BS: 51% vote enough for forensic audit of corporate debtor: NCLT

7 March 2019: The city bench of the National Company Law Tribunal (NCLT) on Thursday clarified that a 51 per cent vote of the Committee of Creditors (CoC) was enough to initiate a forensic audit of an insolvent company.

Citing Section 21(8) of the Insolvency and Bankruptcy Code (IBC), the NCLT bench said the provision makes it necessary for all decisions of the CoC to be taken by a vote of not less than 51 per cent and the same goes for forensic audit.

In a case related to Viceroy Hotels, where the resolution professional declined a forensic audit citing Section 28(3) which requires 66 per cent voting for matters mentioned in Section 28(1), the bench said forensic audit did not fall in the category.

While Section 28(1) needs 66 per cent votes to make changes in the appointment of contract of statutory auditors or internal auditors of the corporate debtor, conducting a forensic audit did not amount to changing the terms of the statutory auditors, the bench said.

In several insolvency cases the bankruptcy court, creditors are interested in knowing the actual details of the financial transactions of the company funded by them as it may expose some fraudulent activities that led the company to bankruptcy.

Forensic audit uses financial and qualitative tools to detect fraud patterns. The auditors, who need specific skills to conduct forensic audits, also use special software for financial analysis.


The Business Standard reported

Categories: General News, India Bankruptcy, Legal update

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