NCLT & NCLAT Under Companies Act, 2013

It has been more than 14 years that we first heard about National Company Law Tribunal [NCLT] & National Company Law Appellate Tribunal [NCLAT]. But now by MCA Notification dated 1^st June, 2016 in exercise of the powers conferred by section 408 of the Companies Act, 2013 (18 of 2013), the Central Government hereby constitutes the National Company Law Tribunal to exercise and discharge the powers and functions as are, or may be, conferred on it by or under the said Act with effect from the 1^st day of June, 2016.

The Companies (Second Amendment) Act, 2002 provides for the setting up of a National Company Law Tribunal and Appellate Tribunal to replace the existing Company Law Board and Board for Industrial and Financial Reconstruction. The setting up of NCLT as a specialized institution for corporate justice is

based on the recommendations of the Justice Eradi Committee on Law Relating to Insolvency and Winding up of Companies.

Need of Specialized Courts or Tribunals: The genesis of setting up of specialized tribunals can be traced to the Supreme Court judgment

in Sampath Kumar case. In that case, while adopting the theory of alternative institutional mechanism for Supreme Court referred to the fact that since independence, the population explosion and the increase in litigation had greatly increased the burden of pendency in high courts. The supreme court also referred to studies conducted towards relieving the high courts of their increase load; the recommendations of the Shah committee for setting up independent tribunals as also the suggestion of the administrative reforms commission for setting up of Civil Service tribunals.

MEGA TRIBUNAL:-

NCLT can be called as Mega Tribunal. Because NCLT will CONSOLIDATE the corporate jurisdiction of the followings:

• Company Law Board.
• The Board for Industrial and Financial Reconstruction
• The Appellate authority for Industrial and Financial Reconstruction
• Jurisdiction and powers relating to winding up restructuring and other such provisions, vested in the High courts

Present Scenario: 1^st June, 2016

The Ministry of Corporate Affairs has issued notification for constitution of the National Company Law Tribunal (NCLT) and National Company Law Appellate Tribunal (NCLAT) with effect from today i.e. 1st June, 2016.

Govt constitutes Benches of National Company Law Tribunal

Govt constitutes NCLAT for hearing appeals against orders of NCLT

NCLT to exercise & discharge powers & functions under Companies Act 2013

Chairperson	Hon’ble Justice S.J. Mukhopadhaya, Judge (Retd.), Supreme Court of India
President	Hon’ble Justice M.M.Kumar, Judge (Retd.)

Dissolution of CLB: According to this notification Company Law Board (CLB) stand dissolved w.e.f. 1st June, 2016. Notification of this section 466 makes last Chairman of CLB as Provisional and first Chairman of NCLT.

Benches of NCLT: Initially NCLT will have eleven Benches, as per list given below.

Two New Delhi	Ahmedabad	Allahabad	Bengluru
Chandigarh	Chennai	Guwhati	Hyderabad
Kolkata		Mumbai

SECTIONS AND PROVISIONS OF THE COMPANIES ACT, 2013 RELATING TO TRIBUNAL NOTIFIED W.E.F. 1/6/2016

SI. No.	Section	Purpose
1	Sub-section (7) of section 7 [except clause (c) and (d)]	Legal action for false or incorrect information at the time of Incorporation
2	Second proviso to sub-section (1) of section 14	Conversion of Public to Private Limited
3	Sub-section (2) of section 14	Conversion of Public to Private Limited
4	Sub-section (3) of section 55	Rollover of existing redeemable preference shares
5	Proviso to Clause (b) of sub-section (1) of section 61	Changes in voting rights by Consolidation or sub-division of share Capital
6	Sub-sections (4) to (6) of section 62	Changes in terms of issue of Debentures to facilitate Conversion into equity shares
7	Sub-sections (9) to (11) of section 71	Action by Debenture trustee once the secured Assets becomes insufficient
8	Section 75	Action against Company by defrauding Depositors by non-payment
9	Section 97	Power to call for AGM in case of failure by the Company
10	Section 98	Power to call for meetings other than AGM
11	Section 99	Punishment for failure to comply with Tribunal Direction regarding Meetings
12	Sub-section (4) of section 119	Order for inspection in case of failure by the Company
13	Section 130	Re-opening of Accounts by Authorities
14	Section 131	Voluntary revision of financial statements
15	Second proviso to sub-section (4) and sub- section (5) of section 140	Removal or change of Auditor before due Date and Suo Moto action by Tribunal for removal
16	Sub-section (4) of section 169	Removal of Directors – representation and relaxation of provisions in certain cases
17	Section 213	Investigation into the affairs of the Company
18	Sub-section (2) of Section 216	Appointment of Inspectors
19	Section 218	Protection of employees during investigation
20	Section 221	Freezing of assets of Company on inquiry and investigation
21	Section 222	Imposition of restrictions upon securities
22	Sub-sections (5) of section 224	Action against Company or Directors on inspector’s report
23	Sections 241, 242 [except clause (b) of sub- section (1), clause (c) & (g) of sub-section (2)], 243, 244, and 245	Action against Prevention and Oppression and Mismanagement
24	Reference of word ‘Tribunal’ in sub-section (2) of section 399	Order for production of documents by Registrar
25	Sections 415 to 433 (both inclusive)	Tribunal and its Chairman, Members etc and provisions relating thereto.
26	Sub-section (1)(a) and (b) of section 434	Transfer of pending proceedings
27	Sub-section (2) of section 434	Appeal against Company Law Board Order
28	Section 441	Compounding of offences
29	Section 466	Dissolution of CLB and consequential provisions

