Section 420(2) of the Companies Act, 2013 provides as under:
“………………………………(2) The Tribunal may, at any time within two years from the date of the order, with a view to rectifying any mistake apparent from the record, amend any order passed by it, and shall make such amendment, if the mistake is brought to its notice by the parties:
Provided that no such amendment shall be made in respect of any order against which an appeal has been preferred under this Act……………………………..”
Inherent Powers of Tribunal: Rule 11 of the NCLT Rules, 2016 state that nothing in these rules shall be deemed to limit or otherwise affect the inherent powers of the Tribunal to make such orders as may be necessary for meeting the ends of justice or to prevent abuse of the process of the Tribunal.
Rectification of Order: Rule 154 of the NCLT Rules, 2016 provides that:
(1) Any clerical or arithmetical mistakes in any order of the Tribunal or error therein arising from any accidental slip or omission may, at any time, be corrected by the Tribunal on its own motion or on application of any party by way of rectification.
Omission means when something is left out. It connotes an unintentional act [see CIT v. J. K. A. Subramania Chettiar [1977] 110 ITR 602 (Mad.)]. It would mean that what was intended to have been done was not done as it ought to have been done.
(2) An application under sub-Rule (1) may be made in Form No. NCLT 9 within two years from the date of the final order for rectification of the final order not being an interlocutory order.
General power to amend: Further, Rule 155 of the NCLT Rules, 2016 provides that the Tribunal may, within a period of thirty days from the date of completion of pleadings, and on such terms as to costs or otherwise, as it may think fit, amend any defect or error in any proceeding before it; and all necessary amendments shall be made for the purpose of determining the real question or issue raised by or depending on such proceeding.
NCLT not bound by CPC, 1908 but shall be guided by the principles of natural justice: Section 424(1) of the Companies Act, 2013 provides that the Tribunal and the Appellate Tribunal shall not, while disposing of any proceeding before it or, as the case may be, an appeal before it, be bound by the procedure laid down in the Code of Civil Procedure, 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 thereunder, the Tribunal and the Appellate Tribunal shall have power to regulate their own procedure.
Power to review or rectify its order by NCLT: The Supreme Court in Lily Thomas vs. Union of India, AIR 2000 SC 1650 held that the power of review can only be exercised for correction of a mistake and not to substitute a view and that the power of review could only be exercised within the limits of the statute dealing with the exercise of such power. The review cannot be treated like an appeal in disguise. The mere possibility of two views on the subject is not a ground for review. Once a review petition is dismissed no further petition of review can be entertained.
In Patel Narshi Thakershi v. Pradyumansinghji Arjunsinghji AIR 1970 SC 1273, the Supreme Court held that the power of review is not an inherent power. It must be conferred either specifically or by necessary implication. It does not stand to reason that, if the power of review is not present with the Tribunal, it nevertheless, can exercise such power indirectly when it cannot do so directly. In Pushpa Katoch v Manu Maharani Hotels Ltd. (2001) 41 CLA 196 (CLB) case decided on 30th August, 2001 (CLB), it was held that the CLB (now Tribunal) has no power to review its own orders.
In Honda Siel Power Products Ltd. v. CIT [2007] 295 ITR 466/ 165 Taxman 307, the Supreme Court in held that no party appearing before the Tribunal, be it an assessee or the department, should suffer on account of any mistake committed by the Tribunal. This fundamental principle has nothing to do with the inherent powers of the Tribunal. The Supreme Court further held that one of the important reasons for giving the power of rectification to the Tribunal is to see that no prejudice is caused to either of the parties appearing before it by its decision based on a mistake apparent from the record. When prejudice results from an order, then it is the duty of the Tribunal to set it right. Atonement to the wronged party by the Court or Tribunal for the wrong committed by it has nothing to do with the concept of inherent power to review.
In Asstt. CIT v. Saurashtra Kutch Stock Exchange Ltd. [2008] 305 ITR 227/ 173 Taxman 322 (SC), it was held that the rectification of an order stems from the fundamental principle that justice is above all. It is exercised to remove the error and to disturb the finality. It was further held that non-consideration of a decision of jurisdictional Court or of the Supreme Court can be said to be a mistake apparent from the record.
