TMI BlogIMPACT OF RECENT OF SUPREME COURT JUDGMENT ON NCLT AND NCLATX X X X Extracts X X X X X X X X Extracts X X X X ..... IMPACT OF RECENT OF SUPREME COURT JUDGMENT ON NCLT AND NCLAT - By: - Mr. M. GOVINDARAJAN - Corporate Laws / IBC / SEBI - Dated:- 10-12-2015 - - Brief facts The Companies (Second Amendment) Act, 2002 inserted Part IB, containing of Sections 10FB to 10FP and Part IC, consisting of Section 10FQ to 10GF . Part 1B provides for the constitution of National Company Law Tribunal ( NCLT for short) the replace the powers of the Company Law Board the powers vested on High Court by Companies Act, 1956 . Part 1C provides for the constitution of National Company Law Appellate Tribunal ( NCLAT for short) for hearing the appeals by the aggrieved party against the order of NCLT. Part 1B and Part1C besides the constitution of tribunals, provide for appointment of members, their qualifications, tenure, salary etc., Against the above said insertion of Part 1B and Part 1C the Madras Bar Association filed a writ petition before High Court, Madras in UNION OF INDIA Versus R. GANDHI PRESIDENT MADRAS BAR ASSOCIATION [ 2010 (5) TMI 393 - SUPREME COURT OF INDIA] challenging the constitution of NCLT and NCLAT along with certain other provisions. The High Court, in its jud ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gment, held that the creation of NCLT and vesting the powers hither to exercise by the Company Law Board and the High Court was not unconstitutional. At the same time the High Court pointed out certain defects in various of Sections viz., 10 FD(3)(f)(g)(h), 10FE , 10FF , 10FL (2), 10FR (3) , 10FT and declared that the said sections offended the basic constitutional scheme of separation of powers. The High Court further held that unless these provisions are appropriately amended by removing the defects, it would be unconstitutional to constitute NCLT and NCLAT. Against this order both parties filed appeal before the Supreme Court. The Supreme Court upheld the order of Madras High Court. The Government was expected to make the required amendments as directed by High Court and Supreme Court. The Government brought out a new act named Companies Act, 2013 to replace the Companies Act, 1956 . In the new Act the Government provides provisions for the constitution of NCLT and NCLAT, the provisions relating to appointment of President/Chairperson and members of both the Tribunals and also provides for the constitution of Selection Committee of the said members. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Madras Bar Association challenged the said provisions before the Supreme Court alleging that these provisions are analogous to the provisions relating to the NCLT and NCLAT despite the clear directions given by the Supreme Court in its earlier judgment. The petitioner challenged the provisions contained in Section 408 , 409 , 411(3) , 412 , 413, 425 , 431 and 434 of the Act as ultra vires the provisions of Article 14 of the Constitution . The petitioners also questioned the validity of Sections 415 , 418 , 424 and 426 . Judgment of Supreme Court After hearing the parties the Supreme Court held that the constitution of NCLT and NCLAT is valid as held in its earlier judgment in the year 2010. The Supreme Court directed to set right the defects in Section 409(3) as per the directions of Supreme Court in its 2010 judgment. The Supreme Court also held that Section 411(3) , which provides for the qualification for the appointment of technical member, is invalid and directed to comply with the directions in its 2010 judgment. The Supreme Court further held that Section 412 (2) which deals with the constitution of selection committee, is devia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted from the directions given by the Supreme Court in its 2010 judgment and held as invalid. The Supreme Court held that Section 425 in which the Tribunal is given power to punish for contempt, is valid. Despite the arguments placed by the Government that every steps have been taken to formulate the constitution of NCLT and NCLAT, the Supreme Court sternly directed that the Government shall take remedial measures as per the directions of the 2010 Supreme Court judgment. Consequences of Judgment The Supreme Court upheld the validity of constitution of NCLT and NCLAT under the provisions of new Companies Act. But in respect of other aspects the Government is to comply with the directions of Supreme Court in 2010 judgment. In respect of appointment of technical members the Government has to follow the directions of Supreme Court in its 2010 judgment as detailed below: As NCLT takes 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rank, experience or competence to High Court Judges are appointed as members; A Technical Member presupposes an experience in the field to which Tribunals 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 aspects of Company Law cannot be considered as experts qualified to be appointed as technical members. Persons having ability, integrity, standing and special knowledge and professional experience of not less than 15 years in industrial finance, industrial management, industrial reconstruction, investment and accountancy, may be considered as persons having expertise in rehabilitation/revival of companies and therefore, for being considered for appointment as technical members; In respect of constitution of selection committee the Supreme Court directed to appoint four members in the committee as detailed below: Chief Justice of India or his nominee Chairperson (with casting vote); A senior judge of Supreme Court or Chief Justice High Court Member; Secretary in the Ministry of Finance and Company Affairs - Member; and Secretary in the