National Company Law Tribunal

WORKING & FUNCTIONS OF NATIONAL COMPANY LAW TRIBUNAL IN INDIA
 


INTRODUCTION

National Company Law Tribunal (NCLT) and National Company Law Appellate Tribunal (NCLAT) is a quasi-judicial body in India that acts as a single judicial forum to adjudicate all disputes concerning the affairs of Indian Company. It is established under the Companies Act, 2013 and is a successor body of the Company Law Board (CLB). NCLT acts as a “Single Window Institution for Corporate Justice”.

BACKGROUND OF NCLT

Considering the laws on corporate insolvency, winding of Companies and other such provisions with regards to company law prevailing in industrially advanced countries, a High-Level committee set up by the Union of India in the form of The Justice Eradi Committee[1]. The Committee examined various laws relating to companies in India and Companies Act, 1956 as well. After examination, they felt the need of some changes, which made them recommend various amendments which included the provisions of setting up of NCLT & NCLAT. Pursuant to the recommendation of the said committee the Companies (Second Amendment) Act, 2002 proposed the creation of an NCLT, where it was provided that NCLT would look into corporate matters under the Companies Act. It was provided that NCLT will be responsible for handling all pending matters before the Company Law Board, the Board for Industrial and Financial Reconstruction (BIFR) and the jurisdiction of the various company courts of the High Courts, apart from various other members.

SCOPE OF WORK

NCLT and its Appellate Tribunal would have the power of:-
  • Company Law Board under the Companies Act, 1956;
  • BIFR and AAIFR under the Sick Industrial Companies (Special Provisions) Act, 1985;
  • Jurisdiction and powers relating to winding up, companies and arrangement and other such provisions, vested in the various High Courts in India.[2]

WHY NCLT?

The genesis of setting up of specialized tribunals can be traced in the Supreme Court judgment in Sampath Kumar case[3] In this case while adopting the theory of alternative institutional mechanism the Supreme Court refers to the fact that since independence, the population explosion and the increase in litigation had greatly increased the burden of pendency in the High Courts, therefore, to reduce the burden of High Courts and to fulfil the growing need for empowering the Company Law Board, they felt the need to constitute a high-power Tribunal, which could take up all matters relating to Company Law and other Corporate Laws under one roof.
Keeping this in view, the 2002 Amendment inserted new Parts IB & IC in the Principal Act for the formation of NCLT and NCALT respectively. Necessary Section 10FA was also inserted to provide for dissolution of the present Company Law Board.
Accordingly, on and from the commencement of the Companies (Second Amendment) Act, 2002 the Board of Company Law Administration constituted under sub-section (1) of Section 10E shall stand dissolved and all matters or proceedings or cases pending before the Company Law Board on or before the constitution of the Tribunal u/s. 10FB, shall, on such constitution, stand transferred to the National Company Law Tribunal and the said Tribunal shall dispose of such cases in accordance with the provisions of this Act.
NCLT will also consolidate the corporate jurisdiction of Company Law Board, The Board for Industrial and Financial Reconstruction, The Appellate authority for Industrial and Financial Reconstruction, Jurisdiction and powers relating to winding up restructuring and other such provisions, vested in the High Court’s making the legal procedure simple and easy for everyone.
The constitution and implementation of NCLT were challenged as it seemed to transfer the jurisdiction of the High court in company matters to this quasi-judicial tribunal before the Madras High Court. The judgment of the Madras High Court on the issue of constitution of NCLT and NCLAT was taken in appeal before the Hon’ble Supreme court. The Madras High Court did not disapprove the legislative competency in establishing NCLT, but expressed its concern over the independence of the mechanism and its effectiveness, A five-judge Constitution bench headed by Chief Justice K. G. Balakrishnan, however, approved the amendment with certain conditions. The bench said a judicial officer or a person with a legal background should head the tribunal and not a retired bureaucrat, as envisaged by the Parliament. It may be pointed out that the Law Commission, as referred to by the Supreme Court in the case of L Chandra Kumar[4] had also recommended the creation of specialist Tribunals in place of Generalist Courts. Therefore, the creation of National Company Law Tribunal and Appellate Tribunal and vesting in them the powers till then exercised by the High court with regard to company matters cannot be said to be unconstitutional.

