India: The National Company Law Tribunal and the National Company Law Appellate Tribunal Constituted

Last Updated: 7 June 2016
Article by   Trilegal

The constitution of the National Company Law Tribunal and the National Company Law Appellate Tribunal is a paradigm shift with the intention of establishing a specialized forum to adjudicate all disputes/issues pertaining to companies in India. The primary objective of constituting these tribunals is to provide a simpler, speedier and more accessible dispute resolution mechanism.

The Government of India has, after fourteen years since their introduction, constituted the National Company Law Tribunal (NCLT) and the National Company Law Appellate Tribunal (NCLAT) under the Companies Act, 2013 (Companies Act) to provide for a single judicial forum to adjudicate all disputes concerning the affairs of Indian companies. The tribunals have been made effective from 1 June 2016.

The NCLT will have eleven benches initially, two at New Delhi and one each at Ahmedabad, Allahabad, Bengaluru, Chandigarh, Chennai, Guwahati, Hyderabad, Kolkata and Mumbai. The NCLT will comprise a president and judicial and technical members, as necessary. Justice M.M. Kumar, former Chief Justice of the High Court of Jammu and Kashmir has been appointed the president of the NCLT. The NCLAT, the appellate body, will consist of a chairperson and a maximum of eleven judicial and technical members. Justice S.J. Mukhopadhaya, a retired judge of the Supreme Court of India, has been appointed the chairperson of the NCLAT.

While the tribunals have been set up to deal with all company related disputes (except any criminal prosecution for offences under the Companies Act), the powers currently provided to the NCLT and the NCLAT under the recent notifications are limited. It is expected that further notifications will soon be issued to allow the NCLT and the NCLAT to exercise complete gamut of powers prescribed under the Companies Act.

The NCLT has been given wide powers under the Companies Act to adjudicate:

1. cases initiated before the Company Law Board (CLB) under the Companies Act, 1956 (Old Act) (which, pursuant to NCLT's constitution, stand transferred to the NCLT);

2. all proceedings pending before any district court or High Court under the Old Act including proceedings relating to arbitration, compromise, arrangements and reconstruction and winding up of companies (which, upon the relevant notification being issued, shall stand transferred to the NCLT);

3. references/inquiries/proceedings pending before the Board for Industrial and Financial Reconstruction (BIFR), including those pending under the Sick Industrial Companies (Special Provisions) Act, 1985 (SIC Act), which would be abated, upon relevant notification being issued, and referred to the NCLT within 180 days from the date of abatement;

4. appeals or any other proceedings pending before the Appellate Authority for Industrial and Financial Reconstruction (AAIFR), including those pending under the SIC Act, which would be abated, upon relevant notification being issued, and referred to the NCLT within 180 days from the date of abatement; and

5. fresh proceedings pertaining to claims of oppression and mismanagement of a company, winding up of companies and all other powers prescribed under the Companies Act.

In addition, the recently enacted Insolvency and Bankruptcy Code, 2016 (Bankruptcy Code), also provides wide powers to the NCLT to adjudicate upon the 'insolvency resolution process' and liquidation of corporate debtors. However, the Bankruptcy Code is yet to be notified and made effective.

In light of the limited provisions under the Companies Act which have been made effective, presently, the NCLT has jurisdiction to:

1. entertain any claims of oppression and mismanagement of a company and to pass any order that the NCLT may deem fit in this regard;

2. adjudicate proceedings and cases initiated before the CLB under the Old Act, which now stand transferred to the NCLT; and

3. exercise powers under various sections of the Companies Act which have been notified and made effective by the Government of India, including (a) power to pass any order against a company incorporated by providing false information or by fraud, (b) power to grant approval for alteration of articles of a company, if such alteration changes its nature from public to private, and (c) power to provide approval for issuance of redeemable preference shares by a company under certain circumstances.

All appeals against any order of the NCLT may be filed by the aggrieved parties with the NCLAT. Any appeal against the orders of the CLB before the constitution of the NCLT would continue to lie before the relevant High Court and not the NCLAT. Currently, for matters pertaining to the winding up of companies and sick companies, parties would have to continue to approach either the concerned High Courts, the BIFR or the AAIFR.

The formation of the NCLT and the NCLAT is a significant step towards attaining fast and efficient resolution of disputes relating to affairs of the Indian corporates. It is expected that once all relevant provisions under the Companies Act and the Bankruptcy Code are made effective, these tribunals would provide holistic solutions to issues being faced by companies, including those of winding up, oppression/mismanagement and insolvency. Being the sole forum dealing with company related disputes, these tribunals would also eliminate any scope for overlapping or conflicting rulings and minimise delays in resolution of disputes, thus, proving to be a boon for litigants.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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