National Company Law Tribunal

The Companies (Second Amendment) Bill, 2002 has been passed by the Parliament and the law for it has been enacted. However, it is yet to come into force. One of the most celebrated provisions of the legislation is the setting up of National Company Law Tribunal. National Company Law Tribunal has been set up under Part IB of the legislation and is unique because this National Company Law Tribunal will have the combined powers of Company Law Board, BIFR and also the High Courts. Expectations are already running high with the NCLT but how effectively, it can carry out the responsibilities of various institutions vested in it is a matter only future can tell. [1]

Constitution – Section 10 FC of the legislation gives the constitution of the NCLT. It shall consist of the total 63 members. One will be the President and 31 members each as judicial and technical members. The NCLT will be constituted of 2 member bench and there will be 31 benches located through out India. The rational behind having 31 benches is to have benches in places which have a High Court jurisdiction because this tribunal covers the functions of High Courts in matters of Company Law. However, some scholars are of the view that this type of equal distribution might not serve the purpose in a best possible way. This is because, metropolitan like Kolkata, Mumbai will have more matters than Ranchi or Patna, and so, they suggest that distribution of benches should be based depending upon the volume of cases and not equally distributed across geographical location. [2]

Qualifications of members- The constitution of the NCLT will be having technical members and judicial members. But, the eligibility criterion for choosing a technical member leaves much to be desired. A technical member can be chosen from various fields of experience including administrative services. It must be understood by the drafters that the post of a technical member does not really require experience in bureaucracy. What is neede is the technical know-how which can come by taking members from public policy think tanks, researchers, professors but the experience in administration or the IAS officials are not endowed with qualities required of a technical member. So, the researcher feels that the provision relating to inclusion of administrative members as technical members should be deleted [3] . The other kind of persons who constitute the NCLT are the judicial members. The persons working in the Labour Court, National Tribunal as magistrates should be considered for eligibility to function as judicial members. The researcher again reiterates that posts of judicial members should only be occupied by practicing advocates or members from judiciary like magistrates and members from administration should not be made eligible for the post. This is because, what is required of a judicial member is the working knowledge of law which can come only to lawyers or members of judiciary. The legislation states that the date of retirement of the President will be 67 years and the members age of retirement will be 65 years. It is given under section 10FE of the legislation. Both President and Members will have tenure for a period of 3 years and they would be eligible for re-appointment. What is the troubling factor in all of this is that – the power to re-appoint the President as well as the members lies with the Executive and this can hamper the independence of the members of the NCLT. So, the researcher feels that the appointment and re-appointment should be done by a bi-partisan body and this work should not be left with the executive.

Also section 10FF gives power to the Central Government to appoint as Member (Administration) from within the Judicial members and Technical members for carrying out the administrative functions of the tribunal. This is a retrograde provision as the appointment of the Member (Administration) from within members would create hierarchy among equal members. The Member (Administration) would acquire much power under this post which can be abused. As has been already stated by the researcher, that they is a great need to de-bureaucratize the composition of NCLT, so this function should be performed by the President and not by the ordinary members [4] . The provision Section 10FF should be suitably amended so as to confer the power of the Member (Administration) upon the President.

Lien Issue – Another provision of the legislation which needs to be amended is proviso to section 10FE. It states that “ the President or other members can retain their lein with his parent cadre or Ministry or Department while holding office as such.” [5] The aim of grant of lien to the members seems only to make the members complacent in their work as they will be thinking that they have another avenue to work. Section 10FE could come in way of producing committed members of the NCLT. [6] It must be noted that the work assigned to the members will be a lot and to do the work efficiently will require full dedication which cannot be achieved if the option of lien is available to the members. So, the proviso to Section 19 FE should be suitably amended so as to take way the grant of lien

Power of NCLT

The constitution of Benches of the Tribunal are given under section 10FL and the principal bench will be in New Delhi. The principal bench will be presided over by the President of the NCLT. The power of giving orders and rectifying the orders are derived from section 10FM (1) and section 10FM (2) of the Act. Under section 10 FM(1), the tribunal will hear the parties concerned and then pass order and under section 10FM(2), the tribunal can re-hear the matter under 2 years and can rectify the order if there is a mistake of law. Section 10FP gives power to the tribunal to ask for assistance from the Chief Metropolitan Magistrate and DM to enforce its decree against the company or persons connected with the order.

However, the decision of the Tribunal or the Appellete Tribunal is not binding and there is a provision for filing an appeal to Supreme Court under section 10GF. [7] . However, proviso to section 10GF syas that that appeal has to be filed within 60 days from the date of communication of order of tribunal. However, the Supreme Court may allow belated filing of application if the cause for delay is genuine. If there is delay in filing the application, then the law can be circumvented by filing an appeal under Article 136 of the Constitution under Special leave Petition. Then, it is upon the Supreme Court to allow or not allow the appeal under Article 136 [8] . the researcher is of the view that a time period of 60 days to file an appeal is less and the time must be extended to 90 days, so that aggrieved people are not deprived of the right to appeal because of short limitation period.