I am not going to discuss much debated thing, whether National Company Law Tribunal ever be constituted. I am going to discuss provisions in this Act; whether they are applicable or going to be applicable or not.

♣ POWERS OF NCLT:

The proposed NCLT will have judicial and technical experts who will handle all matters presently being handled by CLB, Company Court and BIFR with much wider jurisdiction in terms of scope of the subjects.

Other powers:

• Most of the powers of the Company Law Board under the Companies Act, 1956.
• All the powers of BIFR for revival and rehabilitation of sick industrial companies;
• Power of High Court in the matters of mergers, demergers, amalgamations, winding up, etc.;
• 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;
• Power to Review its own orders.

Compounding of Certain Offences

Section 441. Compounding application for certain offences shall be made before the Tribunal under

Transfer of certain pending proceedings

[Section 434(1)(a)]All matters, proceedings or cases pending before the Board of Company Law Administration immediately before such date shall stand transferred to the Tribunal and the Tribunal shall dispose of such matters, proceedings or cases in accordance with the provisions of this Act.

♣ ADMINISTRATION OF NCLT AND NCLAT

Section 415 to Section 433 (both inclusive) has also came into force. These sections deal with administration of NCLT and NCLAT.

415. Acting President and Chairperson of Tribunal or Appellate Tribunal.

416. Resignation of Members.

417. Removal of Members.

418. Staff of Tribunal and Appellate Tribunal.

419. Benches of Tribunal.

420. Orders of Tribunal.

421. Appeal from Orders of Tribunal.

422. Expeditious disposal by Tribunal and Appellate Tribunal.

423. Appeal to Supreme Court.

424. Procedure before Tribunal and Appellate Tribunal.

425. Power to punish for contempt.

426. Delegation of powers.

427. President, Members, officers, etc., to be public servants.

428. Protection of action taken in good faith.

429. Power to seek assistance of Chief Metropolitan Magistrate, etc.

430. Civil court not to have jurisdiction.

431. Vacancy in Tribunal or Appellate Tribunal not to invalidate acts or proceedings.

432. Right to legal representation.

433. Limitation.

 ♣ CONSTITUTION OF NCLT AND NCLAT:

I. NCLT & NCLAT Consist:

• There are two classes of members to the National Company Law Tribunal; Judicial Members and Technical Members.
• The Tribunal shall be headed by the President while the Appellate Tribunal by Chairperson.
• NCLAT not exceeding eleven members for hearing appeals against the orders of the Tribunal

II. Qualification: (President/Member of NCLT)

S. No.	President	Judicial Member	Technical Member
i.	Is/has been Judge of High Court ≥ 5 years	Is/has been Judge of High Court (any period)	Has Member of Indian Corporate Law Service /Indian Legal Service ≥ 15 years (out of 15 years at least 3 years to be in the pay scale of Joint Secretary to GOI or equivalent post)
ii.		Is/has been District Judge atleast 5 years	Is/has been Practicing Chartered Accountant at least15 years
iii.		Has been Advocate of court held a judicial office or as member of a tribunal atleast 10 years	Is/has been Practicing Cost Accountant at least 15 years
iv.			Is/has been Practicing COMPANY SECRETARY at least 15 years
v.			Person with proven ability, integrity and standing having special knowledge and experience ≥ 15 years [1](in below mentioned specified areas)
vi.			Presiding Officer of Labour Court/ Tribunal/ National Tribunal (under Industrial Disputes Act, 1947) at least 5 years

III. Qualification: (Chairman/Member of NCLAT)

• National Company Law Appellate Tribunal, constituting of a Chairperson and not exceeding eleven members for hearing appeals against the orders of the Tribunal.

