By Sri NAGA OM SIVA SHIRDIK, 3rd Year BBALLB(HONS) SASTRA SCHOOL OF LAW Thanjavur, 613401 Tamil Nadu.
This paper examines about what is National Company Law Tribunal (NCLT) and National Company Law Appellate Tribunal (NCLAT). This paper mainly focusses about the importance of the NCLT and NCALT to settle down the disputes emerging out of the companies. This paper deals with the constitutional validity of the provisions relating to NCLT and NCLAT and also this paper gives few landmark judgments given by Supreme Court and High Courts regarding the constitutional validity of NCLT and NCLAT. While looking at the totality of factors, this paper examines about the formation of NCLT, constitution of National Company Law Tribunal (NCLT) and constitution of National Company Law Appellate Tribunal (NCALT) as per The Companies Act, 2013. This paper also examines about the impact of the constitution of NCLT and NCLAT on company law litigation. This paper discusses about the effective functioning and role played by NCLT in resolving corporate disputes and also the paper deals with the appearance of authorized representative before NCLT. This paper tries to explain about the powers and jurisdiction of NCLT. This paper also tries to explain about the aspects such as Insolvency Resolution Process (IRP), petition by operational creditor, petition by corporate debtor, declaration of moratorium, time-limit, dissolution order, undervalued transactions and multiple defaults. The author in paper tries to discuss few judgments given by Supreme Court and High Court. Subsequent to this analysis, the conclusion is presented along with observations and suggestions.
Keywords: National Company Law Tribunal (NCLT), National Company Law Appellate Tribunal (NCALT), Constitutional Validity, Jurisdiction, Supreme Court, High Court, Landmark judgments, Role, Functions and Power of NCLT.
Introduction: Establishment of NCLT and NCLAT will provide litigants with a simple, quick and effective process for resolving disputes emerging under the Companies Act, 2013. Integration and consolidation of the functions of CLB, BIFR and the High Courts into NCLT will enhance accessibility for litigants through a single gateway for dispute resolution and increase accountability, transparency and quality of decision making through consistency in processes. Of course, risks remain in relation to doing away of High Court jurisdiction and providing for lesser benches than the High Courts afforded. By and large these risks are encompassed by the speed and consolidation provided. The reforms proposed by the Companies Act, 2013 are still unfolding. These legal reforms are a further step towards a more flexible and holistic approach to delivering speedy justice.
Definition of Tribunal:
A Tribunal is considered as a special court. There is no any difference between Courts or Tribunals. exceptional matters and issues are entrusted to the Tribunals for their decisions this character of Tribunals is same that of the Courts; both the courts and the Tribunals are constituted by the State and are invested with the judicial as distinguished from purely administrative or executive function (Associated Cement Companies Ltd. v. P.B. Sharma (A.I.R 1965 S.C 1595)). Both Courts and Tribunals are legally adjudicating bodies which deal with settlement of the issues and disputes between the parties which are in their field of jurisdiction.
Tribunals are established under the Statute to make a formal judgment upon the disputes occur as a result of the said Statue, or disputes of a particularized nature. All Courts are considered as Tribunals, but all the Tribunals are not Courts. Tribunals by applying Code of Civil Procedure and Evidence Act make their own procedural rules in decision making process.
In the case State of A.P v. McDowell and Co ((1996) 3 S.C.C 709), the Supreme Court reiterated the position that “a law made by Parliament or the Legislature can be struck down by courts on two grounds and two grounds alone, namely
- Lack of Legislative Competence; and
- Violation of any of the fundamental rights guaranteed in Part III of the
Constitution of India or of any other Constitutional provision”.
National Company Law Tribunal (NCLT) & National Company Law Appellate Tribunal:
To regulate and administer the legal affairs with respect to a company, the Government has provided for the National Company Law Tribunal under the section 408 of the Companies Act, 2013. This quasi-judicial body has been established in order to ensure meticulous and expeditious resolution of civil as well as criminal disputes concerning a company. The NCLT works according to the principles of natural justice not being bound by the rules of evidence and procedure laid under the judicial parameter. The appeals from the decisions of NCLT may be contested to the appellate tribunal known as National Company Law Appellate Tribunal (NCLAT) which may set aside, modify or confirm the same.
