India: Companies Bill, 2012 And The Constitution Of NCLT And NCLAT

INTRODUCTION

Companies Bill has been in talks for past few years and has time and again been amended to adjust to the changing corporate environment. The Companies Act tries to balance two competing factors of management autonomy and investor protection. The economy of India has been witnessing continuous changes, it is going through consistent growth and expansion. In this background of continuous change and growth of economy, the Central Government after due deliberations decided to repeal the Companies Act, 1956 with the introduction of new enactment in the form of legislation to provide for new provisions to meet the continuous changing dynamics of national and international economic environment . These new changes in the proposed legislation are directed towards further acceleration of growth and diversification of the economy in the corporate scenario. It addresses the public concern over corporate accountability and responsibility.

COMPANIES BILL, 2012

After much delay and deliberations, The Companies Bill, 2012 (hereinafter referred to as the "The Bill") which seeks to repeal existing Company Law, 1956, has been passed by Lok Sabha i.e. the lower house of the Indian Parliament, on December 18, 2012. The Bill still needs to be approved by the Rajya Sabha i.e. the upper house of Indian Parliament, and it may therefore undergo further changes. Before the Bill can be notified as a statute replacing the existing Companies Act, 1956, it may possibly undergo modifications.

A completely revamped legislation will be in place with the introduction of The new and amended Companies Act to completely change the operation of cooperates. The Companies Bill has many amended provisions to meet the ever evolving corporate scenario. The Bill has 470 Clauses and 7 Schedules. The bill has been divided into 29 Chapters. With the introduction of Companies Bill, 2012, many new chapters have introduced, such as viz., Registered Valuers (chapter 17); Government Companies (chapter 23); Companies to furnish information or statistics (chapter 25); Nidhis (chapter 26); National Company Law Tribunal & Appellate Tribunal (chapter 27); Special Courts (chapter 28). The Bill has been drafted after great deliberation and critically analyzing various factors revolving around present corporate environment and the changes/ problems that may arise of new situations created by these changes. The Bill is the result of detailed constructive progress adopted by the Government thereby providing self regulatory process and stringent compliance regime. The Companies Bill tries to take into consideration and meet the dynamics of business, governance and accountability.

INTRODUCTION OF NATIONAL COMPANY LAW TRIBUNAL i.e. NCLT AND NATIONAL COMPANY LAW APPELLATE TRIBUNAL i.e. NCLAT

One of the important change proposed to be introduced by the Companies Bill, 2012 is in the form of Constitution of National Company Law Tribunal i.e. NCLT and National Company Law Appellate Tribunal i.e. NCLAT

2Constitution of National Company Law Tribunal and Appellate Tribunal [Clause 408 & 410]:

The Central Government shall, by notification, constitute, a Tribunal to be known as National Company Law Tribunal and an Appellate Tribunal to be known as National Company law Appellate Tribunal.

Clause 408 corresponds to Section 10FB of the Companies Act, 1956 and seeks to deal with the constitution of National Company Law Tribunal (NCLT). The NCLT shall consist of President and such members as the Central Government may deem necessary.

Clause 410 corresponds to Section 10FR of the Companies Act, 1956 and seeks to deal with the formation of National Company Law Appellate Tribunal (NCLAT) consisting of Chairperson and Judicial and Technical Members which shall not exceed eleven. This may seem to be a pragmatic approach. With the introduction of the bill and the constitution of a National Company Law Tribunal and National Company Law Appellate Tribunal, it is also provided that any proceedings presented before the Tribunal or appeals filed before the Appellate Tribunal shall be disposed of as expeditiously as possible and Tribunal shall make every possible endeavor to dispose of the proceedings.

THIRU R. GANDHI PRESIDENT, MADRAS BAR ASSOCIATION VS. UNION OF INDIA

Whenever some change is proposed, there is bound to be opposition to such change. There have been judicial pronouncements discussing the constitutional validity of some of the provisions of the Companies Bill.

The constitutional validity of NCLT and NCLAT was challenged in Thiru R. Gandhi President, Madras Bar Association vs. Union of India, Department of Company Affairs (2004) (Mad).

3Earlier, the amendment to the Companies Act, 1956 to set up the NCLT was rendered unconstitutional by Madras High Court for several reasons; few of amongst those were as under:

"The issue is not whether judicial functions can be transferred from courts to Tribunals. Rather the issue is whether judicial functions can be transferred to Tribunals governed by persons who are not suitable or qualified or competent to discharge such judicial powers or whose independence is suspect"

"A lifetime of experience in administration may make a member of the civil services a good and able administrator, but not a necessarily good, able and impartial adjudicator"

Result and its implication : The Supreme Court of India on 11th May, 2010 gave a ruling validating the provisions of Companies (Second Amendment) Act, 2002 pertaining to transfer of several judiciary and quasi-judiciary powers under the act to an independent tribunal, called NCLT. The creation of a new substitute judicial forum which is to carry out the work which is now being carried out by different High Courts in the country for over nine decades, is to be done with great care so that the new Tribunal will be efficient and effective alternate institutional forum to the High Courts and the Company Law Board. Once the tribunal is established, all company-related matters pending with the Company Law Board (CLB), Board for Industrial and Financial Reconstruction (BIFR), Appellate Authority for Industrial and Financial Reconstruction (AAIFR) and different High Courts across the country will be transferred to the NCLT.

4Difference between Court and Tribunals: There are certain well-recognized differences between courts and tribunals which are as under,

  • While courts are governed by detailed statutory procedural rules and evidence, requiring an elaborate procedure in decision making, tribunals many a times frame their own procedures and are not generally governed by the provisions of procedural and evidence law.
  • Court's proceedings are generally conducted in public, whereas tribunal's proceedings are not required to be conducted in public.
  • Lawyers are entitled to appear before the courts, they are bodies of general jurisdiction; the Judge sitting in a Court himself hears and decides a case and gives reasons for his decision; and above all, they are independent of the executive as Judges have tenure independent of the executive will. Whereas tribunals have a specialized jurisdiction; there may be statutory prohibition on the lawyers to appear before them (though very often it is not so). "

CONCLUSION

"Growth" is directly proportional to change, so it can be concluded that Growth in the various dimensions of corporate environment ignited the necessity for change in age old legislation controlling the governing of such corporates. There has been tremendous corporate growth in the recent past like with the introduction of technological advancement in the form of e-governance, the management, functioning and governance of the companies have become very easy and effective. The tremendous growth of the corporate requires a sound mechanism, to handle any disputes that may arise from its working and complications. Therefore, going by the dynamism of the proposals as contained the Companies Bill, 2012, merits of the constitution of the NCLT and NCLAT can't be denied, provided it functions well in the eyes of law intended by the legislature. This is so because establishment of NCLT and NCLAT will surely reduce many delays in the corporate law proceedings as well as multiplicity of litigations involved in such proceedings. Problem arises at the level of implementation and execution front because of the fact that the inefficient structured corporate framework has many pitfalls arising out of bureaucracy and corruption and less initiative by the corporate.

Footnotes

Mrinalini Gupta, CS Intern

2 Reference: MCA – The Companies Bill, 2012

3 Reference: Thiru R. Gandhi President, Madras Bar Association vs. Union of India, Department of Company Affairs (2004) (Mad).

4 Reference: Thiru R. Gandhi President, Madras Bar Association vs. Union of India, Department of Company Affairs (2004) (Mad).

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