Lagarde was French minister of finance in 2007, when a private arbitration tribunal agreed to award €403 million to Tapie to settle a long-running dispute.
France's Investigative Commission has now asked the Court of Justice of the Republic to decide whether Lagarde's supervision of the arbitration was "in any way negligent", Lagarde's lawyer Yves Repiquet said in a statement emailed to Out-Law.com.
"The General Prosecutor’s Office – who initiated this investigation five years ago – concluded last September, after seeing the allegations of wrongdoing against Ms Lagarde progressively fall away during the investigation, that there was no basis for referring the matter to the Court of Justice of the Republic, that Ms. Lagarde acted properly and in good faith, and that he will not prosecute the case," Repiquet said.
Lagarde "acted in the best interest of the French State and in full compliance with the law", and will appeal the decision to refer her case to the court, he said.
IMF communications director Gerry Rice said: "It would not be appropriate to comment on a case that has been and is currently before the French judiciary. However, the executive board continues to express its confidence in the managing director’s ability to effectively carry out her duties."
The 'Affaire Tapie' began in 1992, when Bernard Tapie joined the French government and was instructed to sell off some of his businesses and assets, including sporting goods company Adidas.
The bank Crédit Lyonnais was asked to manage the sale of assets. However, it bought Adidas itself, then sold it one year later for double the price.
Tapie accused the bank of fraud, and of undervaluing Adidas. In the course of the court case that followed, Crédit Lyonnais ceased to exist, and Tapie's opponent became the French state itself in the form of Consortium de Réalisation.
In 2013, the Consortium de Réalisation brought a 'recourse of judicial review' before the Paris Court of Appeal, on the basis of fraudulent arbitration proceedings. One arbitrator, Pierre Estoup, had systematically directed the reflection of the tribunal in favour of the interests of the party that he intended to promote by collusion with Tapie and his counsel, the court found.
Last week, the Paris Court of Appeal dismissed a further demand for more than one million euros from the French state by Tapie, and instead ruled that he must repay the previous €403 million award.
Tapie's lawyer Emmanuel Gaillard dismissed the latest ruling as a "denial of justice" and said he will look at ways to lodge an appeal.