• Jan
  • 17
  • 2010

Company Law Board – National Company Law Tribunal – An Analysis

We all know about the dispute resolution mechanism under the provisions of Companies Act, 1956. Till 2002 amendments to the Companies Act, 1956, significantly, the dispute resolution mechanism was vested with the Company Court and the Company Law Board. Company Court is nothing but High Court having jurisdiction to entertain certain company matters like winding-up and amalgamation petitions etc. Again, a Company Law Board is a dispute resolution mechanism constituted under section 10E of the Companies Act, 1956 and it is regulated by Company Law Board Regulations, 1991.

With the object of establishing a specialized dispute resolution mechanism at one place and without running to various forums for various issues, a National Company Law Tribunal was proposed to be constituted under section 10FB of the Companies Act, 1956. Part-1B and Part-1C of Preliminary Chapter are sought to be incorporated in the Companies Act, 1956 and the parts specifically deals with the issue of incorporation of National Company Law Tribunal, National Company Law Appellate Tribunal and other connected issues.

There are very interesting and complicated issues in the process of corporate adjudication in India. First, let us look at the powers of the Company Law Board and the powers of the proposed National Company Law Tribunal and National Company Law Appellate Tribunal.  The Company Law Board Regulations, 1991 regulates the business of Company Law Board and deal with the issue like filing procedures, powers, rights etc. The important regulations in the Company Law Board Regulations, 1991, are as follows:

“Reg.11. Petitions etc. to be in writing.

Reg.12. Application, reference or petition to be divided into  paragraphs.

Reg.13. General heading to be in Form No.1 in Annexure II.

Reg.14. Procedure for filing petition.

Reg.15. Presentation and scrutiny of the Petition.

Reg.16. Contents of the Petition.

Reg.17. Contents of Interlocutory application.

Reg.18. Documents to accompany the Petition.

Reg.19. Right of a Party to appear before the Bench.

Reg.20. Plural Remedies.

Reg.21. Service of notice and process issued by the Bench.

Reg.22. Filing of reply and other documents by the Respondents.

Reg.23. Filing of the Counter reply by the Petitioner.

Reg.24. Power of Bench to call for further     information/evidence.

Reg.25. Hearing the Petition.

Reg.26. Procedure to be followed where any party does not   appear.”

The regulations referred to above summarizes the procedure to be followed before the Company Law Board. Among the regulations referred to above, two regulations deserve specific reading. Regulations 24 and 25 of Company Law Board Regulations, 1991 are extracted hereunder.

“Reg.24. Power of Bench to call for further information/evidence. – The Bench may, before passing orders on the petition, require the parties or any one or more of them, to produce such further documentary or other evidence as the Bench may consider necessary –

(a)for the purpose of satisfying itself as to the truth of the allegations made in the petition; or

(b)for ascertaining any information which, in the opinion of the Bench, is necessary for the purpose of enabling it to pass orders on the Petition.”

Reg.25. Hearing of Petition. – The Bench may, if sufficient cause is shown at any stage of the proceeding, grant time to the parties or any of them and adjourn the hearing of the petition or the application. The Bench may make such order as it thinks fit with respect to the costs occasioned by such adjournments.”

If we look at the two regulations extracted above, it is very clear that there is no specific reference for oral evidence before the Board though one can assume that the Company Law Board is conferred with extraordinary powers under Regulation 24 itself.

Company Law Board might have been facing difficulties in the process of adjudication as it will not normally conduct any trial for deciding disputed facts and with the presence of assumed legal principle that the disputed facts can not be decided with a summary procedure. Again, there was no specific bar before the 2002 amendments on the Civil Court’s Jurisdiction in respect of company matters and we used to see many simultaneous proceedings. I used to think that we need lot more clarity and reforms in company dispute resolution mechanism in India.

Now, let us look at the powers and procedure before the proposed National Company Law Tribunal.  Sections 10E and 10FZA of the Companies Act, 1956 specifically deal with the powers of the proposed National Company Law Tribunal and those are extracted hereunder.

“10E. (4C) Every Bench referred to in sub-section (4B) shall have powers which are vested in a Court under the Code of Civil Procedure, 1908 (5 of 1908), while trying a suit, in respect of the following matters, namely:-

(a) discovery and inspection of documents or to other material objects producible as evidence;

(b) enforcing the attendance of witnesses and requiring the deposit of their expenses;

(c)compelling the production of documents or other material objects producible as evidence and impounding the same;

(d) examining witnesses on oath;

(e) granting adjournments;

(f) reception of evidence on affidavits.”

10FZA. (1) The Tribunal and the Appellate Tribunals 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 other provisions of this Act and of any rules made by the Central Government, the Tribunal and the Appellate Tribunals hall have power to regulate their own procedure.

