All about National Company Law Tribunal (NCLT)

Mandar D Rane, CS,LLB 

Tribunal & Appellant Tribunal

The emergence for referring up cases specialized tribunals can be traced in the various Judgements by the Courts. The supra of few judgments is stated herewith:

Union Of India vs Tata Teleservices (Maharashtra) Ltd on 23 August, 2007 – “The conspectus of the provisions of the Act clearly indicates that disputes between the licensee or licensor, between two or more service providers which takes in the Government and includes a licensee and between a service provider and a group of consumers are within the purview of the TDSAT. A plain reading of the relevant provisions of the Act in the light of the preamble to the Act and the Objects and Reasons for enacting the Act, indicates that disputes between the concerned parties, which would involve significant technical aspects, are to be determined by aspecialised tribunal constituted for that purpose”

Tata Communications Limited vs Union Of India on 7 July, 2010 – “these would involve significant technical aspects which could be better determined by a specialised Tribunal constituted for that purpose and consequently, under Section 15 of the Telecom Act the Civil Court’s jurisdiction would stand barred for determination of the dispute between the parties.

Thus due to increase in Litigation, the burden of cases pending in Courts, the judiciary has deviced a mechanism for setting up independent tribunal so that the objective to reduce the backlog of Courts and speedy redressal of dispute. Since setting up of Tribunal involves appointment of Technical and Judicial member, appointment of an expert in the discipline can provide a boon to resolution of disputes in a better way.

NCLT

The Companies (Second Amendment) Act, 2002 had provided for the setting up of a NCLT and Appellate Tribunal to replace the existing Company Law Board (“CLB”) and Board for Industrial and Financial Reconstruction (“BIFR”). NCLT would be dealing in various matters pertaining to winding up of Companies, Revival and Restructuring which presently hitherto falls under the jurisdiction of High Court and BIFR respectively.

Due to incessant litigation, High Courts are not able to render exclusive attention to winding up cases and even due to advent of BIFR the aim for speedy recovery for companies has not been achieved. Thus setting up NCLT would ease the workload of the Courts and speedy resolution of grievance.

Powers of NCLT

• NCLT would entertain proceedings which have been transferred to the Tribunal from High Court or Company Law Board or any other court or Tribunal as provided in section 434 of the Companies Act,2013 (“Act”) and also scheme of revival.

• Power of High Court in the matters of mergers, demergers, amalgamations, winding up, etc.

• Power of Winding up of Company

• Power to entertain application to failure in redemption of debentures or repayment of deposits or any part thereof or any interest thereon under Act or RBI Act,1934.

• Compounding of certain offence

MADRAS BAR ASSOCIATION vs UNION OF INDIA WRIT PETITION (C) NO. 1072 OF 2013

This writ petition filed by the petitioner, namely, the Madras Bar Association, is sequel to the earlier proceedings which culminated in the judgment rendered by Constitution in 2010. The petitioner had challenged the constitutional validity of creation of NCLT & NCLAT.

Petitioner stated in the writ petition that provisions of Act relating to NCLT & NCLAT are ultra vires the provisions of Article 14 of the Constitution.

The Court in rejecting the contention of the petitioner stated that:

a. A legislature can enact a law transferring the jurisdiction exercised by courts in regard to any specified subject (other than those which are vested in courts by express provisions of the Constitution) to any tribunal.

b. All courts are tribunals. Any tribunal to which any existing jurisdiction of courts is transferred should also be a Judicial Tribunal. This means that such Tribunal should have as members, persons of a rank, capacity and status as nearly as possible equal to the rank, status and capacity of the court which was till then dealing with such matters and the members of the Tribunal should have the independence and security of tenure associated with Judicial Tribunals.

Thus the issue raised by the petitioner was not upheld by the Apex Court and the same paved the way for formation of NCLT and NCLAT.

The Apex court also quashed various NCLT provision and asked the Government to amend the rules on following points:

• Only those officers who have held the post of additional secretary or a higher rank will be eligible for appointment to the NCLT benches. The Companies Act had allowed officers at the level of joint secretary or higher to be appointed to such benches

• There should have been a four-member committee and the chief justice should have the casting vote in case of differences. Instead of that, the new Companies Act proposed a five-member committee

Effect of the Judgment:

With Hon’ble Prime Minister’s initiative to make India a manufacturing hub and curbing various layers of approvals for setting up or exit. In this connection the Judgement of the Apex Court would give a push to improve India’s ranking in the World Bank’s ease of doing business as it will speed up rehabilitation and winding up of sick companies. If the necessary amendments are being incorporated than the overall rank of India for ease of doing business would improve.

In the Budget Speech in 2014, Finance Minister Arun Jaitley had stated the Government would bring out and entrepreneur friendly legal bankruptcy framework to SME to enable them with easy exit. The Bankruptcy Law is expected to facilitate faster exit route to the investors.Thus the government will also be able to bring in the proposed bankruptcy code which will have NCLT as its main component.

Areas of Practice for Practicing Professionals in NCLT

The establishment of NCLT/NCLAT shall offer various opportunities to Practicing Professionals viz CA/CS/CWA as they have been authorized to appear before the Tribunal/ Appellate Tribunal. Therefore, Practicing professionals would for the first time be eligible to appear for matters which were hitherto dealt with by the High Court which are currently been handled only

By Advocates like mergers, amalgamations under Section 391-394 and winding up proceedings under the Companies Act, 1956*.Advising and opinion writing areas have also been opened up for the practicing professionals.

Even J.J Irani Committte in its report dated May 31,2005 had recommended the involvement of professionals in the areas of Insolvency. The extract of the same is as below :

“25. Currently, the law does not support effective participation of professionals and experts in the Insolvency process. There is no shortage of quality professionals in India. Disciplines of chartered accountancy, company secretaryship, cost and works accountancy, law etc can act as feeder streams, providing high quality professionals for this new activity. In fact, private professionals can play a meaningful role in all aspects of process. Insolvency practice can also open up a new field of activity for service professionals while improving the quality of intervention at all levels during rehabilitation/winding up/liquidation proceedings. Law should encourage and recognize the concept of Insolvency Practitioners (Administrators, Liquidators, Turnaround Specialists, Valuers etc). Greater responsibility and authority should be given to Insolvency Practitioners under the supervision of the Tribunal to maximize resource use and application of skills.”

Sick Companies

• Since all powers of BIFR have been entrusted to NCLT ,detecting the Sick companies and providing resolution of the queries and for making reference to the Tribunal for revival and rehabilitation of the Company

• The provisions also mandated preparation of scheme and seeking approval from the Tribunal as may be required. Thus the practicing professionals could play a pivot role in the same area

Winding up of Companies

The National Company Law Tribunal has also been empowered to pass an order for winding up of a company. Therefore Practicing professionals may represent the winding up case before the Tribunal.

Reduction of Capital of Companies

As per amended Section 66 of the Act, subject to confirmation by the Tribunal, a company limited by shares or a company limited by guarantee and having a share capital may if so authorized by its articles by special resolution reduce its share capital. The Practicing Professionals will be able to represent cases of reduction of capital before the Tribunal.

As per the provisions of new Act the practicing professional having a work experience of atleast 15 years can be a Technical Member for the Tribunal. Thus opening up avenues in professional capacity for professionals.

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*- Corresponding New provisions of Companies Act 2013 are yet to be notified.