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National Company Law Tribunal and National Company Law Appellate Tribunal

National Company Law Board

Before the constitution of the National Company Law Board (NCLT), the company matters had been divided between the High Court [HC] and the Company Law Board [CLB].

Disputes relating to reduction of capital, merger and amalgamation and winding up were with the HC and the power of rectification of register, complaints regarding refusal to transfer/ transmit securities, rectification of register of Members, oppression and mismanagement was handled by the CLB.

nclt nclat lawyer delhi

Specialized bodies called the National Company Law Tribunal [NCLT] and National Company Law Appellate Tribunal [NCLAT] have provided a glimmer of hope in Company litigation.

NATIONAL COMPANY LAW TRIBUNAL

Introduction

The CLB constituted under Section 10E of the Companies Act, 1956 [hereinafter referred to as Act] has been dissolved by the introduction of Section 10FA and the NCLT has been constituted under Section 10FB of the Act. All matters pending before the CLB on or before dissolution have now been transferred to the NLCT [S. 10FA (3)]. In case of orders passed by the CLB before dissolution, appeal can be filed before the HC as per Section 10F. Orders passed by the CLB prior to dissolution can be enforced through Court as per provisions of Section 635(4), even after dissolution.

Body of NCLT

Constitution of the Tribunal

The NCLT consists of a President and other Judicial and Technical Members the total constitution not exceeding 62 Members. The CLB had only 9 Members who were appointed by the Central Government the increase in number of Members comes as a welcome change. Like CLB the Members of NCLT are to be appointed by the Central Government [S. 10FC]. However there are critics who argue that the interference of the Central Government in the affairs of the Tribunal would be detrimental to the interest in the affairs of the tribunal.

President of the Tribunal

The President of the Tribunal is a person who has been, or who is

  1. Qualified to be, a Judge of the High Court [S. 10FD (1)]
  2. Considered as a Judicial Member [Explanation to Section 10FD (3)]

The tenure of the President is fixed at 3 years, but is eligible for reappointment [S. 10FE]. The age of superannuation is at 67 years.

Judicial Members

Judicial Members are appointed as per Section 10FD. Such Judicial Members should have the following qualifications;

  1. He has for at least 15 years, held a Judicial office in the territory of India; or
  2. Has at least ten years been an advocate of a High Court, or has partly held Judicial office and has been partly in practice as an advocate for a total period of fifteen years; or
  3. Has held for at least fifteen years a Group ‘A’ post or an equivalent post under the Central Government or a State Government [including at least three years of service as a Member of the Indian Company Law Service (Legal Branch) in Senior Administrative Grade in that service]; or
  4. Has held for at least fifteen years a Group ‘A’ post or equivalent post under the Central Government including at least three years of service as a Member of the Indian Legal; Service in Grade 1 of that service). [Section 10FD(2)]

The tenure of the Judicial Members is for 3 years and is eligible for reappointment. [S. 10 FE]. The age of superannuation is 65 years.

Technical Members

A person can be appointed as a Technical Member if he;

  1. Has held for at least fifteen years a Group ‘A’ post or an equivalent post under the Central Government or a State Government [including at least three years of service as a Member of the Indian Company Law Service (Accounts Branch) in Senior Administrative Grade in that Service]; or
  2. Is, or has been, a Joint Secretary to the Government of India under the Central Staffing Scheme, or any other post under the Central Government or a State Government carrying a scale of pay which is not less than that of a Joint Secretary to the Government of India for at least five years and has adequate knowledge of, and experience in, dealing with the problems relating to Company Law; or
  3. Is or has been, for at least fifteen years in practice as a Chartered Accountant under the Chartered Accountants Act, 1949; or
  4. Is, or has been, for at least fifteen years in practice as a Cost Accountant under the Costs an Works Accountants Act, 1959; or
  5. Is, or has been, for at least fifteen years working experience as a Secretary in whole time practice as defined in clause (45A) of Section 2 of the Act and is a Member of the Institute of the Company Secretary of India constituted under the Company Secretaries Act, 1980; or
  6. Is a person of ability, integrity and standing having special knowledge of, and professional experience of not less than twenty years in science, technology, economics, banking, industry, Law, matters relating to industrial finance, industrial management, industrial reconstruction, administration, investment, accountancy, marketing or any other matter, the special knowledge of, or professional experience in, which be in the opinion of the Central Government useful to the Tribunal; or
  7. Is, or has been, a Presiding Officer of a Labour Court, Tribunal or National Tribunal constituted under the Industrial Disputes Act, 1947; or
  8. Is a person having special knowledge, and experience of not less than fifteen years in, matters relating to labor.

