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In a landmark judgment, a five-judge constitution bench of the Supreme Court on Tuesday upheld the legality of the Companies (Second Amendment) Act, 2002, providing for the establishment of the National Company Law Tribunal and National Company Law Appellate Tribunal to deal exclusively with the company cases for their speedy disposal.

Barring the judicial review power under Articles 226 and 227 of the Constitution, almost all jurisdictions exercised by the High Courts with regard to company matters would now be transferred to the proposed Tribunal and the Appellate Tribunal. All company-related matters pending with the Company Law Board, and the Board for Industrial and Financial Reconstruction (BIFR) will also be transferred to the NCLT and the NCLAT.

According to MR Umarji, one of the architects of the security enforcement law, this will quicken insolvency proceedings. “India’s rating as a business destination suffered since there was no way to close down unviable businesses and dispose of assets. This will change. Now chartered accountants and legal practitioners can be official liquidators,” he said.

The apex court, however, slammed the practice of filling the post of judicial members in tribunals with bureaucrats saying adjudication of these matters needed judicial bent of mind. It said, bureaucrats could at best be made technical members of the tribunals and all appointments to the post of presiding officers has to be made in consultation with a committee headed by CJI or his nominee and comprising a Judge of the Supreme Court or the High Court, Secretaries in the ministries of company affairs and law and justice.

The apex court said, since the matters from the High Courts too would be transferred to NCLT and NCLAT, the presiding officers have to be of the rank of the HC Judges or persons meeting the qualification prescribed for HC Judges. A bench comprising Chief Justice KG Balakrishnan, Justice RV Raveendran, Justice DK Jain, Justice P Sathasivam and Justice JM Panchal passed the verdict on two appeals filed by Union of India and Madras Bar Association.

They had challenged the order of the Madras high court which had said that the amendment to the Companies
Act 1956 to set up the NCLT and NCLAT was unconstitutional. The creation of NCLT was proposed in the Companies (Second Amendment) Act, 2002.

Earlier, a three-judge bench of the apex court headed by Chief Justice KG Balakrishnan had referred the matter to a five judge constitution bench saying that the issues raised in the appeals are of ‘seminal importance’ and are likely to have serious impact on the very structure and independence of the judicial system.

Corporate lawyer and senior counsel CA Sundaram said, “The Supreme Court has upheld the tribunal being constituted, but they have questioned aspects on appointment of its members. The court have stated guidelines on the appointment of members, their terms and conditions of appointment. The tribunal is an alternate judicial forum. But they want least interference of the executive in the functioning of the tribunal. They want the tribunal to function as an independent body.” A senior official of the ministry of corporate affairs declined to comment on the apex court judgment saying the ministry is yet to receive the copy of the order.

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0 Comments

  1. CS SANJIB SAHU says:

    A landmark judgement delivered by Hon’ble Supreme Court.
    One presentation for re capitulation about NCLT,NCALT is solicited, therefore, from TAX GURU.

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