TMI Blog2015 (5) TMI 501X X X X Extracts X X X X X X X X Extracts X X X X ..... tutional validity of NCLAT without making any serious efforts to challenge the constitution of NCLT. As far as NCLT is concerned, he almost conceded that validity thereof stands upheld in 2010 judgment and there is not much to argue. In respect of NCLAT, though he conceded that validity thereof is also upheld in the aforesaid judgment, his endeavour was to demonstrate that there is no discussion in the entire judgment insofar as NCLAT is concerned and, therefore, conclusion which is mentioned in the said judgment at the end, should not be treated as binding or to be taken as having decided this issue. His submission was that in view of the subsequent Constitution Bench judgment of this Court in Madras Bar Association [2014 (9) TMI 821 - SUPREME COURT ], wherein establishment of National Tax Tribunal has been held to be unconstitutional, Section 410 should also be meted out the same treatment for the reasons recorded in the said judgment pertaining to National Tax Tribunal. It is difficult to digest this argument for various reasons, which we record in the discussion hereafter. First of all the creation of Constitution of NCLAT has been specifically upheld in 2010 judgment. It ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of NCLT and NCLAT under Parts 1B & 1C of Companies Act are valid”, and embarked upon the detailed discussion on this topic. It becomes manifest from the above that the question of validity of NCLAT was directly and squarely in issue. Various facets of the challenge laid to the validity of these two fora were thoroughly thrashed out. No doubt, most of the discussion contained in paras 107 to 119 refers to NCLT. However, on an insight into the said discussion contained in these paragraphs, would eloquently bear it out that it is inclusive of NCLAT as well. In para 121 of the judgment, which is already extracted above, the Court specifically affirmed the decision of the High Court which held that creation of NCLT and NCLAT was not unconstitutional. In view of this, it is not open to the petitioner even to argue this issue as it clearly operate as res judicata. - Secondly, reading of the Constitution Bench judgment in the matter of National Tax Tribunal would manifest that not only 2010 judgment was taken note of but followed as well. The Court spelled out the distinguishing features between NCLT/NCLAT on the one hand and NTT on the other hand in arriving at a different conclusion. - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gment sought to achieve, nay, so zealously sought to secure. Thus, we hold that Section 409(3)(a) and (c) are invalid as these provisions suffer from same vice. Likewise, Section 411(3) as worded, providing for qualifications of technical Members, is also held to be invalid. For appointment of technical Members to the NCLT, directions contained in sub-para (ii), (iii), (iv), (v) of para 120 of 2010 judgment will have to be scrupulously followed and these corrections are required to be made in Section 409(3) to set right the defects contained therein. We order accordingly, while disposing of issue No.2. Constitution of Selection Committee for selecting the Members of NCLT and NCLAT - Section 412 of the Act, 2013 - The structure of the Selection Committee was found fault with by the Constitution Bench in 2010 judgment. The Court specifically remarked that instead of 5 members Selection Committee, it should be 4 members Selection Committee and even the composition of such a Selection Committee was mandated in Direction No.(viii) of para 120 and sub-para. There is a deviation in the composition of Selection Committee that is prescribed under Section 412 (2) of the Act, 2013. We are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... el to the earlier proceedings which culminated in the judgment rendered by the Constitution Bench of this Court in Union of India v. R. Gandhi, President, Madras Bar Association(2010) 11 SCC 1 (hereinafter referred to as the '2010 judgment'). In the earlier round of litigation, the petitioner had challenged the constitutional validity of creation of National Company Law Tribunal ('NCLT' for short) and National Company Law Appellate Tribunal ('NCLAT' for short), along with certain other provisions pertaining thereto which were incorporated by the Legislature in Parts 1B and 1C of the Companies Act, 1956 (hereinafter referred to as the 'Act, 1956') by Companies (Second Amendment) Act 2002. 2) Writ petition, in this behalf, was filed by the petitioner in the High Court of Madras which culminated into the judgment dated 30.03.2004. The High Court held that creation of NCLT and vesting the powers hitherto exercised by the High Court and the Company Law Board ('CLB' for short) in the said Tribunal was not unconstitutional. However, at the same time, the High Court pointed out certain defects in various provisions of Part 1B and Part 1C of the Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er the functions of High Court, the members should as nearly as possible have the same position and status as High Court Judges. This can be achieved, not by giving the salary and perks of a High Court Judge to the members, but by ensuring that persons who are as nearly equal in rank, experience or competence to High Court Judges are appointed as members. Therefore, only officers who are holding the ranks of Secretaries or Additional Secretaries alone can be considered for appointment as Technical members of the National Company Law Tribunal. Clauses (c) and (d) of sub-section (2) and Clauses (a) and (b) of sub-section (3) of section 10FD which provide for persons with 15 years experience in Group A post or persons holding the post of Joint Secretary or equivalent post in Central or State Government, being qualified for appointment as Members of Tribunal is invalid. (iii) A technical member presupposes an experience in the field to which the Tribunal relates. A member of the Indian Company Law Service who has worked with Accounts Branch or officers in other departments who might have incidentally dealt with some aspect of company law cannot be considered as experts qualified ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nistry of Law and Justice - Member. (ix) The term of office of three years shall be changed to a term of seven or five years subject to eligibility for appointment for one more term. This is because considerable time is required to achieve expertise in the concerned field. A term of three years is very short and by the time the members achieve the required knowledge, expertise and efficiency, one term will be over. Further the said term of three years with the retirement age of 65 years is perceived as having been tailor-made for persons who have retired or shortly to retire and encourages these Tribunals to be treated as post-retirement havens. If these Tribunals are to function effectively and efficiently they should be able to attract younger members who will have a reasonable period of service. (x) The second proviso to Section 10FE enabling the President and members to retain lien with their parent cadre/ministry/department while holding office as President or Members will not be conducive for the independence of members. Any person appointed as members should be prepared to totally disassociate himself from the Executive. The lien cannot therefore exceed a period of one ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esent writ petition is concerned, though somewhat connected with writ petition No.267/2012, prayers made in this writ petition are entirely different and there was no handicap or obstruction in proceeding with the hearing of the instant writ petition. For this reason, the arguments were finally heard in this case. 6) Adverting to the present writ petition, it so happened that the Parliament has passed new company law in the form of Indian Companies Act, 2013 (hereinafter referred to as the 'Act, 2013') which replaces the earlier Act, 1956. In this Act, again substantive provisions have been made with regard to the establishment of NCLT and NCLAT. It is obvious that with the constitution of NCLT and NCLAT, the provisions relating to the structure and constitution of NCLT and NCLAT, the provisions relating to qualifications for appointment of President/Chairperson and Members (judicial as well as technical) of both NCLT and NCLAT, and also provisions relating to the constitution of the Selection Committee for selection of the said Members have also been incorporated in the Act, 2013. These are analogous to Section 10FD, 10FE, 10FF, 10FL, 10FR and 10FT which were introduced ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... late Tribunal appointed as such. 408. Constitution of National Company Law Tribunal The Central Government shall, by notification, constitute, with effect from such date as may be specified therein, a Tribunal to be known as the National Company Law Tribunal consisting of a President and such number of Judicial and Technical members, as the Central Government may deem necessary, to be appointed by it by notification, to exercise and discharge such powers and functions as are, or may be, conferred on it by or under this Act or any other law for the time being in force. 409. Qualification of President and Members of Tribunal (1) The President shall be a person who is or has been a Judge of a High Court for five years. (2) A person shall not be qualified for appointment as a Judicial Member unless he- (a) is, or has been, a judge of a High Court; or (b) is, or has been, a District Judge for at least five years; or (c) has, for at least ten years been an advocate of a court. Explanation.-For the purposes of clause (c), in computing the period during which a person has been an advocate of a court, there shall be included any period during which the person has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... industrial reconstruction, investment, accountancy, labour matters, or such other disciplines related to management, conduct of affairs, revival, rehabilitation and winding up of companies. 412. Selection of Members of Tribunal and Appellate Tribunal (1) The President of the Tribunal and the chairperson and Judicial Members of the Appellate Tribunal, shall be appointed after consultation with the Chief Justice of India. (2) The Members of the Tribunal and the Technical Members of the Appellate Tribunal shall be appointed on the recommendation of a Selection Committee consisting of- (a) Chief Justice of India or his nominee- Chairperson; (b) a senior Judge of the Supreme Court or a Chief Justice of High Court-Member; (c) Secretary in the Ministry of Corporate Affairs- Member; (d) Secretary in the Ministry of Law and Justice- Member; and (e) Secretary in the Department of Financial Services in the Ministry of Finance-Member. (3) The Secretary, Ministry of Corporate Affairs shall be the Convener of the Selection Committee. (4) The Selection Committee shall determine its procedure for recommending persons under sub-section (2). (5) No appointment of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs under the provisions of the Contempt of Courts Act, 1971, which shall have the effect subject to modifications that- (a) the reference therein to a High Court shall be construed as including a reference to the Tribunal and the Appellate Tribunal; and (b) the reference to Advocate-General in section 15 of the said Act shall be construed as a reference to such Law Officers as the Central Government may, specify in this behalf. 