India: Constitution Of National Company Law Tribunal (NCLT) And National Company Law Appellate Tribunal (NCLAT): Comprehensive Analysis

Last Updated: 15 August 2016
Article by Kumar Deep

INTRODUCTION

The Ministry of Corporate Affairs ("MCA") vide notification dated June 01, 2016 ("Effective Date") has constituted the National Company Law Tribunal ("NCLT") and its appellate authority, the National Company Law Appellate Tribunal ("NCLAT") with effect from such date. The NCLT and NCLAT, the quasi judicial bodies, shall adjudicate and decide all issues relating to company law in India. With the constitution of much awaited NCLT and NCLAT, the Company Law Board ("CLB") constituted under the Companies Act, 1956 ("1956 Act") has been dissolved from the effective date and all existing matters, proceedings or cases before CLB have been transferred to the NCLT. The NCLT has been constituted by the Central Government i.e. MCA under the powers conferred by section 408 and 410 of the Companies Act, 2013 ("2013 Act").

There are three Notifications dated June 1, 2016 issued by the MCA for the following purposes:

i) Constitution of NCLT and NCLAT1;

ii) Dissolution of CLB as per section 466 of the 2013 Act2;

iii) Notifying various sections of the 2013 Act; and Location of NCLT Benches3.

The constitution of NCLT and NCLAT is a step towards improving the ease of doing business by bringing all aspects of company law matters under a single jurisdiction.

BACKGROUND

The idea of setting up NCLT was proposed for the first time by the Justice Eradi Committee constituted in 1999 to examine the laws relating to Insolvency and Winding up of Companies. The committee recommended the setting up of a national tribunal.

In furtherance to the recommendations of Justice Eradi Committee, the Companies (Second Amendment) Act, 2002 (2002 Amendment Act) vide insertion of new Parts IB and IC provided the provisions for setting up of NCLT and NCLAT to replace the existing CLB and for transfer of all matters or proceedings or cases pending before the CLB to the NCLT and to dispose of such cases in accordance with the provisions of the Companies Act, 1956 and this 2002 Amendment Act.

The said 2002 Amendment Act was never notified as it was challenged in the High Court at Madras by the Madras Bar Association and the constitutional validity of the same was decided by the constitution Bench of the Hon'ble Supreme Court in Union of India v. R. Gandhi, President, Madras Bar Association [(2010) 11 SCC 14 on May 11, 2010. The Hon'ble Supreme Court upheld the legislative competence of Parliament to create the NCLT and the NCLAT, but the particular structure of the NCLT and NCLAT proposed by the 2002 Amendment Act was held to be unconstitutional. The Government was required to make amendments to the 2002 Amendment Act including but not limited to the selection of members, tenure of members, and qualification of the judicial and technical members of the Tribunal before it could set up actual and functional Tribunals.

However, even after passing of Hon'ble Supreme Court judgment in May 2010 with respect to constitutional validity of setting up of NCLT and NCLAT, the same could not be established. Time passed and the Parliament of India notified the Companies Act, 2013 ("2013 Act") which replaced the 1956 Act and included sub-stantial provisions with respect to the establishment, powers, operations and jurisdiction of the NCLT and NCLAT in line with the necessary changes required by the Hon'ble Supreme Court in May 2010 judgement.

However, the corresponding provisions relating to NCLT and NCLAT prescribed under 2013 Act was again challenged by the Madras Bar Association with respect to inconsistency in the provisions of the 2013 Act with the directions of the Hon'ble Supreme Court in the previous judgment of May, 2010. The issue has finally been decided by the Constitution Bench of the Apex Court on May 14, 2015 in Madras Bar Association vs Union of India & Anr [(2015) 8 SCC 583]5 whereby the Apex Court held that constitution of both NCLT and NCLAT is constitutionally valid, as has been held in the Supreme Court judgment of May, 2010. The Apex Court further held that, in Indian Constitution, it is open for the legislature to provide for set up of tribunals as alternatives to the Courts as a forum for adjudication on specialized matters, provided the tribunal in question has all qualitative trappings and competence of the Court sought to be replaced. However, the Hon'ble Supreme Court had ordered some corrections to be made with respect to the eligibility of technical members in consonance with the previous judgment. Thus, the Hon'ble Supreme Court paved the way for the constitution of the NCLT and NCLAT under the 2013 Act.