Creation of Appellate Tribunal

One of the important provisions of the Companies (Second Amendment) Bill, 2002 is to provide for the creation of Appellate Tribunal under the legislation which will hear appeals from the NCLT. It has been constituted under section 10FR. AN appeal can be made to the Appellate Tribunal under section 10FQ. However, not all appeals to the Appellate Tribunal are allowed from the NCLT. Those orders made by the NCLT which were with the consent of both parties, appeals can’t be allowed aginst such orders. 45 days is the period within which appeal must be made to the Appeallte Tribunal and but delay can be condoned if there is sufficient reason for the delay. When an order is given by the appellate tribunal then a copy has to be given to the parties concerned and also the NCLT.

The composition of the Appellate tribunal will consist of a Chairperson and two members. The Chairman of the appellate tribunal should be a person who is qualified to be a Supreme Court Judge or Chief Justice of High Court. The member of the appellate tribunal should be a person who has experience of not less than 25 years in the field of science, technology, medicine, economics, banking or any such field whose experience might be valuable in Appellate Tribunal. Section 10FT of the legislation says that Chairperson and members will hold office for a period of 3 years and the upper age limit for Chairperson is 70 yaers and for members is 67 years. Section 10 FZ says that no action will lie upon the members of the Appellate Tribunal for actions taken in good faith. Under Section 10FZ, the immunity against prosecution will also cover the employees of the tribunal or any such person who has been duly authorized by the Appellate Tribunal to discharge any function. [9]

One of the unique features of the appeallte tribunal is that it will not be bounded by rocedure laid down in CPC 1908. It is the principle of natural justice that willmguide the Appellate Tribunal regarding the procedures. For the purpose of discharging the functions assigned under the Act the tribunal as well as the appellet tribunal shall have the same power as are vested in a civil court under CPC while trying a suit in respect of matter specified, namely, the summoning and enforcing the attendance of any person and examining him on oath, requiring the discovery and production of materials and receiving evidence on affidavits. [10] The proceedings of the tribunal or appellate tribunal will be considered to be judicial proceedings in consonance of ss. 193 and 228 of the IPC. The tribunal and appellate tribunal will have all powers which are vested in the civil court. But, it must be noted, that the jurisdiction of civil court is not barred in all matters and in cases, where the tribunal thinks that the civil court can look into the matter in a more competent matter, then the matter can be referred to the civil court. [11]

Revival of a Sick Company

Part VI A of the Second Amendment Act 2002 contains provisions on revival, rehabilitation and winding up of sick companies. The Second Amendment Act 2002 has brought about a change in the definition of the Sick Company. Section 2 (46AA) of the Company Amendment Act 2002 defines “a sick company as one whose accumulated losses in any financial year are equal to the or more than 50% of its average net worth during one financial year immediately preceding such financial year or a company who fails to repay its debt within any three consecutive quarters on demand, for its repayment by a creditor or creditors.” This definition is in stark contrast to the definition of Sick Industry under SICA Act, 1985. The Sick Industry was earlier defined as “one which has at the end of any financial year accumulated losses equal to or exceeding its entire net worth and is registered for not less than five years”. This change in definition has improved the chances of Sick industry to improve because according to the new definition, a company can be referred to the tribunal even before 5 years and it can be referred also by the banks and other financial institutions in addition to referring by Board of Directors. [12] Under section 424 A, a government company with the prior approval of the Central government can also make a reference to the tribunal. It is required that the reference has to accompanied by the audited accounts of the company. Another welcome change introduced by section 424 A is that the accounts are audited by the body of auditors and not by the Board of Directors. Accounts being audited by the Board of Directors runs the risk of accounts being manipulated. Section 424 A also provides that if Central Government or Public Financial Institution or Schedule Banks have sufficient reasons to believe that an industrial company has become for the purpose of the Act, a sick industrial company, then a reference can be made for the same under s. 424 A [13] . When a company is referred as a Sick Company to the tribunal, then the company is also expected to give a revival plan to the tribunal according to s. 424 A and s. 424B.

Tribunal Minimizing Delays – The Companies Amendment Act 2002, has brought major change in the way major functions are carried out. The researcher is of the opinion that the NCLT will certainly minimize delays in carrying out various matters under the Companies Act, 1956. [14] The NCLT abolishes the hitherto existing Company Law Board. The most pertinent change that been brought because of the amendment is that the power of the High Court in matters of industrial company has been superseded by the powers of the NCLT. This is a welcome change because earlier High courts used to take immense time in deciding on issues of reduction in capital asset, approving schemes of arrangement and matter pertaining to winding up of company. These are matters which demand urgent consideration which will now be provided by the NCLT. As has been already discussed, that the NCLT will succeed the BIFR and it will look into restructuring the Sick Company for its revival.

Conclusion

The researcher is of the opinion that the formation of the National Company Law tribunal is a very welcome step in the Companies Act, 1956. The change in definition of Sick Company has made sure that now more and more companies can qualify as sick company and they can now get the needful attention by the NCLT. Now that the winding up procedures has been changed, so the time for revival of a sick company will be reduced. The researcher is also hopeful that with the ousting of jurisdiction of High Courts and Company Law Boards, there will be minimsing of delays in adjudicating upon industrial company matters.

Another suggestion regarding the Appellate Tribunal is that it should be made completely independent of the Executive or the finance ministry and the appointments of the members should be done by independent bodies and not by the executive. This step is very important for ensuring the independence of the NCLT and the Appellate Tribunal. Another suggestion is that the upper age limit for the Chairman and members of the Appellate tribunal should be changed to 65 and 62. There is no rationale in setting the upperage limit at 70 and 67 when CJI’s retirement age is 65 years.