In Saurashtra Kutch Stock Exchange Ltd.’s case (supra), the Division Bench of the Gujarat High Court was dealing with a writ petition conferred under articles 226 and 227 of the Constitution of India. In the said case, the assail was to the order passed by the Tribunal under section 254(2) of the Income Tax Act, 1961, whereby the Tribunal had recalled the earlier order. [It should be noted that Section 254(2) of the Income Tax Act, 1961 also enables the ITAT in a manner similar to Section 420(2) of the Companies Act, 2013, to rectify any mistake apparent from the record]. The Division Bench dealt with the contention canvassed by the revenue that the Tribunal cannot obliterate its earlier findings/reasonings/order and the original order cannot be wiped out and came to hold as follows:
- The Tribunal has power to rectify a mistake apparent from the record on its own motion or on an application by a party under section 254(2) of the Act.
- An order on appeal would consist of an order made under section 254(1) or it could be an order made under sub-section (1) as amended by an order under section 254(2).
- The power of rectification is to be exercised to remove an error or correct a mistake and not for disturbing finality, the fundamental principle being that power of rectification is for justice and fair play.
- That power of rectification can be exercised even if a mistake is committed by the Tribunal or even if a mistake has occurred at the instance of party to appeal.
- A mistake apparent from record should be self-evident, should not be debatable issue, but the test might break down, because judicial opinions differ, and what is a mistake apparent from the record cannot be defined precisely and must be left to be determined judicially on the facts of each case.
- Non-consideration of judgment of the jurisdictional High Court would always constitute a mistake apparent from the record, regardless of the judgment being rendered prior to or subsequent to the order proposed to be rectified.
- After the mistake is corrected, consequential order must follow, and the Tribunal has power to pass all necessary consequential order.
On the basis of the said conclusions, the writ Court affirmed the order of recall passed by the Tribunal. The Supreme Court also upheld the decision of the High Court.
In S. Nagaraj v. State of Karnataka [1993] Suppl 4 SCC 595, the Supreme Court held that justice is a virtue which transcends all barriers. Neither the rules of procedure nor technicalities of law can stand its way. The order could not be prejudicial to any one. Rule of share decisis is adhered for consistency, but it not as inflexible in Administrative Law as in Public Law. Even the law bends before justice. Entire concept of writ jurisdiction exercised by the higher Courts is founded on equity and fairness. If the Court finds that the order was passed under a mistake and it would not have exercised the jurisdiction but for the erroneous assumption which in fact did not exist and its perpetration shall result in miscarriage of justice, then it cannot on any principle be precluded from rectifying error. Difference lies in the nature of mistake and scope of rectification, depending on if it is of fact or law. But the root from which power flows is the anxiety to avoid injustice. It is either statutory or inherent. The latter is available where the mistake is of the Court. In Administrative Law, the scope is still wider. Technicalities apart, if the Court is satisfied of the injustice, then it is constitutional and legal obligation to set it right by recalling its order.
Can NCLT rectify the mistake on suo motu basis: The provisions contained in section 420(2) of the Companies Act, 2013 can be dissected in the following limbs:
- The Tribunal may,
- at any time within two years from the date of the order,
- with a view to rectifying any mistake apparent from the record,
(i). amend any order passed by it,
(ii). and shall make such amendment, if the mistake is brought to its notice by the parties
The word “may” suggests that the provision confers a discretionary power on the tribunal in the matter of rectifying what it may find to be a mistake in its order.
In Sree Ayyanar Spinning & Weaving Mills Ltd. v. CIT [2008] 301 ITR 434/171 Taxman 498 (SC)(adapted), it was held that under first part of the provision, the tribunal is empowered to suo motu rectify any mistakes apparent on record any time within tw0 years from the date of its original order. Under the second part, either the taxpayer or the department may file an application highlighting the mistake apparent on record. In light of the provision, the Apex Court held that the appellate tribunal took time beyond the stipulated period even though the application was filed well within the period. Thus, in the event the applicant has filed the application within the stipulated period of two years from the date of original order, it is binding for the appellate tribunal to decide the matter on the basis of merits and not on the ground of limitation.
