electronically stored information on the
computer devices of SREI Entities, and related interviews, etc.). Given such limited
access to data, information and records, the results of this work are subject to
changes based on additional information being made available. Therefore, comments
in this report may not be considered as definitive pronouncement on any individuals
or companies and a full investigation procedures (sic) are required for such
conclusions.
“KPMG did not have access to the financial records (e.g., books of accounts, bank
statements, financial statements, etc.) of the entities (loan customers) who were
granted loans and advances by SREI Entities, accordingly it is not possible to
comment upon how the funds were utilised or treated by these entities in all cases.
Wherever possible, publicly available information (e.g., MCA21) was
accessed/procured for analysis. However, KPMG is not responsible for any further
subsequent updates being carried out, if any, in the documents available on MCA21,
that may impact the observations, after the date they were accessed/procured.”
2.5. In the light of these caveats, ex facie, KPMG report is incomplete and should
not be treated as a definitive pronouncement, even according to KPMG. The
transactional auditors appointed by the Administrator will have complete
5
Page 72-73 of the reply filed by R4/Axis Bank Limited, @ page 73
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access to all the documents of the Corporate Debtor. The purpose of the
forensic audit was to determine whether the red flags should be removed or
whether it should be classified as a fraud account. Because the KPMG report
is incomplete, no coercive action can be taken even on facts, Mr Mookherjee
submitted.
2.6. Respondent Nos.3 & 4 have taken three major defences. The first stand is on
jurisdiction. Respondent Nos.3 & 4 have relied on a judgment dated 07
January 2021 passed by the NCLT, Hyderabad Bench in BV Bhaskar Reddy v
Bank of India & others.6 Mr Mookherjee submitted that in that case, the
Adjudicating Authority was looking into a case where one of the banks had
already declared the corporate debtor’s account as ‘fraud.’ The Adjudicating
Authority did not consider the provisions relating to preferential, undervalued
and fraudulent transactions. Secondly, the period for which transactional audit
was sought was not covered by the period for which the forensic audit was
sought. Thirdly, the time period was extended by one of the bankers during
the CIRP. Mr Mookherjee drew our attention to paragraph 6 of the judgment
which reflects that CIRP in that case had commenced on 26 May 2020.
Paragraph 9 is also important because it says that the forensic audit is not done
under the Code but under RBI regulations. Mr Mookherjee submitted that it
does not matter whether the forensic audit is under the Code or under the RBI
circulars. What was lost sight of is this: the fraud aspect was completely
ignored as is seen in paragraph 10 of the judgment.
2.7. The second point taken is with regard to the locus standi of the Applicant.
Answering this point, Mr Mookherjee submitted that the fact of the matter is
that till the Administrator was appointed by RBI, the Applicant was the
director. The Applicant is concerned by the forensic audit conducted by the
transactional auditor and by KPMG, and that too without consulting the
persons in management. In any event, the Applicant is also a shareholder of
6
MANU/ND/1394/2021 decided by NCLT Hyderabad Bench on 07 January 2021
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the SIFL whose subsidiary is the SEFL. Hence, the Applicant has locus to file
the present IA.
2.8. The third point is whether such an order can be passed under section 60(5) 7 of
the Code. Mr Mookherjee submitted that the language of the provision is
couched in the widest terms. It has been considered by the Hon'ble Supreme
Court in Embassy Property Developments Pvt Ltd v State of Karnataka &
others,8 and Gujarat Urja Vikas Nigam Limited v Amit Gupta and Ors.9 The
question is whether the Code will have precedence over the RBI circular.
Section 23810 of the Code envisages that the Code shall have effect,
notwithstanding anything inconsistent therewith contained in any other law for
the time being in force or any instrument having effect by virtue of any such
law. Repugnancy also includes overriding effect.
2.9. Mr Mookherjee then relied on Duncan Industries Limited v A.J. Agrochem.11

wherein it was held that section 238 ibid shall be applicable, and the
provisions of Code shall have over-riding effect. If the purpose of Code is to
revive or ensure continued existence of an enterprise and to maximise its
value, it is imperative that the transactional audit being conducted under the
Code should get precedence. Any other audit is inconsistent with the object
7
60: Adjudicating Authority for corporate persons. (1) to (4) * * *
(5) Notwithstanding anything to the contrary contained in any other law for the time being in
force, the National Company Law Tribunal shall have jurisdiction to entertain or dispose of 
(a) any application or proceeding by or against the corporate debtor or corporate person;
(b)any claim made by or against the corporate debtor or corporate person, including claims by or
against any of its subsidiaries situated in India; and
(c) any question of priorities or any question of law or facts, arising out of or in relation to the
insolvency resolution or liquidation proceedings of the corporate debtor or corporate person under
this Code.
8
(2020) 13 SCC 308 decided on 03 December 2019
9
(2021) 7 SCC 209 decided on 08 March 2021
10
238: Provisions of this Code to override other laws. The provisions of this Code shall have
effect, notwithstanding anything inconsistent therewith contained in any other law for the time
being in force or any instrument having effect by virtue of any such law.
11
(2019) 9 SCC 725 decided on 04 October 2019 [placetum b, paragraph 7.4 @ page 737]
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sought to be achieved under the Code, particularly when KPMG itself has
stated that the report is incomplete.
2.10. The Applicant does not have to show repugnancy but must only show that the
Code has overriding effect. In fact, there is a repugnancy because audit of
fraudulent transactions is an occupied field under the IBC. If there is an
occupied field, then it is good enough for repugnancy as held by the Hon’ble
Supreme Court in judgments under Article 25412 of the Constitution.
Therefore, the Adjudicating Authority has jurisdiction, Mr Mookherjee
submitted.
2.11. Mr Mookherjee stressed on section 60(5)(c) of the Code, wherein it states that
notwithstanding anything to the contrary contained in any other law for the
time being in force, the Adjudicating Authority shall have jurisdiction to
entertain or dispose of any question of priorities or any question of law or
facts, arising out of or in relation to the insolvency resolution or liquidation
proceedings of the corporate debtor or corporate person under this Code. Mr
Mookherjee made two submissions with regard to the provision. First, the
sub-section starts with a non obstante clause. The expression used is, “arising
out of or in relation to”. On the face of it, if there were competing
jurisdictions or forums dealing with a particular issue, the Adjudicating
Authority would have jurisdiction to the exclusion of the other forum. The
second submission is, in any event, where there is no other forum to decide
12
254. Inconsistency between laws made by Parliament and laws made by the Legislatures of States.

(1) If any provision of a law made by the Legislature of a State is repugnant to any provision of a
law made by Parliament which Parliament is competent to enact, or to any provision of an existing
law with respect to one of the matters enumerated in the Concurrent List, then, subject to the
provisions of clause ( 2 ), the law made by Parliament, whether passed before or after the law made
by the Legislature of such State, or, as the case may be, the existing law, shall prevail and the law
made by the Legislature of the State shall, to the extent of the repugnancy, be void.
(2) Where a law made by the Legislature of a State with respect to one of the matters enumerated
in the concurrent List contains any provision repugnant to the provisions of an earlier law made by
Parliament or an existing law with respect to that matter, then, the law so made by the Legislature
of such State shall, if it has been reserved for the consideration of the President and has received his
assent, prevail in that State: Provided that nothing in this clause shall prevent Parliament from
enacting at any time any law with respect to the same matter including a law adding to, amending,
varying or repealing the law so made by the Legislature of the State.
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this issue, the Adjudicating Authority will quite clearly have jurisdiction to
deal with the matter. Mr Mookherjee asserted that once CIRP starts, and an
institutionalised audit taking place, can the other audit, even if it is prior in
time, proceed, because it is audit under the Code is in relation to or arising out
of CIRP.
2.12. Any statutory provision under the Code will have to be interpreted in relation
to the preamble itself, which has been quoted practically in every judgment of
the Hon'ble Supreme Court relating to the Code. If it is a complete Code,
what is not provided therein, is excluded. What is provided therein, will have
to be undertaken in the form prescribed. The audit that is recognised is an
institutionalised audit to be undertaken by the majority vote of the CoC.
Second, it relates to maximisation of value of assets to promote
entrepreneurship, availability of credit and to balance the interests of all
stakeholders. The object is that this remains the only forum in which this
issue can be decided. Mr Mookherjee submitted that if an audit is being
conducted under the Code, no other audit, and that too only on the volition of
the CoC members, can proceed in parallel or otherwise.
2.13. Mr Mookherjee submitted that in this situation it is very important to consider

