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NCLT and NCLAT - History
National Company Law Tribunal and National Company Law Appellate Tribunal
On June 1, 2016, the ministry of corporate affairs
notified the constitution of the National Company Law Tribunal (NCLT) and
National Company Law Appellate Tribunal (NCLAT).
Published: June 20, 2016 6:19 AM
http://www.financialexpress.com/article/fe-columnist/heres-what-will-add-bite-to-new-bankruptcy-law/290254/
The wait is finally over. On June 1, 2016, the ministry of corporate affairs
notified the constitution of the National Company Law Tribunal (NCLT) and
National Company Law Appellate Tribunal (NCLAT).
The journey of the new corporate forum has been full of hustle and bustle. It
was first introduced in the Companies (Amendment) Act, 2002, to adjudicate all
matters culminating from the Companies Act, 1956, and vesting the powers
exercised by the Company Law Board and High Courts to the NCLT and NCLAT.
The same was challenged, on the Constitutional validity, by the Madras Bar
Association before the Madras High Court, and later before the Supreme Court in
the Union of India versus R Gandhi, president, Madras Bar Association case
(2010). The Constitution Bench in the Union of India supra gave its approval
insofar as Constitutional validity of the NCLT and NCLAT was concerned with
certain modifications or corrections. Although the verdict came in
2010—upholding the creation of the NCLT and NCLAT—these two bodies could not be
constituted and made functional immediately thereafter, and the matter got stuck
in imbroglio of one kind or the other.
Then, in 2013, Parliament passed a new company law in the form of Indian
Companies Act, 2013, which replaced the earlier Act of 1956. In this Act,
substantive provisions have been made again with regard to the establishment of
the NCLT and NCLAT. Moreover, the power and jurisdiction of the Board of
Industrial and Financial Reconstruction (BIFR) and the Appellate Authority for
Industrial and Financial Reconstruction (AIFR) are to be merged into the NCLT
and NCLAT.
However, another twist in the tale occurred when a new writ petition, Madras Bar
Association versus Union of India, and another Writ Petition (C) No 1072 of
2013, on the same lines, was filed by the same party, assailing the Act, stating
that findings and direction issued in the 2010 judgment were not followed in the
new Act. The verdict came in May 2015, wherein the Constitution Bench upheld the
validity of the NCLT and NCLAT, with some modifications in the qualifications of
the technical member, and paved the way for the establishment of the NCLT and
NCLAT under the provisions of the Companies Act, 2013.
Now, the ministry of corporate affairs has issued notifications, giving effect
to the constitution of both the NCLT and NCLAT and 44 provisions wherein the
NCLT has been vested with substantial powers, including power to adjudicate
matters pertaining to mismanagement and oppression, class action suit,
inspection, inquiry and investigation, and compounding of offences, etc. A class
action suit—in which a large group of people collectively bringing a claim to
court—is new for the Indian ecosystem, even though it is very popular in the US,
the UK, Singapore and some European countries.
Further, all the pending cases with the Company Law Board stand transferred,
from the date of notification, to the NCLT. In addition to that, provisions
relating to appeal from the order of the NCLT to the NCLAT have been issued. In
simple words, provisions relating to merger and amalgamation, reduction of share
capital and sick companies would be gradually transferred to the NCLT after
consultation with the chairperson.
Before the aforesaid notifications, there were only four benches of the Company
Law Board, with three members—one technical and two judicial—and a chairperson.
According to the new constitution, initially there will be 11 benches of the
NCLT—two at New Delhi and one each at Ahmedabad, Allahabad, Bangalore,
Chandigarh, Chennai, Guwahati, Hyderabad, Kolkata and Mumbai—while the location
for the NCLAT is yet to be notified. According to media reports, it may be at
New Delhi, headed by SJ Mukhopadhaya, the retired judge of the Supreme Court of
India. The NCLT could be headed by MM Kumar, the retired Chief Justice of the
High Court of Jammu and Kashmir, who is currently the chairman of the Company
Law Board.
The NCLT and NCLAT will be consolidated bodies which would
adjudicate and decide all issues relating to companies in India, including, but
not limited to, insolvency and bankruptcy, and cases pending before the various
benches of the Company Law Board, BIFR, Debt Recovery Tribunal, all the company
courts, AIFR and Debt Recovery Appellate Tribunal. The NCLT will also help in
faster implementation of the bankruptcy code passed by Parliament last month;
the NCLT is the adjudicating authority while the NCLAT is the appellate
authority. Although the move to consolidate all proceedings relating to
companies in India under the NCLT and NCLAT is an ambitious one, it is also much
welcome by the industries.