The provisions relating to superannuation, tenure, reappointment is the same as that of the Judicial Members, as given under Section 10FE.

Technical Members are of two types

  1. Those having experience in Company Law and related matters, i.e. those appointed under clauses (a) to (f) of Section 10 FD (3); and
  2. Those having experience in labor matters, i.e. those appointed under clause (g) to (h) of Section 10FD (3).

This distinction is for hearing the matters relating to rehabilitation of sick industrial company and winding up, as in those cases, both categories of Technical Members must be on the Bench hearing winding up petition. Only a Technical Member who specialized in labor matters can be only Member of Special Bench hearing matters relating to rehabilitation of sick industrial company and winding up petition. He cannot be a Member of any other bench.

Member Administration

One of the Judicial Member or Technical Member shall be designated as Member Administration by the Central Government. The Member Administration shall exercise financial and administrative powers as may be vested in him under the rules that may be made by the Central Government. [S. 10FF]

He can also delegate his authority to any other officer of the Tribunal, but such delegation is under the condition that such officer in the exercise of his delegated powers continues to Act under the direction, superintendence and control of the Member Administration. [Proviso to S. 10FF]

Benches of the Tribunal

The benches of the Tribunal shall be constituted by one Judicial Member and one Technical Member i.e those Members who are appointed under Section 10FD (3) (a) – (f). The Technical Members appointed under Section 10FD (3) (g)- (h), i.e. those Technical Members who have special knowledge in labour matters are not the part of the bench. They shall comprise of the Special Bench hearing matters relating to sick industrial company and winding up [S. 10FL (l)]. The President can also constitute benches comprising of a single Member by a general or special order. Such single Member bench shall exercise the jurisdiction, powers and authority of the Tribunal in respect of such class of cases or such matters pertaining to such class of cases, as may be decided by the President. Such single Member bench can refer to the President matters that the Member feels ought to be heard by bench consisting of two Members. [Proviso to S. 10FL]

The President shall for the disposal cases relating to rehabilitation, restructuring or winding up of the companies, constitute one or more Special Benches consisting of three or more Members. Such a Special Bench shall be comprise of a Judicial Member, a Technical Member as refereed to under clauses (a) to (f) Section 10FD and one Technical Member appointed under Section 10FD (g) – (h) [S. 10FL (2)]. After winding up order is passed further a bench consisting of a single Member may conduct proceedings. [Proviso S. 10FL].

Majority shall decide any difference in opinion between the Members. If the Members are equally divided then one or more of the other Members of the Tribunal shall refer the case to the President of the Tribunal for hearing on such point or points of difference. Then, the majority of Members of the Tribunal who have heard the case, including those who first heard it shall by majority decide the point or points of difference [S. 10 FL (3)].

There shall be a Principal Bench at New Delhi [S. 10 FL (5)] which shall in addition to the powers of the Tribunal have the power to transfer proceedings form any bench to another bench of the Tribunal in the event of inability of any bench from hearing the proceedings for any reason. Such transfer shall be made after recording reasons for doing so in writing. [S. 10FL (6)].

Specific Powers of the Tribunal

The Tribunal enjoys certain powers not enjoyed by the Appellate Tribunal such as:

Rectification of Mistakes

The Tribunal at any time within two years from the date of the order, with a view of rectifying any mistake apparent on the face of the record amend any order passed by it under Section 10FM (1). The Tribunal shall make such amendment if the mistake is bought to its notice by the parties. [S. 10FM (2)]. The Appellate Tribunal has the power of review [S. 10FZA (2) (f)] but no power to rectify its mistakes.

Delegation of Powers to Manage Industrial Company

The Tribunal may, by general or special order, delegate, subject to such conditions and limitations as may be specified in the order to any Member or officer or other employee of the Tribunal or other person authorized by the Tribunal to manage any industrial Company or industrial undertaking or any operating agency, such powers and duties under the Act as it may deem necessary.

