Jaya Ranga

Jaya RangaIntroduction

It has been more than 15 years that we first heard about National Company Law Tribunal [NCLT] & National Company Law Appellate Tribunal [NCLAT]. Way back in 2001.

Why did it take so long for a body like this to be a reality?

Why did it not see any light of the day so far?

What caused the delay?

What were the legal difficulties that NCLT had to face?

What are the decided case laws that we need to refer?

What are the sections and provisions pertaining to NCLT?

What will be the constitution of NCLT?

Who will be the members & what will be their eligibility criteria & tenure?

What will be the powers enjoyed by NCLT?

What will be the mechanism available for the aggrieved parties?

What will be the advantages & challenges before NCLT?

What will be the Scope & Opportunities for Company Secretaries with NCLT?

The aforesaid pointers are important to be understood considering that hopefully NCLT will soon be a Reality!

Sections and provisions applicable

Chapter XXVII of Companies Act, 2013

Section 407 to Section 434 of Companies Act, 2013 and rules there under

Sections related to NCLT are not yet enforced

Establishment of NCLT

A Committee known as the Eradi Committee was constituted to review law relating to Insolvency and Winding up of Companies and laws like The Sick Industrial Companies (Special Provisions) Act, 1985

Eradi Committee made various recommendations which were incorporated in the Companies (Amendment) Bill, 2001

Companies (Amendment) Bill, 2001 was then passed and became the Companies (Amendment) Act, 2002

The Companies (Second Amendment) Act, 2002 paved way for setting up of the NCLT and NCLAT

Delay in establishment of NCLT and NCLAT

Things were not easy for NCLT as NCLT had to go through various litigations and that absorbed a lot of time and efforts eventually leading to this a big delay.

Madras High Court in R. Gandhi vs. Union of India, held that NCLT is against the basic structure of the constitution as it has been awarded with all the powers which are conferred to the High Court.

Subsequently, Hon’ble Supreme Court in Union of India vs. R. Gandhi/ Madras Bar Association upheld the Constitutional validity of NCLT.

Also there were issues pertaining to the qualification and eligibility criteria of the ‘would be technical members’ of NCLT.

Though these issues were finally resolved, the establishment of NCLT and NCLAT was delayed.

Constitution of NCLT and NCLAT

Section 408 and 410 state that NCLT and NCLAT shall constitute of-

  1. president [NCLT] & chairperson [NCLAT]
  2. judicial members
  3. and technical members for deciding the matters

President/chairperson and Members of NCLT and NCLAT how appointed

  1. as prescribed by the Central Government
  2. vide notification
  3. maximum number of members in NCLAT ≤ 11

Qualifications of President and Members of NCLT – Section 409

PresidentJudicial MemberTechnical Member
Is/has been Judge of High Court ≥ 5 yearsIs/has been Judge of High Court

(any period)

Member of Indian Corporate Law Service /Indian Legal Service ≥ 15 years

(at least 3 years to be in the pay scale of Joint Secretary to GOI or equivalent post)

Is/has been District Judge ≥ 5 yearsIs/has been PCA ≥ 15 years
Has been Advocate of court ≥ 10 yearsIs/has been PCWA ≥ 15 years
Is/has been PCS ≥ 15 years
Person with proven ability, integrity and standing having special knowledge and experience ≥ 15 years (in specified areas)
Presiding Officer of Labour Court/ Tribunal/ National Tribunal ≥ 5 years (under Industrial Disputes Act, 1947)

Qualifications of Chairperson and Members of NCLAT – Section 411

ChairpersonJudicial MemberTechnical Member
Is/has been Judge of Supreme CourtIs/has been Judge of High CourtPerson with proven ability, integrity and standing having special knowledge and experience ≥ 25 years (in specified areas)
Is/has been Chief Justice of High CourtIs a Judicial Member of Tribunal for ≥ 5 years

Term of office of President, Chairperson and other Members – Section 413

TenureRe-appointmentAgeEligibility
National Company Law Tribunal
President

 

5 years from the date of entering officeAdditional 5 years67 years
Judicial Member65 years

 

Minimum age 50 years

 

Technical Member
National Company Law Appellate Tribunal
Chairperson

 

 

5 years from the date of entering officeAdditional 5 years70 years
Judicial Member67 years

 

Minimum age 50 years

 

Technical Member

What are the remedies for person aggrieved by the order of NCLT/NCLAT?