(2) The Tribunal and the Appellate Tribunal shall have, for he purposes of discharging its functions under this Act, the same powers as are vested in a civil court under the Code of Civil Procedure, 1908 (5 of 1908) while trying a suit in respect of the following mattes, namely:-

(a)  summoning and enforcing the attendance of any person and examining him on oath;

(b) requiring the discovery and production of documents;

(c) receiving evidence on affidavits;

(d) subject to the provisions of sections 123 and 124 of the Indian Evidence Act, 1872 (1 of 1872), requisitioning any public record or documents or copy of such record or document from any office;

(e) issuing commissions of reexamination of witness or documents;

(f) reviewing its decisions;

(g) dismissing a representation for default or deciding it ex parte;

(h) setting aside any order of dismissal of any representation of default or any order passed by it ex parte; and

(i) any other matter which maybe prescribed by the Central Government.

(3)  Any order made by the Tribunal or the Appellate Tribunal maybe enforced by that Tribunal in the same manner as if it were a decree made by a court in a suit pending therein, and it shall be lawful for the Tribunal or the Appellate Tribunal to send in case of its inability to execute such order, to the court within the local limits of whose jurisdiction, -

(a)  in the case of an order against a company, the registered office of the company is situate; or

(b) in the case of an order against any other persons, the person concerned voluntarily resides or carries on business or personally works for gain.

(4) All proceedings before the Tribunal or the Appellate Tribunal shall be deemed to be judicial proceedings within the meaning of sections 193 and 228, and for the purpose of the section 196, of the Indian Penal Code (45 of 1860) and the Tribunal and the Appellate Tribunals hall be deemed to be a civil court for the purpose of section 195 and Chapter XXVI of the Code of Criminal Procedure, 1973 (2 of 1974).”

If we compare the powers of the Company Law Board and the proposed National Company Law Tribunal, we can find lot of difference and the provisions conferring powers on the National Company Law Tribunal are detailed and specific. On the issue of Civil Court’s jurisdiction, section 10GB deals with the issue and the same is extracted hereunder.

“10GB. 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.”

Thus, the issue of simultaneous proceedings is sought to be addressed in the 2002 amendments to the Companies Act, 1956 and an honest effort has been made to give clarity on company dispute adjudication forums under the provisions of Companies Act, 1956.

If we ask a legal expert as to what is the difference between a Tribunal and the Court, we can hear lot of explanation with specific reference to Code of Civil Procedure. We were of the settled opinion that the Code of Civil Procedure is the cause for delay before the Traditional Courts. But, logically, there can not be any difference between Courts or the Tribunal and we can consider Tribunal as a Special Court. The issue is summarized by Hon’ble Justice Gajendragatkar in Associated Cement Companies Ltd. V. P.B.Sharma, AIR 1965 SC 1595 and the relevant paragraph is extracted hereunder.

“…..Special matters and questions are entrusted to them for their decision and in that sense, they share with the courts one common characterizing; both the courts and the Tribunals are ‘constituted by the State and are invested with the judicial as distinguished from purely administrative or executive functions….’ They are both adjudicating bodies and they deal with and finally determine disputes between parties which are entrusted to the jurisdiction….As in the case of courts, so in the case of Tribunals, it is the State’s Inherent judicial power which has been transferred and by virtue of the said power, it is the State’s inherent judicial function which they discharge. Judicial functions and judicial powers are one of the essential attributes of a sovereign State, and on considerations of policy, the /State transfers its judicial functions and powers mainly to the courts established by the Constitution; but that does not affect the competence of the State, by appropriate measures, to transfer a part of its judicial powers and functions to Tribunals by entrusting to them the task of adjudicating upon special matters and disputes between parties. It is really not possible or even expedient to attempt to describe exhaustively the features which are common to the Tribunals and the courts, and feature which are distinct and separate. The basis and the fundamental feature which is common to both the courts and the Tribunals is that they discharge judicial functions and exercise judicial powers which inherently vest in a sovereign state”.

Now, let us look at the style of functioning of the Company Court and the Company Law Board. High Court is conferred with jurisdiction to entertain certain company matters like winding-up etc. under the provisions of Companies Act, 1956. We know the power of High Court being a Constitutional Court. High Court enjoys extraordinary power under Article 226 of Constitution of India. We can see many orders by the High Court ignoring the technicalities and directing towards effective adjudication or settlement of the dispute. Many gives so much respect to High Court and an order of High Court is adhered to in most of the cases and we will be seeing contempt issues etc. when the order is directed against the Government or Governmental organs. That is a different issue altogether. 

But, if we look at the procedure before the Board and style of functioning of Company Law Board and the manner in which the adjudication is being done, we can very clearly see the difference between the High Court and the Company Law Board barring the issue that the Company Law Board is a specific forum. The Company Law Board which is conferred with the powers to entertain applications under section 397/398 excises very important functions having impact on the corporate world. Winding-up is the last stage of the Company and represents a bad state of affairs of the Company though the issue should not be taken lightly. But, regulating the affairs of the Company or preventing the illegal actions by a group in the Company, are very vital functions discharged by the Company Law Board and the proposed National Company Law Tribunal.  Companies or the shareholders approaching the Company Law Board or the proposed National Company Law Tribunal may require emergent relief even ex-parte in many cases and the Board or the National Company Law Tribunal should be prepared to passed ex-parte orders and   orders without insisting on technicalities. I strongly feel that the High Court functions like an Arbitrator where technicalities are ignored and the dispute resolution is directed towards doing justice. We need a powerful dispute resolution mechanism to resolve the company matters under the provisions of Companies Act, 1956.