The Company Law Board (CLB) which was constituted under the Companies Act, 1956 has been replaced by the National Company Law Tribunal (NCLT) which was constituted under the Companies Act, 2013. The other name of the NCLT is Company Court and the powers of NCLT is much of a muchness to that of the High Court. Section 407 to 434 of Companies Act, 2013 deals with NCLT & NCLAT to dissolve the dispute arising out of corporate. ( Company law in India part 1, Sandeep Bhalla, IE Books Inc. 2016).
The NCLT and NCLAT were established in the year 2016. The NCLT under the Companies Act, 2013 provides a speedy disposal of the cases and it also reduces the burden on the High Courts. The company law board was dissolves after the formation of NCLT. The cases pending in CLB was transferred to NCLT. Insolvency & Bankrupting Code, 2016 gave power to NCLT to effectively dissolve insolvency and bankrupt disputes, (A reference annual, New media wing, Publications Division Ministry of information & Broadcasting, 2018).
Constitution of NCLT & NCLAT:
The Central Government has to establish and constitute a legal institution called NCLT to settle the disputes arising from companies under the Section 408 of the Companies Act, 2013 which is also called as the Company Court. The NCLT must incorporate itself with President and such number of judicial and technical members as may be deemed to fit. They are to exercise and discharge such powers and functions as may be conferred on the Tribunal. “In the first phase the Ministry of Corporate Affairs have been set up Eleven Branches, one principal bench at New Delhi and one each Regional Branches at New Delhi, Ahmedabad, Bengaluru, Chandigarh, Chennai, Cuttack, Guwahati, Jaipur, Hyderabad, Kolkata and Mumbai (www.nclt.gov.in)”. In the case Hyena George v. Union Of India ( 2016 S.C.C ONLINE Del 4662) the High Court of Delhi directed to the Government to assess the vacancies and go-ahead with the necessary appointments in BIFR and AAIFR.
The Central Government has to establish and constitute a legal institution called Appellate Tribunal to be known as the National Company Law Appellate Tribunal (NCLAT) under the Section 410 of the Companies Act, 2013. The NCLAT consist of a Chair Person and judicial and technical members not exceeding 11 members totally. The NCLAT has to hear appeals against the orders of the Tribunal. Any person feeling resentment at having been unfairly treated of an order of the Tribunal may appeal to the Appellate Tribunal. An appeal has to be filed within 45 days from the date a copy of the order is made available to the person aggrieved a further 45 days may be allowed if there is a sufficient cause to show that the appellate was prevented from filling the appeal within time (Sec. 421 of the Companies Act, 2013).
Constitutional Validity of National Company Law Tribunals:
The Constitutional Validity of the NCLT and NCLAT is the most controversial topic and the most debated issues since from the beginning. This wrangling controversy was put aside by the Supreme Court in 2010 in the case of Union of India v. R. Gandhi, President Bar Association, ( 96 C.L.A 111 (SC)).
Analysis of the case Union of India v. R. Gandhi (2010 11 S.C.C 1):
Facts of the Case:
In this case the president of the Madras Bar Association has filed a petition challenging the constitutional validity of the NCLT (National Company Law Tribunal) and NCLAT (Appellate Tribunal) as the boundless power of solving the dispute was given to High Court. Hence, the establishment of NCLT and NCLAT fail to comply with basic composition of constitution has it been opposition to the concept of separation of powers.
The writ petition filled by the president of Madras Bar Association has following contentions
i. The Legislative authority of the parliament does not have any power to transfer the legal right of intrinsic judicial functions that have existing as a part of long-established jurisdiction executed by the High Courts for nearly a century to any Tribunal outside the Judiciary.
ii. The intrusion or violation of the doctrine of separation of powers and independence of the Judiciary which are parts of the basic composition of the constitution.
iii. No difference between Company Law Tribunal and NCLT
iv. In the non-presence of any amendment to Article 323B providing for a National
Tribunal for revival of companies and winding up companies, there is no legislative
authority to provide for establishment of the NCLT and NCLAT.
i. Contention one Explained: On this contention the Supreme Court clearly Stated that the parliament does have the power to transfer the legal right of intrinsic judicial functions to a tribunal under the Statute to make a formal judgment upon the disputes occur as a result of the said Statue, or disputes of a particularized nature.
