National Company Law Tribunal

1. AAIFR – Appellate Authority for Industrial and Financial Reconstruction 2. BIFR- Board for Industrial and Financial Reconstruction 3. CLB – Company Law Board 4. NCLT – National Company Law Tribunal 5. NCALT – National Company Law Appellate Tribunal 6. SICA – Sick Industrial Companies (Special Provisions) Act, 1985 Table of Cases 1. RDF Power Projects Ltd v. M. Muralikrishna, (2005) 124 Comp Cas 184 (AP) 2. Union of India v. R.

Gandhi, President, Madras bar Association (2010) 2 Comp LJ 577 (SC) Introduction Due to the delay in decisions regarding procedures of merger/amalgamations, reduction of capital and winding up of companies, the High Court has been dispensed with the cases relating to these matters. The government constituted a Committee under the chairmanship of Justice V. Balakrishna Eradi, which made certain recommendations with the objective of expenditing the revival/rehabilitation of sick companies.

Consistent with the above underlined objective the Companies (Second Amendment) Act, 2002 provides for setting up of the National Company Law Tribunal which shall deal with all matters relating to Companies which were earlier handed by various High courts, CLB, BIFR and AAIFR. This is aimed at and it is certainly hoped so that it will reduce delays and tedious procedures for carrying out many acts under the Companies Act, 1956. Any person aggrieved by an order or decision of the NCLT may prefer an appeal to the National Company Law Appellate.

Tribunal, within a period of 45 days from the date on which a copy of the said order or decision is received by the appellant. Any person aggrieved by any decision or order of the Appellate Tribunal may file an appeal to the Supreme Court of India within 60 days from the date of communication of the decision or order of the Appellate Tribunal to him on any question of law arising out of such decision or order. However it is to be noted that the Companies Second Amendment Act 2002 has been duly enacted but has not been brought into effect.

It is only when a notification is issued under section 1(2) of this Act the amendment provisions will be brought into effect. The amendment was challenged and has been held valid by the Supreme Court on May 11, 2010 in Union of India v. R. Gandhi with some suggestions for making changes in the constitution of the Tribunal. It has been expressed that with the suggested changes, it will take time for actual establishment of National Company Law Tribunal. Statement of Problem

The tribunal was caught in a major legal wrangle amid fears that its structure as proposed by the government flouted the Constitutional separation of powers by vesting essential functions in the quasi-judicial body; it got the approval of the Supreme Court on May 11, 2010. The project focuses on the detailed study of structure and powers of the National Company Law Tribunal and the efficacy of the same by analyzing the judgment given by the Supreme Court upholding the validity of 2002 amendment.

Literature Review It has been deduced on a study of various literatures on the subject matter that: National Company Law Tribunal is aimed at and it is certainly hoped so that it will reduce delays and tedious procedures for carrying out many acts under the Companies Act, 1956. In Union of India v. R. Gandhi, President, Madras bar Association[1], constitutional bench of 5 judges led by Chief Justice K. G. Balakrishnan and comprising Justices R. V. Raveendran, J. M. Panchal, D. K. Jain and P.

Sathasivam upheld the validity of the 2002 amendment, but said the proposed tribunal should be headed by a retired high court judge, who and other members would be appointed by a committee headed by the Chief Justice of India. Preeti Malhotra, former president of ICSI is of the view that, “It is a landmark judgment for corporate India and professionals. It will speed up various corporate processes such as M&As, restructuring, dispute resolution and liquidation. The NCLT framework recognises that speed is of essence.

By the time NCLT is set up and becomes functional, which might take a year, the new Companies Bill may also get passed in Parliament. Both will synchronise well. ” Harish Salve, senior corporate lawyer welcoming the judgment of the Supreme Court has expressed that, “The SC has done a balancing act by ruling that specialised tribunals should not lose judicial flavour. The members can’t be retired civil servants but has to be from the judicial fora. ” Sitesh Mukherjee, Partner, Trilegal says, “Independence of the tribunal, since tribunals are doing more and more work that was earlier being done by judiciary.