that even in Embassy Properties (supra),13 the Hon'ble Supreme Court has
held that the Adjudicating Authority can decide all issues of fraud (paragraphs
47 and 53). The Adjudicating Authority cannot go into matters where there is
a dispute to be decided by a statutory or judicial authority. The Respondents
do not say that the jurisdiction is barred because it involves a public law
element. The bankers contend that under the consortium agreement, they can
go into the audit. This is not within the jurisdiction of any other law, Mr
Mookherjee asserted
2.14. A faint attempt has been made by the Respondent Nos.3 & 4 to rely on the
decision of the Hon'ble Supreme Court in Gujarat Urja Vikas Nigam Ltd v.
13
2020 13 SCC 308 : 2019 SCC OnLine SC 1542 decided on 03 December 2019
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Amit Gupta & others.14 In this case, an analysis was made of section 60(5)(c)
of the Code at paragraphs 49 to 74. Mr Mookherjee then went on to give a
schematic framework of the discussion in this decision and state what the
conclusion ultimately is.
2.15. Mr Mookherjee elaborated on the expression “arising out of” and “in relation
to.” He submitted that in Gujarat Urja (supra) the Hon’ble Supreme Court,
quoting its own judgment in Renusagar Power Co Ltd v General Electric
Co.15 has held this to be of the widest amplitude.16 In paragraphs 52 and 53,
the Hon'ble Apex Court further took note of its decision in Doypack Systems
P Ltd v Union of India,17 where the Hon’ble Supreme Court held that words
can have different meanings depending on the subject or context. Paragraph
54 of Gujarat Urja (supra) interprets section 446(2)(d) of the Companies Act,
1956,18 is the predecessor in interest of the Code, in liquidation proceedings.
Mr Mookherjee then led us to paragraph 55 which notes the striking
resemblance between section 446(2)(d) and 60(5)(c) of the Code, the
statement of objects and reasons have also been noted. In Paragraph 56 of the
judgment, a total of nine points have been noted, which emerge from the state
of the law prior to enactment of the Code. Paragraph 65 states that
14
15
(1984) 4 SCC 679 decided on 16 August 1984
16
Gujarat Urja (supra) at page 704
17
AIR 1988 SC 782 decided on 12 February 1988
18
446. Suits stayed on winding up order.
(1) When a winding up order has been made or the Official Liquidator has been appointed as
provisional liquidator, no suit or other legal proceeding shall be commenced. or if pending at the
date of the winding up order, shall be proceeded with, against the company, except by leave of the
Court and subject to such terms as the Court may impose.
(2) The Court which is winding up the company shall, notwithstanding anything contained in any
other law for the time being, in force, have jurisdiction to entertain, or dispose of-
(a) any suit or proceeding by or against the company;
(b) any claim made by or against the company (including claims by or against any of its branches in
India);
(c) any application made under section 391 by or in respect of the company;
(d) any question of priorities or any other question whatsoever, whether of law or fact, which may
relate to or arise in course of the winding up of the company;
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considerations such as avoiding multiplicity of fora, speedy disposal and

litigation costs would also be germane to the establishment of an exclusive
body under the Code to adjudicate matters arising from or in relation to the
CIRP. Paragraph 69 of the judgment recognises that the institutional
framework under the Code contemplated the establishment of a single forum
to deal with matters of insolvency, which were distributed earlier across
multiple fora. Paragraph 74 notes that for adjudication of disputes that arise
de hors the insolvency of the corporate debtor, the RP must approach the
relevant competent authority. No other forum is indicated. If the regime
under the Code has to be given priority and primacy, the only exclusive forum
is this Adjudicating Authority and no other forum. Mr Mookherjee submitted
that there is no other authority. The question of this IA has arisen because of
insolvency, it arises out of and is in relation to insolvency.
2.16. Mr Mookherjee urged us to examine this in the context of an RBI circular of

19.12.2017,19 which recognises the primacy of the Code. Paragraph 3 thereof
directs all Financial Creditors regulated by RBI are advised to adhere to the
relevant provisions of Code and IBBI (Information Utilities) Regulations,
2017 and immediately put in place appropriate systems and procedures to
ensure compliance to the provisions of the Code and regulations.
2.17. On 13 April 2021, KPMG was appointed as the auditors to find out whether
there was fraud, and if so, to approach the police or the CBI.
2.18. Mr Mookherjee urged us to keep in mind three important dates:
(a) On 04 October 2021, the Administrator is appointed.
(b) On 08 October 2021, the CIRP commenced.
(c) On 02 November 2021, that is after all the information had been made
available to KPMG according to their affidavit, which the banks were
aware of, the banks voted in favour of the Administrator appointing a
transactional auditor.
19
https://rbi.org.in/Scripts/BS_CircularIndexDisplay.aspx?Id=11189
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It is in this context that the Adjudicating Authority is now called upon to

decide whether the previous audit should be allowed to continue. The end
result of an audit conducted under the aegis of the Code could be a report
which is different to the KPMG report, and the Code would not contemplate
any action, or vice versa. Mr Mookherjee submitted that such a situation
which is rife with the possibility of conflict, not resolving the processes
undertaken under the Code, should not be permitted to continue at all.
2.19. Mr Mookherjee submitted that four or five other issues are relevant: section
20(1)20 of the Code enjoins upon the Interim Resolution Professional the duty
to protect and preserve the property of the Corporate Debtor keep the
Corporate Debtor as a going concern. Sub-section (2) states that for this
purpose the Interim Resolution Professional shall appoint accountants, legal or
other professionals as may be necessary.
2.20. Mr Mookherjee then led us through section 25 of the Code which stipulates
that the RP can file application for avoidance of transactions in accordance
with Chapter III, if any.
2.21. It is up to the Adjudicating Authority to see whether the institutionalised audit

should be allowed to continue in preference to the arrangement de hors the
Code, ordered by a few creditors. The provisions under sections 68 to 77 of
the Code show that criminal offences address the same issues under a special
court. No advantage is gained by the erstwhile management. On the other
hand, the transactional audit under Code will adopt a fairer procedure.
2.22. The Applicant had written several letters to Respondent No.5/KPMG.21 The
time period for the audit is also over. The date of appointment is 13 April
2021. The auditors were given approximately eight weeks.22 The kick-off
20
(1) The interim resolution professional shall make every endeavour to protect and preserve the
value of the property of the corporate debtor and manage the operations of the corporate debtor as a
going concern.
21
Pages 72 to 85 of the IA
22
Page 25 of the IA
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meeting was on 24 March 2021. RBI’s circular of 01 July 2016,23 vide

paragraph 8.9.524 thereof, mandates a maximum period of three months from
the date of the JLF meeting authorising the audit. Paragraph 8.9.6 stipulates
that the overall time allowed for the entire exercise to be completed is six
months.
Submissions with reference to the reply affidavit of Respondent No.5/KPMG

2.23. Mr Mookherjee then responded to the main affidavit of Respondent No.5, i.e.,
KPMG. He referred to clause D,25 which states that a team was present from
Respondent No.5’s side from 22 June 2021 to 29 August 2021 to collect
documents physically. Clause F26 states that most queries (other than minor
clarifications) were addressed and responded to by the first week of October
2021. This was well within the knowledge of the CoC. Thereafter a draft
report was prepared and circulated. Yet the CoC went ahead and appointed
the transactional auditor on 02 November 2021.
2.24. The final audit report was delivered to the Respondent No.1 and Respondent
No.2 on 22 December 2021 and delivered to Respondent No.3 and
Respondent No.4 on 28 December 2021.
2.25. Mr Mookherjee submitted that two pertinent questions arise as follows:
(a) Why was the preliminary report circulated to the bankers?
(b) What came up between preliminary report and final report? The
consultation process with SREI’s management ended in September 2021.
Was there any consultation with the Administrator who came in on
04.10.2021?
2.26. Mr Mookherjee then proceeded to respond to the affidavit of the Respondent

No.3/Axis Bank Limited. KPMG provided its first preliminary report on 01
23
Page 36 of the IA
24
Page 61 of the IA
25
Page 7 of R5’s reply
26
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December 2021 and final report on 28 December 2021.27 Hence, now there is
a draft report, a preliminary report, and a final report. According to KPMG,
the management was involved till September 2021. KPMG did not think it fit
to circulate the draft report even once to the management.
2.27. Mr Mookherjee drew our attention to the nature of the report. He referred to
the email dated 28 December 202128 sent from Mr Jagvinder Brar of KPMG.
KPMG states that field work for the forensic review was performed prior to 04
October 2021, during the time previous management officers were in charge.
The procedures did not include forensic investigation. It also notes that
limited access to data, information and records, the results of this work are
subject to changes. Therefore, KPMG has stated the comments in the report
may not be considered as a definitive pronouncement.29
2.28. Mr Mookherjee articulated his objections as follows: First, the reports that
have been submitted are behind the back of the erstwhile management.
Second, there are three reports – draft, preliminary and final. And third, even
the final report says that it is not a forensic report.
2.29. The field for unearthing fraud is an occupied field – the occupied field is the
IBC, in terms of the judgment in Duncan (supra),30 wherein it was held that
considering section 238 of the Code, which is an Act subsequent to the Tea
Act, 1953, the provisions of Code shall have an overriding effect over the Tea
Act 1953. The requirement of audit under the Code is in aid of the main
object and once we have an audit underway, the civil aspect of the audit is
with the Adjudicating Authority. As far as criminal aspect is concerned, the
same is also under section 236 of the Code.
27
Clause g at Page 22 of R4’s reply
28
29
30
(2019) 9 SCC 725 decided on 04 October 2019 [Paragraph 7.4 at page 736 of the judgment]
Page 15 of 44
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2.30. In support of this proposition, Mr Mookherjee relied on the following three

judgments:
a. Venkata Subbarao Kalva, Liquidator of Triumph India Software Services

