The Ministry of Corporate Affairs (‘MCA’) on 1st June 2016 notified the constitution of National Company Law Tribunal (‘NCLT’) and National Company Law Appellate Tribunal (‘NCLAT’) in exercise of powers conferred under §408 and §410 of the Companies Act 2013 (‘Companies Act‘). This notification has been in abeyance for almost 14 years since it was first introduced by the Companies (Second Amendment) Act 2002 based on the recommendations of Eradi committee. However, in recent times the Government of India has been emphasising on easing the process of carrying out business in India. Thus, in recent times, various legal reforms have been carried out and the constitution of the NCLT and the NCALT is one more step in this direction.
The genesis of setting up of specialized tribunals can be traced to the Supreme Court judgment in Sampath Kumar case. In that case, while adopting the theory of alternative institutional mechanism for 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 high courts. The supreme court also referred to studies conducted towards relieving the high courts of their increase load; the recommendations of the Shah committee for setting up independent tribunals as also the suggestion of the administrative reforms commission for setting up of Civil Service tribunals.
The newly setup NCLT will, initially, have 11 benches including two benches in the national capital, New Delhi. Retired Supreme Court judge Hon’ble Justice SJ Mukhopadhaya will be the first Chairperson of NCLAT and Retired Justice MM Kumar will be the first President of the NCLT.
The constitution of the NCLT is likely to have a fundamental impact as far as company law litigation is concerned. Some of the more important consequences of this development are enumerated below:
- Single Window: The most significant benefit likely to arise from the constitution of the NCLT and the NCLAT is that the tribunals will, effectively, act as a single window for settlement of all company law related disputes. The newly constituted tribunals will replace the existing Company Law Board (‘CLB’), the Board of Industrial and Financial Reconstruction (‘BIFR’) and its appellate authority. Thus, the unnecessary fragmentation and multiplicity of the proceedings before various courts and tribunals in the same matter will be now be curbed.
The constitution of the NCLT is in consonance with the recently enacted Insolvency and Bankruptcy code and the liquidation process of companies and corporate debtors will now be considerably simplified.
Further, in the previous regime most powers were reserved either for the Central Government, the CLB or the High Courts. However, with the formation of the NCLT, the intent is to consolidate these powers and jurisdiction and assign them to a single authority, thereby simplifying the dispute adjudication process as far as companies are concerned.
- Class Action Claims: Shareholders are allowed to file class action suits before the NCLT, against the company for the breach of provisions of the Companies Act. Per this provision, if 100 or more shareholders or depositors find that the company’s affairs are not being managed in its best interests, they may approach the NCLT. In a class action suit, shareholders can collectively sue directors or auditors of the company for their misconduct or unwarranted acts. This remedy will be crucial for the minority shareholders who seek redressal against arbitrary/oppressive decisions of their management. In addition, with the increase of shareholder activism in India such a remedy would be a valuable remedy in the hands of shareholders against their boards.
- Greater Field Impact: Under the old law, the CLB was operating through only 5 benches. However, the NCLT will commence with 11 benches, with the Principal Bench being in New Delhi. This will undoubtedly aid in ensuring a wider reach for adjudicating company law matters in India.
- Speedy Disposal of Cases: The NCLT has been given the powers to regulate its own procedure which will assist them in disposing matters in a simplified manner. Further, the NCLT and the NCLAT are under a mandate to dispose of cases before them as expeditiously as possible. In this context, a time limit of 3 months has been provided to dispose of cases, with an extension of 90 days for sufficient reasons to be recorded by the President or the Chairperson, as the case maybe. This time limit is expected to ensure the speedy disposal of cases by the NCLT and the NCLAT.
- Limitations and Unanswered Questions: The notification does not expressly specify the manner or procedure for transferring pending cases from the CLB and High Courts to the NCLT. It is likely the process of transfer will be commenced and implemented as a gradual process. The objective may be to transfer the matters to the new body in a gradual manner, so as to give the NCLT ample amount of time to structure itself in the company law litigation of the country. However, effective steps will need to be taken to prevent unnecessary confusion amongst litigants.
In addition, provisions relating to the winding up of the companies and those under Chapter XV of the Companies Act have not yet been notified. Therefore, these matters will continue to be governed by the provisions of Companies Act 1956. There is no updated information available in terms of when the provision of Chapter XV are likely to be brought into force.
The NCLAT will act as the appellate forum and all appeals from the orders of the NCLT will be heard by it. Appeals from the NCLAT will be heard by the Supreme Court of India.
The constitution of the NCLT as a single forum to deal with Company Law matters is a welcome move to various stakeholders as it is aimed at providing a speedy and efficient disposal of the matters. In addition, it will also help in taking the load off the overburdened High Courts. However, it is quite important that the transition period of converting the CLB to the NCLT, particularly in terms of transfer of existing matters must be carefully handled by the relevant authorities, as the same will determine its effectiveness in due course.