March 10, 2026 : The National Company Law Appellate Tribunal (NCLAT), New Delhi has held that a forensic or transaction audit commissioned independently by the suspended management of a corporate debtor during the Corporate Insolvency Resolution Process (CIRP) cannot be relied upon, observing that such reports suffer from inherent bias, conflict of interest and breach of confidentiality of the Committee of Creditors (CoC).
A Bench comprising Justice Ashok Bhushan (Chairperson) and Barun Mitra (Technical Member) dismissed an appeal filed by Tejinder Pal Setia, suspended director of Chandigarh Overseas Pvt. Ltd., challenging an order of the National Company Law Tribunal (NCLT), Chandigarh Bench which had refused to take cognisance of a forensic audit report obtained by the suspended management.
The appeal arose from the NCLT order dated 16 May 2025 dismissing an application filed by the suspended management seeking to place on record a forensic audit report prepared by Baker Tilly ASA India LLP and to rely on its findings to challenge the claims admitted by the Resolution Professional during the CIRP.
Chandigarh Overseas Pvt. Ltd. was admitted into CIRP on 27 February 2023. The Resolution Professional subsequently constituted the Committee of Creditors and admitted claims submitted by various creditors. During the third CoC meeting held on 15 October 2023, the Resolution Professional informed the creditors that, upon examining financial records, he had formed an opinion regarding the existence of avoidable transactions and appointed PNAM & Co. LLP as a transaction auditor to investigate such transactions.
Based on the report of the transaction auditor, the Resolution Professional filed avoidance applications before the Adjudicating Authority.
The suspended management challenged the audit process and alleged that the Resolution Professional had initiated avoidance proceedings without giving them an opportunity to respond. While this challenge was pending before the NCLT, the suspended management independently commissioned a forensic audit through Baker Tilly ASA India LLP.
Relying on that report, the suspended management contended that the Resolution Professional had wrongly admitted claims amounting to about ₹114 crore, including claims allegedly lacking proof of debt, duplicated claims and claims that had already been settled.
On the basis of this report, another member of the suspended management filed an application before the NCLT seeking directions to keep the earlier transaction audit report in abeyance and to rely upon the newly commissioned forensic audit. However, the NCLT rejected the application, holding that there is no provision under the Insolvency and Bankruptcy Code permitting suspended management to conduct a forensic audit independently during CIRP.
Before the appellate tribunal, the appellant argued that the independent forensic audit had exposed serious discrepancies in the claims admitted by the Resolution Professional and therefore the report should be considered for re-examination of the admitted claims.
The Resolution Professional opposed the appeal and argued that the audit report lacked legal validity as it had not been commissioned with the approval of the CoC and was prepared by a firm engaged directly by the suspended management.
After examining the record, the NCLAT noted that the report relied upon by the appellant did not carry the name or signature of the forensic auditor and lacked the stamp or particulars of the auditing agency. The report only bore the signature of the individual who had filed the application, raising serious doubts about its authenticity.
The tribunal also rejected the explanation that the document was merely a draft report and that certification from the audit firm would be submitted later. The Bench observed that the Adjudicating Authority could not be expected to rely upon a draft report filled with extensive disclaimers and lacking the essential features of a credible audit document.
Emphasising the importance of independence in the audit process, the tribunal observed that an audit report can be considered reliable only when it is conducted by an independent and unbiased entity. A report commissioned by the suspended management, the tribunal said, is akin to a report prepared by an interested party and therefore suffers from conflict of interest and bias.
The appellate tribunal further held that the suspended management is not authorised to share confidential information obtained during the CIRP with an auditor appointed by them, as this would breach the confidentiality obligations attached to the commercial decisions of the CoC.
The Bench also noted that the role of suspended management during CIRP is limited to participating in the process and providing information when required, and they cannot control the audit process by appointing their own transaction auditor.
Observing that the resolution plan in the case had already been approved by the CoC with more than 99 percent voting share and was awaiting approval of the Adjudicating Authority, the tribunal held that the appeal appeared to be an attempt to reopen issues relating to admission of claims and delay the resolution process.
Finding no legal infirmity in the NCLT order, the NCLAT dismissed the appeal and affirmed the decision of the Adjudicating Authority.
Case Title: Tejinder Pal Setia v. Sh. Arvind Kumar
Case Number: Company Appeal (AT) (Insolvency) No. 1348 of 2025
Coram: Justice Ashok Bhushan (Chairperson) and Barun Mitra (Technical Member)