Pvt Ltd v Mohan Ramanathan & another31– (paragraphs 8 and 10). In that
case, it was observed that the forensic report was based on uncorroborated
evidence, and that principles of natural justice dictate that the party
concerned should associate himself with the enquiry or investigation.
b. M Srinivas v Ramanathan Bhuvaneswari,32 (paragraph 3, 16, 17): in this

case, the Hon'ble NCLAT held that the Adjudicating Authority cannot
direct SFIO investigation only under section 213. Adjudicating Authority
has power to refer the matter to the Central Government for investigation, if
the Adjudicating Authority forms a prima facie opinion that acts of fraud
have been committed by company or its directors.
c. Union of India v Maharashtra Tourism Development Corporation

Limited & another, 33 (paragraph 7)– wherein the Hon'ble NCLAT referred
the matter to the Secretary, MCA, to get the matter investigated by
inspectors following the procedure in terms of section 213 of the
Companies Act, 2013.
3. Supplemental Arguments of Mr Ratnanko Banerji, learned Senior Advocate

appearing on behalf of the Applicant
3.1. Supplementing the arguments of Mr S.N. Mookherjee, Mr Ratnanko Banerji,
Ld Senior Counsel appearing for the Applicant, stated that the crux of the
matter is that under the Code, there is a mechanism by which previous
transactions, can be recalled, if they fall within the category of vulnerable
transactions. This is so to ensure that there is only one court dealing with all
these issues.
3.2. Prior to the proceedings under the Code, KPMG had been appointed by the
lenders for carrying out forensic audit.
31
2020 SCC Online NCLT 5814 decided on 13 February 2020
32
2019 SCC OnLine NCLAT 1001 decided on 24 July 2019
33
2019 SCC OnLine NCLAT 1414 decided on 02 December 2019
Page 16 of 44
KOLKATA BENCH-I
3.3. Mr Banerji highlighted three broad heads of submission which are as follows:
-
(a) If the scope of this investigation is common to some extent, then it is the
Code which will have a preference.
(b) The KPMG report itself says that the audit is inconclusive, and therefore,
there should be no further scope for improvement thereon.
(c) There is a preliminary report and thereafter a final report. This aspect is
not very clear. The Financial Creditor cannot be monitoring the content of
the report. There is a serious apprehension on the part of the Applicant as
to why there was a preliminary report and a final report. The final report
says that the report is inconclusive.
3.4. Mr Ratnanko Banerji submitted that the Applicant had written several letters
to KPMG, stating that after CIRP has been initiated, there is really no scope of
interaction or chance of providing any information necessary for the purpose
of imposing any liability on the suspended board, if at all. These have not
been responded to at all.
3.5. Sections 49 and 66 of the Code are very important, both dealing with fraud.
Punishment is given in sections 69, 72 and 73(b) of the Code. Section 236 of
the Code has provisions for setting up special courts. If the previous
management was being charged for fraud, then also the Code has provisions
for the same. The Code envisages a special set of rules and punishments for
the Corporate Debtor and its officers. The RBI Circular is also with reference
to fraud with respect to the accounts of the Corporate Debtor. The Applicant
should not be subjected both to general law and special law like the Code
especially when the Code and regulation 36(2)(h) of the CIRP regulations
provides a more institutional framework for dealing with frauds.
3.6. The RBI master circular is a framework laid down under which the banks
have to act. This framework cannot overrun the framework of the Code. The
same banks are the members of the CoC. Hence, the Code does have
jurisdiction over the CoC. Whatever initiatives have been taken under the
Page 17 of 44
KOLKATA BENCH-I
RBI Circulars, must now give way to the Code. This is an important issue that
has been argued vis-à-vis other Acts and laws. The RBI Circular dated
19.12.201734 recognises and directs financial institutions will comply with the
Code.
3.7. Mr Ratnanko Banerji also exhorted the Adjudicating Authority to look into the
fact that the KPMG auditors did not adhere to the timeframe of the RBI
Circular, to complete the audit within a period of three months. He placed the
letter of 13 April 2021,35 the reference inter alia concerns review of
compliance with relevant provisions of the Companies Act, RBI, FEMA or
any other regulatory compliance, and review and understand the reasons, if
any, behind failure to service loans received by SIFL and SEFL – the scope of
the work is between 01 April 2016 and 30 September 2020.36 The timeline
was mandated by the consortium of bankers was to be completed within
approximately eight weeks.37 As per the RBI Circular, it was to be completed
within six months.
3.8. Mr Banerji submitted that there is no answer as to why this audit procedure
was not completed within the timeframe within which it was required to be
completed. If it had been, then perhaps different consequences would have
ensued. The apprehension that the applicants have is not without basis, Mr
Banerji further submitted.
4. Submission of Mr Abhinav Vasisht, learned Senior Advocate appearing on

behalf of Respondent Nos.3 & 4
4.1. Mr Abhinav Vasisht, learned Senior Counsel appearing for Respondent Nos.3
& 4, sought to open his arguments by addressing the issue of locus of the
Applicant before this Adjudicating Authority. The second aspect was
jurisdiction of this Adjudicating Authority, acting in its capacity as such under
34
https://rbi.org.in/Scripts/BS_CircularIndexDisplay.aspx?Id=11189
35
Page 24 of the IA
36
Page 24 of the IA
37
Page 25 of the IA
Page 18 of 44
KOLKATA BENCH-I
the Code. The question that begs an answer is whether the Adjudicating
Authority would be clothed with the jurisdiction to go into the matter.
4.2. To elaborate the objection with respect to the jurisdiction that is vested with
the Adjudicating Authority, section 20 of the Code envisages duties for the
Insolvency Resolution Professional and section 25(2)(d) of the Code embodies
the duties of the Resolution Professional. There is a common thread – the
duty to preserve and protect the assets of the Corporate Debtor. Mr Vasisht
led us through the duties of Resolution Professional, envisioned under section
25(1)(j) of the Code. Such duties are limited to Chapter III of the Code.
4.3. Under section 25(2)(j) of the Code, for preserving and protecting the assets of
the Corporate Debtor, the Resolution Professional may undertake certain
duties. One of the duties is to file applications for avoidance of transactions in
accordance with Chapter III of the Code, if any. Chapter III of the Code is
limited to only certain sections from sections 33 to 54. Chapter VII of the
Code deals with offences and penalties dealing with punishments for certain
criminal acts. This has to be done by the Special Court.
4.4. Mr Vasisht submitted that provisions of section 43 of the Code are restorative
or claw-back clauses and have nothing to do with criminal aspects which may
be brought out in a report. He submitted that there are a couple of things to be
seen in section 43 of the Code. It is the Resolution Professional or the
Liquidator who has to form an opinion, that opinion has to be only for the
limited purpose of this section, and for a limited duration, which is given in
sub-section (4) of section 43 of the Code. The liquidator may or may not
choose to form an opinion in a particular manner. Section 44 of the Code
provides for the orders that the Adjudicating Authority can pass in such a case.
The Adjudicating Authority’s order can require a property transfer to be
vested in the Corporate Debtor, release or discharge etc., basically it deals
with a civil wrong with civil consequences.
Page 19 of 44
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4.5. Similarly, under section 45 of the Code, under the provisions for the
avoidance of undervalued transactions it is stated that if the Liquidator or the
Resolution Professional as the case may be, on examination of the
transactions, during the relevant period which is mentioned in section 46 of
the Code, and even a creditor can come in. The Adjudicating Authority can
pass orders under section 48, 49, 50 and 51 of the Code, which are all
restorative in nature. Even under section 66 of the Code, an order that can be
passed in accordance with section 67 of the Code and is restricted to section
66(2) of the Code.
4.6. For bankers, RBI has given a directive under the statute as to how to operate.
It directs the banks to go to the police or the Central Bureau of Investigation.
These sections under Chapter III do not fall into consideration.
4.7. Mr Vasisht drew our attention to the consequential part of the KPMG report.
The consequences are there in the reply. He submitted that a report under the
Code is limited in scope, with limited consequences and to be given in respect
of finite time periods. The report from KPMG was sought from 2016
onwards. KPMG could have gone even beyond the limited scope of the Code.
On 08 February 2022, the banks have taken a call on the report, and it reveals
some serious lapses. There is protection to the Corporate Debtor under
section 14 of the Code, but not necessarily to the promoters. It was a little too
early to say what the banks would put the KPMG report to. Action against
promoters may well be taken, Mr Vasisht candidly submitted.
4.8. The question is: what is it that the Applicant really wants. The Applicant
wants to get an order against Respondent Nos.3 & 4 not to use this purpose for
any purpose whatsoever. There were no legal grounds for such an order.
These proceedings emanating from the KPMG report are not hit by the
moratorium under section 14, which is really to protect the CD from distress.
Section 14 of the Code is limited to civil matters. It is wholly civil in nature,
and does not touch upon any criminal matters. The banks should not be
Page 20 of 44
KOLKATA BENCH-I
directed in so far as the promoters of the corporate debtors are concerned, Mr