Power to Seek Assistance of Magistrate to Takeover Assets of Sick Industrial Company

Section 10FP (1) provides that the Tribunal or any operating agency on being directed by the Tribunal may, in order to take into custody or its control all property, effects and Actionable claims to which a sick industrial Company is or appears to be entitled, request, in writing, the Chief Metropolitan Magistrate or the District Magistrate within whose jurisdiction any property, books of accounts or any other documents of such sick industrial Company, be situate or be found, to take possession thereof, and the Chief Metropolitan Magistrate or the District Magistrate, as the case may be, shall on such request being made to him;

  1. Take possession of such property, books of account or other documents: and
  2. Cause the same to be entrusted to the Tribunal or the operating agency.

For the purpose of securing compliance with the provisions of the of sub-section (1), the Chief Metropolitan Magistrate or the District Magistrate may take or cause to be taken such steps and use or caused to be used such force as may be, in his opinion, be necessary. [S. 10FP (2)]

Provisions of s 10FP(3) are very interesting, it lays that any act of the District Magistrate or the Chief Metropolitan Magistrate done in pursuance of the sub-section (1) and (2) shall not be called in question in any Court of Law or before any authority on any ground whatsoever.

This sub-section confers such wide powers on the Chief Metropolitan Magistrate and the Judicial Magistrate that any arbitrary or excessive use of such powers will go unchecked. Some restraint on this power must be incorporated or else the Courts will be helpless and the tyranny will prevail.

Limitation

The provisions of the Limitation Act, 1963 are not applicable to the Tribunal although they are applicable to the Appellate Tribunal. [S. 10GE]

This provision may lead to many practical problems and needs urgent amendment.

COMPARISON BETWEEN CLB and NCLT

The constitution of National Company Law Tribunal (NCLT) and National Company Law Appellate Tribunal (NCLAT) marks the dissolution of the Company Law Board (CLB).

The primary objective of these tribunals is to provide simpler, speedier and more accessible dispute resolution mechanism for company related disputes, by unburdening the courts.

Provided hereunder is a brief summary of the differences between the CLB and the NCLT.

  1. Number of Benches: While the CLB was functioning with only five benches, the NCLT will commence action with eleven benches. It is expected to eventually have benches across each state in India.
  1. Jurisdiction: While provisions relating to mergers, restructuring and winding-up have not been notified yet, the NCLT, once fully functional, will consolidate the corporate jurisdiction of the CLB; Board of Industrial and Financial Reconstruction; Appellate Authority for Industrial and Financial Reconstruction and; Jurisdiction and powers relating to winding up, restructuring and other such provisions, currently vested in the High Courts. Once notified, the provisions relating to mergers, restructuring and winding up will no longer be under the jurisdiction of the High Court.
  1. Amicus Curiae: The Draft National Company Law Tribunal Rules, 2013 (Draft Rules) enable the NCLT to appoint Amicus Curiae for opinion on various specialized legal issues.
  1. Other Professionals allowed to represent: Until now, Company Secretaries, Chartered Accountants, Cost Accountants could represent their clients only before the CLB, the scope of which was limited. The Draft Rules enable other professionals to represent their clients in matters pertaining to mergers/ winding-up before the NCLT.
  1. Class Action Suits: With the constitution of the NCLT, shareholders and creditors can now file class action suits against the company for breaching the provisions of the Act. While shareholders have always been allowed to protest against the wrong doings of the management, a class action suit takes this a step further. The key difference between oppression, mismanagement (Sections 241-244) and class action suits (Section 245) can be summed up in the following points:
  • Under Section 245, members as well as deposit holders can file an application as opposed to only member;
  • Application can be filed, in addition to company and its statutory appointees, against audit firms and any other independent consultants;
  • Application can be filed for future activities as well in addition to current or past activities.
  1. Dedicated Online Portal: The Draft Rules introduce a ‘dedicated online portal’ through which all the parties or central or state government agencies and local government bodies may electronically send and receive documents to or from the NCLT and make required payments.
  1. Electronic Filing: As per the Draft Rules, electronic filing and serving of Tribunal documents shall be mandatory except as provided otherwise, with effect from the date to be notified in the official gazette
  1. Members of the Technical Committee and Selection Committee: In the NCLT, only officers holding ranks of Secretaries or Additional Secretaries can be considered for appointment as technical members. While the CLB did not have a selection committee, the selection committee for the NCLT comprises of four members including the Chief Justice of India, who will have a casting vote.
  1. Appeals: Appeals from the NCLT will go the NCLAT, and thereafter with the Supreme Court. The High Courts have been eliminated from the chain of appeals.
  1. Ousting of Civil Court Jurisdiction: Under the old regime, there was no express provision ousting the jurisdiction of the Civil Courts, and various judicial pronouncements have time and again reiterated the requirement of an express provision for ousting Civil Court jurisdiction. Putting an end to the debate, Section 430 the Act expressly ousts the jurisdiction of Civil Courts.