In Union of India v. Harbhajan Singh Dhillon (1971 (2) SCC 779) the Court held “It seems to us that the function of Article 246(1), read with Entries 1 to 96 of List I, is to give positive power to Parliament to legislate in respect of those entries. Object is not to debar Parliament from legislating on a matter, even if other provisions of the Constitution enable it to do so.”
Since 2002, the establishment of NCLT and NCLAT has been stuck, and the questions upon constitutional validity has been answered by the High Court of Madras and Hon’ble Supreme Court of India while responding to the petitions. It is not a new thing in India, earlier the constitutional validity of the establishment of the Company Law Board was also challenged when some of the powers were taken away from the High Court by the Companies (Amendment) Act, 1988 (V. Balachandran v. Union Of India, 1992 S.C.C Online Mad 19).
ii. Contention two Explained: The Supreme Court held that there is no intrusion or violation of separation of powers arising. The Supreme Court by stating the case Union of India v. Delhi High Court Bar Association (A.I.R 1995 Delhi 323), said that the constitution validity of the recovery of debts due to banks and financial institutions act was given tribunal to perform its function narrowly, therefore in the case of NCLT there arises no intrusion or violation of separation of powers.
In Rai Sahid Ram Jawaya Kapur v. The State of Punjab ( 1955 (2) S.C.R 225), the Supreme Court explained the doctrine of separation of powers thus : “The Indian Constitution has not indeed recognised the doctrine of separation of powers in its absolute rigidity but the functions of the different parts or branches of the Government have been sufficiently differentiated and consequently it can very well be said that our Constitution does not contemplate assumption, by one organ or part of the State, of functions that essentially belong to another.”
iii. Contention three Explained: The Supreme Court held that the purpose or goal of CLB and NCLT may be identical but their nature differs. The NCLT has a greater extent of favourable advantages and qualities in it some of them are given below: –
- To minimize the duration period of disputes,
- To minimize the ligation process,
- The victim instead of approaching High Court for appeal can directly go to appellate
- The cases unresolved or unsettled in CLB will be transferred to NCLT so that the
burden on High Courts reduced
iv. Contention four Explained: In the both cases L. Chandra Kumar v. Union of India ( MANU/ S.C/0261/1997) and Satya Narayan v. Atma Ram – MANU/ M.P/0855/2015, the Supreme Court Held that:
“The High Court’s power under Articles 226 & 227, being a part of the basic structure of the Constitution, can never be taken away. Practically, however, since a direct appeal has been provided to the Supreme Court under Sec.423 of the Companies Act, 2013, the High Court will not interfere in a writ petition from the order of the Tribunal or the Appellate Tribunal unless there is a violation of the principles of natural justice or a lack of jurisdiction”.
The Court in two cases, namely, Union of India v. Delhi Court Bar Association – 2002 (4) S.C.C 275 and State of Karnataka v. Vishwabharathi House Building Cooperative Society and Co. – 2003 (2) S.C.C 412 held that “the Articles 323A and 323B are enabling provisions which enable the setting up of Tribunals contemplated therein; and that the said Articles, however, cannot be interpreted to mean that they prohibited the legislature from establishing Tribunals not covered by those Articles, as long as there is legislative competence under the appropriate Entry in the Seventh Schedule”.
Under Section 430 of the Companies Act, 2013, any suit or proceeding or disputes in
respect of any matter in which the NCLT or NCLAT has legal authority or empowered to determine by or under this act cannot be entertained by any other civil court for the time being in force. The civil court or any other authority doesn’t have any power to grant injunction in
any matters that the NCLT or NCLAT has legal authority under this act to determine for the time being in force. The Supreme Court held that the emergence of NCLT and NCLAT is constitutionally valid as there is no intrusion of separation of powers and it also held that the state authoritatively follow a format of appointment of technical members should be followed and for the appointments of members, chairperson, and vice chairperson the selection committee must be prescribed.
The Supreme Court also held that “exclusion of jurisdiction” clause enacted in any legislation, under the aegis of Articles 323A [2(d)] and 323B[3(d)] are also unconstitutional. It was declared that the jurisdiction conferred upon the High Court under Articles 226 and 227 and upon the Supreme Court under Article 32 of the Constitution is a part of the inviolable basic structure of our Constitution.