8) In the prayer clause, constitutional validity of Sections 415, 418, 424, 426, 431 and 434 have also been questioned. At the time of hearing, no arguments were addressed by Mr. Datar, learned senior counsel for the petitioner on the aforesaid provisions. Therefore, in respect of these provisions, we are eschewing our discussion. 9) On the reading of the aforesaid provisions and having regard to the arguments advanced at the Bar, we can conveniently categorise the challenge in three compartments, as under: (i) Challenge to the validity of the constitution of NCT and NCLAT; (ii) Challenge to the prescription of qualifications including term of their office and salary allowances etc. of President and Members of the NCLT and as well as Chair ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... judgment and there is not much to argue. In respect of NCLAT, though he conceded that validity thereof is also upheld in the aforesaid judgment, his endeavour was to demonstrate that there is no discussion in the entire judgment insofar as NCLAT is concerned and, therefore, conclusion which is mentioned in the said judgment at the end, should not be treated as binding or to be taken as having decided this issue. His submission was that in view of the subsequent Constitution Bench judgment of this Court in Madras Bar Association v. Union of India (2014) 10 SCC 1, wherein establishment of National Tax Tribunal has been held to be unconstitutional, Section 410 should also be meted out the same treatment for the reasons recorded in the said judgment pertaining to National Tax Tribunal. It is difficult to digest this argument for various reasons, which we record in the discussion hereafter. 11) First of all the creation of Constitution of NCLAT has been specifically upheld in 2010 judgment. It cannot be denied that this very petitioner had specifically questioned the Constitutional validity of NCLAT in the earlier writ petition and even advanced the arguments on this very issue. Thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Tribunals should normally have only judicial members. Only where the exercise of jurisdiction involves inquiry and decisions into technical or special aspects, where presence of technical members will be useful and necessary, Tribunals should have technical members. Indiscriminate appointment of technical members in all Tribunals will dilute and adversely affect the independence of the Judiciary. (d) The Legislature can re-organize the jurisdictions of Judicial Tribunals. For example, it can provide that a specified category of cases tried by a higher court can be tried by a lower court or vice versa (A standard example is the variation of pecuniary limits of courts). Similarly while constituting Tribunals, the Legislature can prescribe the qualifications/ eligibility criteria. The same is however subject to Judicial Review. If the court in exercise of judicial review is of the view that such tribunalisation would adversely affect the independence of judiciary or the standards of judiciary, the court may interfere to preserve the independence and standards of judiciary. Such an exercise will be part of the checks and balances measures to maintain the separation of powers and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ested in NTT which was held to be impermissible. In the instant case, there is no such situation. On the contrary, NCLT is the first forum in the hierarchy of quasi-judicial fora set up in the Act, 2013. The NCLT, thus, would not only deal with question of law in a given case coming before it but would be called upon to thrash out the factual disputes/aspects as well. In this scenario, NCLAT which is the first appellate forum provided under the Act, 2013 to examine the validity of the orders passed by NCLT, will have to revisit the factual as well as legal issues. Therefore, situation is not akin to NTT. Jurisdiction of the Appellate Tribunal is mentioned in Section 410 itself which stipulates that NCLAT shall be constituted 'for hearing appeals against the orders of the Tribunal'. This jurisdiction is not circumscribed by any limitations of any nature whatsoever and the implication thereof is that appeal would lie both on the questions of facts as well as questions of law. Likewise, under sub-section (4) of Section 421, which provision deals with 'appeal from orders of Tribunal', it is provided that the NCLAT, after giving reasonable opportunity of being heard, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Secretary to the Government of India or equivalent or above 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 problems relating to company law; or ( b ) is, or has been, in practice as a chartered accountant for at least fifteen years; 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 ( c ) is, or has been, in practice as a cost accountant for at least fifteen years; or (d) is, or has been, for at least fifteen years in practice as a cost accountant under, the Costs and Works Accountants Act, 1959 (23 of 1959); or ( d ) is, or has been, in practice as a company secretary for at least fifteen years; or ( e ) is a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2010 