NCLT Mumbai: Third Parties, Including Auditors, Not Automatically Liable Under Section 339 Without Proof of Knowing Participation in Fraud

March 24, 2026 : The Mumbai Bench of the National Company Law Tribunal (NCLT) has clarified that third parties, including statutory auditors, cannot be automatically subjected to liability under Section 339 of the Companies Act, 2013, unless there is clear evidence demonstrating their knowing involvement in fraudulent conduct.

The ruling came in proceedings arising from the affairs of Infrastructure Leasing & Financial Services Ltd. and its subsidiaries, where applications were filed by auditor firms and their partners challenging their inclusion in proceedings under Sections 241–242 of the Act.

A Division Bench comprising Prabhat Kumar (Technical Member) and Sushil Mahadeorao Kochey (Judicial Member) held that the expression “any person” under Section 339 is broad enough to include outsiders. However, such inclusion is conditional upon proof that the person knowingly participated in or facilitated fraudulent conduct of the company’s business.

The Tribunal rejected the contention that the phrase “any person” should be interpreted ejusdem generis with “director, manager or officer.” It held that such a restrictive reading would defeat the legislative intent, which aims to hold accountable all persons complicit in fraud, including external actors.

At the same time, the Bench emphasised that liability under Section 339 is not automatic. A key requirement is the presence of knowledge of fraudulent intent, which is a sine qua non for invoking the provision. The Tribunal observed that merely being associated with a transaction later alleged to be fraudulent is insufficient to attract liability.

Addressing the role of auditors, the Tribunal reiterated that auditors function as watchdogs and not bloodhounds. However, it clarified that auditors cannot claim immunity if evidence shows deliberate inaction, collusion, or active participation in fraudulent activities. Their conduct must be examined to determine whether it amounts to professional negligence or conscious facilitation of fraud.

The Bench further held that the question of whether third parties, including auditors, had knowledge of and participated in the alleged fraud can only be determined after a detailed examination of evidence. Consequently, it declined to lay down any blanket exclusion of third parties from the scope of Section 339.

Finding the objections raised by the applicants premature, the Tribunal disposed of the applications while preserving their right to contest liability during subsequent proceedings based on evidentiary findings.

Case Details:

Order Date: 24 March 2026

Case Title: Union of India v. Infrastructure Leasing and Financial Services Ltd. & Ors.

Case No.: IA 1/2022, IA 2/2022, CA 313(MB)/2025, CA 314(MB)/2025 in CP/3638(MB)2018

Coram: Prabhat Kumar (Technical Member), Sushil Mahadeorao Kochey (Judicial Member)