Powers of NCLT:
NCLT is vested with a whole part of huge powers, they are given below:
- Class Action: Company Law draws a defensive wall for the protection of the interests and privileges of various partners and investors. The Companies Act, 3013 protects the investors from the wrongdoers this act has an appropriate cure approachable of any defrauds done by the wrongdoers. This act also provides a cure for discipline for the wrongdoer. The Act also says that the loss caused to the investor because of the misfortune or defrauds caused by the wrongdoers should be repaid to the investors. A claim speaking to a bigger gathering or class that permits plaintiff to document that said claim and the suit filled by the plaintiff which brings an action all the people in class is called class action suit. The class action is a most useful and most valuable suit for the investors to bring an action against all the wrongdoers who are scattered around. To give break to the persons who invests in company in hope of making profits from wrongful actions of the company administration or different foundations and specialists who are connected with the body corporate Section 245 has been incorporated in the Companies Act, 2013. Both private division and open part organisations are the subject to the class action suit. It can be initiated contrary to any company which is
incorporated under the Companies Act, 2013 or any past Companies Act, 1956. (Avatar Singh’s Company Law Material).
- Registration of Companies: For registration and consolidation of the companies now the Companies Act, 2013 provides the authorities permissions to scrutinize the
authenticity of the said company in view of certain procedural blunders. The Companies Act, 2013 gives power to the Tribunals to register and deregister the companies. The deregistration of companies is done only by following the principles of natural justice.
- Refusal to Transfer Shares: Under Sections 58 and 59 of the Companies Act, 2013 the NCLT has power to hear complaints on dismissal of companies to transfer shares and securities this power was first under the ambit of CLB then transferred to NCLT. These sections additionally give express affirmation to contracts managing transfer of securities in the time of default or extortion or defraud.
- Deposits: The power of managing Deposits was first with CLB under the Companies Act, 1956 the same power was transferred to the NCLT under the Companies Act, 2013 with some modifications. With the changing of the era the management under CLB has become weak and it caused to a greater number of frauds so the NCLT under Part V of the Companies Act, 2013 has additionally protects the investors from the frauds.
- Reopening and Revision of Financial Accounts: Section 130 of Companies Act, 2013 revised with Section 447 of Companies Act, 1956 and Section 131 of Act, 2013 is revised with Section 448 of Act, 1956 accommodate restricting the company from suomotu beginning or opening its ledgers or examining its financial records.
- Tribunal Ordered Investigations: Chapter XIV of the Companies Act, 2013 hands over different powers to NCLT concerning examinations.
- Conversion of open company into privately owned business: The rules regarding the change of Public ltd. Co. into Private ltd. Co. is controlled by the NCLT under the section from 13 to 18 of the Companies Act, 2013. Under Section 459 of the Companies Act, 2013 the Tribunal has power to put some restrictions and confinements or conditions to the companies.
- Tribunal Convened AGM: Under Section 97 and 98 of the Companies Act, 2013 empowers NCLT to command every company registered under the Act to call for a “yearly board meetings” or “AGM” under the procedure established by the Act and the additional meetings other than AGM are called as “additional normal general meeting”. In case the any company neglects to call for AGM an action can be taken against the company under the Act, 2013.
- Auditors Certificate: Under Companies act, 2013 the Companies applied for registration must submit their review of their books and accounts by an auditor and beforehand the certificate should be verified by the SEBI under the rules drafted by the Act. This progression helps to maintain the standard of book-keeping and will manage
the capital lessening process.
- Corporate Debt Restructuring (CDR): If more that 75% of the Secured loans believes
that there is a need of Corporate obligation rebuilding than they can approach NCLT
under the principles drafted in Companies Act, 2013.
- Amicus Curiae (an impartial advisor to a court of law in a particular case): Under Rule
61 the NCLT under its own discretion has power to permit any person or any
professional bodies for any professional advise as Amicus Curie.
