NATIONAL COMPANY LAW TRIBUNAL

CORPORATE LAW

SUPERVISED BY: Submitted By:

Dr. GEETIKA WALIA NEELESH CHANDRA

Roll No- 18212

Group no- 35

ACKNOWLEDGEMENT
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 Any investigation work orchestrated, requested or arranged in isolation is strange to a certain
extent. This assessment work, though orchestrated by me, is an apex of attempts of numerous
people.

"At first, I should thank our Corporatee Law Professor, Dr. Geetika Walia for giving such a
subject for my endeavor which helped me in increasing some data related to Immunities and
Privileges of the Government. I should express profound gratitude to her for her huge
recommendations towards the production of this errand."

Starting there, I may similarly need to offer my thanks towards our seniors who expected a basic
capacity in the collection of this investigation work . I can't neglect the responsibilities made by
my classmates and mates towards the fulfillment of this errand work .And I may moreover need
to offer my thanks towards the library staff of my school which helped me in picking up the
sources significant for the plan of my endeavor. Last, anyway not the least, I should thank the
Almighty for clear reasons .

-NEELESH

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 INDEX

CONTENTS
PAGINATIONS

1. CONCEPT OF NCLT: AN INTRODUCTION 3-5

1.1 NCLT at a Glance

1.2 Historical Background

2. CRITICAL ANALYSIS ON THE VALIDITY OF THE NCLT 6-8

2.1 Overview of the Judgements on the validity of the NCLT

3. ADVANTAGES AND CHALLENGES 9

3.1 Advantages of NCLT

3.2 Challenges before NCLT

4. NCLT COMPRISES OF 10

4.1 NCLT Members and their Qualifications Required

5. CONCLUSION 11

BIBLIOGRAPHY 12

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1. CONCEPT OF NCLT: AN INTRODUCTION

1.1 NCLT at a Glance

The National Company Law Tribunal (NCLT) is a quasi-judicial body in India that adjudicates
issues relating to Companies in India. The National Company Law Tribunal was formed or
established under the Companies Act, 2013 which was constituted with effect from 1st June,
2016.

The Ministry of Corporate Affairs (Central Government) constituted National Company Law
Tribunal (NCLT) and National Company Law Appellate Tribunal (NCLAT) under the provision
of Section 408 and Section 4101. It was first introduced by the Companies (Second Amendment)
Act 2002 based on the recommendations of ERADI committee.

The newly setup NCLT have eleven Benches, two at New Delhi and one each at Ahmedabad,
Allahabad, Bengaluru, Chandigarh, Chennai, Guwahati, Hyderabad, Kolkata and Mumbai.
Hon’ble Justice S.J. Mukhopadhaya, Retd. Judge, Supreme Court of India has joined as the
Chairperson of the NCLAT and Hon’ble Justice M.M. Kumar, Retd. Judge has joined as the
President of the NCLT.

The Company Law Board (CLB) constituted under Section 10E 2 has been dissolved w.e.f. 1st
June, 2016 by the introduction of National Company Law Tribunal. All matters pending before
the CLB on or before dissolution have now been transferred to the NCLT.

1.2 Historical Background

Business decisions require speedy determination and the long drawn legal battles in the Court of
Law stifle business impetus. The Companies (Second Amendment) Act, 2002, had brought a
relief to the National Company Law Tribunal [NCLT] and National Company Law Appellate
Tribunal [NCLAT] has provided a glimmer of hope in Company litigation.

Before the Companies (Second Amendment) Act, 2002, corporates were required to apply to
High Courts for proceedings such as merger/amalgamation, reduction of capital and winding up

1
Section 408 & Section 410, Companies Act, 2013
2
Section 10E, Companies Act, 1956

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of companies. But the High Courts being over burdened with other matters, used to take very
long time to dispose of these matters, and as a result of which the society was not able to derive
the intended benefits out of such decision. Even the winding up petitions before the various High
Courts have been pending for a very long time. Similarly various matters before the Company
Law Board (CLB), Board for Industrial and Financial Reconstruction (BIFR) and Appellate
Authority for Industrial and Financial Reconstruction (AAIFR) have been pending for a very
long period. Many of the Companies which were referred to BIFR had their natural death for
want of timely help and assistance from BIFR and as such, resulted into wastage of scarce
national resources.

Therefore, it was desired that, in place of various bodies presently looking into different matters
like merger/amalgamation, acquisition and reconstruction, revival and rehabilitation and winding
up of Companies, a body should be constituted to handle all these matters and to dispose of all
pending matters as well as fast disposal of new matters which might be referred to it in the
future.

Hence the Government constituted a Committee under the Chairmanship of Justice V.