FEATURES OF NCLT

Following are the Features of an NCLT[5].
  • Only specialized court for the Corporate Matters. Helps in avoiding multiplicity of litigation before various Forums.
  • NCLT will be setup all over India, thereby providing justice almost at one’s doorstep.
  • There will be a mixture of judicial and technical members while deciding matters thus this help to explain and understand the facts more clearly and the decision will be more precise.
  • Reduction in the period of winding- up process and pendency of cases.
  • Expeditious disposal of cases.
  • NCLT & NCLAT have deals with exclusive jurisdiction.

POWER OF NCLT

Following are the powers of an NCLT:-

  • Power to seek assistance of Chief Metropolitan Magistrate:  The Tribunal may, in any proceedings relating to a sick Company or Winding up of any other company, in order to take into custody or under its control all property, books of account or other documents, request, in writing, the Chief Metropolitan Magistrate within whose jurisdiction any such property, books are situated or found.
  • Power to review its own order.
  • Power to order repayment of deposits accepted by Non- Banking Financial Companies as provided in section 45QA of the Reserve Bank of India Act, 1934.

PROVISIONS UNDER COMPANIES ACT, 2013 – NCLT

  1. Background

The provisions dealing with NCLT and NCLAT are covered under the Chapter XXVII of the Companies Act, 2013. This chapter deals with qualifications and selections, the term of office, salary, allowance and other items and conditions of service of members being covered under Section 407 to 414 in the Companies Act, 2013 were notified on 12th September 2013. Out of a total of 28 Section in Chapter XXVII of the Companies Act, 2013 these 8 sections were notified while the remaining 20 sections are yet to be notified. Rules under this chapter of the Companies Act, 2013 have also not been notified in the Official Gazette (till September 2014)[6].


2.      DEFINITIONS

Members
Definitions
Chairperson
The Chairperson of the Appellate Tribunal.

Judicial Member
A member of the Tribunal or the Appellate Tribunal appointed as such and includes the President of the Chairperson.

Member
A member, whether judicial or Technical of the Tribunal or the Appellate Tribunal and includes the President or the Chairperson.

President
The President of the Tribunal.

Technical Member
A member of the Tribunal or the Appellate Tribunal appointed as such.



3.      APPROACHING NCALT

·         Any person aggrieved by an order or decision of the NCLT, within the period of 45 days from the date on which a copy of the order or decision of the Tribunal, may prefer an appeal to Appellate Tribunal.
·         On receipt of an appeal from an aggrieved person, the Appellate Tribunal may pass such orders, after giving an opportunity of being heard, as it thinks fit, confirming, modifying or setting aside the order appealed against.
·         The Appellate Tribunal shall be made to dispose of the appeal within 6 (Six) months from the date of the receipt of the appeal.

PROCEDURE & POWERS OF NCLT & NCALT

The Tribunal and the Appellate Tribunal shall not be bound by the procedure laid down in the Code of Civil Procedure, 1908 (5 of 1908), but shall be guided by the principles of natural justice and subject to the other provisions of this Act and of any rules made by the Central Government, the Tribunal and the Appellate Tribunal shall have power to regulate their own procedure.
NCLT Draft Rules are already in place and final Rules will be placed once the provisions will be notified along with Rules.
A.    Expeditious disposal by Tribunal and Appellate Tribunal

Time period for Dispose of Application or Petition
Tribunal or the Appellate Tribunal, as the case may be, for the disposal of such application or petition or appeal within three months from the date of its presentation before the Tribunal or the filing of the appeal before the Appellate Tribunal
If not dispose of within 3-month
Tribunal or, as the case may be, the Appellate Tribunal, shall record the reasons for not disposing of the application or petition or the appeal, as the case may be, within the period so specified
Extension
The President or the Chairperson, as the case may be, may, after taking into account the reasons so recorded, extend the period referred to in sub-section (1) by such period not exceeding 90 (ninety) days as he may consider necessary.