COMPOSITION AND FUNCTIONING

The NCLT shall consist of a President and such number of Judicial and Technical Members as may be required. As per MCA circular6 dated June 7, 2016 notified that the principal bench of the NCLT is to be located at New Delhi and it would have ten other benches at New Delhi, Mumbai, Kolkata, Chennai, Bengaluru, Chandigarh, Allahabad, Ahmedabad, Hyderabad and Guwahati. The Hon'ble Justice M.M. Kumar, retired judge of the Punjab and Haryana High Court and the current Chairman of the CLB has been appointed as the President of the NCLT and Hon'ble Justice S.J. Mukhopadhaya (Retd.), Supreme Court of India has been appointed as the Chairperson of NCLAT. The existing members and staff of the CLB shall be the members and staff of the NCLT as well.

The NCLT will now deal with the provisions relating to the call for general meeting, oppression and mismanagement, investigation into the company's affairs, class action suits, conversion of a public company to a private company, inspection of books and minutes, compounding of offences etc. Further, the provisions relating to compromise, amalgamation, winding up and capital reduction will continue to be governed by the High Courts. Therefore, the MCA is yet to notify provisions regarding:

  • compromises, arrangements and amalgamations including reduction of share capital;
  • revival and rehabilitation of sick companies; and
  • winding up of companies

Hence, the MCA has planned to transfer the jurisdiction of High Courts in a phased manner in order to provide a smooth transition. Meanwhile, the provisions relating to compromise, mergers, and reduction of share capital and winding up proceedings shall continue to be under the jurisdiction of the High Court and of sick companies shall continue to be under BIFR until further notification.

The appeal from any order of the NCLT would be made with the NCLAT instead of High Court. However, appeals from the NCLAT orders will be heard by the Hon'ble Supreme Court of India.

NCLT vide Order7 dated 29th June, 2016 laid down the following criteria for listing of the matters before the NCLT, Principal Bench and the NCLT, New Delhi Bench with effect from July 1, 2016:

A) NOTIFICATION OF VARIOUS SECTIONS OF 2013 ACT

With the constitution of NCLT and NCLAT certain sections of the 2013 Act have became effective as per below:

B) BANKRUPTCY CODE AND NCLT

The impending implementation of the Bankruptcy and Insolvency Code will be facilitated by the constitution of NCLT. The adjudicating authority under the code would be the NCLT for companies and limited liability partnerships, and the Debt Recovery Tribunal (DRT) for individuals and partnership firms.

C) OPPORTUNITIES TO PROFESSIONALS

The establishment of NCLT and NCLAT shall offer wider opportunities to Practicing Professionals viz. Chartered Accountants, Company Secretaries, Cost and Work Accountants as they have been now authorized to appear before the NCLT and NCLAT under the 2013 Act. Under the 1956 Act, eligibility of practicing professionals to appear on behalf of clients was limited to matters with CLB only whereas advocates had the exclusive authority to appear in the matters before High Court and Supreme Court. Thus, now practicing professionals would, for the first time be eligible for arguments and representation in the matters which were hitherto dealt with by the High Courts which would eventually be transferred to the NCLT. The practicing professionals would now be considered at par with advocates in corporate litigation going forward.

CONCLUSIONARY REMARKS

The constitution of the NCLT and NCLAT is a long awaited requirement of the Companies law which has been materialized now to deal with company law matters. It is a welcome move to various stakeholders in the industry. The industry expects a speedy and efficient disposal of the company law matters through NCLT and NCLAT. In addition, it will also relive the various High Courts from burden of dealing with company law matters once the NCLT will be fully operational. Most likely on the notification of the provisions of Bankrupcy and Insolvency Code which is on the cards, the corporate insolvency matters will be shifted from Courts/DRTs to the NCLT. Although some provisions of the Companies Act, 2013 relating to the NCLT have not been notified yet, it is expected that the MCA will expand the NCLT to its full capacity at the earliest over a period of time

Footnotes

1 h t t p : / / w w w . m c a . g o v . i n / M i n i s t r y / p d f Notification_02062016_II.pdf

2 http://mca.gov.in/Ministry/pdf/Notification_02062016_ http://mca.gov.in/Ministry/pdf/Notification_02062016_ III.pdf

3 http://mca.gov.in/Ministry/pdf/Notification_02062016_I.pdf

4 https://indiankanoon.org/doc/748977/

5 h t t p : / / j u d i s . n i c . i n / s u p r e m e c o u r t / i m g s 1 . aspx?filename=42690

6 http://www.clb.nic.in/NewOrder/Circular_add.pdf

7 http://www.clb.nic.in/orders/order_dated_29.06.2016_http://www.clb.nic.in/orders/order_dated_29.06.2016_ NCLT.pdf

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
Link Legal India Law Services
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Link Legal India Law Services
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions