NCLT under Companies Act, 2013 – A Detailed Study- PART- 1

The Central Government notified the creation of the National Company Law Tribunal (NCLT) and the National Company Law Appellate Tribunal (NCLAT) with effect from 1st June, 2016. With the said notification, the fourteen year long saga finally came to an end. We now have a tribunal which is set to revolutionise the corporate litigation and there are great expectations from it.

This series on NCLT will deal on each and every aspect, from historical background to current rules; I will try to cover everything you need to know about NCLT & its relevance under Companies Act, 2013 & rules made there under.

This is the Part -1 of the Series & Deals with Historical Background, Formation, Constitution and Powers of the NCLT.

HISTORICAL BACKGROUND

Eradi Committee

The genesis for the creation of the NCLT can be traced all the way back to the year 1999 on recommendations of the Eradi Committee, a high level committee, which was appointed by the Central Government. It recognised the need for an insolvency law and urged that, before quick disposal of stressed assets in a winding up, the first task should be for the revival and rehabilitation of companies. It also recommended that the winding up of companies should be entrusted to a specialised body like NCLT, the Committee recommended the setting up of a National Company Law Tribunal which would have the following powers:

1. The jurisdiction and power presently exercised by Company Law Board under the Companies Act, 1956;

2. The power to consider rehabilitation and revival of companies – a mandate presently entrusted to BIFR/AAFIR under SICA;

3. The jurisdiction and power relating to winding up of companies presently vested in the High Courts.

J.J. Irani Committee

J.J. Irani Committee (2005) reiterated and affirmed the need for NCLT and observed that it requires specialised expertise for addressing issues referred to it. The law should prescribe the required qualification for appointment of members to the Tribunal as also provide for their training and continuing education. The setting up of NCLT and the Appellate Tribunal was first envisaged in the Companies (Amendment) Act, 2002, but due to several legal hurdles, the same could not materialize.

Companies (Second Amendment) Act, 2002

Thereafter, the Companies (Second Amendment) Act, 2002 acting upon the above recommendations, provided for the creation of a new national tribunal called the National Company Law Tribunal and its appellate body called the National Company Law Appellate Tribunal. The NCLT & NCLAT were proposed to be a body having jurisdiction of the Company Law Board, the BIFR & AAIFR and the Company Court of the High Courts. Also more importantly, for the Company Secretaries, it was to be a heaven as it was proposed to open the door to all the practicing professionals to act, appear and plead before the NCLT and the NCLAT.

Union of India v. R. Gandhi, President, Madras Bar Association and Madras Bar Association v. Union of India – Challenge to the Constitutional Validity of NCLT

However, there appeared to be a serious issue with certain aspects of the law, as a result of which its constitutional validity was challenged. In the case of Union of India v. R. Gandhi, President, Madras Bar Association and Madras Bar Association v. Union of India. The Madras High Court held in 2003 that the NCLT was not constitutionally valid. While deciding the appeal, the Supreme Court in 2007, not only upheld the said order but also referred the matter to the Constitutional Bench to decide whether the Parliament had the legislative competence to vest intrinsic judicial functions that had been traditionally performed by the High Courts, in any tribunal outside the judiciary.

The Constitutional Bench in 2010 decided that the creation of the NCLT/NCLAT was constitutionally valid and it laid down guidelines, amongst other things, for the appointment and selection criteria for the Technical Members.

The controversy was finally laid to rest in May, 2015 when the Constitutional Bench upheld the creation of the NCLT/NCLAT and directed the Government of India to amend certain provisions of the Companies Act, 2013 in consonance with the guidelines prescribed in its 2010 judgment.

Since then we have seen swift action from the Government of India, which has completed the process for appointment and selection of Judicial and Technical Members, appointment of registry officials, lower staff and selecting appropriate premises.

CONSTITUTION OF NCLT & NCLAT UNDER COMPANIES ACT, 2013 – 1^ST JUNE, 2016.

APPEALS BEFORE THE NCLT & NCLAT

On 1^st June, 2016 the Central Government (MCA) by way of Notification Constituted the National Company Law Tribunal (NCLT) which is a quasi-judicial body for resolving all disputes relating to the companies in India. It is established under the Companies Act, 2013 and is a successor to the Company Law Board. The principal bench of NCLT is at New Delhi.

The National Company Law Appellate Tribunal (NCLAT) is an appellate tribunal in India established under the Companies Act, 2013 for hearing appeals arising from the orders passed by the NCLT.

Any person aggrieved by an order or decision of the NCLT may, within a period of 45 days from the date on which a copy of the order or decision of the Tribunal was served on him, prefer an appeal to Appellate Tribunal (NCLAT).