Vasisht insisted.
4.9. Mr Vasisht referred to the sections under the heading “Offences and
Penalties” in Chapter VII. Section 68 of the Code envisages the provisions for
punishment for concealment of property. Similarly, sections 69 to 72 of the
Code also deal with punishment that deals with respect to the offences done
by the officers of the Corporate Debtor. Section 236 of the Code lays down
the provisions for trial of offences by Special Court.
4.10. In the course of the CIRP or liquidation, there are duties that are cast upon the
insolvency professionals. There are powers assigned to the Adjudicating
Authority as well. However, the powers do not extend to certain criminal acts
with which the Adjudicating Authority should be concerned at all. The IBBI
or the Central Government will deal with those criminal acts, as envisaged
under section 236 of the Code.
4.11. Mr Vasisht insisted that it is incorrect to state that there should not be a
criminal investigation. Section 32A of the Code recognises two parts– the
investigation part and the prosecution part. Hence, can anyone now say that
since an independent auditor has been appointed, the process initiated under
other laws should come to a stop? That was never the intent. The intent is
clear: only in limited circumstances will even the Corporate Debtor be
discharged and that is the very purpose of the Code. The Corporate Debtor
can be resolved, but not its management. If the Corporate Debtor is taken by
independent third parties, then it is free from prosecution, not otherwise.
4.12. In this context, Mr Vasisht took us through section 32A of the Code. Sub-
section (1) section 32A of the Code recognises that the liability of the
Corporate Debtor for the offences shall cease, if the resolution results in
change of management or control of the Corporate Debtor. It recognises that
there are prosecutions which can continue in parallel. Even here, only the
Corporate Debtor ultimately gets discharge if a proper resolution takes place.
Page 21 of 44
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Sub-section (2) ibid further stipulates that no action can be taken against the
property of the corporate debtor in certain circumstances. Sub-section (3)
section 32A of the Code lays down that subject to the provisions contained in
sub-sections (1) and (2), and notwithstanding the immunity given in this
section, the Corporate Debtor and any person who may be required to provide
assistance under such law as may be applicable to such Corporate Debtor or
person, shall extend all assistance and co-operation to any authority
investigating an offence committed prior to the commencement of the
corporate insolvency resolution process.
4.13. The Resolution Professional is not obliged to go beyond section 25 of the

Code. The RP may also get to know by chance or otherwise that there are acts
of omission or commission that are beyond the confines of sections 43, 47, 50
and 66 of the Code. The Resolution Professional is not bound to accept the
report of the transactional auditor. The Committee of Creditors (“CoC”) has
no role in the determination of the Resolution Professional to file applications.
This does not preclude the lenders from commissioning a separate audit and
taking an action independent of the Code. The forum may be different. It
may overlap with certain offences that can be covered under the Code. Mr
Vasisht submitted that under the IBC architecture, the Resolution Professional
is not supposed to discover the criminal acts.
4.14. Mr Vasisht asserted that the Applicant wants the Adjudicating Authority to
assume jurisdiction to stay the criminal aspects that have been thrown up by
the audit commissioned by the lenders, and respectfully submitted that these
are beyond the remit of the Adjudicating Authority.
4.15. It is in this background that Mr Vasisht sought liberty to place the judgment of
the Hon'ble NCLAT in Vivek Prakash v Dinesh Kr Gupta, liquidator of
Jarvis Infratech Pvt. Ltd.,38 wherein the Resolution Professional sought
directions to the suspended management to hand over books and to extend full
assistance. The NCLT had directed the RP to institute a criminal case under
38
2022 SCC OnLine NCLAT 81 decided on 21 February 2022
Page 22 of 44
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section 70. The Hon’ble NCLAT observed that this direction was not in
consonance with the Code (para 8 of the judgment).
4.16. Mr Vasisht placed reliance on the following judgments in support of his

contention that the liability against the Corporate Debtor may get
extinguished, but the person associated with the Corporate Debtor, whether
directly or indirectly, will continue to be held liable: -
(a) Manish Kumar v Union of India,39( para 253); and
(b) P Mohanraj & Ors v Shah Brothers Ispat Private Limited40 (paras 36,
41, 42, 43, 102)
4.17. Section 212(2) of the Companies Act 2013 acts as a bar against investigation
by any agency once the SFIO has been assigned an investigation, in respect of
any offence under the Companies Act, 2013. Clauses (a) and (b) of sub-
section 17 of section 212 of the Companies Act, 2013 envisages that any other
investigating agency, State Government, Police authorities, income-tax
authorities having any information or documents in respect of such offence
shall provide all such information or documents available with it to the
Serious Fraud Investigation Office (SFIO) and vice versa. Mr Vasisht placed
the judgment of the Hon’ble High Court at Hyderabad in State of Telangana v
Nowhera Shaik,41 (paragraph 8). The appeal against this order was dismissed
by the Hon’ble Supreme Court on 14 December 2018.
4.18. On double jeopardy, Mr Abhinav Vasisht relied on the judgment of the

Hon'ble Gujarat High Court in Essar Oil Limited v Central Bureau of
Investigation,42 (paragraph 75), to state that there is no double jeopardy at the
time of investigation. He also relied on the judgment of the Hon’ble Supreme
39
MANU/SC/0029/2021 decided on 19 January 2021
40
41
MANU/HY/0326/2018 decided 13 November 2018
42
2009 SCC OnLine Guj 6273 decided on 29 July 2009
Page 23 of 44
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Court in Thomas Dana v State of Punjab43 (paragraphs 9 and 10) that there
must be three conditions to be satisfied before the principle of double jeopardy
within the meaning of Article 20(2) of the Constitution:
(a) There must be “prosecution;”
(b) There must be “punishment;” and
(c) There must be a subsequent prosecution for the “same offence.”
If any of these three ingredients are absent, then double jeopardy is not
attracted. In the present case, looked at from any angle, the principle of
double jeopardy is not attracted at all, since only a report has been submitted.
4.19. Addressing the question of fraud, Mr Vasisht submitted that fraud has two
parts to it, restoration is one of them. The punishment part is not within the
domain of the Adjudicating Authority. There are different punishments which
can be given under sections 70, 72, 73 etc., the relevant section being section
236 of the Code. This section takes cognisance only if the complainant is the
IBBI, Central Government or any other person authorised by the Central
Government. Based on the KPMG report received, the banks’ internal
monitoring committee will look into the matter and will file complaints with
the enforcement agencies. Under the RBI guidelines, the bankers have to file
complaints before the police or CBI.
4.20. Mr Vasisht drew our attention to page 39 of the Master Direction on Fraud –
“The directions are issued with a view to providing a framework to banks

enabling them to detect and report frauds early and taking timely consequent
actions like reporting to the investigative agencies so that fraudsters are
brought to book early, examining staff accountability and do effective fraud
risk management".
43
AIR 1959 SC 375 decided on 04 November 1958
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4.21. Mr Vasisht submitted that an argument was made with regard to the time
limit. It had been vehemently argued that the investigation was not completed
within the time specified in the master circular. In this regard, Mr Vasisht
submitted that the breach of timelines, if at all, is between the banks and the
RBI. The Applicant herein surely cannot take any advantage of it and ask for
stoppage of the audit.
4.22. Mr Vasisht then placed several paragraphs of the Reserve Bank of India
(Frauds classification and reporting by Commercial Banks and select FIs)
Directions, 2016 (“RBI Directions”), starting with paragraph 2.244 and
paragraphs 3.3.1 and 3.3.245 of the RBI Directions, wherein the classification
of frauds has been listed. It has also been stated that banks should ensure that
the reporting system is suitably streamlined so that delay in reporting of
frauds, submission of delayed and incomplete fraud reports are avoided and
delay in reporting of frauds could result in similar frauds being perpetrated
elsewhere. Banks were cautioned that in case of inability to adhere to the
timeframe, the banks would be liable for penal action prescribed under section
74 of the Banking Regulation Act, 1949.
4.23. Paragraph 5.246 of the RBI Directions directs banks to close only such cases
where the actions as stated in the said para only after the cases are finally
disposed of by CBI, police, or court. Paragraph 5.647 of the RBI Directions,
directs that for closure, banks shall have to submit their proposals, case-wise,
for closure to the SSM of the bank. Even after this, banks should ensure
follow-up. Paragraph 5.848 of the RBI Directions enjoins the banks to go
ahead with the process of examination of staff accountability or conclude staff
side actions. Paragraph 6.149 of the RBI Directions is very important. It states
44
Page 40 of the IA
45
Page 43 of the IA
46
Page 48 of the IA
47
Page 49 of the IA
48
Page 49 of the IA
49
Page 50 of the IA
Page 25 of 44
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that in dealing with cases of fraud/embezzlement, banks should not merely be