Thus, Section 420(2) read with Rules 11, 154 and 155 mentioned above substantiate that the Tribunal has power to rectify a mistake apparent from the record on its own motion or on an application by a party under the Act.
Mistake apparent from record – meaning thereof: In Smt. Baljeet Jolly v. CIT [2000] 113 Taxman 38 (Delhi), it was held that ‘Mistake’ means to take or understand wrongly or inaccurately; to make an error in interpreting; it is an error; a fault, a misunderstanding, a misconception. ‘Apparent’ means visible; capable of being seen; easily seen; obviously; plain. The plain meaning of the word ‘apparent’ is that it must be something which appears to be so ex facie and is incapable of argument or debate. The plain reading of the word ‘apparent’ is that it must be something which appears to be so ex facie and it is incapable of argument or debate. It, therefore, follows that a decision on a debatable point of law or fact or failure to apply the law to a set of facts which remains to be investigated cannot be corrected by way of rectification.
In CIT v. Maruti Insurance Distribution Services Ltd. [2012] 26 taxmann.com 68/[2013] 212 Taxman 123 (Mag.) (Delhi), it was held that a mistake should exist and must be apparent from the record. The power to rectify the mistake, however, does not cover cases where a revision or review of the order is intended. ‘Mistake’ means to understand wrongly or inaccurately; it is an error; a fault, a misunderstanding, a misconception. ‘Apparent’ implies something that can be seen, or is visible, obvious; plain. A mistake which can be rectified is one which is patent, obvious and whose discovery is not dependent on argument. The amendment of an order under section 254(2) of the Income Tax Act, 1961 (corresponding to Section 420(2) under the Companies Act, 2013), therefore, does not mean entire obliteration of the order originally passed and its substitution by a new order which is not permissible. Further, where an error is far from self-evident, it ceases to be an ‘apparent’ error.
Undoubtedly, a mistake capable of rectification under section 420(2) is not confined to clerical or arithmetical mistakes, at the same time, it does not cover any mistake which may be discovered by a complicated process of investigation, argument or proof.
Conclusion: From the above discussions, it is clear that the Tribunal, while exercising the power of rectification under section 254(2), can recall its order in its entirety if it is satisfied that prejudice has resulted to the party which is attributable to the Tribunal’s mistake, error or omission and which error is manifest error and it has nothing to do with the doctrine or concept of inherent power of review. Basic philosophy inherent in it is the universal acceptance of human fallibility. An application for review may be necessitated by way of invoking the doctrine ‘actus curiae neminem gravabit’ which means an act of the court shall prejudice no man.
(Author can be reached at cakamalgarg@gmail.com)
Author Bio
OFFHAND
In the discussion, its learned writer has brought to focus the highly controversial aspect of the new Company law providing for the recently created authority to ‘disturb’ its own Order passed in a given case. These provisions are prima facie framed and structured on more or less similar lines as in the law on income tax . For the obvious reason , therefore, with no option open, the writer has tried to study the company law provisions, in the light of the views taken by courts in income tax cases.
Further, as read and understood, the viewpoint aired, besides the rest, is to the effect that the power of the tribunal to ‘disturb’ or redo its own order, because of the word ‘may’ having been used, has to be taken to be at its ‘discretion ‘, whatever that means or signifies.
Be that as it may, if anyone were to keep in mind the historical developments, to be precise the issues repeatedly taken to courts for adjudication, over the decades, in the context of the income tax regime regime, what calls for an anxious consideration and deliberation, in-depth, is the prospects of similar disputes likely to arise under the company law.
In short, the tentative fear in one’s mind, but not without merit or substance, instantly arising is that, the inherent potentials of the company law provisions to usher in an uncertainty, of no less magnitude, in its effective implementation, of the same kind as it has happened under the similar provisions of the income tax law, seems an inevitable certainty.
Law exerts, within and without the portals of the government, if so care, may, however, wish to spare time to devote and share more thoughts for eminent enlightenment, from the most important angle of corporate (good) governance.