SEEDLING SCHOOL OF LAW AND GOVERNANCE

COMPANY LAW PROJECT

PROJECT TOPIC : NATIONAL COMPANY LAW TRIBUNAL

SUBMITTED TO: MR. ANINDYA TIWARI

SUBMITTED BY: MS. SONAL DANGRI

{B.A. L.L.B. (HONS.), 6TH SEM}

Note: This project is submitted in lieu of Company Law Moot.

TABLE OF CONTENTS

1. INTRODUCTION

2. PROVISIONS OF THE NATIONAL COMPANY LAW TRIBUNAL

3. CONSTITUTION OF THE TRIBUNAL

PRESIDENT OF THE TRIBUNAL

JUDICIAL MEMBERS

TECHNICAL MEMBERS

MEMBER ADMINISTRATION

BENCHES OF THE TRIBUNAL

4. SPECIFIC POWERS OF THE TRIBUNAL

5. APPEALS FROM THE COMPANY LAW TRIBUNAL

6. CONCLUSION

INTRODUCTION:

Before the Companies (Second Amendment) Act, 2002, corporates were

required to apply to High Courts for proceedings such as merger/amalgamation,

reduction of capital and winding up of companies. But the High Courts being

over burdened with other matters, used to take very long time to dispose of

these matters, and as a result of which the society was not able to derive the

intended benefits out of such decision. Even the Winding Up petitions before

the various High Courts have been pending for a very long time. Similarly

various matters before the Company Law Board (CLB), Board for Industrial

and Financial Reconstruction (BIFR) and Appellate Authority for Industrial and

Financial Reconstruction (AAIFR) have been pending for a very long period.

Many of the Companies which were referred to BIFR had their natural death for

want of timely help and assistance from BIFR and as such, resulted into wastage

of scarce national resources.

Therefore, it was desired that, in place of various bodies presently looking into

different matters like merger/amalgamation, acquisition and reconstruction,

revival and rehabilitation and winding up of Companies, a body should be

constituted to handle all these matters and to dispose of all pending matters as

well as fast disposal of new matters which might be referred to it in the future.

Hence the Government constituted a Committee under the Chairmanship of

Justice V. Balakrishna Eradi, a retired Supreme Court Judge, to review the law

relating to insolvency and Winding Up of Companies and other laws like The

Sick Industrial Companies (Special Provisions) Act, 1985 (SICA) etc. The

Committee made various recommendations with the main objective of

expediting the revival/ rehabilitation of a sick Company and protection of

workers’ interest, which were incorporated in the Companies (Amendment)

Bill, 2001. The said Bill was subsequently passed by both the Houses of the

Parliament and finally got the assent of the President of India on 13th January,

2002 and became the Companies (Amendment) Act, 2002. Consistent with the

underlying objectives, as aforesaid, and in the backdrop of the experience of

administration of SICA and winding up process, the Companies (Second

Amendment) Act, 2002 provides for setting up of the National Company Law

Tribunal (NCLT) and on setting up of NCLT, all the matters relating to

companies which were earlier handled by various High Courts, CLB, BIFR and

AAIFR will now be handled by the NCLT. Pending matters with the High

Courts and CLB will be transferred to NCLT. As the SICA has not yet been

repealed, the sick Companies will continue to be under BIFR. Only sick

ancillary undertakings will come under the jurisdiction of NCLT, as the newly

inserted definition of Industrial Undertaking, seems to be faulty.

Though the constitutional validity of the Companies (Second Amendment) Act

2002 was challenged before the Madras High Court, the High Court upheld the

creation of the NCLT and the vesting the powers thereto as being constitutional

though it took the view that certain provisions were violative of the basic

constitutional scheme of (i) separation of judicial power from the Executive and

Legislative power and (ii) independence of judiciary enabling impartial exercise

of judicial power. In an appeal to the Supreme Court, the UOI accepted to

rectify some of the defects pointed out by the High Court.

 

PROVISIONS OF THE NATIONAL COMPANY LAW TRIBUNAL:

The CLB constituted under Section 10E of the Companies Act, 1956 has been

dissolved by the introduction of Section 10 FA 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.

 

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 qualified to

be, a Judge of the High Court [S. 10FD (1)]. The President will be considered as

a Judicial Member [Explanation to S. 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-

(a) He has for at least 15 years, held a Judicial office in the territory of India; or

(b) 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

(c) 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

(d) 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 three years and is eligible for

reappointment. [Section 10 FE] The age of superannuantion is 65 years.

Technical Members

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

(a) 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

(b) 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

(c) Is or has been, for at least fifteen years in practice as a Chartered Accountant

under the Chartered Accountants Act, 1949 (38 of 1949); or

(d) Is, or has been, for at least fifteen years in practice as a Cost Accountant

under the Costs an Works Accountants Act, 1959 (23 of 1959); or

e) 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 (56 of 1980); or

(f) 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

(g) Is, or has been, a Presiding Officer of a Labour Court, Tribunal or National

Tribunal constituted under the Industrial Disputes Act, 1947 (14 of 1947); or

(h) Is a person having special knowledge, and experience of not less than fifteen

years in, matters relating to labour. 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. Those having experience in Company

Law and related matters, i.e. those appointed under clauses (a) to (f) of Section

10 FD (3) ; and those having experience in labour 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

labour 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 s 10 FD (3)

(a) – (f). The Technical Members appointed under s 10 FD (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 10 FL (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 feel sought to be heard by bench consisting of two Members. [Proviso

to s 10FL]

There shall be a Principal Bench at New Delhi [s 10FL (5)] which shall in

addition to the powers of the Tribunal have the power to transfer proceedings

from 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. [Section 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)].

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 situated

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,

a) Take possession of such property, books of account or other documents

and,

b) 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 Sec. 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.

The tribunal and appellate has same powers

The Tribunal and the Appellate Tribunal shall have, for the purposes of

discharging its functions under this Act, the same powers as are vested in a civil

court under the Code of Civil Procedure, 1908 while trying a suit in respect of

the following matters:

(a) Summoning and enforcing the attendance of any person and examining him

on oath;

(b) Requiring the discovery and production of documents;

(c) Receiving evidence on affidavits;

(d) Subject to the provisions of the Indian Evidence Act, 1872,requisitioning any public record or document or copy of such record or document from any office;

(e) Issuing commissions for the examination of witnesses or documents;

(f) Reviewing its decisions;

(g) Dismissing a representation for default or deciding it ex parte;

Power to review

The Tribunal shall have power to review its own orders.

APPEALS FROM THE COMPANY LAW 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 every order in appeal shall be sent to the Tribunal and parties to the

appeal [S. 10 FQ (5)]. Section 10 FQ(6) provides that the appeal should be

heard expeditiously and endeavour shall be made to dispose of the appeal

finally within six months from the date of the receipt of the appeal.

Also, any person aggrieved by any decision or order of the Appellate Tribunal

may file an Appeal to the Supreme Court within 60 days from the date of

communication of the order of the Appellate Tribunal to him, only on any

question of law arising out of such decision or order. The Supreme Court may

grant an extension of time for filing an Appeal if it is satisfied that the Appellant

was prevented by sufficient cause from filing the Appeal within the said period,

but the extension period has been limited to a further period of 60 days.

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 and many other provisions, 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. The tribunal would also allow timely unlocking

of the value of distressed corporate assets, as it would take over the process of

liquidation of companies, now performed by official liquidators attached to high

courts.