B.     TRANSFER OF CERTAIN PENDING PROCEEDINGS (Section- 434):
On such date as may be notified by the Central Government in this behalf-
COMPANY LAW BOARD
All matters, proceedings or cases pending before the Board of Company Law Administration constituted under sub – section (1) of Section 10E of the CA-1956 immediately before such date shall stand transferred to the Tribunal and Tribunal shall dispose of such matters.
BIFR
Any appeal preferred to the AAIFR or any reference made or enquiry pending to or before BIFR or any proceeding of whatever nature pending before the AAIFR or the BIFR under the Sick Industrial Companies Act, 1985 immediately before the commencement of this Act shall stand abated.
HIGH COURT
All proceedings under Companies Act, 1956 including proceedings relating to arbitration, compromise, arrangement and reconstruction and winding up of Companies, pending immediately before such date before any District Court or High Court, shall stand transferred to the Tribunal and the Tribunal may proceed to deal with such proceedings from the stage before their transfer.

The Central Government may make rules consistent with the provisions of this Act to ensure timely transfer of all matters, proceedings or cases pending before the Company Law Board or the Court, to the Tribunal under this section.
C.    APPEAL TO SUPREME COURT
Any person aggrieved by any order of the Appellate Tribunal may file an appeal to the Supreme Court within 60 (sixty) days from the date of receipt of the order of the Appellate Tribunal to him on any question of law arising out of such order:
Provided that the Supreme Court may if it is satisfied that the appellant was prevented by sufficient cause from filing the appeal within the said period, allow it to be filed within a further period not exceeding sixty days.

OTHER IMPORTANT FEATURE
v  Limitation Act (Section 433) 
The provisions of the Limitation Act, 1963 shall, as far as may be, apply to proceedings or appeals before the Tribunal or the Appellate Tribunal, as the case may be.

v  Civil Court Not To Have Jurisdiction (Section 430)
This section deals with the exclusive jurisdiction of the Tribunal or the Appellate Tribunal. No civil court shall have jurisdiction to entertain any suit or proceeding in respect of any matter which the Tribunal or the Appellate Tribunal is empowered to determine by or under this Act or any other law for the time being in force and no injunction shall be granted by any court or other authority in respect of any action taken or to be taken in pursuance of any power conferred by or under this Act or any other law for the time being in force.

CONCLUSION

As said Justice Delayed Means Justice Denied, keeping in mind this thought and the burden of pending cases on Indian judiciary establishing specialized tribunals is the right thing to do. The Supreme Court’s Judgment of Sampath Kumar also stated the same. Further disputes relating to business matters require a specialized domain of knowledge for dealing with the matters justifiably.

*Disclaimer: The contents of the blog are not intended to convey any legal advice to the reader neither the blog creates any attorney-client relationship. You may contact an enrolled legal practitioner for assistance with your legal needs.*

[1] Justice Eradi Committee on Law Relating to Insolvency and Winding up of Companies, (available at http://pib.nic.in/focus/foyr2000/foaug2000/eradi2000.html ) accessed on 22nd Oct. 2016 at 1905 hrs.
[2]  Mr. Sudhanshu Prakash & Mr. Sudeep Aravind Panicker, Corporate Re-organisation and Establishment of NCLT & NCLAT: Perspectives & challenge (available at http://journal.lawmantra.co.in/?p=139 ) accessed at 22nd Oct. 2016 at 1833 hrs.
[3] S. P. Sampath Kumar v. UOI (1985) 4 SCC 458
[4] L. Chandra Kumar v. UOI (1997) 3 SCC 261
[5] CS Divesh Goyal, NATIONAL COMPANY LAW TRIBUNAL (available at http://www.csdiveshgoyal.info/2015/09/national-company-law-tribunal.html ) accessed at 22nd Oct. 2016 at 1845 hrs.
[6] Supra note 5.

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