Balakrishna Eradi, a retired Supreme Court Judge, to review the law relating to insolvency and
winding up of Companies and other laws like The Sick Industrial Companies (Special
Provisions) Act, 1985 (SICA) etc. The setting up of these bodies was first envisaged in the
Balakrishna Eradi Report which dealt with examining the existing laws relating to winding up of
Companies, revival of sick companies along with laws relating to recovery of debts, insolvency
of companies and to suggest recuperative measures for the ailing corporate sector on these
issues. The Committee made various recommendations with the main objective of expediting the
revival/ rehabilitation of a sick Company and protection of workers’ interest, which were
incorporated in the Companies (Amendment) Bill, 2001. The said Bill was subsequently passed
by both the Houses of the Parliament and finally got the assent of the President of India on 13th
January, 2002 and became the Companies (Amendment) Act, 2002. Consistent with the
underlying objectives, as aforesaid, and in the backdrop of the experience of administration of
SICA and winding up process, the Companies (Second Amendment) Act, 2002 provides for
setting up of the National Company Law Tribunal (NCLT) and on setting up of NCLT, all the
matters relating to companies which were earlier handled by various High Courts, CLB, BIFR

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and AAIFR will now be handled by the NCLT. Pending matters with the High Courts and CLB
will be transferred to NCLT.

Though the constitutional validity of the Companies (Second Amendment) Act 2002 was
challenged before the Madras High Court3, the High Court upheld the creation of the NCLT and
the vesting the powers thereto as being constitutional though it took the view that certain
provisions were violative of the basic constitutional scheme of (i) separation of judicial power
from the Executive and Legislative power and (ii) independence of judiciary enabling impartial
exercise of judicial power. In an appeal to the Supreme Court, the State accepted to rectify some
of the defects pointed out by the High Court.

The CLB constituted under Section 10E4 has been dissolved by the introduction of Section 10
FA5 and the NCLT has been constituted under Section 10 FB 6 of the Act. All matters pending
before the CLB on or before dissolution have now been transferred to the NLCT [S 10FA (3)] 7.
In case of orders passed by the CLB before dissolution, appeal can be filed before the HC as per
Section 10F8. Orders passed by the CLB prior to dissolution can be enforced through Court as
per provisions of Section 635(4)9, even after dissolution.

3
Union of India v. R Gandhi, President, Madras Bar Association, [2010] 11 SCC 1
4
Section 10E, Companies Act, 1956
5
Section 10FA, Companies Act, 1956
6
Section 10FB, Companies Act, 1956
7
Section 10FA(3), Companies Act, 1956
8
Section 10F, Companies Act, 1956
9
Section 635(4), Companies Act, 1956

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2. CRITICAL ANALYSIS ON THE VALIDITY OF THE NCLT

2.1 Overview of the Judgements on the Validity of the NCLT

The five-judge Constitutional Bench of the Hon'ble Supreme Court of India vide its order dated
May 14, 2015 in Madras Bar Association v. Union of India 10 upheld the Constitutional validity
of National Company Law Tribunal (NCLT) and National Company Law Appellate Tribunal
(NCLAT). This would give a go ahead to setting up of the a Tribunal, constituted to replace the
Company Law Board (CLB), the Board for Industrial and Financial Reconstruction (BIFR) and
the Appellate Authority for Industrial and Financial Reconstruction (AAIFR).

Vide amendment made under the erstwhile Companies Act, 1956 ("Old Act") in 2002 by
Companies (Second Amendment) Act, 2002, certain provisions relating to NCLT and NCLAT
were incorporated under Part 1B and 1C.

The constitutional validity of these provisions was challenged in a writ petition filed by the
Madras Bar Association ("MBA") in the Madras High Court. However, at the same time, the
High Court pointed out certain defects in various provisions of Part 1B and Part 1C of the Old
Act, declaring that those provisions, as existed, offended the basic constitutional scheme of
separation of powers, and it was held that unless these provisions are appropriately amended by
removing the defects which were also specifically spelled out, it would be unconstitutional to
constitute NCLT and NCLAT to exercise the jurisdiction which is being exercised by the High
Court or the CLB.

A further appeal by Union of India as well as MBA was filed against the judgment of Madras
High Court which was decided by the Constitution Bench. The same was filed as MBA felt
aggrieved by the part of the judgment vide which establishments of NCLT and NCLAT was held
to be constitutional, whereas the Union of India felt dissatisfied by the other part judgment where
provisions contained in part 1B and 1 C of the Old Act was perceived as suffering from various
legal and constitutional infirmities. The said appeals were disposed by partly allowing them via

10
Madras Bar Association v. Union of India, AIR 2015 SC 1571

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Union of India v. R Gandhi, President, Madras Bar Association 11, popularly known as
Judgment 2010 whereby it was held that:

 Creation of Tribunal and vesting in them, the powers and jurisdiction exercised by the
High Court in regard to company law matters, were not unconstitutional.
 Parts 1B and 1C of the Act were found to be unconstitutional; however, they may be
made operational by making suitable amendments.12

Though the verdict came in the year 2010, upholding the creation of NCLT and NCLAT, these
two bodies could not be created and made functional immediately thereafter.