Order of NCLT- Section 421

  1. can be appealed in NCLAT
  2. within 45 days
  3. appellate tribunal may entertain appeal after 45 days [up to additional 45 days] if satisfied that there was a sufficient cause for not filing appeal in time
  4. no appeal shall lie if the order was passed with the consent of parties

Order of NCLAT- Section 423

  1. can be appealed in Supreme Court
  2. within 60 days
  3. Supreme Court may entertain appeal after 60 days [up to additional 60 days] if satisfied that there was a sufficient cause for not filing appeal in time
  4. Appeal to Supreme Court can be made only on a Question of Law

Appeals from the appellate tribunal will not go to the High Court. Thus, reducing the burden of the High Courts

Powers of NCLT

Central Government

1. Alteration in MoA for change in place of the registered office from one state to another

2. Extension of time or condonation of delay in filing the particulars of a charge or modification of a charge or limitation of payment or satisfaction of a charge

3. Petition to pass an order directing immediate inspection of minute books

High Court

1. Winding Up

2. Compromise/ Arrangement

3. Reduction of Capital

4. Revival of Defunct Companies

5. Variation of rights

BIFR

1. Revival and rehabilitation of Sick Companies

CLB

1. Oppression/Mismanagement

2. Compounding

3. Refusal to transfer/transmit shares

4. Restriction on Transfer of securities

5. Call AGM/EOGM

6. Inspection/Investigation

New Powers

1. Class action suits [Section 245 of Companies Act, 2013]

2. Deregister a Company and determine other incidental matters

3. Remove auditor of the Company [Section 140 of Companies Act, 2013]

4. Reopening of books of Accounts

5. Revise books of account

6. Additional powers in case of non-payment of deposits [Section 74 of Companies Act, 2013]

7. Powers in case of Fast Track Merger

Advantages of NCLT

1. Avoid multiplicity of litigation and ambiguity

  • It is assumed that multiplicity of litigation will be avoided when NCLT comes in to force
  • The reason being, NCLT will be the authority handling cases which were previously handled by the High Court [example mergers and amalgamations, winding up], Company Law Board [example compounding applications], Board for Industrial and Financial Restructuring [which handled cases pertaining to Sick Companies] etc.
  • The appeals will go to NCLAT and/or Supreme Court
  • Multiplicity of litigations with various forums will be avoided or at least reduced

2. Speedy disposal of cases

  • It is a known fact that cases with CLB or BIFR and High Court go on and on for long periods
  • With NCLT, it is proposed that there will be speedy disposal of cases considering the time frame prescribed for disposing of the cases
  • Thus there will be reduction of time taken in adjudication procedures

3. Reduction of undue hardships

  • Speedy disposal will save time, energy and money of the parties concerned
  • Thus, undue hardships will be reduced if not completely eradicated

4. Reduction of burden on High Courts

  • The process of mergers/acquisitions and winding up in India is court driven, long drawn and hence problematic
  • The number of pending cases with the High Court is too high
  • Also, appeal from NCLAT will lie to the Supreme Court being the apex authority [and not the High Court]
  • Thus, NCLT will reduce the burden on High Courts

Challenges before NCLAT

  1. It takes time for an entire new body bestowed with such wide powers to meet the industry expectations
  2. Whether or not will NCLT stand the test of time
  3. Whether or not there will be problems in disposing off the cases within the prescribed time
  4. Whether or not there will be management and administration problems in the initial years
  5. Whether or not there will be difficulties in determining the technicalities

Only time will tell

Scope and Opportunities for Company Secretaries

Compromise and arrangement

  1. Appear before the Tribunal- At present lawyers/advocates who have Lawyers degree and are registered with the Bar Council of India appear for cases pertaining to compromises and arrangements in the High Courts. With the establishment of NCLT, Company Secretaries will be eligible to appear before NCLT/NCLAT for approval of schemes
  2. Assist and Advise- in cases of compromise and arrangements
  3. Act as draftsmen- and render services in preparing of schemes for clients
  4. Vetting of documents- and work related to vetting of schemes
  5. Post-merger formalities- like intimating the concerned authorities and necessary filing among other things

Sick Companies

  1. Timely detection- timely detection and timely action by the Company Secretaries will save time, money of the concerned Company and thus earn kudos to the Company Secretary
  2. Assist and Advise- in making reference to the Tribunal
  3. Act as draftsmen- and draft scheme of rehabilitation and seek various approvals from the Tribunal. Of course drafting skills need to be developed and taken care of

Winding up

  1. Representation- of winding up case before the Tribunal
  2. Act as liquidator- in case of winding up by the Tribunal [it is interesting to know that prior to this only government officers could act as Official Liquidators]

Reduction of Share Capital

  1. Representation- CS will be able to represent cases of reduction of share capital before the Tribunal
  2. Member of NCLT- A Practicing Company Secretary can be appointed as a Technical Member of NCLT provided he has 15 years’ experience as secretary in whole-time practice

Appearance before National Company Law Appellate Tribunal

  1. Authorized to appear before National Company Law Appellate Tribunal

Conclusion

National Company Law Tribunal will bring with itself wide ranging opportunities.

Need is to understand & appreciate the same.

In order to meet the standards, it is of utmost significance to continuously work towards enhancing our knowledge & skills and then deliver the quality results.

Author is a Company Secretary and can be reached at jayaranga51@gmail.com

Posted Under

Category : Company Law (2996)
Type : Articles (10794)
  • CA Vijay Kumar

    Good information