judgment, the Constitution Bench took the view that since the NCLT would now be undertaking the work which is being performed, inter alia, by High Court, the technical Members of the NCLT/NCLAT should be selected from amongst only those officers who hold rank of Secretaries or Additional Secretaries and have technical expertise. These aspects are discussed by the Court in the following paragraphs: 108. The legislature is presumed not to legislate contrary to the rule of law and therefore know that where disputes are to be adjudicated by a Judicial Body other than Courts, its standards should approximately be the same as to what is expected of main stream Judiciary. Rule of law can be meaningful only if there is an independent and impartial judiciary to render justice. An independent judiciary can exist only when persons with competence, ability and independence with impeccable character man the judicial institutions. When the legislature proposes to substitute a Tribunal in place of the High Court to exercise the jurisdiction which the High Court is exercising, it goes without saying that the standards expected from the Judicial Members of the Tribunal and standards applie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... That means only Secretary Level officers (that is those who were Secretaries or Additional Secretaries) with specialized knowledge and skills can be appointed as Technical Members of the tribunal. xx xx xx 118. Parts IC and ID of the Companies Act proposes to shift the company matters from the courts to Tribunals, where a `Judicial Member' and a `Technical Member' will decide the disputes. If the members are selected as contemplated in section 10FD, there is every likelihood of most of the members, including the so called `Judicial Members' not having any judicial experience or company law experience and such members being required to deal with and decide complex issues of fact and law. Whether the Tribunals should have only judicial members or a combination of judicial and technical members is for the Legislature to decide. But if there should be technical members, they should be persons with expertise in company law or allied subjects and mere experience in civil service cannot be treated as Technical Expertise in company law. The candidates falling under sub-section 2(c) and (d) and sub-sections 3(a) and (b) of section 10FD have no experience or expertise in de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... over the functions of High Court, the members should as nearly as possible have the same position and status as High Court Judges. This can be achieved, not by giving the salary and perks of a High Court Judge to the members, but by ensuring that persons who are as nearly equal in rank, experience or competence to High Court Judges are appointed as members. Therefore, only officers who are holding the ranks of Secretaries or Additional Secretaries alone can be considered for appointment as Technical members of the National Company Law Tribunal. Clauses (c) and (d) of sub-section (2) and Clauses (a) and (b) of sub-section (3) of section 10FD which provide for persons with 15 years experience in Group A post or persons holding the post of Joint Secretary or equivalent post in Central or State Government, being qualified for appointment as Members of Tribunal is invalid. (iii) A `Technical Member' presupposes an experience in the field to which the Tribunal relates. A member of Indian Company Law Service who has worked with Accounts Branch or officers in other departments who might have incidentally dealt with some aspect of Company Law cannot be considered as `experts' qu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er. Further the said term of three years with the retirement age of 65 years is perceived as having been tailor-made for persons who have retired or shortly to retire and encourages these Tribunals to be treated as post-retirement havens. If these Tribunals are to function effectively and efficiently they should be able to attract younger members who will have a reasonable period of service. (x) The second proviso to Section 10FE enabling the President and members to retain lien with their parent cadre/ ministry/department while holding office as President or Members will not be conducive for the independence of members. Any person appointed as members should be prepared to totally disassociate himself from the Executive. The lien cannot therefore exceed a period of one year. (xi) To maintain independence and security in service, sub-section (3) of section 10FJ and Section 10FV should provide that suspension of the President/Chairman or member of a Tribunal can be only with the concurrence of the Chief Justice of India. (xii) The administrative support for all Tribunals should be from the Ministry of Law Justice. Neither the Tribunals nor its members shall seek or be pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h provides a complete answer to the aforesaid argument taken by the respondents. The said discussion, contained in para 112, with its sub-paras, reads as under: 112. What is a matter of concern is the gradual erosion of the independence of the judiciary, and shrinking of the space occupied by the Judiciary and gradual increase in the number of persons belonging to the civil service discharging functions and exercising jurisdiction which was previously exercised by the High Court. There is also a gradual dilution of the standards and qualification prescribed for persons to decide cases which were earlier being decided by the High Courts. Let us take stock. 