It is necessary that independence which is a key feature of the judicial system must be ingrained in the tribunals as well. ” R Bandyopadhyay , secretary-corporate affairs, had stated that, it is difficult to say how much time it might take to make NCLT fully functional, but expressed confidence that it could happen in less than a year as The court has also suggested some changes for which it is needed to see if it is required to go back to Parliament or whether the suggestions could be implemented administratively. V.

DURGA RAO, Advocate, Madras High Court expresses a contrary view and is of the opinion that; “there will be challenges for the National Company Law Tribunal like: 1. How will the Tribunal deal with the issue of examining a person on oath or conducting a trial when there was a demand for trial? 2. Will the National Company Law Tribunal be able to discharge the functions like Company Court? 3. Will the National Company Law Tribunal be able to provide speedy relief to the needy corporates without laying so much emphasis on technicalities? ” Hypothesis.

National Company Law Tribunal will reduce delays and tedious procedures for carrying out many acts under the Companies Act, 1956. Objectives 1. To study the objects and reason behind the constitution of National Company Law Tribunal. 2. To study the position prior to National Company Law Tribunal. 3. To study the provisions related to constitution and powers of the Tribunal. 4. To analyse the validity and efficacy of the establishment. Methodology The method adopted is “Doctrinal” method of research. Companies Act, 1956 and Companies (Second Amendment) Act, 2002 have been studied thoroughly.

Part 1 B inserted by the Amendment Act of 2002 has been studied and analysed in detail. For the detailed study of the provisions mentioned in the statute, commentaries on the statutes and text books on company law are referred. The case of Union of India v. R. Gandhi has been studied for establishing the validity of the amendment. Also, the comments of various experts on the judgment have been studied through internet resources. Scheme of Study The present study is divided into three parts.

• 1st part deals with overview of the National Company Law Tribunal i. e.it states what is National Company Law Tribunal and how it has come into existence, the objects and reasons behind its constitution and the changes brought in the position existing prior to its establishment. • 2nd part deals with the present provisions related to National Company Law Tribunal i. e. the provisions added after the Companies (Second Amendment) Act, 2002. • 3rd and the last part deals with findings and conclusions and analyses the case of Union of India v. R. Gandhi for holding the validity of the establishment. National Company Law Tribunal – An Overview.

• What Is National Company Law Tribunal And How It Has Come Into Existence? National Company Law Tribunal (NCLT) is a tribunal constituted under Part 1 B [Sections 10FB to 10FP] of the Companies Act, 1956. This part has been inserted by the Companies (Second Amendment) Act, 2002 and accordingly 34 new sections in this part i. e. 10FB, 10FC, 10FD, 10FE, 10FF, 10FG, 10FH, 10FI, 10FJ, 10FK, 10FL, 10FM, 10FN, 10FO, 10FO, 10FQ, 10FR, 10FS, 10FT, 10FU, 10FV, 10FW, 10FX, 10FY, 10FZ, 10FZA, 10G, 10GA, 10GAA, 10GB, 10GC, 10GD, 10GE and 10 GF relating to Tribunal and Appellate Tribunal has been inserted.

The recommendation of the said amendment was given by Justice Eradi Committee. The committee recommended that the provisions of Part VII of the Companies Act, 1956 which deals with “Winding Up” shall be amended to include the provisions setting up of a National Tribunal which will have- a) The jurisdiction and power being presently exercised by the Company Law Board under the Companies Act, 1956; b) The power to consider rehabilitation and revival of companies- a mandate presently entrusted to BIFR/AAIFR under SICA; c) The jurisdiction and power relating to winding up of companies presently vested in the High Courts.

This amendment was proposed because in the view of the Committee the whole issue of law relating to insolvency of companies should be viewed not only on the basis of existing provisions of Part VII of the Companies Act, 1956 but also other relevant laws having a bearing on the subject, such as Sick Industrial Companies (Special Provisions) Act, 1985, (SICA), Recovery of debts due to Banks and Financial Institutions, 1993, UNCITRAL Model Law on Cross Border Insolvency approved by United Nations and International Monetary Fund Report on “Orderly and effective Insolvency Procedures”.

• Objects And Reasons Behind The Amendment As stated under the Statement of objects and reasons appended to Companies (Amendment) Bill, 2001, the purpose behind setting up of National Company Law Tribunal was to consolidate the powers and jurisdiction exercised by various bodies, viz.