APPEAL BEFORE THE SUPREME COURT

Any person aggrieved by any decision or order of the Appellate Tribunal may file an appeal before the Supreme Court within 60 days from the date of communication of the decision or order of the Appellate Tribunal only on any question of law arising out of such decision or order.

It means any appeal filed before the Supreme Court should be on a “question of law, and not on a question of facts”. The clear intention behind the structure is to reduce the multiple litigation and burden of the High Courts.

BENCHES OF THE TRIBUNAL.

The Central Government has constituted 11 Benches of the National Company Law Tribunal, two in New Delhi (one will be the principal bench) and one each in Mumbai, Ahmedabad, Allahabad, Bengaluru, Chandigarh, Chennai, Guwahati, Hyderabad and Kolkata to exercise the jurisdiction over the area as follows:

New Delhi Bench – Jurisdiction – State of Haryana, Rajasthan and Union Territory of Delhi;

Ahmadabad Bench – Jurisdiction – State of Gujarat, Madhya Pradesh, Union territory of Dadra and Nagar Haveli;

Allahabad Bench – Jurisdiction – State of Uttar Pradesh and Uttarakhand;

Bengaluru Bench – Jurisdiction – State of Karnataka;

Chandigarh Bench – Jurisdiction – State of Himachal Pradesh, Jammu and Kashmir, Punjab and Union Territory of Chandigarh;

Chennai Bench – Jurisdiction – State of Kerala, Tamil Nadu, Union territory of Lakshadweep and Union territory of Puducherry;

Guwahati Bench – Jurisdiction – State of Arunachal Pradesh, Assam, Manipur, Mizoram, Meghalaya, Nagaland, Sikkim, and Tripura;

Hyderabad Bench – Jurisdiction – State of Andhra Pradesh and Telengana;

Kolkata Bench – Jurisdiction – State of Bihar, Jharhand, Odisha, West Bengal, and Union Territory of Andaman and Nicobar Islands;

Mumbai Bench – Jurisdiction – State of Chhatisgarh, Goa and Maharastra

POWERS OF THE TRIBUNAL

The Tribunal has two experts i.e. Judicial and Technical members, who will handle all the matters which were handled by CLB, Company, Court and BIFR with much wider jurisdiction in terms of scope of the subjects.

The powers of Tribunal will be as follows:

• Almost all the powers of Company Law Board (CLB).
• All the powers of BIFR for revival and rehabilitation of sick industrial companies.
• Jurisdiction and power relating to winding up, restructuring and other such provisions, vested in the High Court.
• Power to order repayment of deposits accepted by Non Banking Financial Companies as provided in section 45QA of the Reserve Bank of India Act, 1934.
• Power to wind up companies.
• Certain powers of the Central Government, like conversion of Company, etc.
• Power to review its own orders.

 ADVANTAGES OF NCLT

1. Reduction of multiplicity of litigationAfter constitution of NCLT, it is expected that multiplicity of litigation will be avoided or at least reduced because NCLT is authorised to handle the cases which were previously handled by the High Court, Company Law Board (CLB) & BIFR etc., and appeal can be made against the orders of the Tribunal to the Appellate Tribunal and then the Supreme Court only.

2. Reduction of time for disposal of casesIt is a known fact that cases with CLB or BIFR and High Court go on and on for long periods due to absence of time frame but with NCLT, there is time frame for disposal of cases. Thus there will be reduction of time taken in adjudication procedure, at large for disposal of the cases.

3. Reduction of undue hardshipsSpeedy 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 number of civil cases pending before the High Court as of 31 December 2014 was 3.116 million. NCLT will reduce the burden of the various High Courts relating to cases having nature of corporate justice. Also, appeal from NCLAT will lie to the Supreme Court being the apex authority.

CONCLUSION

There can be no two views that the notification of the constitution of the NCLT is a landmark event in the corporate law history of the country and it is a very important step towards providing ease of business. It should be remembered that the functioning of NCLT will be really tested in time to come. All the stakeholders including the practicing professionals be they Advocates, Practising Company Secretaries, Chartered Accountants or Cost Accountants, all of them will have their work cut out and must play a constructive role in making a success of the new justice delivery system.

The Rest of the Details relating to the functioning, practices & procedures under the NCLT will be discussed in the PART – 2 of this series.

Author: CS Rahul Harsh, is an Associate Member of the ICSI from Kolkata and may be contacted at: csrahulharsh@gmail.com & www.facebook.com/csrahulharsh