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[2017] 77 taxmann.com 236/[2016] 136 SCL 8 (Article)

[2017] 77 taxmann.com 236 (Article)

Date of Publishing: June 14, 2016

NCLT & NCLAT UNDER COMPANIES ACT, 2013

DIVESH GOYAL
CS

Background

1. It has been more than 14 years since we first heard about National Company Law Tribunal [NCLT] &
National Company Law Appellate Tribunal [NCLAT]. But now by MCA Notification, dated 1st June, 2016
in exercise of the powers conferred by section 408 of the Companies Act, 2013 (18 of 2013), the Central
Government has constituted the National Company Law Tribunal to exercise and discharge the powers
and functions as are, or may be, conferred on it by or under the said Act with effect from the 1st day of
June, 2016.

The Companies (Second Amendment) Act, 2002 provides for the setting up of a National Company Law
Tribunal and Appellate Tribunal to replace the existing Company Law Board and Board for Industrial
and Financial Reconstruction. The setting up of NCLT as a specialized institution for corporate justice is
based on the recommendations of the Justice Eradi Committee on Law Relating to Insolvency and
Winding up of Companies.

Need of Specialized Courts or Tribunals :The genesis of setting up of specialized tribunals can be traced
to the Supreme Court's judgment in Sampath Kumar's case. In that case, while adopting the theory of
alternative institutional mechanism Supreme Court referred to the fact that since independence, the
population explosion and the increase in litigation had greatly increased the burden of pendency in the
High Courts. The Supreme Court also referred to studies conducted towards relieving the High Courts of
their increased load; the recommendations of the Shah Committee for setting up of independent
tribunals as also the suggestion of the administrative reforms commission for setting-up of Civil Service
tribunals.

Mega Tribunal

2. NCLT can be called as Mega Tribunal. Because NCLT will consolidate the corporate jurisdiction of the
followings:

♦ Company Law Board.

♦ The Board for Industrial and Financial Reconstruction
♦ The Appellate authority for Industrial and Financial Reconstruction
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♦ Jurisdiction and powers relating to winding up restructuring and such other provisions, vested
in the High courts

Present Scenario–1st June, 2016

3. The Ministry of Corporate Affairs has issued notification for constitution of the National Company
Law Tribunal (NCLT) and National Company Law Appellate Tribunal (NCLAT) with effect from 1st June,
2016. http://www.mca.gov.in/Ministry/pdf/Notification_02062016_II.pdf

Chairperson Hon'ble Justice S.J. Mukhopadhaya, Judge (Retd.), Supreme Court of India
President Hon'ble Justice M.M. Kumar, Judge (Retd.)

3.1 Dissolution of CLB - According to this notification the Company Law Board (CLB) stands
dissolved w.e.f. 1st June, 2016. Notification of this section 466 makes last Chairman of the CLB as
Provisional and first Chairman of NCLT.

3.2 Benches of NCLT - Initially NCLT will have eleven Benches, as per list given below.

Two New Delhi Ahmedabad Allahabad Bengaluru

Chandigarh Chennai Guwahati Hyderabad

Kolkata Mumbai

4. Sections and Provisions of the Companies Act, 2013 relating to Tribunal Notified w.e.f.
1/6/2016 :

Sl. Section Purpose

No.

1. Sub-section (7) of section 7 [except clauses (c) and Legal action for false or incorrect
(d)] information at the time of Incorporation

2. Second proviso to sub-section (1) of section 14 Conversion of Public to Private Limited

3. Sub-section (2) of section 14 Conversion of Public to Private Limited

4. Sub-section (3) of section 55 Rollover of existing redeemable preference

shares

5. Proviso to clause (b) of sub-section (1) of section 61 Changes in voting rights by Consolidation
or sub-division of share Capital

6. Sub-sections (4) to (6) of section 62 Changes in terms of issue of Debentures to

facilitate Conversion into equity shares

7. Sub-sections (9) to (11) of section 71 Action by Debenture trustee once the

secured Assets becomes insufficient

8. Section 75 Action against Company by defrauding

Depositors by non-payment

9. Section 97 Power to call for AGM in case of failure by

the Company

10. Section 98 Power to call for meetings other than AGM

11. Section 99 Punishment for failure to comply with

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Tribunal's Direction regarding Meetings

12. Sub-section (4) of section 119 Order for inspection in case of failure by the
Company

13. Section 130 Re-opening of Accounts by Authorities

14. Section 131 Voluntary revision of financial statements

15. Second proviso to sub-section (4) and sub-section Removal or change of Auditor before due
(5) of section 140 Date and Suo Motu action by Tribunal for
removal