actuated by the necessity of recovering the amount involved, but also be
motivated by public interest. Paragraph 8.850 of the RBI Directions is for sole
lenders. Paragraph 8.8.251 of the RBI Directions states that the bank may use
internal auditors, including forensic experts or an internal team for
investigations before taking a final view on the RFA. Paragraph 8.952 deals
with lending under consortium or multiple banking arrangements whereas
paragraph 8.9.453 delineates the manner in which the action regarding
classification of account takes place – this will be at individual bank level and
it will be responsibility of the bank to report. Paragraph 8.9.554 of the RBI
Directions directs the forensic audit to be completed within a maximum period
of three months from the date of the JLF meeting. Within fifteen days of the
completion of the forensic audit, the JLF should reconvene and decide on the
status of the account, either by consensus or the majority rule. In case the
decision is to classify the account as a fraud, the RFA status should be
changed to fraud in all banks and reported to RBI. Paragraph 8.9.655 of the
RBI Directions envisages that the audit should be completed within six
months from the date when the first bank reported the account as Red Flagged
Account (RFA) or “Fraud” on the Central Repository of Information on Large
Credits (CRILC) platform. In this regard, Mr Vasisht relied on Paragraph
3.3.156 of the RBI Directions which directs banks to fix staff accountability.
Similarly, paragraph 8.11.157 of the RBI Directions, directs banks to lodge the
complaint with the law enforcement agencies immediately on detection of
fraud.
50
Page 58 of the IA
51
Page 59 of the IA
52
Page 59 of the IA
53
Page 60 of the IA
54
Page 61 of the IA
55
Page 61 of the IA
56
Page 43 of the IA
57
Page 62 of the IA
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4.24. Mr Vasisht submitted that the real intent of the applicant is to preclude the
investigation from reaching that stage. The Adjudicating Authority has not
been given the jurisdiction to look into matters that are beyond the Code itself.
The Adjudicating Authority does not have equity jurisdiction and double
jeopardy is a jurisdiction in equity.
4.25. In support of his contention, Mr Vasisht relied on the judgment of the Hon’ble
Supreme Court in Pratap Technocrats Private Limited v. Monitoring
Committee of Reliance Infratel Limited and Another58 (paragraphs 25, 29, 45
and 47), wherein it has clearly been held that once the requirements of the
Code have been fulfilled, the Adjudicating Authority is bound by the
legislature and cannot exercise an equity-based jurisdiction. The jurisdiction
that the applicant wants to exercise does not exist under the IBC.
4.26. Mr Vasisht placed reliance on BV Bhaskar Reddy v Bank of India & others59
passed by the NCLT, Hyderabad Bench. In this case, an application was filed
prayed for restraining R1 from conducting forensic audit for the financial year
01 April 2013 to 31 March 2019. Only one bank wanted to do a forensic
audit, while the other two did not. The application was countered both by RP
and the other two banks. The arguments are captured in para 3. Clause (e) in
para 4 captures that the other members voted against the proposal for the
audit. It was held that no fraudulent motive was attributed. It was further held
that the Forensic Audit was being under the Banking Regulation Act, 1949
and not the Code. Further the Corporate Debtor’s account was already
declared as fraud hence it was necessary to conduct the Forensic Audit.
4.27. Mr Vasisht then led us to the next proposition, i.e., on the jurisdiction of the
Adjudicating Authority: He submitted that the Adjudicating Authority has
jurisdiction to deal with all matters pertaining to insolvency resolution, but
nothing else.
58
(2021) 10 SCC 623 decided on 10 August 2021
59
MANU/ND/1394/2021 decided on 07 January 2021
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4.28. He relied on Gujarat Urja Vikas Nigam Ltd v Amit Gupta & others60,
(paragraph 73 and 74) wherein the Hon’ble Supreme Court has held that
NCLT cannot derive its power from the spirit or object of the Code, NCLT
can entertain and dispose of questions of fact or law arising out of or in
relation to the insolvency resolution process and not outside. In this case, the
PPA was terminated solely on the ground of insolvency, which gives NCLT
jurisdiction under section 60(5)(c).61
4.29. Nothing prevented the legislature to add powers, but they did not. No specific
restraint has been given but section 60(5)(c) of the Code should be read in the
above context.
4.30. Mr Vasisht urged that when one reads section 60 of the Code, one has to read
the limits. It is important to see whether it will affect the insolvency process or
is in relation to the insolvency process itself. The prayer62 sought for is for
rescinding the process. That is not related to the insolvency process. The
Applicant also wants an order restraining Respondent No.3 and Respondent
No.4 based on “alleged” improper audit. The question is, who will decide
whether the audit was “improper,” Mr Vasisht stated.
4.31. Mr Vasisht then referred to paragraph 69 and paragraph 91 of Gujarat Urja

(supra), wherein it was observed that NCLT has jurisdiction to adjudicate
disputes which arise due to the insolvency of the Corporate Debtor and NCLT
should not usurp the jurisdiction of any other fora. Also, it cannot be argued
that the separate procedure envisaged under the RBI and therefore under the
statute because of the binding nature of the RBI’s instructions under the
Banking Regulation Act, 1949, are in any manner going to delay the
insolvency process.
60
61
Paragraph 75 of the judgment
62
Page 20 of the IA
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4.32. Mr Vasisht also referred to paragraph 79 of Gujarat Urja (supra) which states
that section 238 of the Code stipulates that the Code would override other
laws, including an instrument having effect by virtue of any such law. Mr
Vasisht submitted that this has been interpreted in various judgments.
However, he drew our attention to the judgment of the Hon’ble Supreme
Court in Macquarie Bank Limited v Shilpi Cable Technologies Limited,63
(paragraph 46) that the non-obstante clause will not override the Advocates
Act, 1961, as there is no inconsistency between the Act and the Code. If there
is no disharmony between two statutes, then both the statutes must be given
effect to.
4.33. Mr Vasisht relied on Ebix Solutions Private Limited v Committee of

Creditors of Educomp Solutions Ltd & another,64 (paragraphs 116, 184 &
185), wherein the Hon’ble Supreme Court held that any juridical creation of a
procedural or substantive remedy that is not envisaged by the statute would
not only violate the principle of separation of powers, but also run the risk of
altering the delicate coordination that is designed. Further, no such power can
be vested with the Adjudicating Authority under its residuary jurisdiction in
terms of section 60(5)(c) of the Code.
4.34. What the Applicant is asking the Adjudicating Authority to do, is to exercise
the jurisdiction that the Adjudicating Authority does not have, to bring further
action to a standstill. The Code does not permit this at all. When section 32A
was incorporated, it was stated that cases will continue even against the
Corporate Debtor. Hence, this application per se is not maintainable.
4.35. Mr Vasisht emphasised that the Applicant is an ex-promoter, shareholder, and

chairman-cum-managing director of the Corporate Debtor. What the
Applicant wants to say that nothing should be done which will get anyone in
trouble. As a shareholder, one would want the company to be investigated
63
(2018) 2 SCC 674 decided on 15 December 2017
64
2021 SCC Online SC 707 decided on 13 September 2021
Page 29 of 44
KOLKATA BENCH-I
thoroughly to see what went wrong. As a management personnel, one would

want to hide their misdeeds, if any.
4.36. Mr Vasisht drew our attention back to the RBI Directions and submitted that
one must keep in mind that the RBI Directions does not really provide for
punishments. It only mandates reporting. If any punishment is going to be
there, it will follow the due process of law. Somehow an impression has
sought to be created that there is some overlapping but it is not so. If the
authorities find that there are certain acts which will have to go under the
Code, then it will go. It is the relevant court that will decide.
4.37. Offence has been defined under section 3(38) of General Clauses Act, 1897 as
“an act or omission made punishable under any law for the time being in
force.” If the bankers conclude that something wrong has taken place, then
the bankers are supposed to go to the Police or CBI. Therefore, nothing
restricts the bankers under the Code from such action being taken. In support
of his contention, Mr Vasisht placed reliance on SA Venkataraman v Union
of India,65 (Paragraph 15) wherein the Hon’ble Supreme Court observed that
the words “prosecution” and “punishment” does not have a fixed connotation
and they are susceptible of both a wider and a narrower meaning, but in
Article 20(2) both these words have been used with reference to an “offence”
as defined in the General Clauses Act, 1897.
4.38. Reliance was also placed on Directorate of Economic Offences v Binay

Kumar Singhania,66 (paragraph 43) wherein it has been held that the
promoter, partner, director, manager, member, employee, or any other person
responsible for the management of the corporate debtor shall be liable for the
default in repayment of deposit fraudulently and such individual cannot take
any advantage of section 14 of the Code. Section 14 of the Code is not
applicable to any criminal proceeding, or any penal action taken pursuant to
65
AIR 1954 SC 375 decided on 30 March 1954
66
MANU/NL/0169/2021 decided on 04 May 2021
Page 30 of 44
KOLKATA BENCH-I
the criminal proceedings or any Act having essence of crime or crime

proceeds.
4.39. To strengthen his contention, Mr Vasisht relied on the judgment passed by