- Corporate Social Responsibility: Under Companies Act, 2013 the tribunal makes every company to invest some percentage of their investment towards the welfare of their surroundings and for the development of the society which helps the company socially responsible and helps the company by making the company more profitable and
Challenges Faced by NCLT:
After the establishment of NCLT all the cases that are existing in IBC and CLB are transferred to NCLT in this process of transitioning the NCLT has faced many challenges. By the end of March 2015, the CLB has 4200 pending suits and in addition to that, nearly 4000 new suits every year is filled in the CLB now after the establishment of NCLT all these are transferred to the NCLT. In addition, all the IBC cases are also been transferred to NCLT. The total number of IBC cases that has been transferred to NCLT are 110. All the winding up cases and liquidation cases pending at the High Courts as of March 2015 are Transferred to NCLT. The total number of cases transferred from High Courts as of March 2015 are 4500 suits. Corporate recovery cases at the DRT’s and the rehabilitation cases at the Board for Industrial and Financial Reconstruction are eligible to be initiates as new IBC cases.
How will the NCLT manage to deal with case load from CLB, High Courts, BIFR, IBC and potentially the DRT’s with limited capacity? This has become the more controversial question. This is one of the biggest challenges to the NCLT because there were only 11 branches and 16 judicial members and 7 technical members for NCLT to deal with all these cases so that it has become a biggest challenge to come after this case load. Currently at about 9000 cases are pending before NCLT benches in the Country for insolvency (www.economictimes.com).
The next concern of the NCLT is the constitution validity because it violates the basic structure of constitution later in the case Union of India v. R. Gandhi the Supreme Court has clarified this issue.
The person aggrieved by the order given by NCLT within a time period of 45 days from the date of order received by NCLT can go for an appeal in NCLAT. The appeal can be filled on any order on questions of law and facts. If the person is aggrieved by any order given by NCLAT can appeal for Supreme Court with in a time period of 60 days from the date of order received from NCLAT. The appeal can be filed in Supreme Court only under the question of law.
In the case Bengal Chemist and Druggist and Association v. Competition Commission of India-2017 S.C.C ONLINE CAL 20337. After discussing the provisions of the Companies Act, 2013 at length, the Supreme Court held that the limitation period to file an appeal from an order of NCLT is 45 days, and a further period not exceeding 45 days is provided only if sufficient cause is made out for filing the appeal within the extended period. This is a peremptory provision, which will otherwise be rendered completely ineffective, if the section 5 of the Limitation Act, 1963 is held to be applicable, which in effect would mean that notwithstanding that the further period of 45 days had elapsed, the NCLAT may, if the facts so warrant, condone the delay. This conclusion would render otiose the second-time limit of 45 days, therefore once the period of 90 days expires the appeal becomes time barred and the delay cannot be condoned by NCLAT.
Benefits of NCLT:
- Reduction of multiplicity of litigation: Under the Companies Act, 2013 after the establishment of NCLT and NCLAT it expected that there will be a reduction of multiplicity of litigation because currently NCLT is the only institution that dealt with cases previously dealt by High Court. The cases going to appeal goes directly to Appellate Tribunal and then to the Supreme Court. The Companies Act totally reduces the burden on High Court which automatically reduces the multiplicity of litigation.
- Speedy Disposal: Previously that cases with CLB or BIFR and High Court take long periods for settlement because of the lack of time frame but with NCLT under the Companies Act, 2013 there is a time frame for the disposal of the cases. Thus, there will be speedy disposal of cases.
- Reduction of undue hardships: The NCLT will save time which automatically reduces
the energy and money of the parties concerned likewise undue hardships of the parties and will be reduced we cannot say that it totally eradicates the undue hardships.
To incorporate faith in Judicial Mechanism and for preventing the unscrupulous debtors from escaping the re-payment of their debts by recourse to insolvency the Insolvency Bankruptcy Code, 2016 has been introduced by the Central Government it is also referred as the IBC, 2016. The main aim of the making of the IBC is to make availability of credit more transparent by maximizing the value of assets in a time-bound manner.
The NCLT and NCLAT has been playing an important role in dissolving disputes arising out of the companies. In my opinion NCLT and NCLAT helpful for speedy disposal and it also decreases the burden upon the High Courts but these tribunals are lack of technical staff and members for the disposal which causes cases go beyond the framed time. There are only 11 branches of these tribunals all over the Indian which makes very difficult to handle all the pending cases. In my opinion there must be at least 2 or more branches in a state so that cases won’t be pending beyond framed time.