ADJUDICATORY BODIES: NCLT & NCLAT
As part of reforms to India’s Company Law and as part of the reform of Companies Law, the National Company Law Tribunal (‘NCLT’) and the National Company Law Appellate Tribunal (‘NCLAT’) were established on 1st June 2016, a notification was issued by the Ministry of Corporate Affairs (‘MCA’) with effect from 1 June 2016 concerning the constitution of the National Company Law Tribunal (NCLT) and the National Company Law Appellate Tribunal (NCLAT). As the Companies Act, 1956 was passed before India opened its markets in 1991, it came as a big-ticket reform, and the periodic amendments to the 1956 Act did not meet the current needs of industry regulators. As per the powers granted to MCA under Section 408 and Section 410 of the Companies Act, 2013, NCLT and NCLAT were established. The meaning of NCLT and NCLAT is clarified in these sections in a straightforward way and we should look at these sections to get an overview of NCLT and NCLAT.
Section 408 of the Companies Act, 2013 defines NCLT and specifies that the Central Government shall constitute a Tribunal consisting of Presidents and other Judicial and Technical Members to be known as the National Company Law Tribunal, to exercise and discharge powers and functions as specified by the Act or any other power delegated to them by any other enactment or statutory notification. Similar to NCLT, NCLAT was established in accordance with Section 410 of the Companies Act which states that by notification, the Central Government shall constitute an Appellate Tribunal for hearing appeals against the orders of the Tribunal, to be known as the National Company Law Appellate Tribunal, composed of Chairpersons and Judicial and Technical Members.
STURCTURE OF NCLT AND NCLAT
Qualifications of the NCLT Presidents and Members
The President of the National Company Law Tribunal must have served at least 5 years as a High Court Judge, and must be at least 50 years of age, but not more than 67 years of age.
- JUDICIAL MEMBERS
A Judicial Member of the National Company Law Tribunal must have served for at least 5 years as a judge, or must have served for 5 years and above as a district judge, or must have been an advocate with more than 10 years of experience. He/she must be 50 years of age or older, but not more than 65.
- TECHNICAL MEMBERS
A Technical Member of National Company Law Tribunal can be any of the following:
- Someone that must have served as a member of the Indian Corporate Law Services for at least 15 years
- Someone that must have practiced CA for at least 15 years
- Someone that must have practiced CS for at least 15 years
- Someone that must have practiced CMA for at least 15 years
- Someone that must have served as a presiding officer of Tribunal or Labour Court or National Tribunal for at least 5 years
- Must be somebody with integrity and should be above 50 years old but not more than 65 years as of the time of appointment.
The Qualifications of the NCLAT’s Chairperson and Members
The Chairperson of the Appellate Tribunal for National Company Law must have served as a Supreme Court Judge or Chief Justice of the High Court and must have been at least 50 years of age, but not more than 70 years of age.
- JUDICIAL MEMBER
A Judicial Member of the National Company Law Appellate Tribunal must have served for at least 5 years as a Judge of the High Court, or must have been a Judicial Member of the Tribunal, and must be at least 50 but not more than 67 years of age.
- TECHNICAL MEMBER
A National Company Law Appellate Tribunal Technical Member shall be a person of integrity and shall have 25 years of special expertise or experience in specialized fields. He must be at least 50 years of age, but not more than 67 years of age Jurisdiction of the NCLT.
The Code of Civil Procedure is practiced by both the Tribunal and the Appellate Tribunal and is subject to any rules created by the Central Government. The former two bodies have the ability to direct and make-do their own procedural methods.
The National Company Law Tribunal’s jurisdiction includes:
- Class Action
- Refusal to transfer shares
- Oppression and management
- Reopening of accounts and revision of financial statement
- Deregistration of companies
- Power to investigate
- Conversion of public company to private company
- Tribunal convened general meetings
- Financial year
JURISDICTION OF NCLAT
The Chairperson heads the Appellate Tribunal for National Company Law and consists of no more than eleven members. It is a forum regulating higher regulation than the National Company Law Tribunal. The Appellate Tribunal examines appeals lodged against the court orders of the Tribunal. The appeal can be brought within 45 days of the date on which the decisions of the National Company Law Tribunal are issued.
in the case of Union of India v. R. Gandhi, the Constitution bench of the Supreme Court By providing guidelines relating to the number of judicial members, the number of technical members and the term of members to be followed during the NCLT and NCLAT constitution, Gandhi affirmed the constitutionality of the NCLT and NCLAT. While the Union Government did not notify the Constitution of NCLT and NCLAT and instead incorporated it through the Companies Act, 2013, In the case of Madras Bar Association vs. Union of India & Anr, where the petitioners challenged the constitution of NCLT and NCLAT under the Companies Act, 2013 on the ground that the petitioner challenged the constitution of NCLT and NCLAT under the Companies Act, 2013, in the case of Union of India v. R. Gandhi another legal challenge emerged. The Supreme Court of India upheld the constitutionality of NCLT and NCLAT and claimed that although constituting NCLT and NCLAT, the following guidelines must be followed:
(i) Qualifications and other terms of the NCLT’s President and Members
In the case of Union of India v. R. Gandhi, the Supreme Court was concerned with the qualifications of the technical members of the NCLT as a court. Gandhi stated that only officers holding the ranks of Secretaries or Additional Secretaries alone should be considered as technical members of the NCLT,’ whereas Section 409(3) of the Companies Act 2013 Act states that the Government of India Secretary or equivalent officers are eligible to be appointed as technical members of the NCLT and NCLAT. Therefore, SC stated that it is necessary to make corrections to Section 409(3) of the Companies Act, 2013 in order to follow the guidelines set out in Union of India v. R. Gandhi.
(ii) Selection committee framework for the recruitment of members
The Supreme Court dealt with the selection committee and the powers conferred on it under S. 412(2) Of the 2013 Act, which provided for the Chief Justice of India (or nominee) to hold a 5-member selection committee without casting a vote as it was against SC’s observations in sub-para (viii) of para 120 of Union of India v. R. Gandhi stated that a four-member committee with a casting vote would be headed by the Chief Justice of India (or the nominee). It therefore held that Section 412(2) of the Act 2013 was not valid and that direction was given to remove the error.
THE DIFFERENCE BETWEEN NCLT AND NCLAT
- NCLT holds the primary jurisdictions on the matters of insolvency and bankruptcy while NCLAT holds the appellate jurisdictions over the decisions made by NCLT
- NCLT accepts and analyses the evidence taken from the Creditors and/or lenders. The decisions taken by NCLT are reviewed and analysed by NCLAT.
- Collecting the facts and evidence is the responsibility of the NCLT. Analyzing the facts and evidence that are already collected is the responsibility of NCLAT.
NCLT and NCLAT have been set up to serve as a standardized platform for adjudicating conflicts relating to the functioning of enterprises where adjudicating it in a timely manner would allow the economy to operate smoothly. The Company Law Board’s previous regime collapsed miserably because they were not helpful in adjudicating disputes in an appropriate and time-bound manner. There were a number of bottlenecks in the earlier regime that did not help recover Sick Businesses and also led to cases being expanded. Although NCLT and NCLAT are doing great work to streamline the system, it is important to do a lot more. In these Tribunals, there is a need to develop the facilities, increase the number of benches and approve judges, which will help to resolve cases in a time-bound and efficient manner, thus reducing the valuable time and money of companies that can be used by companies in India’s economic development.
Author: Ishita Agrawal,
B.A.LL.B. 3rd year, Himachal Pradesh National Law University Shimla