Hon’ble NCLAT in Varssana Ispat Limited v Deputy Director, Directorate
of Enforcement,67 (paragraph 8). It was held that section 14 of the Code is
not applicable to criminal proceedings or to any penal action taken pursuant to
the criminal proceeding or any Act having essence of crime or crime proceeds.
4.40. Responding to the citations relied on by the Applicant, Mr Vasisht submitted

that in SBI & others v Rajesh Agarwal & others,68 even the opportunity of
personal hearing given by the Hon’ble High Court for the State of Telangana
at Hyderabad vide its order dated 10 December 2020 in WP No.19102/2019
had been stayed.
4.41. Mr Vasisht then sought to dispel the impression was given that the RBI
recognises section 238 of the Code in the RBI Circular dated 19 December
2017, there was never any doubt about it. This circular has no meaning in any
manner whatsoever, he submitted.
4.42. Mr Vasisht then made submissions with reference to the cases cited by the Ld
AG & Senior Counsel for the Applicants, and sought to distinguish them as
follows: -
(a) Duncan (supra). was the next case that was cited by the Applicants.
Under the Tea Act, 1953 there were certain requirements to be done. All
that was held in this judgment was that the Code will have an overriding
effect, but this has nothing to do with this case. One very important point
was that the company will be protected from its own management.
(b) In Venkata Subbarao Kalva (supra),69 paragraph 2, sub-paragraph 7

captures the allegations. In paragraph 9, it is stated that Resolution
67
MANU/NL/0195/2019 decided on 02 May 2019
68
SLP (C) No.3931/2021 decided on 15 April 2021 (unreported)
69
2020 SCC OnLine NCLAT 5814 dated 13 February 2020
Page 31 of 44
KOLKATA BENCH-I
Professional had reason to believe that the directors did not exercise due
diligence and there may be a few suspicious transactions. In paragraph 12,
the Adjudicating Authority directed the liquidator to furnish a copy of the
forensic audit report dated 18.09.2019 to the respondents. If there was a
prima facie case for further investigation, then he can approach the Central
Government with supporting evidence, seeking further investigation into
the matter through SFIO or other authority.
(c) In Union of India through SFIO v Maharashtra Tourism Dev Corp

Ltd,70 the appeals were preferred against the order of the Adjudicating
Authority for directing SFIO investigation. In this background, it was held
in that the Adjudicating Authority’s order was modified by referring the
matter to Secretary MCA to get the matter investigation by following the
procedure under section 213.71
(d) In M Srinivas v Ramanathan Bhuvaneswari,72 (para 16 and 17), there was

a forensic audit report on record (paragraph 7). Various irregularities were
pointed out.
One argument of the Applicant was that some part of the record was read,
to say that the report is inconclusive. But it is for the bankers to say that in
spite of all material not being made available, whether they still found
enough material pointing to fraud, which is good enough for the bankers to
act upon.
(e) Embassy Property (supra)73 was dealing specifically on the aspect of fraud
addressed by section 65(1) of the Code. Although the NCLT and NCLAT
would have jurisdiction to enquire into questions of fraud, they would not
have jurisdiction to adjudicate on criminal aspects concerning fraud, as in,
for example, punishing the offender, although there it can order clawback
or disgorgement of the amounts.
4.43. On the contention raised with respect to the delay in submission of the report,
Mr Vasisht urged us to take notice of four dates: the time period starts from
70
2019 SCC OnLine NCLAT 1414 decided on 02 December 2019
71
Paragraph 7 of the judgment
72
2019 SCC OnLine NCLAT 1001 decided on 24 July 2019
73
(2020) 13 SCC 308 : 2019 SCC OnLine SC 1542 decided on 03 December 2019
Page 32 of 44
KOLKATA BENCH-I
the red flagging of the account. A scheme was being propounded, a stay
order was granted on 21 October 2020, which was vacated on 07 September
2021. It was only thereafter that the bankers initiated the steps. If the bankers
were also to be technical about it, the report came in within three months i.e.,
23 September 2021 to 17 November 2021.
5. Submissions of Mr Ramji Srinivasan, learned Senior Counsel for the

Respondent No.5
5.1. Mr Ramji Srinivasan submitted that in so far as KPMG was concerned, the
role was very limited. If the Adjudicating Authority looks at the frame of the
application that was made earlier, it proceeded on the misconception that the
investigation is continuing while another event had intervened in the form of
the CIRP commencement. Mr Ramji Srinivasan submitted that so far as
KPMG is concerned, the prayer was to ask KPMG not to continue the
investigation, but the investigation is so the application has become
infructuous qua Respondent No.5. Ultimately, the delay is not something that
arises out of insolvency. If there is a delay, it is up to the RBI to deal with it.
5.2. The stretched argument by the Applicant is that the audit is in relation to
insolvency. Wide as it may be, the Hon’ble Supreme Court has stated that it
cannot be a “catch-all.” Mr Ramji Srinivasan submitted that timeline
misconception, based on which the application came to be filed, is not correct
as things turned out. As a matter of fact, the banks were already in receipt of
the report, and the bankers had further acted on the report itself. The
Applicant in the final hearing cannot enlarge the scope of the application
itself. There is no amendment to the IA, unless, proprio vigore, they wish to
address the court on some other issues.
5.3. In so far as the jurisdiction is concerned, there has to be some cause against
KPMG. Mr Ramji Srinivasan submitted that if the cause was primarily
against the banks, and KPMG was only incidental to the cause, this is also not
workable at this stage, since the report was already with the banks. There is a
disclaimer. On the day the bankers engaged KPMG, CIRP had not
Page 33 of 44
KOLKATA BENCH-I
commenced. The report contains contributions from the ex-management.

This need not burden the Adjudicating Authority or the order itself. The only
question is this: can the report process of KPMG continue? The process is
now over, and the banks now have more material to refer and compare with
the transactional audit commissioned by the Administrator.
5.4. Mr Ramji Srinivasan wondered whether, had the report had been
commissioned and received one day prior to the commencement of the CIRP,
would it have changed the nature of information that the banks have collected.
The fact of the report being submitted after the CIRP, makes no difference.
That’s all there is to it. What the bankers do with the report, is not for KPMG
to say. It is for the banks to consider the report at the appropriate time. Mere
apprehensions cannot lead to a judicial intervention. Therefore, nothing
survives in so far as the Respondent No.5 i.e., KPMG is concerned
6. Submissions of Mr S. N. Mookherjee, learned Advocate General and Senior

Advocate in reply to the Respondents
6.1. Responding to the arguments of the Ld Sr Counsel appearing for the
respondents, Mr Mookherjee, Ld AG & Senior Counsel appearing for the
Applicants submitted that as follows:
6.2. On the argument of locus, the locus is itself derived from section 31 of the
Code and has not been dealt with at all. The Applicant is a stakeholder of the
Corporate Debtor, and therefore, the Applicant is entitled to file this
application.
6.3. On the contention of whether the Adjudicating Authority has jurisdiction, Mr

Mookherjee submitted that he had based his arguments on section 60(5) of the
Code. In effect, the Applicant came under clause (c). The question is whether
the issues raised by the Applicant is out of insolvency of the Corporate
Debtor.
6.4. Mr Mookherjee submitted that the audit done by KPMG, in fact, relates to
insolvency, although according to KPMG, all the three reports were completed
Page 34 of 44
KOLKATA BENCH-I
– the draft, the preliminary and the final, before the commencement of the
CIRP. Mr Mookherjee put it in two platforms. First is that it relates to the
affairs of the Corporate Debtor. This cannot be disputed. Second, which is of
more importance, is that it is concerned with the alleged wrongdoings of the
promoters. Then the question arises as to how it relates to insolvency. What
will be the subject matter of the transactional audit are given in a broad
species here – (1) preferential treatment; (2) undervalued transaction; (3)
fraudulent transaction; (4) extortionate credit transaction; and (5) most
important, defrauding of creditors. This transactional audit, therefore, covers
the same things that the KPMG audit ought to have covered. So, this relates
to insolvency.
6.5. Mr Mookherjee asserted that the KPMG audit is not only relating to
insolvency, it also arises out of insolvency and is also inextricably connected
with insolvency, because the CIRP is RBI-driven. It is the RBI which
appointed the Administrator and commenced these proceedings. And the
same Administrator is the Resolution Professional.
6.6. The forensic audit is being done or has been done under the RBI circular. So,
the statutory framework for all audits which has now been chosen by the RBI
is that provided by the Code. The moment the RBI is the mind and the entity
behind the CIRP of the Corporate Debtor and it has opted for a resolution
under the Code, it comes with the entire gamut of sections and the entire
regulations. The constitution of the CoC and the decisions that are taken
apropos conduct of audits and finding the culprits and taking proceedings, and
seeking reliefs – both civil and criminal, should all be within IBC auspices and
not de hors thereof. There was a conscious adoption of the framework of the
Code within which there has to be a resolution with the financial creditors and
the wrongdoers will be brought to book.
6.7. The Applicant is not asking to be excused for any wrongdoing. The Applicant
only wants that now that the RBI has adopted the statutory framework of the
Code for resolution as far as the Corporate Debtor is concerned, that statutory
Page 35 of 44
KOLKATA BENCH-I
framework of the Code is the only framework under which the audit should
also be conducted and steps taken in furtherance thereof, including penal
proceedings. If that is the situation, then the Adjudicating Authority has the
jurisdiction to interdict any further steps based on the KPMG audit and subject
the entire audit process to the Code.
6.8. Mr Mookherjee submitted that apart from the RBI having been the mover of
the CIRP, it is necessary to be noted that the banks appointed KPMG under
the RBI circular, it is the same banks who approved the appointment of the
BDO auditors. Second, the KPMG itself said that their report is inconclusive
and cannot be a definitive pronouncement.
6.9. Third, the Applicant does not even know which report is being relied on – the
draft, the preliminary and the final – all having travelled to and from KPMG
to the banks and back again. The Applicant is unaware as to what were the
comments that were made in the report. Therefore, it is unlikely that the
report would be fair. Nothing has been disclosed to show what steps have
been taken under these reports. A submission has been made that by seeking
the directions that the Applicant has, the Applicant is seeking to stall criminal
proceedings.
6.10. On a reading of the circular, the CBI should first decide. There is nothing so
far. In many cases, the CBI has come to the conclusion that there is no fraud.
The Applicant’s only issue is that the Applicant should be subjected to the
rigours under the Code to unearth the truth.
6.11. Fourth, there has been no JLF meeting before red flagging. The report is
completely misplaced inasmuch as the audit has not been done in accordance
with the circular. Lastly, the process has not even been started. There is
nothing to show that the final report has been considered and placed before the
CBI. The process doesn’t get completed merely by a report being prepared
and sent.
Page 36 of 44
KOLKATA BENCH-I
7. Supplemental submissions of Mr Ratnanko Banerji, learned Senior