THE NATIONAL COMPANY LAW APPELLATE TRIBUNAL

Introduction

The NCLAT was constituted so that the decisions of the NCLT may be appealed to the National Company Law Appellate Tribunal (NCLAT). The decisions of NCLAT may be appealed to the Supreme Court of India.

Body of NCLAT

Constitution of the Appellate Tribunal

The Central Government shall by notification constitute an Appellate Tribunal called the National Company Law Appellate Tribunal consisting of a Chairperson and not more than two Members, to be appointed by the Government, for hearing the appeals under this Act[S. 10FR (1)]

The Chairperson of the Appellate Tribunal shall be a person who has been a Judge of the Supreme Court or Chief Justice of the High Court [S. 10FR(2)]. The other Members of the Appellate Tribunal shall be persons of ability, integrity and standing having special knowledge of and professional experience and of not more than twenty five years in science, technology, economics, banking, industry, law, matters relating to labor, industrial finance, industrial management, industrial reconstruction, administration, investment, accountancy, marketing or any other matter, the special knowledge of, or professional experience in which, would be the opinion of the Central Government useful to the Appellate Tribunal [S. 10FR (3)]. The Members of the Appellate Tribunal are mere Technical Members and not Judicial Members unlike the Tribunal.

The tenure of the Chairperson and the Members is for three years and they can be reappointed.

The age of superannuation of the Chairperson is 70 years and that of the Members is 67 years. [S. 10FT].

One interesting point is to be noted here, the words in Section 10FE (1) is “not more than two Members”, so it appears that the Appellate Tribunal can function even if no Member is appointed, as long as the Chairperson is appointed, moreover the Appellate Tribunal can function even if only one Member is appointed. But this may cause difficulty in case of a deadlock. In any case the provision needs urgent amendment.

Appeal from order of the Tribunal

All appeals from the Tribunal shall lie to the National Company Law Appellate Tribunal. But no appeal shall from an order or decision made by the Tribunal with the consent of the parties. [S. 10FQ (2)].

The limitation period to file an appeal is prescribed as 45 days from the date on which a copy of the order or decision of the Tribunal is received by the appellant [S. 10FQ (3)].

Such appeal shall be made in the prescribed form and accompanied by fee as may be prescribed [S. 10FQ (3)]. The Appellate Tribunal may condone the delay in filing appeal if it is satisfied that the appellant was prevented by sufficient cause from not filing the appeal in time [S. 10 FQ (2)].

On receipt of an appeal, the Appellate Tribunal shall, after giving the parties to the appeal, an opportunity of being heard, pass such orders thereon as it thinks fit, confirming, modifying or setting aside the order appealed against [S. 10FQ (4)]. Copy of ever order in appeal shall be sent to the Tribunal and parties to the appeal [S. 10FQ (5)].

Section 10FQ (6) provides that the appeal should be heard expeditiously and endeavor shall be made to dispose of the appeal finally within six months from the date of the receipt of the appeal.

Benches of the Tribunal

There is no provision for forming benches of the Appellate Tribunal. It appears that all Members of the Tribunal will constitute a bench.

Power to Punish for Contempt

The appellate Tribunal has the same jurisdiction, powers an authority in respect of contempt of itself as the High court has. The Appellate Tribunal shall exercise this power subject to the Contempt of courts Act, 1971, subject to certain modification; firstly, he reference therein to a high court shall be construed as including a reference to the Appellate Court; and Secondly, he reference to the Advocate general in Section 15 of the said Act shall be construed as reference to such Law officers as the Central Government may specify

Limitation

The provisions of the Limitation Act, 1963 shall, as far as may be, apply to an appeal made to the Appellate Tribunal [S. 10GE].