Mi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nistry of Law and Justice Member. The Government, in order to constitute the NCLT and NCLAT, is to comply with the directions of the Supreme Court as discussed above by means of amendment to the Companies Act which should be passed in the Lok Sabha and Rajya Sabha and after that to obtain the sanction of the President, the process of which would take some time. Impact on judgment The constitution and functioning of the NCLT and NCLAT are definite subject to the condition that the Government is to comply with the directions in appointing the technical members and for the constitution of selection committee. Let us hope that the Government will do so. In the erstwhile Companies Act most of the powers are vested in High Court as company court in which only the Advocates can appear before the High Court for the company matters. Now it is open to other professionals such as Company Secretary in practice etc., to appear before the NCLT as well as NCLAT under Section 432 of the Companies Act, 2013 . Section 432 of the Act provides that a party to any proceeding or appeal before the Tribunal or the Appellate Tribunal, as the case may be, may either appea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r in person or authorize one or more Chartered Accountants or Company Secretaries or Cost Accountants or legal practitioners or any other person to present his case before the Tribunal or the Appellate Tribunal as the case may be. By virtue of Section 432 the area of practice for the professionals is widened if the provisions relating to Tribunal come into effect. The following sections give the details of the matters that may be dealt with NCLT: MATTERS THAT MAY BE DEALT WITH BY NCLT Chapter II Incorporation of company and matters incidental thereto Section 7(7) Incorporation of Companies - Powers of Tribunal to pass orders companies incorporated by fraud; Section 8 (9) Formation of Companies with charitable objects etc., - in a winding up process debts and liabilities may be transferred to another company subject to such conditions imposed as the Tribunal may impose; Section 14 (1) and (2) approval for alteration of Articles; Chapter IV Share capital and debentures Section 48 Tribunal to decide the variation of shareholders rights; Section 55(3) Petition for the approval of Tribunal for the issu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of further redeemable preference shares equal to the amount due, including the dividend thereon in respect of the unredeemed preferences shares; Section 61 proviso to (1)(b) which provides that no consolidation and division which results in changes to the voting percentage of shareholders shall take effect unless it is approved by the Tribunal on an application made in the prescribed manner; Section 62 (4), (5) and (6) Appeal to Tribunal against the order of Government imposing conditions of issue debentures or loans; Section 66 Confirmation of Tribunal on reduction of Share capital of a company; Section 71 (9) Petition by a debenture trustee before the Tribunal to pass order restricting the company on the incurring of any further liabilities relating to debentures; Section 71 (10) Petition before the Tribunal with a prayer directing to redeem the debentures along with interest; Section 71 (11) Penalty on disobedience of the order of the Tribunal under Section 71 (10) ; Chapter V Acceptance of deposits by companies Section 74(2) The Tribunal may on an application made by the company, after considering the financ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial condition of the company, the amount of deposit or part thereof and the interest payable thereon and such other matters, allow further time as considered reasonable to the company to repay the deposit; Section 75 Damages payable by the company if it fails to repay the deposit or part thereof or any interest as order by Tribunal under Section 74(2) ; Chapter VII Management and administration Section 97 Power of Tribunal to call Annual General Meeting on application of any member of the company; Section 98 Power of Tribunal to call meetings of members etc., either suo motu or on the application of any director or member of the company who would be entitled to vote t the meeting; Section 99 Punishment for default in complying with provisions of Sections 96 to 98 ; Section 119 (4) In case of refusal or default in allowing inspection of minute books of general meeting, the Tribunal may direct immediate inspection of minute books or direct that the copy required shall be sent to the person requiring it. Chapter IX Accounts of companies Section 130 Re-opening of accounts on Tribunal s orders; Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 131 Voluntary revision of financial statements of Board s report; Chapter XIV Inspection, inquiry and investigation Section 216 (2 ) Order of Tribunal to investigate the affairs of the company; Section 218 Protection of employees during investigation; approval of Tribunal is necessary for taking action against the employees; Section 221 Freezing of assets of company on inquiry and investigation; Section 222 Imposition of restrictions upon securities; Section 224 (2) Central Government to apply before Tribunal for winding up of a company based on the report of the Inspector; Section 224 (5) Central Government to file application before the Tribunal for its order in the case of fraud by the company; Chapter XV Section 230 Power to compromise or make arrangements with creditors and members; Section 231 Power of Tribunal to enforce compromise or arrangement; Section 232 Merger and amalgamation of companies; Section 233 (5) Merger or amalgamation of certain companies; Section 234 Merger or