NCLT IS A REALITY NOW
Is tribunalization effective way to reduce burden of
the courts and provide speedy remedies. Income Tax Appellate Tribunal (ITAT),
State Administrative Tribunal (SAT), Customs, Excise and Service Tax Appellate
Tribunal (CESTAT), Debt Recovery Tribunal (DRT), Central Administrative
Tribunal (CAT), Intellectual Property Rights Tribunal, Electricity Tribunal and
even a Railway Claims Tribunal—we have enough already. However, it’s time for
one more. Eight years after they were first proposed, National Company Law
Tribunals (NCLTs) are about to become reality, which is thanks to last week’s
Supreme Court ruling. Will the creation of NCLTs take a load off corporate
India's back? Will they work?
OVER the last 25 years, Parliament has systematically taken away
important judicial functions of the High Courts and the civil courts and vested
them in quasi-judicial tribunals. However, there is a fear that in the process
the stature of our High Courts has been reduced and, if this trend continues, vitally
important cases will come to be decided by tribunals that are wholly controlled
by the executive. The tribunalization of our judicial system will lead to
consequences that our country will bitterly regret. Despite the fact that the
functioning of most tribunals is in a pathetic state, the zeal to create more
tribunals has not abated. Very few have realized that the real solution lies in
strengthening the existing courts and confining tribunals to a few specialized
areas. It is equally important to ensure that specialized tribunals are not
manned by generalist civil servants or judges.
The Government planned to set up the National Company Law Tribunal under
the newly enacted Companies Act, 2013. The National Company Law Tribunal is to
be established as a quasi-judicial body. The mandate of the Tribunal is to
adjudicate upon matters dealing with corporate and company related disputes.
While the principal bench of the tribunal is to be set up in New Delhi, several
other benches are touted to be set up in various states. The number of such
benches could range from 12 to 13, across the country.
The National Company Law Tribunal would have the jurisdiction to deal
with the disputes which were earlier within the power of Company Law Board,
Board of Industrial and Financial Reconstruction and High Courts. As such, the
scope of NCLT’s power shall extend to disputes relating to oppression and
mismanagement, sick companies and their revival and winding up procedure with
respect to companies. The orders of the National Company Law Tribunal are
appealable in the National Company Law Appellate Tribunal.
The validity of the National Company Law Tribunal
(‘NCLT’) and National Company Law Appellate Tribunal (‘NCLAT’) was one of the
most debated issues in the company law since the introduction of Companies
(Second Amendment) Act, 2002 to the Companies Act, 1956. The controversy was
put to rest by the Supreme Court in 2010 in the case - Union of India Vs R.
Gandhi, President, Madras Bar Association – wherein the constitutional validity
of NCLT / NCLAT was upheld. The provisions relating to NCLT / NCLAT were
included in the Companies Act, 2013 and such provisions were again challenged
by Madras Bar Association.
Recently, by its order dated 14th May
2015, the Supreme Court upheld the constitutional validity of the NCLT / NCLAT
provisions.
Brief Analysis of SC Ruling in Madras Bar
Association Vs Union of India & Anr.:
On May 14, 2015, the Constitution Bench of the Supreme
Court led by Chief Justice HL Dattu partly allowed the writ petition filed by
the Madras Bar Association wherein it struck down the validity of Technical
Member appointment & Selection Committee constitution but it upheld the
validity of the NCLT / NCLAT under the Companies Act, 2013. The provisions
relating to NCLT & NCLAT were also challenged under the Companies Act, 1956
(in Union of India Vs R. Gandhi, President, Madras Bar Association), wherein
the SC’s Constitution Bench upheld the validity of NCLT / NCLAT and certain
provisions relating to constitution of board of company law administration were
held as ‘unconstitutional’.
In the present case, the SC’s Constitution Bench rejected
Sr. Advocate Arvind Datar’s (representing the writ petitioner, Madras Bar
Association) contention that UoI Vs R. Gandhi judgment did not deal with
constitution of NCLAT. The SC held that the Constitution Bench categorically
dealt with the constitutional validity of NCLT & NCLAT under the caption
“Whether the constitution of NCLT and NCLAT under Parts 1B & 1C of
Companies Act are valid”.
SC completely dismissed Madras Bar Association’s reliance
on 2014 ruling of SC, wherein the constitution of National Tax Tribunal (NTT)
was held as ‘unconstitutional’. SC remarked that such ‘adventurism’ on the
petitioner’s part is totally unfounded and stated that the earlier ruling in
UoI Vs R. Gandhi is of Constitution Bench and is binding on the
co-ordinate Bench as well.
Apex court differentiated the NTT ruling from NCLT/NCLAT
and held that the NTT was a matter where power of judicial review exercised by
the High Court was vested in NTT which was sought to be unconstitutional. SC
observed that NCLT is the ‘first forum’ in the hierarchy of quasi-judicial fora
set-up under the Companies Act, 2013 and stated that NCLT, would not only deal
with question of law but would be called upon to thrash out the factual
disputes/aspects as well.
With respect to the issue of constitutionality of
provisions for appointment of technical members to NCLT/NCLAT, the constitution
bench of SC relied on its earlier ruling in Union of India Vs R. Gandhi and
observed that only officers holding ranks of Secretaries or Additional
Secretaries can be considered for appointment as Technical members.