PROCEDURE AND POWERS OF THE TRIBUNAL & APPELLATE TRIBUNAL

The Tribunal and the Appellate Tribunal shall have, for the purposes of discharging its functions under the Act, the same powers as are vested in a civil court under the code of civil procedure, 1908 while trying a sit in respect of the following matters;

  1. Summoning and enforcing the attendance of any person and examining him on oath;
  2. Requiring the discovery and production of documents;
  3. Receiving evidence on affidavits;
  4. Subject to the provisions of Section 123 ad 124 of the Indian Evidence Act, 1872 requisitioning any public record or document or copy of such record or document from any office;
  5. Issuing commissions for the examination of witnesses or documents 6. Reviewing its decisions;
  6. Dismissing a representation for default or deciding it exparte;
  7. Setting aside any order of dismissal of any representation for default or any order passed by it exparte; or
  8. Any other matter which may be prescribed by the Central Government.

APPEAL TO SUPREME COURT

Any person aggrieved any decision of the appellate Tribunal may file an appeal to the Supreme Court within sixty days from the date of communication of the decision or order of the Appellate Tribunal to him on any question of law arising out of such decision of the appellate Tribunal. The Supreme Court may, if satisfied that the appellant was prevented by sufficient cause from filing the appeal within the said period, allow it to be filed within a further period not exceeding sixty days [S. 10GF].

REVIVAL OF A SICK COMPANY

Part VI-A of the Second Amendment Act 2002 contains provisions on revival, rehabilitation and winding up of sick companies. The Second Amendment Act 2002 has brought about a change in the definition of the Sick Company. Section 2 (46AA) of the Company Amendment Act 2002 defines “a sick company as one whose accumulated losses in any financial year are equal to the or more than 50% of its average net worth during one financial year immediately preceding such financial year or a company who fails to repay its debt within any three consecutive quarters on demand, for its repayment by a creditor or creditors.” This definition is in stark contrast to the definition of Sick Industry under SICA Act, 1985.

The Sick Industry was earlier defined as “one which has at the end of any financial year accumulated losses equal to or exceeding its entire net worth and is registered for not less than five years”. This change in definition has improved the chances of Sick industry to improve because according to the new definition, a company can be referred to the tribunal even before 5 years and it can be referred also by the banks and other financial institutions in addition to referring by Board of Directors.

Under Section 424A, a government company with the prior approval of the Central government can also make a reference to the tribunal. It is required that the reference has to accompanied by the audited accounts of the company.

Another welcome change introduced by Section 424A is that the accounts are audited by the body of auditors and not by the Board of Directors. Accounts being audited by the Board of Directors run the risk of accounts being manipulated. Section 424A also provides that if Central Government or Public Financial Institution or Schedule Banks have sufficient reasons to believe that an industrial company has become for the purpose of the Act, a sick industrial company, then a reference can be made for the same under Section 424A. When a company is referred as a Sick Company to the tribunal, then the company is also expected to give a revival plan to the tribunal according to Section 424A and Section 424B.

CONCLUSION

The establishment of NCLT will prove to be a great help to the corporate world. With the change in definition of a Sick Company a lot more companies have come under the ambit of a Sick Company and thereby can get the needful attention on time. With the establishment of fund and change in definition of Sick Company and winding up procedures, the time period for revival and winding up will reduce. But the fund for revival of companies might come to a naught if the amount is deposited with the Central Government, efforts should be made to put this into a separate Fund thereby avoiding bureaucratic interference. In all efforts are being made by the central government to achieve its proposed objectives through of avoiding multiplicity of suits, protection of rights of the workers and to reduce the time period for winding up of a Sick Company. Now what is required is to see that the provisions of this Act are strictly implemented and the objectives are achieved.

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  • Legal Notice for Recovery
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  • NCLT Matters
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Advocate Rahul Dev is a Patent Attorney & International Business Lawyer practicing Technology, Intellectual Property & Corporate Laws. He is reachable at rd (at) patentbusinesslawyer (dot) com & @rdpatentlawyer on Twitter

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