S. No.	Chairman	Judicial Member	Technical Member
i.	Is/has been Judge of Supreme Court	Is/has been Judge of High Court	Person with proven ability, integrity and standing having special knowledge and experience ≥ 25 years [2](in below given specified areas)
ii.	Is/has been Chief Justice of High Court	Is a Judicial Member of Tribunal for at least 5 years

IV. Selection of Members

S. No.	President/ Chairman	Judicial Members of the Appellate Tribunal	Members of the Tribunal and the Technical Members of the Appellate Tribunal
i.	Shall be Appointed after consultation with the Chief Justice of India.	Shall be Appointed after consultation with the Chief Justice of India.	shall be appointed on the recommendation of a Selection Committee consisting of

 V. Selection Committee Consisting:

The Secretary, Ministry of Corporate Affairs shall be the Convener of the Selection Committee.

S.No.	Position	Selection Committee Consisting
i.	Chairperson	§ Chief Justice of India or his nominee
ii.	Member	§ A senior Judge of the Supreme Court or a Chief Justice of High Court
iii.	Member	§ Secretary in the Ministry of Corporate Affairs
iv.	Member	§ Secretary in the Ministry of Law and Justice
v.	Member	§ Secretary in the Department of Financial Services in the Ministry of Finance

 VI. Terms:

Tenure- President/ Judicial Member/ Technical Member Shall hold office for 5 year from the date of enter into office.

Re-appointment- President/ Judicial Member/ Technical Member Eligible for another term of 5 year.

Eligibility NCLT- 

• In case of President shall hold office untill he attain age of 67 years.
• In case of Member age atleast 50 year shall hold office untill he attain age of 65 years

Eligibility NCLAT

• In case of President shall hold office untill he attain age of 70 years.
• In case of Member age atleast 50 year shall hold office untill he attain age of 67 years

Advantages of NCLT & NCLAT:

• It shall avoid multiplicity of litigation before various Forums (High Courts, CLB, BIFR. AAIFT). Thus there will be a consolidation of Corporate Jurisdiction.
• There shall be at least 11 benches of the NCLT, thereby providing justice almost at one’s doorstep.
• This tribunal shall comprise of technical experts who will provide more concrete and precise decision.
• There will be mixture of judicial and equitable jurisdiction while deciding matters.
• There shall be reduction in period of winding up from 20-25 years to 2 years.
• Reduction in pendency of cases, expeditious disposal of cases.

SCOPE of Services for PRACTICING COMPANY SECRETARIES under NCLT:

The establishment of NCLT/NCLAT shall offer various opportunities to Practicing Company Secretaries as they have been authorized to appear before the Tribunal/ Appellate Tribunal. Therefore, Practicing Company Secretaries would for the first time be eligible to appear for matters which were hitherto dealt with by the High Court viz. mergers, amalgamations under Section 391-394 and winding up proceedings under the Companies Act, 1956. Areas opened up for company secretaries in practice under NCLT are briefly stated hereunder:

PCS as Member of NCLT: A Practicing Company Secretary can be appointed as a Technical Member of NCLT, provided he has 15 years working experience as secretary in whole-time practice.

Appearance before National Company Law Appellate: Tribunal As stated earlier a Practicing Company Secretary has been authorized to appear before National Company Law Appellate Tribunal.

Insolvency Process: 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.”

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

B. Compromise and Arrangement: With the establishment of NCLT, a whole new area of practice will open up for Company Secretary in Practice with respect to advising and assisting corporate sector on merger, amalgamation, demerger, reverse merger, compromise and other arrangements right from the conceptual to implementation level. Company Secretaries in practice will be able to render services in preparing schemes, appearing before NCLT/NCLAT for approval of schemes and post merger formalities

C. 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.

CONCLUSION:

In view of vast opportunities emerging with the establishment of National Company Law Tribunal, the Practicing Company Secretaries should standardize their competencies with the global benchmarks to provide value added services in assisting the Tribunal in dispensation of justice and speedier disposal of matters like merger, amalgamation, restructuring, revival and rehabilitation of sick companies and winding up of companies.

[1] in law, industrial finance, industrial management or administration, industrial reconstruction, investment, accountancy, labour matters, or such other disciplines related to management, conduct of affairs, revival, rehabilitation and winding up of companies

[2] in law, industrial finance, industrial management or administration, industrial reconstruction, investment, accountancy, labour matters, or such other disciplines related to management, conduct of affairs, revival, rehabilitation and winding up of companies.

(Author – CS Divesh Goyal, ACS is a Company Secretary in Practice from Delhi and can be contacted at csdiveshgoyal@gmail.com)

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