, Company Law Board or Board for Industrial and Financial Reconstruction or Appellate Authority for Industrial and Financial Reconstruction or High Courts to the Tribunal and hence, multiplicity of litigation before various courts or quasi-judicial bodies or forums regarding revival or rehabilitation or merger or amalgamation or winding up will be avoided as all the matters will be heard and decided by the National Company Law Tribunal.

• Position Prior To Establishment Of National Company Law Tribunal Section 10 of the Companies Act 1956 dealt with the “Jurisdiction of Courts”, according to which except where jurisdiction has been expressly conferred on the District Court by the Central Government by issuing a notification in the Official Gazette, it is the jurisdiction of the High Court to entertain any dispute in respect of affairs of the company. The High Court exercises jurisdiction in respect of only those provisions of the Act where a reference is made specifically to `court’. Further a High Court exercises jurisdiction over a company whose registered office is in the State where it has territorial jurisdiction.

Courts have now no power in relation to winding up of companies. The powers under sections 101-104(Reduction of share capital), 237(Investigation), 391(Compromise), 394(Reconstruction and amalgamation), 395(Power and duty to acquire shares of shareholders dissenting from scheme or contract approved by majority), 397(Oppression) and 398(Mismanagement) are now vested in the Tribunal. Civil Courts have now been barred from exercising jurisdiction in respect of any matter which the Tribunal or Appellate Tribunal is empowered to determine. [2].

The powers of the High Courts are now confined to Sections 81(7); 119(4); 203(1); 237 (a) (ii); 424 L (2); 581 ZN (16); 581 ZS (1); 630(2) and 633(3). [3] Further Section 10 E, inserted by the Companies (Amendment) Act, 1988 provided for the constitution of the Board of Company Law Administration or Company Law Board (CLB). It was considered desirable, for the better and convenient administration of the Companies Act. The Board being a quasi-judicial body exercised some of the judicial and quasi-judicial powers, which were earlier being exercised by the High Court or the Central Government.

The Board was not subject to the control of the Central Government and had powers to regulate its own procedures and act in its own discretion. It also had inherent powers to review its order when necessary for ends of justice or to prevent abuse of its process. In RDF Power Projects Ltd v. M. Muralikrishna[4] it was observed that; “Though the Company Law Board has some of the trappings of a `court’, yet given the scope, functions and the special jurisdiction so conferred upon it cannot be regarded as a `court’ in the strict interpretation of law.

The powers and functions of the Central Government which the Company Law Board exercises being Quasi-judicial in nature, the limited powers of Civil Procedure Code can by no means be regarded as court and more so when the proceedings before the Company Law Board are summary in nature. ” According to Section 10FA; after the commencement of Companies (Second Amendment) Act, 2002, Company Law Board constituted under section 10E shall stand dissolved and all the powers of the Company Law Board shall be vested in the National Company Law Tribunal.

Further all the matters or proceeding or cases pending before the Company Law Board shall be transferred to the Tribunal from such date as may be notified by the Central Government in the Official Gazette. The Tribunal shall dispose of such cases in accordance with the provisions of this Act. National Company Law Tribunal constituted through Companies (Second Amendment) Act, 2002, have taken over the complete jurisdiction of the Company Law Board, BIFR and to a very large extent that of the Civil Courts and High Courts.

[5] National Company Law Tribunal – Present Position Sections 10FB to Section 10 FP inserted by the Companies (Second Amendment) Act, 2002 (11 of 2003) provide for the constitution of the National Company Law Tribunal and lays down its composition and powers etc. The provisions are explained in detail hereunder: • Constitution Of National Company Law Tribunal – Section 10FB The Tribunal i. e. National Company Law Tribunal shall be constituted by the Central Government by notification in the Official Gazette.

It has to exercise and discharge such powers and functions as are, or may be, conferred on it by or under this Act or any other law for the time being in force. [6] • Composition Of Tribunal- Section 10FC The tribunal shall consist of a President and not more than 62 Judicial and Technical members. The maximum number of 62 members has been specified taking into consideration that the Tribunal shall work through Benches, each consisting of three or more members, which will deal with the matters relating to revival or reconstruction or rehabilitation or winding up of companies.