112.1 To start with, apart from jurisdiction relating to appeals and revisions in civil, criminal and tax matters (and original civil jurisdiction in some High Courts). The High Courts were exercising original jurisdiction in two important areas; one was writ jurisdiction under Articles 226 and 227 (including original jurisdiction in service matters) and the other was in respect to company matters. 112.2 After constitution of Administrative Tribunals under the Administrative Tribunals Act, 1985 the jurisdiction in regard ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ellate Tribunal with a single member. Section 50 of that Act provided that a person who is, or has been, or is qualified to be, a Judge of a High Court, or a person who is, or has been, a member of the India Legal Service and is holding or has held a post in Grade I of that service for at least three years could be appointed as the Presiding Officer. That is, the requirement of even a Secretary level officer is gone. Any member of Indian Legal Service holding a Grade-I Post for three years can be a substitute for a High Court Judge. 112.6 The next dilution is by insertion of Chapters 1B in the Companies Act, 1956 with effect from 1.4.2003 providing for constitution of a National Company Law Tribunal with a President and a large number of Judicial and Technical Members (as many as 62). There is a further dilution in the qualifications for members of National Company Law Tribunal which is a substitute for the High Court, for hearing winding up matters and other matters which were earlier heard by High Court. A member need not even be a Secretary or Addl. Secretary Level Officer. All Joint Secretary level civil servants (that are working under Government of India or holding a post ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions of technical Members, is also held to be invalid. For appointment of technical Members to the NCLT, directions contained in sub-para (ii), (iii), (iv), (v) of para 120 of 2010 judgment will have to be scrupulously followed and these corrections are required to be made in Section 409(3) to set right the defects contained therein. We order accordingly, while disposing of issue No.2. ISSUE NO.3 25) This issue pertains to the constitution of Selection Committee for selecting the Members of NCLT and NCLAT. Provision in this respect is contained in Section 412 of the Act, 2013. Sub-section (2) thereof provides for the Selection Committee consisting of: (a) Chief Justice of India or his nominee-Chairperson; (b) a senior Judge of the Supreme Court or a Chief Justice of High Court- Member; (c) Secretary in the Ministry of Corporate Affairs-Member; (d) Secretary in the Ministry of Law and Justice-Member; and (e) Secretary in the Department of Financial Services in the Ministry of Finance- Member. Provision in this behalf which was contained in Section 10FX, validity thereof was questioned in 2010 judgment, was to the following effect: 10FX. Selection Committ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Ministry of Finance or in Company Affairs (we may point out that the word and contained in Clause (c) of sub-para (viii) of para 120 seems to be typographical mistake and has to be read as or , as otherwise it won't make any sense). (iii) Now, from both the Ministries, namely from the Ministry of Corporate Affairs as well as Ministry of Finance, one Member each is included. Effect of this composition is to make it a five members Selection Committee which was not found to be valid in 2010 judgment. Reason is simple, out of these five Members, three are from the administrative branch/bureaucracy as against two from judiciary which will result in predominant say of the members belonging to the administrative branch, is situation that was specifically diverted from. The composition of Selection Committee contained in Section 412(2) of the Act, 2013 is sought to be justified by the respondents by arguing that the recommended composition in the 2010 judgment was in broad terms. It is argued that in view of subsuming of BIFR and AAIFR which are in the administrative jurisdiction of Department of Financial Services, Secretary DFS has been included. No casting vote has been pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions are contained in a statute enacted by the Parliament and the petitioner could not point out as to how such provisions are unconstitutional. 30) The upshot of the aforesaid discussion is to allow this writ petition partly, in the manner mentioned above. 31) Before we part, we must mention that the affidavit dated 07.05.2015 is filed on behalf of the respondents mentioning therein the steps that have been taken till date towards setting up of NCLT and NCLAT. It is pointed out that the approval for creation of one post of Chairperson and five posts of Members of NCLAT as well as one post of President and 62 posts of Members of NCLT and two posts of Registrar one each for NCLT and NCLAT and one post of Secretary, NCLT was obtained and the approval was also obtained for creation of 246 posts of supporting staff of NCLT and NCLAT. It is also mentioned that following draft Rules have already been prepared in consultation with the Legislative Department, Ministry of Law: (i) NCLAT (Salaries, Allowances and other terms and conditions of service of the Chairperson and other Members) Rules, 2014, (ii) NCLT (Salary, Allowances and other Terms and Conditions of Service of Pres ..... X X X X Extracts X X X X X X X X Extracts X X X X
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