The Supreme Court’s Order Last Week on the constitution of the National Company Law Tribunal brings two important factors to the fore. One, Parliament has the power to create tribunals for quick dispensation of justice, and it can transfer judicial functions traditionally performed by courts to tribunals, where the Constitution allows. Two, the creation of such tribunals does not mean that the executive can dilute the independence of the judiciary or usurp the role of the judiciary. So, the government can go ahead with the creation of the National Company Law Tribunal (NCLT) but it will have to first amend some provisions of the Companies Act as directed by the apex court to protect the turf of the judiciary.
In specific, the insolvency provisions introduced in the Companies Act through the 2002 amendment will need to be updated to allow judicial members to preside and be in majority on the NCLT benches. Also, the qualification of judicial members needs to be more specific. The apex court contends that the judicial members, as the extant provisions of the Companies Act provide, may not possess the necessary qualifications in terms of judicial experience and company law experience to decide on complex corporate law matters.
The court wants only judges and advocates to be considered for appointment as judicial members. Therefore, only high court judges or judges who have served as district judge for five years or a lawyer with 10 years of practice can be appointed as judicial members. Those with experience in the Indian Company Law Service (legal branch) and Indian Legal Service (grade-1) can qualify only as technical members but not as judicial members.
Equally important is the qualification of the technical members of the tribunal. Almost chastising the civil services for usurping positions in regulatory bodies and tribunals, the court has said that “mere experience in the civil services cannot be treated as technical expertise in company law”. So, the technical members should be persons with expertise in company law.
Further, in an attempt to curb the practice of filling posts with bureaucrats, the court says, “There is an erroneous assumption that company law matters require certain specialised skills that may be lacking in judges. There is also an erroneous assumption that members of the civil services will have the judicial experience or expertise in company law to be appointed as judicial member or technical member.”
The court does not stop there. It argues that since the NCLT takes over the functions of high courts, members should “as nearly as possible have the same position and status as high court judges”. As a result, officers of the rank of joint secretary and below cannot qualify as technical members. Only secretaries and additional secretaries can qualify. This would then disqualify a number of aspirants in the Indian Company Law Service, Indian Legal Service as well as economists and bankers from being appointed as technical members. However, those with at least 15 years’ experience in industrial finance, industrial management, investment and accountancy and with expertise in rehabilitation and revival of companies can qualify.
The Supreme Court has also frowned upon the government’s intent to limit the tenure of members to three years, describing it as too short to achieve expertise in a field. Even the retirement age of 65 years has invited censure. “The said term of three years with the retirement age of 65 years is perceived as having been tailor-made for persons who have retired or shortly to retire, and encourages these tribunals to be treated as post-retirement havens.”
Objections have also been raised to the Companies Act provision that allowed the president and members of the tribunal to retain lien with their parent cadre, ministry or department. The court has ruled such lien is not conducive for the independence of members. “Any person appointed as members should be prepared to totally disassociate himself from the executive. The lien cannot, therefore exceed, a period of one year.” The Companies Act had proposed to allow lien through the three-year term, and during the hearings before the court, the government proposed to allow lien for the first three of the five-year term, pleading a member would take that much time to decide if he wants to continue with the tribunal.
To further reinforce the need to maintain independence of the members from parent cadre or ministry, the court has directed that the tribunal shall seek administrative support from the ministry of law and justice. And, finally, it has said that two-member benches of the tribunal should always have a judicial member and on larger benches, the number of technical members cannot exceed the judicial members.
What comes through from the judgement is that the apex court is in no mood to allow encroachment on its jurisdiction by the executive and, in many ways, the order seems like a counter-offensive targeted at the bureaucracy. The government should abide by the court’s ruling and move quickly to make the necessary changes in law to ensure early constitution of the NCLT and National Company Law Appellate Tribunal.
Winding up a company takes as long as 20 years currently. The tribunal proposes to reduce it to two years, an ambitious target, but it must be given a chance. Fixing the existing system was seen impossible and, therefore, it made sense to create a new body to deal with rehabilitation, revival and winding up of companies. The government could show its commitment to move ahead by promulgating an ordinance soon, that should be ratified when House meets again.
