NATIONAL COMPANY LAW TRIBUNAL: A CONCEPTUAL DISCUSSION

admin | March 14, 2019 | Company law | No Comments

Picture Courtesy: https://www.livelaw.in/nclt-new-delhi-to-allow-e-filing-nic-presentation-for-stakeholders-on-october-23/

This article was written by Raj Krishna and Vivek Kumar, students of Chanakya National Law University, Patna

INTRODUCTION

The National Company Law Tribunal (NCLT) is a quasi-judicial body that adjudicates issues related to companies. It was established under the Companies Act 2013 and was constituted on 1 June 2016 by the Government of India. It is based upon the recommendation of the Justice Eradi committee on law relating to insolvency and winding up of companies.

National Company Law Tribunal can dispose of all sort proceedings relating to Companies Act including Arbitration, Compromise, arrangements and reconstruction and winding up of companies. The National Company Law Tribunal is also the Adjudicating Authority for Insolvency resolution process of Companies and Limited Liability Partnerships under the Insolvency and Bankruptcy Code, 2016.

Further post establishment of NCLT and NCLAT, no civil court shall have jurisdiction to entertain any suit or proceeding in respect of any matter which the Tribunal or the Appellate Tribunal is empowered to determine by or under this Act or any other law for the time being in force. Further no injunction shall be granted by any court or any other authority in respect of any action taken or to be taken in pursuance of any power conferred by or under this Act or any other law for the time being in force, by the Tribunal or the Appellate Tribunal.

Presently the NCLT has thirteen benches, two at New Delhi (one being the principal bench) and one each at Ahmedabad, Allahabad, Bengaluru, Chandigarh, Chennai, Guwahati, Hyderabad, Jaipur, Kochi, Kolkata and Mumbai.

CONSTITUTION OF NATIONAL COMPANY LAW TRIBUNAL

Under Section 408 of the Company Act, 2013, the Central Government shall, by notification, constitute, with effect from such date as may be specified therein, a Tribunal to be known as the National Company Law Tribunal which would consist of a President and such number of Judicial and Technical members, as the Central Government may deem fit, to be appointed by it by notification to exercise and discharge such powers and functions as are, or may be, conferred on it by or under this Act or any other law for the time being in force.[1]

2.1 CONSTITUTIONAL VALIDITY OF NCLT

The constitutional validity of the NCLT was upheld by the Supreme Court in the case of Madras Bar Association v The Union of India.[2] This Apex Court judgment paved way for setting up of the NCLT.

The Madras Bar Association filed a writ petition in the Supreme Court challenging the constitutional validity of the NCLT and the NCLAT. The petitioners argued that the provisions of the Act, which was related with the NCLT and NCLAT were violative of Article 14 of the Constitution.

However the Court rejected the contention of the petitioners and held that the legislature has the power to enact a law which transfers the jurisdiction exercised by a court in regards to a specific issue to any tribunal. The Court also opined that all courts are tribunals, and any tribunal to which the jurisdictional power is transferred should be a judicial tribunal. The Court further remarked that the tribunals should be governed by members who are equal in capacity, status, and rank with the members of a court.[3]

QUALIFICATION OF PRESIDENT AND MEMBERS OF TRIBUNAL

The qualification in regard of President and members of tribunal are stated in Section 409 of Company Act, 2013.

3.1 QUALIFICATION OF PRESIDENT:

Under Section 409 following are the qualification criteria for becoming the President of NCLT:

The President shall be a person who is or has been a Judge of a High Court for five years.

A person shall be qualified for appointment as a Judicial Member if he—

(a) is, or has been, a judge of a High Court; or

(b) is, or has been, a District Judge for at least five years; or

3.2 QUALIFICATION OF TECHNICAL MEMBER:

In order to be qualified as a Technical Member he must fulfill following criteria’s—

(a) For at least fifteen years he must be a member of the Indian Corporate Law Service or Indian Legal Service [and has been holding the rank of Secretary or Additional Secretary to the Government of India];or

(b) Must be a chartered accountant for at least fifteen years; or

(d) Must be a company secretary for at least fifteen years; or

(e) Must be a person of proven ability, integrity and standing having special knowledge and professional experience of not less than fifteen years in industrial finance, industrial management, industrial reconstruction, investment and accountancy]

(f) Must be a presiding officer of a Labour Court, Tribunal or National Tribunal constituted under the Industrial Disputes Act, 1947 for at least 5 years.[5]

JURISDICTION OF THE NCLT

Both NCLT and NCLAT follow the Code of Civil Procedure and are subject to any rules formed by the Central Government. The former two entities further hold the authority to direct and make-do their own procedural methods.