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COMPANIES BILL, 2008 INTRODUCED IN LOK SABHA ON 21.10.08
The much-awaited Companies Bill, 2008 has been introduced in the
Lok Sabha. Minister of Corporate Affairs, Shri Prem Chand Gupta introduced the
Bill to consolidate and amend the law relating to companies. On 21.10.2008 Shri
Gupta had withdrawn the Companies (Amendment) BIll, 2003 which was introduced in
the Rajya Sabha on 7.5.2003 as the said Bill was not in tune with the present
day requirements of corporates in India.
The Companies Bill, 2008 is intended to modernize the structure
for corporate regulation in India and represents a major reform statement by the
Government to promote the development of the Indian corporate sector through
enlightened regulation.
The comprehensive revision of the Companies Act, 1956 was taken
up by the Ministry since not only had the number of companies in India expanded
from about 30,000 in 1956 to above 7 lakhs today, the Indian corporate sector
had also transformed itself in a manner that was unimaginable even a decade ago.
Today, Indian companies have expanded and grown into global entities,
continuously entering into and bringing new activities into the fold of the
Indian economy. In doing so, they are emerging internationally as efficient
providers of a wide range of goods and services while increasing employment
opportunities at home.
At the same time, there is a requirement to enable corporate
regulation in an effective and efficient manner with reasonable costs of
compliance so that Indian companies are competitive in attracting investment for
growth.
The review and redrafting of the Companies Act, 1956 was taken up
by the Ministry of Corporate Affairs on the basis of a detailed consultative
process. A `Concept Paper on new Company Law' was placed on the website of the
Ministry on 4th August, 2004. The inputs received were put to a detailed
examination in the Ministry. The Government also constituted an Expert Committee
on Company Law under the Chairmanship of Dr. J.J. Irani on 2nd December 2004 to
advise on new Companies Bill. The Committee submitted its report to the
Government on 31st May 2005. Detailed consultations were also taken up with
various Ministries, Departments and Regulators. The Bill was thereafter drafted
in consultation with the Legislative Department of the Central Government.
The Companies Bill, 2008 seeks to enable the corporate sector in
India to operate in a regulatory environment of best international practices
that foster entrepreneurship, investment and growth.
The Bill reinforces shareholders democracy, facilitates
e-Governance in company processes, recognizes the liability of Boards, directors
and senior management personnel of companies, provides for a new scheme for
penalties and punishment for non compliance or violation of the law, harmonizes
corporate regulation with action by sectoral regulators, incorporates a new
framework for mergers and amalgamations of companies and provides an extensive
Insolvency Code based on the latest principles recommended by the United Nations
Commission on International Trade Law (UNCITRAL).
Briefly, the Bill provides for:-
(i) The basic principles for all aspects of internal governance
of corporate entities and a framework for their regulation, irrespective of
their area of operation, from incorporation to liquidation and winding up, in a
single, comprehensive, legal framework to be administered by the Central
Government. In doing so, the Bill also seeks to harmonise the Company law
framework with the sectoral regulation;
(ii) Articulation of shareholders democracy with protection of
the rights of minority stakeholders, responsible self-regulation with adequate
disclosures and accountability. Reduction of Government control over internal
corporate processes;
(iii) Easy transition of companies operating under the Companies
Act, 1956, to the new framework as also from one type of company to another.
Freedom with regard to the numbers and layers of subsidiary companies that a
company may have, subject to disclosures in respect of their relationship and
transactions or dealings between them;
(iv) A new entity in the form of One-Person Company (OPC) while
empowering Government to provide a simpler compliance regime for small
companies. Retention of the concept of Producer Companies, while providing a
more stringent regime for companies with charitable objects to check misuse;
(v) Application of the successful e-Governance initiative of the
Ministry of Corporate Affairs (MCA-21) to all the processes involved in meeting
compliance obligations. Company processes may also be carried out through
electronic mode;
(vi) Speedy incorporation process, with detailed declarations and
disclosures about the promoters, directors etc., at the time of incorporation
itself. Every company director would be required to acquire a unique Director
Identification number (DIN);
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