Advocate, in reply to the Respondents
7.1. Responding to the submissions of the Respondents and supplementing the
submissions of Mr S.N. Mookherjee, Mr Ratnanko Banerji, Ld Senior Counsel
for the Applicant, submitted that the report concerns the affairs of the
Corporate Debtor, if a promoter or director is a wrong-doer in that sense, all of
these are taken care of within the statutory framework itself. It trumps over
the normal framework.
7.2. As for Duncan (supra), it was under both the Tea Act and the Code. It was
held therein that the Code trumped the Tea Act.
7.3. Regarding the argument that the Applicant was wearing two hats, one as
promoter and another as director, Mr Banerjee stated that the argument fell
right back on the Respondents. There are two questions to consider:
a. Who are the members of the CoC? They are the same persons who are the
lenders.
b. Can the special law overcome the general law?
7.4. Swiss Ribbons Pvt Ltd and Ors v Union of India and Ors74 spoke about
inherent powers. Ld Senior Counsel for the Respondent Nos.3 & 4 cited
Pratap Technocrats (supra) and Ebix (supra) to cite that there was no equity
jurisdiction with the Adjudicating Authority. Mr Banerji submitted that he is
not on that point, but the issue is whether the inherent powers can be used to
protect the Adjudicating Authority’s jurisdiction. No one can overreach or
take away any part of the Adjudicating Authority’s jurisdiction. It is possible
that the majority of the CoC might look at the report and decide that they do
not want to proceed. That would not be enough to stop an application under
section 43 of the Code. The investigating agency might still come in and say
that there was no case. That will stop proceedings under the Code, Mr Banerji
submitted.
74
MANU/SC/0079/2019 decided on 25 January 2019
Page 37 of 44
KOLKATA BENCH-I
7.5. Gujarat Urja (supra) was on the question whether it involved the insolvency
proceeding or not. It was found therein that it was not. The same issue in the
present IA. Mr Banerji’s contended that if it involved the Corporate Debtor
and the promoters then it is within the Adjudicating Authority’s jurisdiction.
7.6. Ebix (supra) was also on the principle that the Adjudicating Authority cannot
deal with the criminal aspects. Mr Banerji pointed out that this is not the
issue. The criminal proceedings have not yet started. The question is again,
whether it should be allowed, at the same instance of creditors who are now
sitting on the CoC.
7.7. Varssana Ispat (supra) was on the question of two distinct proceedings. If
there are two distinct proceedings, one cannot ask the Adjudicating Authority
to exercise jurisdiction.
8. Analysis and Findings

8.1. We have heard Mr S.N. Mookherjee, learned Advocate General and Senior
Counsel and Mr Ratnanko Banerji, the learned Senior Counsel appearing on
behalf of the Applicant; Mr Abhinav Vasisht, learned Senior Counsel for the
Respondent Nos.3 and 4; and Mr Ramji Srinivasan, learned Senior Counsel
for the Respondent No.5. Mr Jishnu Saha, Ld Senior Counsel appearing for
the Administrator/Respondent Nos.1 and 2, adopted the arguments of the
Respondent Nos.3 & 4, to avoid prolixity.
8.2. There are four issues that have been highlighted by both the parties:
(a) Whether the Applicant has locus?
(b) Whether this Adjudicating Authority has jurisdiction?
(c) Whether the Code will prevail over the RBI guidelines?
(d) Whether two audits can continue simultaneously?
8.3. Before delving into the issues of the raised during the arguments of the IA, let
us consider the reliefs sought for by the Applicant.
Page 38 of 44
KOLKATA BENCH-I
(a) Prayer (a) is for direction on the Respondent Nos.3 & 4 to withdraw or
rescind the process of audit of the Corporate Debtor which was being
conducted by the Respondent No.5/KPMG. Since that process was
already over by the time the application was filed, prayer (a) has become
infructuous.
(b) Prayer (c) seeks an ad interim order restraining Respondent Nos.3 & 4
from conducting or proceeding with the process of audit of the corporate
debtor through the Respondent No.5/KPMG, during the CIRP of the
corporate debtor. Since he audit process has already been completed and
the report filed with the banks which commissioned the audit, even before
filing of the present IA, this prayer has also become infructuous.
(c) Prayer (d) seeks a direction to the Respondent Nos.3 & 4 from
disseminating the information contained in the audit report conducted by
KPMG. This prayer has also become infructuous considering that the
report had already been disseminated by the time the application was filed.
(d) Prayer (e) seeks an injunction restraining Respondent No.5 from

continuing with the audit of the corporate debtor in terms of their
appointment vide letter dated 13 April 2021. This prayer has become
infructuous since the audit process had already been completed and the
report disseminated before the IA came to be filed.
8.4. Thus, four of the five prayers sought for in the application had already become
infructuous by the time the IA came to be filed. That leaves us with just one
prayer – Prayer (b), which seeks an order setting aside the audit process
conducted by KPMG in the light of initiation of CIRP. The answer to whether
that prayer can be granted, will have to depend on our findings to the issues
raised in para 8.2 supra.
On the issue of locus

8.5. The Applicant is admittedly one of the shareholders of SIFL and SEFL and
was a member of the superseded Board of Management. While locus as a
member of the superseded board may be in question, there is no question that
the application is maintainable in the Applicant’s capacity as a shareholder, as
Page 39 of 44
KOLKATA BENCH-I
he is an important stakeholder in the process. The question raised in the

present case is one of law. Therefore, we answer that question in the
affirmative.
On the issue of jurisdiction

8.6. The audit commissioned by the lenders was under the aegis of the applicable
RBI circulars. RBI circulars have the statutory force, as is now settled by a
five-member Constitutional Bench of the Hon'ble Supreme Court in Central
Bank of India v Ravindra & others,75 wherein it was held that the RBI is one
of the watchdogs of finance and economy of the nation, entrusted with a
supervisory role over banking and conferred with the authority of issuing
binding directions.76
8.7. Mr SN Mookherjee and Mr Ratnanko Banerji tried their best to convince us

that the Code will override the circulars issued by the RBI, to the extent that
they are inconsistent with the Code. It was their case that once the CIRP
commenced, there were enough provisions under the Code to investigate
transactions which were fraudulent, preferential, undervalued or extortionate,
and therefore, the previous audit or the audit report should not be taken
cognisance of.
8.8. We are unable to convince ourselves to agree. At its highest, the trial of
offences by a Special Court in terms of section 236 of the Code would be
restricted to offences under the Code, as laid down by sub-section (1)
thereof.77 Fraud by a banking official, for instance, would not be an offence
under the IBC, but under other laws. If indeed there is some involvement of
bank officials, then there is little that the Adjudicating Authority can do since
it does not exercise any jurisdiction over them under the Code. The scope,
purpose and objective of the audit under the RBI is not only to look into the
75
(2002) 1 SCC 367 : 2991 SCC OnLine SC 1266 decided on 18 October 2001
76
Para 5 of the judgment ibid, @ page 403
77
236. Trial of offences by Special Court. (1) Notwithstanding anything in the Code of Criminal
Procedure, 1973, offences under this Code shall be tried by the Special Court established under
Chapter XXVIII of the Companies Act, 2013.
Page 40 of 44
KOLKATA BENCH-I
transactions from the perspective of the corporate debtor now functioning

under an independent professional, but also to unearth criminality, if any, on
the part of bank officials too. Therefore, to say that the KPMG audit should
either be stopped, rescinded or otherwise consigned to the bin, is not
something that commends itself to us.
8.9. We are acutely conscious of the string of caveats that the audit report contains.
However, in the jurisdiction that we exercise, we do not have the wherewithal,
expertise, or legal backing to go into the sufficiency of the material unearthed,
the cooperation extended from the side of the ex-management to the KPMG
audit team – or indeed the lack of it. While it is tempting to think of the
Adjudicating Authority’s jurisdiction as something that is to be exercised
under equity, we must not succumb to it. We must be bound by the confines
drawn by the legislature for the Adjudicating Authority.
8.10. Therefore, we hold that this Adjudicating Authority, with the powers vested
under the Insolvency & Bankruptcy Code, 2016, lacks the jurisdiction to stop
an audit commissioned under RBI circulars, the intent of which is altogether
different.
On whether the Code will prevail over the RBI guidelines