The SC held the constitution of Selection Committee (for
selecting the Members of NCLT and NCLAT) as invalid and stated that instead of
5 members Selection Committee, it should be 4 members (2 from administrative
branch + 2 from judiciary) Selection Committee. The 4-member Selection
Committee shall include - Chief Justice, Senior Judge, Secretary in the Finance
Ministry and Law Secretary, with the caveat that the Chief Justice will have a
casting vote.
Impact of the SC Ruling on constitutional
validity of NCLT & NCLAT:
The recent SC ruling on the constitutional validity of
NCLT & NCLAT is one of the biggest leaps for the corporate sector and the
professional fraternity. The step will have a positive impact on the corporate
restructuring (i.e. mergers and acquisitions, capital restructuring, revival of
sick companies and dispute related matters) as the NCLT will not just only
replace the Company Law Board (CLB), but will also bring under its umbrella
cases filed with the High Courts, Board for Industrial and Financial
Reconstruction (BIFR) and the Appellate Authority for Industrial and Financial
Reconstruction (AAIFR).
It seems that matters pertaining to winding up have been
taken out of jurisdiction of NCLT and NCLAT by recent amendment to the
Companies Act, 2013 in 2015. However, Section 270 (which are yet to be made
effective) onwards still refer to “Tribunal”.
The NCLT / NCLAT formation is welcome step as it will
reduce the burden of the Supreme Court, High Courts and CLBs on the corporate
law related matters, which will ultimately help in unlocking the value of
distressed assets. NCLT / NCLAT being the ‘specialized benches’ for corporate
law related mattes, it is expected that the matters will be listed and heard in
an expeditious and time bound manner.
The formation of NCLT / NCLAT will open wide gates
for the practicing Chartered Accountants, practicing Company Secretaries,
and practicing Cost Accountants, as they would now be able to represent their
client companies in matters requiring Tribunal approval i.e. mergers and
amalgamations, capital restructuring, revival of sick companies and
shareholders-management dispute matters. Until the formation of the NCLT/NCLAT,
the practicing professionals (CA, CS & CWA) could appear only before the
CLB and for the matters being heard by the HC and Supreme Court, only Advocates
were eligible for arguments and representation. Now all practicing
professionals (Advocates, practicing CA, practicing CS & practicing CWA)
will be treated at par for representation before NCLT / NCLAT.
For entering / establishing oneself in the field of NCLT
/ NCLAT, it would be desirable of a practicing professional to take some
efforts for enhancing their skill sets, some of which are listed below:
(1)
Thorough study of the provisions of Companies Act, 2013;
(2)
Thorough study of the Secretarial Standards,
(3)
In-depth analysis and study of the provisions of Companies Act, 2013 as well as
1956 relating to mergers and amalgamations, capital restructuring, revival of
sick companies and shareholders-management dispute matters;
(4)
Thorough knowledge of the case-laws on the topics relating to mergers and
amalgamations, capital restructuring, revival of sick companies and
shareholders-management dispute matters;
(5)
Developing art of advocacy and soft skill;
(6)
Having basic knowledge relating to Tax Laws, Accounting treatments in matters
relating to mergers and amalgamations, capital restructuring, revival of sick
companies and shareholders-management dispute matters;
Here’s how the NCLTs will now work:
Tribunals will comprise one principle bench at Delhi, and then as many
other benches as the Central Government thinks fit. Each bench will have at
least one judicial member and one technical member.
Members will be selected by a committee that includes:
·
The Chief Justice of India or his
nominee
·
A senior High Court or Supreme Court
judge
·
One representative of the Ministry of Law and
Justice
·
One representative of the Ministry of Finance
and Company Affairs.
To ensure the tribunals’ independence:
·
No tribunal member will remain associated
with a ministry or a civil service department after appointment.
·
All administrative support will be provided
by the law ministry.
As per the Supreme Court’s directions, technical members of the tribunal
must have:
·
At least 15 years experience in industrial
management, reconstruction, investment or accountancy
·
Or, have held a high ranking post in the
Indian Company Law Service.
Judicial members must have:
·
At least five years of experience as high
court or district court judges
·
Or, at least ten years of experience as
lawyers.
Conclusion:
With the ever increasing corporate growth in
the recent past in India coupled with various technological and rapid economic
growth, the need of the hour is to have a good, proper and efficient mechanism
to tackle the disputes, restructuring, mergers, amalgamations, revival,
rehabilitation of companies and various other issues which a corporate would
face and also to expeditiously dispose of the same. Handling a company dispute
is a complicated matter and requires lot of attention,
caution, specilization and we require experts to handle these cases.
So far, the functions are handled by the CLB, BIFR and the High Courts, which
to a greater extent performed their part in a well-defined manner with slight
minor exceptions. There are no shortcomings in the present system of the High
Courts which discharge its functions like entertaining winding up petitions,
seeking sanction of the High Court for compromises, arrangements, mergers, demergers and
for sanctioning scheme of amalgamations, etc. It may not be out of place to
mention that the CLB has also been discharging its complicated responsibilities
under the provisions of prevention of oppression and mismanagement and application
for relief in case of mismanagement under section 397/398 of the Companies Act,
1956 and various other provisions. The Government needs to provide speedy and
effective remedy to the corporate since corporate cannot wait for long to get
their disputes/schemes sanctioned. After the implementation of the NCLT, it is
to be seen how the new proposed Tribunals, viz., NCLT and NCLAT,
would discharge their functions in future.
Comments
Post a Comment