The jurisdiction of NCLT includes the following:

Class Action: Class Action suit comes under Section 245 of the Indian Companies Act, 2013. In class action suits NCLT can take action against frauds and improprieties wherein the shareholders and depositors are the main victims.

One or more plaintiff can file a suit on behalf of a large group under section 245. Section 245 provides relief to the investors, protecting their assets and safeguarding their rights. Apart from that class action can be filed against both private and public run companies with an exception for banking companies.[6]

Refusal to Transfer Shares: Section 59 of the Company Act, 2013 states that if a company refuses to register a transfer or does any malpractices leading to dissatisfaction of the transferor or transferee, the latter is entitled to appeal before the National Company Law Tribunal, after a period of two months.[7]

Oppression and Management: Section 241 of the Companies Act, 2013 grants any member permission to find justice for past and present instances of oppression and mismanagement. A member can file an application to the Tribunal upon the grounds that the affairs of the company are run in a manner which is prejudicial to public interest and oppressive towards members of the company.[8]

Reopening of Accounts and Revision of Financial Statement: Section 130 and 131 read along with Section 447 and 448 of the Company Act, 2013 refrains companies from suo muto opening their accounts and revising their financial statements. Section 130 gives the Tribunal power to hold the authority to direct a particular company to reopen its accounts under certain given circumstances.[9] The company is allowed to revise its financial statement under Section 131 but not allowed the reopening of any accounts.

Deregistration of Companies: Section 7(7) of Company Act, 2013 preserves power upon the Tribunal to deregister or dissolve companies that are found to have attained ‘registered’ status through illegal and wrongful manner.[10]

Power to Investigate: Chapter XIV of the Companies Act, 2013 instills upon the Tribunal the power of investigation. The Tribunal can authorize an investigation into the affairs of any company if or when an application is filed against the particular company by 100 members. The investigation can even be extended to the ownership of companies.

Conversion of Public Company to Private Company: The Tribunal in accordance with Section 13-18 of the Company Act, 2013 has a say in the conversion of public companies to private companies. This authority not only includes the consent and confirmation for the conversion, it goes further. Section 459 of the Act maintains that NCLT can impose certain terms and restrictions or grand approval along with certain conditions.[11]

Tribunal Convened General Meetings: ‘Annual general meetings’ (AGM) or ‘extraordinary general meetings’ (EOGM) ought to follow procedures provided under the Companies Act, 2013. However, if the AGM or EOGM cannot be called because of some reasons, the Tribunal under the provisions of Sections 97 and 98 is empowered to convene a general meeting.[12] [13]

CONCLUSION

The constitution of the National Company Law Tribunal has had a great impact in the field of Company Law. This is because it has revamped the version of the conventional Company Law Board. Apart from that the functions and powers of the NCLT are also very different from the functions and powers of the conventional CLB. Presently, it cannot be said that how efficient this alternative will prove because at this stage the NCLT is just in its preliminary phase. However, in the first 3 years of its establishment it has proved to be a boon. Firstly it has removed a lot of burden from the shoulder of the Courts and other institutions. The power of the Tribunal of exercising original jurisdiction over matters has ensured that there is a speedy conveyance of justice and smooth working of the justice system.

Presently the tribunal also has the power to hear class action suits which brings forth another distinctive sort of investor majority rules system in India, which has been followed in various western nations. This will help Indian organizations in actualizing more beneficial corporate administration hones and will extend the value to the investors.[14]

Last but not the least, to make NCLT an institution, the independence of the NCLT need to be preserved.

[1] Companies Act, 2013, Section 408.

[2] Madras Bar Association v The Union of India , WRIT PETITION (C) NO. 1072 OF 2013

[3] Pramit Bhattacharya, Constitution of National Company Law Tribunal (NCLT), I Pleader (March 6, 2019, 1:00 p.m.), https://blog.ipleaders.in/constitution-national-company-law-tribunal-nclt/#_ftn1

[4] Companies Act, 2013, Section 409.

[5] Companies Act, 2013, Section 409.

[6] Companies Act, 2013, Section 245.

[7] Companies Act, 2013, Section 59.

[8] Companies Act, 2013, Section 241.

[9] Companies Act, 2013, Section 130.

[10] Companies Act, 2013, Section 7(7).

[11] Companies Act, 2013, Section 459.

[12] Companies Act, 2013, Section 97.

[13] Rose Mathew, All you need to know about the Jurisdiction of the NCLT & NCLAT, I Pleader (March 6, 2019, 2:00 p.m.), https://blog.ipleaders.in/jurisdiction-nclt-nclat/

[14] Bhattacharya, supra note 3.