16. Sub-section (4) of section 169 Removal of Directors - representation and

relaxation of provisions in certain cases

17. Section 213 Investigation into the affairs of the

Company

18. Sub-section (2) of Section 216 Appointment of Inspectors

19. Section 218 Protection of employees during

investigation

20. Section 221 Freezing of assets of Company on inquiry

and investigation

21. Section 222 Imposition of restrictions upon securities

22. Sub-section (5) of section 224 Action against Company or Directors on

inspector's report

23. Sections 241, 242 [except clause (b) of sub- section Action against Prevention and Oppression
(1), clauses (c) & (g) of sub-section (2)], 243, 244, and Mismanagement
and 245

24. Reference of word 'Tribunal' in sub-section (2) of Order for production of documents by
section 399 Registrar
25. Sections 415 to 433 (both inclusive) Tribunal and its Chairman, Members, etc.,
and provisions relating thereto.
26. Sub-section (1)(a) and (b) of section 434 Transfer of pending proceedings

27. Sub-section (2) of section 434 Appeal against Company Law Board Order
28. Section 441 Compounding of offences

29. Section 466 Dissolution of CLB and consequential

provisions

Powers of NCLT

5. The proposed NCLT will have judicial and technical experts who will handle all matters presently
being handled by CLB, Company Court and BIFR with wider jurisdiction in terms of scope of the
subjects.

5.1 Other powers :

♦ Most of the powers of the Company Law Board under the Companies Act, 1956.
♦ All the powers of the BIFR for revival and rehabilitation of sick industrial companies;

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♦ Power of the High Court in the matters of mergers, demergers, amalgamations, winding up,
etc.;
♦ Power to order repayment of deposits accepted by the Non-Banking Financial Companies as
provided in section 45QA of the Reserve Bank of India Act, 1934;
♦ Power to wind up companies;
♦ Power to review its own orders.

5.2 Compounding of Certain Offences - Section 441. Compounding application for certain offences
shall be made before the Tribunal as under :–

5.2.1 Transfer of certain pending proceedings - [Section 434(1)(a)]–All matters, proceedings or cases
pending before the Board of Company Law Administration immediately before such date shall stand
transferred to the Tribunal and the Tribunal shall dispose of such matters, proceedings or cases in
accordance with the provisions of this Act.

Administration of NCLT and NCLAT

6. Section 415 to Section 433 (both inclusive) have also come into force. These sections deal with
administration of NCLT and NCLAT.

(Tabular Presentation) :

415. Acting President and Chairperson of Tribunal or Appellate Tribunal.

416. Resignation of Members.

417. Removal of Members.

418. Staff of Tribunal and Appellate Tribunal.

419. Benches of Tribunal.

420. Orders of Tribunal.
421. Appeal from Orders of Tribunal.

422. Expeditious disposal by Tribunal and Appellate Tribunal.

423. Appeal to Supreme Court.

424. Procedure before Tribunal and Appellate Tribunal.

425. Power to punish for contempt.
426. Delegation of powers.

427. President, Members, officers, etc., to be public servants.

428. Protection of action taken in good faith.

429. Power to seek assistance of Chief Metropolitan Magistrate, etc.

430. Civil court not to have jurisdiction.
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431. Vacancy in Tribunal or Appellate Tribunal not to invalidate acts or proceedings.

432. Right to legal representation.

433. Limitation.

7. Constitution of NCLT and NCLAT :

7.1 NCLT & NCLAT :

♦ There are two classes of members of the National Company Law Tribunal–Judicial Members
and Technical Members.
♦ The Tribunal shall be headed by the President and the Appellate Tribunal by the Chairperson.
♦ NCLAT not to exceed eleven members for hearing appeals against the orders of the Tribunal

7.2 Qualification: (President/Member of NCLT) :

S. President Judicial Member Technical Member

No.
i. Is/has been Is/has been Judge of Has been Member of Indian Corporate Law
Judge of High High Court (any period) Service/Indian Legal Service for a period of 15 years
Court for a or more (out of 15 years at least 3 years to be in the
period of 5 pay scale of Joint Secretary to GOI or equivalent post)
years or more

ii. Is/has been District Is/has been Practicing Chartered Accountant at

Judge at least 5 years least15 years

iii. Has been Advocate of Is/has been Practicing Cost Accountant at least 15
court held a judicial years
office or as member of a
tribunal at least 10
years

iv. Is/has been Practicing COMPANY SECRETARY at

least 15 years

v. Person with proven ability, integrity and standing

having special knowledge and experience of 15 years1
(in below mentioned specified areas)
vi. Presiding Officer of Labour Court/ Tribunal/ National
Tribunal (under Industrial Disputes Act, 1947) at least
5 years

7.3 Qualification: (Chairman/Member of NCLAT) - National Company Law Appellate Tribunal,

constituting of a Chairperson and not exceeding eleven members for hearing appeals against the orders
of the Tribunal.