amalgamation of company with foreign company; Section 235 Power to acquire shares of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shareholders dissenting from scheme or contract approved by majority; Section 236 Purchase of minority shareholding; Section 237 Power of Central Government to provide for amalgamation of companies in public interest; Section 238 Registration of offer of schemes involving transfer of shares; appeal to Tribunal; Chapter XVI Prevention of oppression and mismanagement Section 241 Application to Tribunal for relief in cases of oppression, etc.,; Section 242 Powers of Tribunal; Section 243 Consequence of termination or modification of certain agreement; Section 244 Right to apply under Section 241 ; Section 245 class action; Section 246 Application of certain provisions to proceedings under Section 241 or Section 245 . Chapter XVIII Removal of names of companies from the Register of Companies Section 248 Power of Registrar to remove name of company from register of companies; Section 249 Restrictions on making application under Section 248 in certain situations; Section 252 Appeal to Tribunal; Chapter XIX Revival and rehabilitation of sick companies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 253 Determination of sickness; Section 254 Application for revival and rehabilitation; Section 255 Exclusion of certain time in computing period of limitation; Section 256 Appointment of interim administrator; Section 257 Committee of creditors; Section 258 Order of Tribunal; Section 259 Appointment of Administrator; Section 260 Powers and duties of Company Administrator; Section 261 Scheme of revival and rehabilitation; Section 262 Sanction of scheme; Section 263 Scheme to be binding; Section 264 Implementation of scheme; Section 265 Winding up of company on report of company administrator; Section 266 Power of Tribunal to assess damages against delinquent directors etc., Section 267 Punishment for certain offences; Section 268 Bar of Jurisdiction; Section 269 Rehabilitation and Insolvency Fund. Chapter XX Winding up Part I Winding up by the Tribunal Section 271 Circumstances in which company may be wound up by Tribunal; Section 272 Petition for winding up; Section 273 Powers of Tribunal; Section 274 D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irections for filing statement of affairs; Section 275 Company Liquidators and their appointments; Section 276 Removal and replacement of liquidator; Section 277 Intimation to Company Liquidator, provisional liquidator and Registrar; Section 278 Effect of winding up order; Section 279 Stay of suits etc., on winding up order; Section 280 Jurisdiction of Tribunal; Section 281 Submission of report by Company Liquidator; Section 282 Directions of Tribunal on report of Company Liquidator; Section 283 Custody of company s properties; Section 284 Promoters, directors etc., to co-operate with Company Liquidator; Section 285 Settlement of list of contributories and application of assets; Section 286 Obligations of directors and managers; Section 287 Advisory Committee; Section 288 Submission of periodical reports to Tribunal; Section 289 Power of Tribunal on application for stay of winding up; Section 290 Powers and duties of Company Liquidator; Section 291 Provision for professional assistance to Company Liquidator; Section 292 Exercise and control of Company Liquid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ator s powers; Section 293 Books to be kept by Company Liquidator; Section 294 Audit of Company Liquidator s Accounts; Section 295 Payment of debts by contributory and extent of set-off; Section 296 Power of Tribunal to make calls; Section 297 Adjustment of rights of contributories; Section 298 Power to order costs; Section 299 Power to summon persons suspected of having property of company etc., Section 300 Power to order examination of promoters, directors etc., Section 301 Arrest of person trying to leave India or abscond; Section 302 Dissolution of company by Tribunal; Section 303 Appeals from orders made before commencement of Act; Part II Voluntary winding up Section 304 Circumstances in which company may be wound up voluntarily; Section 305 - Declaration of solvency in case of proposal to wind up voluntarily; Section 306 Meeting of creditors; Section 307 Publication of resolution to wind up voluntarily; Section 308 Commencement of voluntary winding up; Section 309 Effect of voluntary winding up; Section 310 Appointment of Company Liquidat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or; Section 311 Power to remove and fill vacancy of Company Liquidator; Section 312 Notice of appointment of Company Liquidator to be given to Registrar; Section 313 Cesser of Board s powers on appointment of Company Liquidator; Section 314 Powers and duties of Company Liquidator in voluntary winding up; Section 315 Appointment of Committees; Section 316 Company Liquidator to submit report on progress of winding up; Section 317 Report of Company Liquidator to Tribunal for examination of persons; Section 318 Final meeting and dissolution of company; Section 319 Power of Company Liquidator to accept shares, etc., as consideration for sale of property of company; Section 320 Distribution of property of company; Section 321 Arrangement when binding on company and creditors; Section 322 Power to apply to Tribunal to have questions determined, etc., Section 323 Costs of Voluntary winding up. Part III Provisions applicable to every mode of winding up Section 324 Debts of all descriptions to be admitted to proof; Section 325 Application of insolvency rules in winding up of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... insolvent companies; Section 326 Overriding preferential payments; Section 327 