8.11. The Code envisages that the Resolution Professional can determine whether
any transaction within the lookback period of two years is preferential,
undervalued, extortionate or a fraudulent transaction and the Resolution
Professional can appoint an auditor to give a valuation report keeping in view
the look back period. This is an audit that is performed solely from the
perspective of the corporate debtor and its suspended management, and is
restricted to the books of the corporate debtor.
8.12. On the other hand, an audit instituted by lenders under RBI’s circulars deals
with various aspects. Its stated purpose is to provide “a framework to banks
enabling them to detect and report frauds early and taking timely consequent
actions like reporting to the Investigative agencies so that fraudsters are
Page 41 of 44
KOLKATA BENCH-I
brought to book early, examining staff accountability and do effective fraud

risk management. These directions also aim to enable faster dissemination of
information by the Reserve Bank of India (RBI) to banks on the details of
frauds, unscrupulous borrowers and related parties, based on banks’
reporting so that necessary safeguards/preventive measures by way of
appropriate procedures and internal checks may be introduced and caution
exercised while dealing with such parties by banks.”78
8.13. It was under this Circular that the Banks decided to appoint auditors to audit
the financial statements from 2016. The Banks had already appointed KPMG
to verify the financial statements of SIFL and SEFL from the year 2016 in
order to determine if there was any fraud. The period within which BDO LLP
could verify the financial books of SIFL and SEFL would be two years
preceding the date on which SEFL and SIFL were admitted into CIRP.
8.14. Therefore, the Code and the RBI circulars work in different fields and are, in a
manner of speaking, disjoint sets. The adequacy or otherwise of KPMG’s
audit report would no doubt be determined by the lenders. We do not see any
possibility of conflict between the two. There is no question of one prevailing
over the other.
8.15. We have noticed the apprehensions of the Applicant that the KPMG report has
serious limitations for end-use, and that there was no effective enquiries made
with the ex-management before the report was finalised. We have also
noticed that the report was finalised by first submitting a “draft report,”
followed by what is termed a “preliminary report” and a “final report.” The
allegation of the Applicant is that the report was tailored to suit the
requirements of the lenders, who wanted to “implicate” the ex-management of
the SREI entities. This is a matter that we cannot really examine, since we
have held that we lack the jurisdiction to do so. The Applicant is, however, at
78
Para 1.3 of RBI’s Master Circular on Frauds, bearing No.
DBS.CO.CFMC.BC.No.1/23.04.001/2016-17 dated 01 July 2016, updated as on 03 July 2017, and
accessed here –
https://m.rbi.org.in/scripts/BS_ViewMasDirections.aspx?id=10477#4
Page 42 of 44
KOLKATA BENCH-I
liberty to raise all these issues, including the issue of whether the report is at
all conclusive or not, whether it is tailor-made to suit the needs of the lenders,
etc. at the appropriate judicial forum. The observations made in this order
shall not come in the way of such judicial forum examining all these issues,
and also any other grounds that the Applicant may wish to urge before such
forum.
On whether two audits can continue simultaneously

8.16. We have already held that the scope and purpose of the two audits are not the
same. The ultimate purpose of the audit commissioned by the Administrator
should subserve the resolution of insolvency of the corporate debtor. The
purpose of the audit under RBI circulars is not the same. Therefore, there can
really be no objection to the two audits going on in parallel, notwithstanding
the institution of CIRP against the corporate debtor.
8.17. Having held thus, this is really not an issue anymore, since the audit by
KPMG is over and the report has already been submitted. Therefore, at this
point in time, there is really only the audit commissioned by the Administrator
that may be ongoing, if the report has not already been submitted.
Summary of findings
8.18. In sum, –
(a) Prayers (a), (c), (d) and (e) have become infructuous even prior to the
filing of the application, and are dismissed as such.
(b) Prayer (b), which is essentially for setting aside the KPMG audit, cannot
be granted by this Adjudicating Authority.
(c) The audit under the RBI circular and the audit under the IBC operate in
different fields and are for different purposes. There is no conflict or
repugnancy to attract the non-obstante clause in section 236 of the Code.
(d) The methodology, adequacy and end-use of the KPMG are all beyond the
scope of this Adjudicating Authority acting under the IBC. These are left
Page 43 of 44
KOLKATA BENCH-I
to be decided by the appropriate judicial forum. The Applicant is at liberty

to approach the appropriate legal forum for redressal of his grievances in
this regard. The Applicant is free to raise all issue that may commend
itself to him, before such forum.
Orders
8.19. IA (IB) No.75/KB/2022 in CP (IB) No.295/KB/2021 is dismissed in
accordance with the above observations. Interim orders shall stand vacated.
8.20. The Registry is directed to send e-mail copies of the order forthwith to all the
parties and their Ld. Counsel for information and for taking necessary steps.
8.21. Certified Copy of this order may be issued, if applied for, upon compliance of
all requisite formalities.
8.22. List the main CP for reporting progress on 25.07.2022.
Balraj Joshi Rajasekhar V.K.

Member (Technical) Member (Judicial)
17 May 2022
GGRB[LRA]
Page 44 of 44

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IN THE NATIONAL COMPANY LAW TRIBUNAL

2. Srei Equipment Finance Limited

Order reserved on: 11 March 2022

Appearances (through hybrid mode):

For Respondent Nos.1 & 2/Administrator : Mr Jishnu Saha, Senior Advocate

For Respondent Nos.3 & 4/Banks : Mr Abhinav Vasisht, Senior Advocate

For Respondent No.5/KPMG : Mr Ramji Srinivasan, Senior Advocate

1.2. IA (IB) No.75/KB/2022 has been filed by Mr Hemant Kanoria, shareholder of

(e) An order of injunction restraining the Respondent No.5 from continuing

1.8. The Applicant wrote to KPMG on several occasions, requesting KPMG to

1.9. At the commencement of the hearing, Mr Abhinav Vasisht, learned Senior

1.10. Mr Ramji Srinivasan, learned Senior Counsel appearing on behalf of the

2. Submissions of Mr S.N. Mookherjee, learned Advocate General and Senior

a. Appointment of KPMG and BDO

b. Timeframe for KPMG to file the report

2.3. Mr Mookherjee then concentrated on the reply affidavits of the respondents.

Submissions with regard to the reply affidavit of Respondent Nos.3 & 4

2.9. Mr Mookherjee then relied on Duncan Industries Limited v A.J. Agrochem.11

2.13. Mr Mookherjee submitted that in this situation it is very important to consider

considerations such as avoiding multiplicity of fora, speedy disposal and

2.16. Mr Mookherjee urged us to examine this in the context of an RBI circular of

2.18. Mr Mookherjee urged us to keep in mind three important dates:

(a) On 04 October 2021, the Administrator is appointed.

(b) On 08 October 2021, the CIRP commenced.

It is in this context that the Adjudicating Authority is now called upon to

2.21. It is up to the Adjudicating Authority to see whether the institutionalised audit

meeting was on 24 March 2021. RBI’s circular of 01 July 2016,23 vide

Submissions with reference to the reply affidavit of Respondent No.5/KPMG

2.25. Mr Mookherjee submitted that two pertinent questions arise as follows:

(a) Why was the preliminary report circulated to the bankers?

2.26. Mr Mookherjee then proceeded to respond to the affidavit of the Respondent

2.30. In support of this proposition, Mr Mookherjee relied on the following three

a. Venkata Subbarao Kalva, Liquidator of Triumph India Software Services

b. M Srinivas v Ramanathan Bhuvaneswari,32 (paragraph 3, 16, 17): in this

c. Union of India v Maharashtra Tourism Development Corporation

3. Supplemental Arguments of Mr Ratnanko Banerji, learned Senior Advocate

4. Submission of Mr Abhinav Vasisht, learned Senior Advocate appearing on

directed in so far as the promoters of the corporate debtors are concerned, Mr

4.13. The Resolution Professional is not obliged to go beyond section 25 of the

4.16. Mr Vasisht placed reliance on the following judgments in support of his

(a) Manish Kumar v Union of India,39( para 253); and

4.18. On double jeopardy, Mr Abhinav Vasisht relied on the judgment of the

(a) There must be “prosecution;”

(b) There must be “punishment;” and

(c) There must be a subsequent prosecution for the “same offence.”

“The directions are issued with a view to providing a framework to banks

that in dealing with cases of fraud/embezzlement, banks should not merely be

4.31. Mr Vasisht then referred to paragraph 69 and paragraph 91 of Gujarat Urja

4.33. Mr Vasisht relied on Ebix Solutions Private Limited v Committee of

4.35. Mr Vasisht emphasised that the Applicant is an ex-promoter, shareholder, and

thoroughly to see what went wrong. As a management personnel, one would

4.38. Reliance was also placed on Directorate of Economic Offences v Binay

the criminal proceedings or any Act having essence of crime or crime

4.39. To strengthen his contention, Mr Vasisht relied on the judgment passed by

4.40. Responding to the citations relied on by the Applicant, Mr Vasisht submitted

(b) In Venkata Subbarao Kalva (supra),69 paragraph 2, sub-paragraph 7

(c) In Union of India through SFIO v Maharashtra Tourism Dev Corp

(d) In M Srinivas v Ramanathan Bhuvaneswari,72 (para 16 and 17), there was

5. Submissions of Mr Ramji Srinivasan, learned Senior Counsel for the