• Qualifications For Appointment Of President And Members- Section 10FD President- He should be or have been or is qualified to be a Judge of High Court. The appointment will be done by the Central Government in consultation with the Chief Justice of India or his nominee. Judicial and Technical Members- The qualifications for appointment shall be as specified hereunder: A person shall not be qualified for appointment as Judicial Member unless he– a) has, for at least fifteen years, held a judicial office in the territory of India;

Or b) has, for at least ten years been an advocate of a High Court, or has partly held judicial office and has been partly in practice as an advocate for a total period of fifteen years; or c) has held for at least fifteen years a Group ‘A’ post or an equivalent post under the Central Government or a State Government [including at least / three years of service as a Member of the Indian Company Law Service (Legal Branch) in Senior Administrative Grade in that service]; or d) has held for at least fifteen years a Group ‘A’ post or an equivalent post under the Central Government (including at least three years of service as a Member of the Indian Legal Service in Grade I of that service).

A person shall not be qualified for appointment as Technical Member unless he— a) has held for, at least fifteen years a Group ‘A’ post or an equivalent post under the Central Government or a State Government [including at least three years of service as a Member of the Indian Company Law Service , (Accounts Branch) in Senior Administrative Grade in that service]; or b) is, or has been, a Joint Secretary to the Government of India under the Central Staffing Scheme, or any other post under the Central Government or a State Government carrying a scale of pay which is not less than that of a Joint Secretary to the Government of India for at least five years and has adequate ‘ knowledge of, and experience in, dealing with problems relating to company law; or c) is, or has been, for at least fifteen years in practice as a chartered accountant under the Chartered Accountants Act, 1949 (38 of 1949) ;

Or d) is, or has been, for at least fifteen years in practice as a cost accountant under the Costs and Works Accountants Act, 1959 (23 of 1959); or e) is, or has been, for at least fifteen years working experience as a Secretary in whole-time practice as defined in clause (45A) of section 2 of this Act and is a member of the Institute of the Companies Secretaries of India constituted under the Company Secretaries Act, 1980 (56 of 1980);

Or f) is a person of ability, integrity and standing having special knowledge of, and professional experience of not less than fifteen years in, science, technology, economics, banking, industry, law, matters relating to industrial finance, industrial management, industrial reconstruction, administration, investment, accountancy, marketing or any other matter, the special knowledge of, or professional experience in, which would be in the opinion of the Central Government useful to the Tribunal; or

g) is, or has been, a Presiding Officer of a Labour Court, Tribunal or National Tribunal constituted under the Industrial Disputes Act, 1947 (14 of 1947); or h) is a person having special knowledge of, and experience of not less than fifteen years in, the matters relating to labour. • Term Of Office Of President And Members- Section 10FE The appointment can be only for a period of three years. The period shall be reckoned from the date of assumption of office.

Reappointments can be made which further cannot exceed 3 years. A person who has attained the age of 67 years is not eligible to be appointed as President. The age limit for other members is 65 years. If the three year period overlaps the specified age limit, the appointment or re-appointment will have to be restricted to the period up to the attainment of the age limit. Further the President or member can retain his lien with his parent cadre or Ministry or Department.

• Financial And Administrative Powers Of Member Administration- Section 10FF Central Government is empowered to designate any Judicial or Technical member as Member Administration who shall exercise such financial and administrative powers as may be vested in him under the rules prescribed by the Central Government. The Member Administration has the authority to delegate these powers to an officer of the Tribunal and the officer has to act under the direction, superintendence and control of Member Administration.

In the Companies (Amendment) Bill 2001, instead of member, it was the President who was proposed to exercise these functions but the enacted section does not reflect the same. • Salary, Allowances And Other Terms And Conditions Of Service Of President And Other Members – Section 10FG The salary and allowances and other terms and conditions of service of the President and other Members of the Tribunal shall be such as may be prescribed. The proviso to this section prohibits variation of salary, terms of service, etc. after appointment as President or member, to his disadvantage.