S. Chairman Judicial Member Technical Member

No.
i. Is/has been Is/has been Judge of Person with proven ability, integrity and standing having
Judge of High Court special knowledge and experience of 25 years 2(in below
Supreme Court given specified areas)
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ii. Is/has been Is a Judicial Member

Chief Justice of of Tribunal for at
High Court least 5 years

7.4 Selection of Members :

S. President/Chairman Judicial Members of the Members of the Tribunal and the

No. Appellate Tribunal Technical Members of the
Appellate Tribunal

i. Shall be Appointed after Shall be Appointed after shall be appointed on the

consultation with the Chief consultation with the Chief recommendation of a Selection
Justice of India. Justice of India. Committee

7.5 Selection of Committee - The Secretary, Ministry of Corporate Affairs shall be the Convener of
the Selection Committee.

S. Position Selection Committee

No.

i. Chairperson ♦ Chief Justice of India or his nominee

ii. Member ♦ A senior Judge of the Supreme Court or a Chief Justice of High Court

iii. Member ♦ Secretary in the Ministry of Corporate Affairs

iv. Member ♦ Secretary in the Ministry of Law and Justice

v. Member ♦ Secretary in the Department of Financial Services in the Ministry of

Finance

7.6 Terms :

8. Advantages of NCLT & NCLAT :

♦ It shall avoid multiplicity of litigations before various forums (High Courts, CLB, BIFR.
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AAIFT). Thus, there will be a consolidation of Corporate Jurisdiction.

♦ There shall be at least 11 benches of the NCLT, thereby providing justice almost at one's
doorstep.
♦ This tribunal shall comprise of technical experts who will provide more concrete and precise
decision.
♦ There will be mixture of judicial and equitable jurisdiction while deciding matters.
♦ There shall be reduction in period of winding up from 20-25 years to 2 years.
♦ Reduction in pendency of cases, expeditious disposal of cases.

Scope of Services for Practicing Company Secretaries under NCLT :

9. The establishment of NCLT/NCLAT shall offer various opportunities to Practicing Company

Secretaries as they have been authorized to appear before the Tribunal/Appellate Tribunal. Therefore,
Practicing Company Secretaries for the first time would be eligible to appear for matters which were
hitherto dealt with by the High Court, viz., mergers, amalgamations under sections 391-394 and winding
up proceedings under the Companies Act, 1956. Areas opened up for company secretaries in practice
under NCLT are briefly stated hereunder :

9.1 PCS as Member of NCLT - A Practicing Company Secretary can be appointed as a Technical
Member of NCLT, provided he has 15 years working experience as Secretary in whole-time practice.

9.2 Appearance before National Company Law Appellate Tribunal - As stated earlier a
Practicing Company Secretary has been authorized to appear before the National Company Law
Appellate Tribunal.

Insolvency Process

10. Currently, the law does not support effective participation of professionals and experts in the
Insolvency process. There is no shortage of quality professionals in India. Disciplines of chartered
accountancy, company secretaryship, cost and works accountancy, law, etc., can act as feeder streams,
providing high quality professionals for this new activity. In fact, private professionals can play a
meaningful role in all aspects of process.

Insolvency practice can also open up a new field of activity for service professionals while improving the
quality of intervention at all levels during rehabilitation/winding up/liquidation proceedings. Law
should encourage and recognize the concept of Insolvency Practitioners (Administrators, Liquidators,
Turnaround Specialists, Valuers, etc). Greater responsibility and authority should be given to Insolvency
Practitioners under the supervision of the Tribunal to maximize resource's use and application of skills."

10.1 Winding up - The National Company Law Tribunal has also been empowered to pass an order for
winding up of a company. Therefore, Practicing Company Secretaries may represent the winding up case
before the Tribunal.

10.2 Compromise and Arrangement - With the establishment of NCLT, a whole new area of
practice will open up for Company Secretaries in Practice with respect to advising and assisting corporate
sector on merger, amalgamation, demerger, reverse merger, compromise and other arrangements right
from the conceptual stage to implementation level. Company Secretaries in practice will be able to render
services in preparing schemes, appearing before NCLT/NCLAT for approval of schemes and post-merger
formalities

10.3 Sick Companies - Since all powers of the BIFR have been entrusted to NCLT, detecting the Sick
companies and providing resolution of the queries and for making reference to the Tribunal for revival
and rehabilitation of the Company

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The provisions also mandate preparation of schemes and seeking approval from the Tribunal as may be
required. Thus, the practicing professionals could play a pivotal role in the same area.

Conclusion

11. In view of vast opportunities emerging with the establishment of the National Company Law
Tribunal, the Practicing Company Secretaries should standardize their competencies with the global
benchmarks to provide value added services in assisting the Tribunal in dispensation of justice and
speedier disposal of matters like merger, amalgamation, restructuring, revival and rehabilitation of sick
companies and winding up of the companies.

■■

1. In law, industrial finance, industrial management or administration, industrial reconstruction,

investment, accountancy, labour matters, or such other disciplines related to management,
conduct of affairs, revival, rehabilitation and winding up of companies.

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