Preferential payments; Section 328 Fraudulent preference; Section 329 Transfer not in good faith to be void; Section 330 Certain transfers to be void; Section 331 Liabilities and rights of certain persons fraudulently preferred; Section 332 Effect of floating charges; Section 333 Disclaimer of onerous property; Section 334 Transfers etc., after commencement of winding up to be void; Section 335 Certain attachments, executions etc., in winding up by Tribunal to be void; Section 336 Offences by officers of companies in liquidation; Section 337 Penalty for frauds by officers; Section 338 Liability where proper accounts not kept; Section 339 Liability for fraudulent conduct of business; Section 340 Power of Tribunal to assess damages against delinquent directors, etc., Section 341 Liability under Sections 339 and 340 to extend the partners or directors in firms or companies; Section 342 Prosecution of delinquent officers and members of company; Section 343 Company Liquidator to exerci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se certain powers subject to sanction; Section 344 Statement that company is in liquidation; Section 345 Books and papers of company to be evidence; Section 346 Inspection of books and papers by creditors and contributories; Section 347 Disposal of books and papers of company; Section 348 Information as to pending liquidations; Section 349 Official Liquidator to make payments into public account of India; Section 350 Company Liquidator to deposit monies into scheduled bank; Section 351 Liquidator not to deposit monies into private banking account; Section 352 Company Liquidation Dividend and Undistributed Assets Account; Section 353 Liquidator to make returns, etc., Section 354 Meetings to ascertain wishes of creditors or contributories; Section 355 Court, Tribunal or person etc., before whom affidavit may be sworn; Section 356 Powers of Tribunal to declare dissolution of company void; Section 357 Commencement of winding up by Tribunal; Section 358 Exclusion of certain time in computing period of limitation. Chapter XXI Companies authorized to register under this Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Part II Winding up of unregistered companies Section 375 Winding up of unregistered companies; Section 376 Power to wind up foreign companies, although dissolved; Section 377 Provisions of Chapter cumulative; Section 378 Saving and construction of enactments conferring power to wind up partnership firm, association or company etc., in certain cases. Chapter XXVII National Company Law Tribunal and Appellate Tribunal Section 415 Acting President and Chairperson of Tribunal or Appellate Tribunal; Section 416 Resignation of members; Section 417 Removal of Members; Section 418 Staff of Tribunal and Appellate Tribunal; Section 419 Benches of Tribunal; Section 420 Order of Tribunal; Section 421 Appeal from orders of Tribunal; Section 422 Expeditious disposal by Tribunal and Appellate Tribunal; Section 423 Appeal to Supreme Court; Section 424 Procedure before Tribunal and Appellate Tribunal; Section 425 Power to punish for contempt; Section 426 Delegation of powers; Section 427 President, Members, Officers etc., to be public servants; Sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 428 Protection of action taken in good faith; Section 429 Power to seek assistance of Chief Metropolitan Magistrate etc., Section 430 Civil court not to have jurisdiction; Section 431 - Vacancy in Tribunal or Appellate Tribunal not to invalidate acts or proceedings; Section 432 Right to legal representation; Section 433 Limitation; Section 434 Transfer of certain pending proceedings. Section 409 (3)(d) provides that a Company Secretary in practice having practice for at least fifteen years shall be qualified for appointment as Technical member in NCL The Supreme Court declared that Section 409 of the Act is invalid and directed to appoint the technical member as per the procedure directed by the Supreme Court in 2010 judgment. Whether High Court will interfere? As per the Companies Act, 2013 there is no role for High Court. The appeal against the order of NCLT lies with NCLAT under Section 421 of the Act. Section 423 provides that any person aggrieved by any order of the Appellate Tribunal may file an appeal before the Supreme Court within sixty days from the date of receipt of the Appellate Tribunal to him ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on any question of law arising out of such order. But in practice the scenario is different. The Central Administrative Tribunal is meant for hearing the disputes of the Central Government employees and the appeal against the order of the Tribunal is only before the Supreme Court. But in many a case the High Court interfered with the order of Tribunal in the context that the High Court is having control over the Tribunals coming under its jurisdiction. It may happen in the Companies matters also. Conclusion Finally it can be said if the Government complies with the directions of Supreme court judgment in selecting the technical member and the selection committee, and the NCLT and NCLAT come into effect, almost all the sections in the Companies Act, 2013 , which have not yet come into effect, will be come into effect and the Companies Act will become full-fledged and the complexities in complying with the provisions of the Companies Act will be reduced to the maximum. - - Scholarly articles for knowledge sharing authors experts professionals Tax Management India - taxmanagementindia - taxmanagement - taxmanagementindia.com - TMI - TaxTMI - TMITax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ..... X X X X Extracts X X X X X X X X Extracts X X X X
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