• Vacancy In Tribunal – Section 10FH In the event of any vacancy in the office of the President of the Tribunal by reason of his death, resignation or otherwise, the senior-most member shall act as the President of the Tribunal till a new President is appointed. In case of temporary disability of the President to discharge his functions owing to absence, illness or any other cause, the senior-most member or one of the members as may be authorized by the Central Government may discharge the functions of the President until the date on which the President resumes his duties.

• Resignation Of President And Member – Section 10FI The President or member may resign his office by giving notice in writing. The resignation of the President or member becomes effective from the date of acceptance of the resignation. Until it is accepted, he will continue to function as President or member, subject to the earliest occurrence of any of the three following: a) Expiry of 3 months from the date of receipt of the notice of resignation; or b) Appointment of a successor; or c) Expiry of the term of office. • Removal And Suspension Of President Or Member – Section 10FJ.

The Central Government may, in consultation with the Chief Justice of India, remove from office the President or any member on following grounds: a) Insolvency; b) Conviction for an offence involving moral turpitude; c) Physical or mental incapacity; d) Acquisition of such financial interest as is prejudicial to his functioning; e) Abuse of position. Insolvency and Moral Turpitude: In case of insolvency, the person in question should have been adjudged as insolvent. In case of moral turpitude, the person should have been convicted for an offence which in the opinion of the Central Government involves moral turpitude.

The fact that proceedings are pending before the court in respect of any of these two matters does not warrant removal of the person concerned from his office. Opportunity of being heard: Except in the case of insolvency, the person charged on any of the other four grounds must be given opportunity of being heard in respect of the charges. Misbehavior or incapacity: An inquiry is to be conducted by a judge of the Supreme Court where a person is charged with misbehavior or incapacity. Only if the charge is proved after the inquiry, can the person be removed from his office.

The investigation has to be conducted in accordance with the Rules prescribed by the Central Government in this behalf. Suspension from Office of President or member: President or member can be suspended from office only on the grounds of misbehavior or incapacity. The suspension can operate from the time of reference for inquiry to the Supreme Court Judge into the alleged misbehavior or incapacity up to the date of Central Government’s order on the report of the Supreme Court Judge. • Officers And Employees Of Tribunal – Section 10FK.

The Central Government shall provide the Tribunal with such officers and other employees as it may deem fit that discharge their functions under the general superintendence of the Member Administration. The salaries and allowances and other terms and conditions of service of the officers and other employees of the Tribunal shall be such as may be prescribed. • Benches Of Tribunal – Section 10FL The Central Government is empowered to notify the number of Benches and the President can constitute only such number of Benches as are notified by the Central Government.

Two-member Bench: Benches shall be constituted by the President of the Tribunal with two members out of whom one shall be a Technical Member and the other a Judicial Member and such Bench shall be presided over by the Judicial Member. The technical member must not be a person appointed as member representing labor interests in terms of Section 10 FD(3) (g) to (h). Single member Bench: It shall also be competent for the President to constitute bench consisting of a single member. It will exercise powers and authority as the President may specify by general or special order.

The President can transfer a matter before the single Bench to a larger Bench of two or more members, if the single member is of the view that the nature of the matters requires consideration by a larger Bench. Special Benches: It is further provided that at least ten Special Benches consisting of three or more members one of whom shall be a Judicial Member and the other two members shall be those appointed under Section 10 FD (3), shall be constituted for the disposal of any case relating to rehabilitation, restructuring or winding up of the companies.

This will reduce the entire process which is presently taking several years in winding up of companies to about two years or so. Further the powers relating to compromises, arrangements and reconstructions, and the power relating to revival and rehabilitation of sick industrial companies will also be within the jurisdiction of the Special Bench. If the Special Bench orders winding up of the company, the proceedings may be conducted by a Single Member Bench. Principal Bench: It will be located at New Delhi.

It shall be presided over by the President. The President has the power to specify the matters which may be dealt with by the Principal Bench. If any Bench is unable to hear the proceedings for any reason, the Principal Bench has the power to transfer such proceedings to another Bench which has jurisdiction over the matter. The Principal Bench has to record in writing the reasons for transfer of any proceedings from one Bench to another. Tribunal’s Decision: A matter before the Tribunal shall be decided according to the majority opinion.