I am of the strong opinion that the purpose may not be solved with the constitution of special tribunals like National Company Law Tribunal and it is very difficult to create an atmosphere present in the High Court anywhere else. I am sure on that.

We all know that the constitution of National Company Law Tribunal is stayed by Madras High Court in R.Gandhi Vs. Union of India. Senior Advocate Shri Aravind P.Datar has appeared for the Madras Bar which is the Petitioner in the case referred to seeking stay of constitution of National Company Law Tribunal. The discussion in the case dealwith by Justice Jyasimha Babu gives a complete idea on constitution of special tribunals like National Company Law Tribunal.

If we look at the powers conferred on the proposed National Company Law Tribunal and especially section 10FZA, it is very much similar to section 22 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993. Section 22 as referred to is extracted hereunder.

“Section 22. Procedure and Powers of the Tribunal and the Appellate Tribunal.-

(1) The Tribunal and the Appellate Tribunal shall not be bound the procedure laid down by the Code of Civil Procedure, 1908 (5 of 1908), but shall be guided by the principles of natural justice and, subject to other provisions of this Act and of any rules, the Tribunal and the Appellate Tribunal shall have powers to regulate their own procedure including the places at which they shall have their sittings.

(2) The Tribunal and the Appellate Tribunal shall have, for the purpose of discharging their functions under this Act, the same powers as are vested in a civil court under the Code of Civil Procedure, 1908 (5 of 1908), while trying a suit, in respect of the following matters, namely:-

(a)  summoning and enforcing the attendance of any person and examining him on oath;

(b)  requiring the discovery and production of documents;

(c) receiving evidence on affidavits;

(d)  issuing commissions for the examination of witnesses or documents;

(e)  reviewing its decisions;

(f)  dismissing an application for default or deciding it ex-parte;

(g) setting aside any order of dismissal of any publication for default or any order passed by it ex-parte;

(h)  any other matter which may be prescribed.

(3)  Any proceeding before the Tribunal or the Appellate Tribunal shall be deemed to be a judicial proceeding within the meaning of sections 193 and 228, and for the purpose of section 196, of the Indian Penal Code (45 of 1860) and the Tribunal or the Appellate Tribunal shall be deemed to be a civil court for all the purposes of section 195 and Chapter XXVI of the Code of Criminal Procedure, 1973 (2 of 1974)”

Thus, the Debt Recovery Tribunal can conduct a Trial, but, practice differs and it is very rare to see a Trial before the Debt Recovery Tribunal.

Section 385 of the Companies Bill, 2009 deals with the powers of the National Company Law Tribunal and it is similar to section 10FZA incorporated pursuant to 2002 amendments to the Act.

I strongly feel 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?

I don’t, for sure, think that the Debt Recovery Tribunals and Company Law Board be able to prove as best alternative to the adjudication by Courts though we can agree that we need many Judicial reforms.

The issue of establishing an effective adjudication mechanism under the provisions of Companies Act, 1956 is very important as it can directly impact the corporate growth. We need an effective mechanism for sure and I am sure that the issue remains complicated even in future.

Note:

  1. I have just expressed my view on the subject with my practice exposure.
  2. I have just analyzed various issues and not supporting any forum not opposing.
  3. My intention is to focus on the significance of having an effective adjudication mechanism to adjudicate the disputes arising under the provisions of Companies Act, 1956.

Author:

V.DURGA RAO, Advocate, Madras High Court

Email: vdrao_attorney@yahoo.co.in


4 Responses to “Company Law Board – National Company Law Tribunal – An Analysis”

  1. eswar says:

    a member can only file a petition against company.

  2. manish kumar sharma says:

    reply above question

  3. m.s.gopalakrishna says:

    Respected Sir,

    I have one doubt about the locus-standi of the appellant, suppose if a person wants to file petition before the Company law board, is it necessary that, the appellant should be a share holders of the said company?
    can any body other than share holder can file petition before the company law board against a company.about the contravention of companies act 1956 Please clarify me.sir
    Thanking you sir,
    m.s.gopalakrishna

  4. K PHANI KUMAR says:

    DEAR SIR,

    NOT ONLY THE SPECILIZED TRIBUNALS FOR COMPANY MATTERS AS MENTIONED, BUT THE EARLY IMPLEMENTATION IS ALSO NECESSARRY.

    I HOPE THE EARLY BEGINING OF THE SAID TRIBULANS .

    K. PHANI KUMAR, ADVOCATE
    ( CORPORATE LAWS), HYDERABAD, ANDHRAPRADESH

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