Constitution of NCLT and NCLAT
The genesis of setting up of specialized tribunals can be traced in the Supreme Court judgement in Sampath Kumar case. In this case while adopting the theory of alternative institutional mechanism the Supreme Court refers to the fact that since independence, the population explosion and the increase in litigation had greatly increased the burden of pendency in the High Courts.
The Supreme Court also referred to studies conducted towards relieving the High Courts of their increased load; the recommendations of the Shah Committee for setting up independent Tribunals as also the suggestion of the Administrative Reforms Commission for setting up of Civil Service Tribunals.
The Supreme Court also referred to studies conducted towards relieving the High Courts of their increased load; the recommendations of the Shah Committee for setting up independent Tribunals as also the suggestion of the Administrative Reforms Commission for setting up of Civil Service Tribunals.
Click to download: List of Sections applicable to NCLT & NCLAT
Background:
The Companies (Amendment) Act 2002 introduced the NCLT as a dedicated Tribunal to handle certain matters under the Cos. Act 1956 and allied laws which were being handled by BIFR, CLB and HCs. The formation of NCLT got entangled in a long litigation going up to the SC [LSI-486-SC-2015-(NDEL)]. After marathon litigations, NCLT is finally a reality in 2016 – a long journey of 14 years after it was conceived!
In brief The National Company Law Tribunal (NCLT) and the National Company Law Appellate Tribunal (NCLAT) have been constituted by Central Government with effect from 1 June, 2016.
This would effectively dissolve the Company Law Board (CLB) as constituted under the Companies Act, 1956 from the same day.
The NCLT will start functioning with eleven Benches – two at New Delhi and one each at Ahmedabad, Allahabad, Bengaluru, Chandigarh, Chennai, Guwahati, Hyderabad, Kolkata and Mumbai. The Principal Bench of the NCLT will be at New Delhi.
IMPACT OF THE CONSTITUTION OF NCLT AND NCLAT ON COMPANY LAW LITIGATION
Single Window: The most significant benefit likely to arise from the constitution of the NCLT and the NCLAT is that the tribunals will, effectively, act as a single window for settlement of all company law related disputes. The newly constituted tribunals will replace the existing Company Law Board (‘CLB’), the Board of Industrial and Financial Reconstruction (‘BIFR’) and its appellate authorities.
Class Action Claims: Shareholders are allowed to file class action suits before the NCLT, against the company for the breach of provisions of the Companies Act. As per this provision, if 100 or more shareholders or depositors find that the company’s affairs are not being managed in its best interests, they may approach the NCLT. In a class action suit, shareholders can collectively sue directors or auditors of the company for their misconduct or unwarranted acts. In addition, with the increase of shareholder activism in India such a remedy would be a valuable remedy in the hands of shareholders against their boards.
Greater Field Impact: Under the old law, the CLB was operating through only 5 benches. However, the NCLT will commence with 11 benches, with the Principal Bench being in New Delhi. This will undoubtedly aid in ensuring a wider reach for adjudicating company law matters in India.
Speedy Disposal of Cases: The NCLT has been given the powers to regulate its own procedure which will assist them in disposing matters in a simplified manner. Further, the NCLT and the NCLAT are under a mandate to dispose of cases before them as expeditiously as possible. In this context, a time limit of 3 months has been provided to dispose of cases, with an extension of 90 days for sufficient reasons to be recorded by the President or the Chairperson, as the case maybe. This time limit is expected to ensure the speedy disposal of cases by the NCLT and the NCLAT.
One would hope that the corresponding rules pertaining to the functioning of NCLT with regard to the matters mentioned above are notified expeditiously, such that the exercise of jurisdiction by NCLT on the above matters is actuated. With the dissolution of CLB, proceedings pending with it shall also be transferred to the Tribunal as per section 434 of the Act.
Noteworthy is the fact that the provisions relating to compromises and amalgamations by companies covered under Chapter XV of the Act, and winding up of companies under Chapter XX of the Act have not yet been notified. Accordingly, these matters would continue to be governed by the provisions of the erstwhile Companies Act, 1956. It would also appear that the relevant High Courts, being the adjudicating authorities under these provisions would continue to have jurisdiction on these matters, till such time as the MCA issues specific directions as to the transfer of such matters to NCLT. The other key area where NCLT was supposed to have jurisdiction was with regard to revival and rehabilitation of sick companies. However, provisions relating to this matter would be removed from the Act after the Insolvency and Bankruptcy Code, 2016 are brought into effect. Anyhow, even under the Insolvency Code, NCLT shall be acting as the adjudicating authority in relation to companies.
The Apex Court in its judgment in Madras Bar Association vs Union of India had pointed out certain defects in the provisions of the Act relating to the selection criteria for technical members of NCLT and NCLAT. Curative amendments in law formed part of the Company Law Committee Report and the Companies Amendment Bill 2016.
The Government also seems to have taken a phase-wise approach towards activating this framework by transferring select matters under NCLT jurisdiction for the time being. One would hope that capacity of these Tribunals is built expeditiously, such that the remaining provisions of the Act are brought into force as well.
The constitution of the NCLT as a single forum to deal with Company Law matters is a welcome move to various stakeholders as it is aimed at providing a speedy and efficient disposal of the matters. In addition, it will also help in taking the load off the overburdened High Courts.