If members are divided and there is no majority, they are required to state the points of disagreement and refer the matter to the President, who in turn, has to refer these points to one or more members other than those who originally considered the matter. The differences will be settled according to majority view of the members who heard the case, including those who first heard it. The above provision does not preclude the President from hearing the points of difference himself, if he was not one of the members who heard the matter first.

• Order Of Tribunal – Section 10FM The Tribunal shall pass such orders as it thinks fit alter an opportunity of being heard is given to the parties concerned. The tribunal may, within two years from the date of orders, amend any order to rectify apparent mistake on the record and shall be bound to do so if it is brought to the notice of the Tribunal by the parties. • Power To Review – Section 10FN The Tribunal shall have power to review its own orders. It expressly confers the right on a person to ask for a review of an earlier order made by the Tribunal.

In reviewing its decisions it has the same powers as are vested in a civil court under the Code of Civil procedure in this behalf. This provision empowers the Tribunal to correct miscarriage of justice or any manifest wrong which has been done. • Delegation Of Powers – Section 10FO The Tribunal may, by special order, delegate its power to the following persons: a) A member of the Tribunal; b) An officer of the Tribunal; c) An employee of the Tribunal; d) A person authorized by the Tribunal to manage any Industrial company or Industrial undertaking; e) An operating agency.

No other person or authority can be delegated any power of the tribunal. The order of delegation may specify conditions and limitations subject to which the delegatee may act. The Tribunal may not delegate its judicial or quasi-judicial powers but it may delegate its administrative powers. • Power To Seek Assistance Of Chief Metropolitan Magistrate And District Magistrate- Section 10FP The tribunal or any operating agency shall have power to seek assistance in writing of the Chief Metropolitan Magistrate or District Magistrate to take into custody or under its control all property, effects and actionable claims of a sick industrial company.

Specific Procedure to be adopted for the same by the Magistrate is not specifically laid down. The Magistrate has full discretionary power in the matter which he has to exercise judiciously. The act of the magistrate is out of the purview of judicial scrutiny. Findings & Conclusion • Whether National Company Law Tribunal Is A Valid Establishment? A Division Bench of the Madras High Court comprising Justices R. Jayasimha Babu and M. Karpavinayagam had, in 2004 stuck down the amendment to the Companies Act.

The High Court held that the provisions were drafted in haste and have not received the kind of attention that they should have, the court declared that, “… until the provisions in parts 1B and 1C of the Companies Act introduced by the Companies (Amendment) Act, 2002, which have been found to be defective in as much as they are in breach of the basic constitutional scheme of separation of powers and independence of the judicial function, are duly amended, by removing the defects that have been pointed out, it would be unconstitutional to constitute a Tribunal and Appellate Tribunal to exercise the jurisdiction now exercised by the High Courts or the Company Law Board. ”

Coming down particularly hard on the Government, the High Court had said, “If they (Amendments) are the result of careful deliberation it only makes matters worse. ” They added, “The creation of a new substitute judicial forum which is to carry out the work which is now being carried out by 21 different High Courts in the country which work has been done in the High Court for over nine decades, is to be done with great care…. ” Union of India subsequently filed an appeal before a three Judge bench before Justices K.

G. Balakrishnan, D. K. Jain and V. Sirpurkar in 2004. The three Judge bench had referred the matter to the Constitutional bench stating, “Since the issues raised in the appeals are of seminal importance and are likely to have serious impact on the very structure and independence of the judicial system, we are of the view that the issue with regard to the constitution of the Tribunals and the areas of their jurisdiction needs to be given a fresh look and therefore, the matter deserves to be heard by a Constitution Bench. ”[7].

The constitutional bench in an unanimous verdict written by Justice Raveendran, held that the tribunal must include judicial and technical members with requisite qualifications. The Apex Court also held that the technical members should not exceed judicial members and the tenure of the members should be increased from three years, to five or seven years. Subject to the amendments, the decks are cleared for the establishment of a NCLT. With the suggested amendments, here’s how the NCLTs will now work:[8] Tribunals will comprise one principle bench at Delhi, and then as many other benches as the Central Government thinks fit.

Each bench will have at least one judicial member and one technical member. Members will be selected by a committee that includes: – The Chief Justice of India or his nominee. – A senior High Court or Su