Pursuant to the observations of the Supreme Court in the aforesaid case, the requisite changes
were introduced to the scheme of NCLT under the new Companies Act, 2013 ("Act, 2013").

However, another round of litigation ensued inter alia on the ground that notwithstanding various
directions given in Judgment 2010, the new provisions in the Act, 2013 are almost on the same
lines as were incorporated in the Act, 1956 and, therefore, these provisions suffer from the vice
of unconstitutionality.

Hence, the current ruling of the Supreme Court is essentially an effort to examine the provisions
of the 2013 Act and to consider whether it faithfully adheres to its previous ruling in Judgment
2010. While the court finds that the 2013 Act broadly does so, it also identifies some
discrepancies.

The Supreme Court’s decision is pithy and confines itself very closely to specific issues at hand
without an elaborate discussion of constitutional principles. It is essentially verification exercise
to ensure that the provisions of the 2013 Act adhere scrupulously to R. Gandhi. In this light, the
Court pronounced its ruling on three principal issues13:

 Constitutional Validity of the NCLT

 Qualifications and Other Terms of the President and Members of the NCLT
 Structure of Selection Committee for Appointment of Members

11
Union of India v. R Gandhi, President, Madras Bar Association, [2010] 11 SCC 1
12
Union of India v. R Gandhi, President, Madras Bar Association, [2010] 11 SCC 1
13
Madras Bar Association v. Union of India, AIR 2015 SC 1571

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On the issue of constitutional validity of NCLT, the Court essentially echoed its decision in R.
Gandhi on the ground that all arguments pertaining to constitutionality were already addressed
by the Court in that case and it “specifically rejected the contention that transferring judicial
function, traditionally performed by the Courts, to the Tribunals offended the basic structure of
the Constitution”. While the petitioner sought to invoke a 2014 decision of the Supreme in
Madras Bar Association v. Union of India in which the establishment of the National Tax
Tribunal (“NTT”) was held unconstitutional, the Court reemphasized that there were significant
differences between the NCLT and the NTT that would justify arriving at a different
conclusion.14

In terms of the final order, the Supreme Court noted:

“33) Since, the functioning of the NCLT and NCLAT has not started so far and its high
time that these Tribunals starting functioning now, we hope that the respondents shall
take remedial measures as per the directions contained in this judgment at the earliest,
so that the NCLT & NCLAT are adequately manned and start functioning in the near
future.”15

By this judgment, the Supreme Court has not only paved the way for the establishment of the
NCLT, but it may also potentially lead to the notification of the remaining sections of the 2013
Act so as to make the entire legislation effective. In fact, in the paragraph quoted above, the
Court seems to display enthusiasm and even a sense of urgency for the commencement of the
tribunals.

3. ADVANTAGES AND CHALLENGES

3.1 Advantages of NCLT

14
Madras Bar Association v. Union of India, AIR 2015 SC 1571
15
Madras Bar Association v. Union of India, AIR 2015 SC 1571

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The constitution of NCLT and NCLAT was a step towards to improving the ease of doing
business by bringing all aspects of Company law matters under one roof. Some of most
important advantages are as under:

 Single Window: The most important benefit that the tribunals will act as a single
window for settlement of all Company law related disputes effectively. It shall avoid
unnecessary multiplicity of proceedings before various authorities or courts.
 Speedy Process: 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 three (3) months
has been provided to dispose of cases, with an extension of ninety (90) days for sufficient
reasons to be recorded by the President or the Chairperson, as the case maybe.
 Reduction of work of High Court: The number of pending cases with High Court is too
high and now the matters in respect to compromise, arrangement, amalgamations and
winding-up transferred to NCLT. Accordingly, The NCLT and the NCLAT will reduce
the work of overburdened High Courts.
 The speedy disposal of cases will save time, energy and money of the parties.
 The constitution of NCLT and NCLAT has given various opportunities to Company
Secretary in practice.

Hence, with the constitution of NCLT and The NCLAT, we do hope that not only the corporate
would obtain its benefits but stakeholders would also be benefitted.

3.2 Challenges before NCLT

 It takes time for an entire new body bestowed with such wide powers to meet the industry
expectations.
 Whether NCLT will stand the test of time.
 Whether there will be problems in disposing off the cases within the prescribed time.
 Whether there will be management and administration problems in the initial years.
 Whether there will be difficulties in determining the technicalities.

4. NCLT COMPRISES OF

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4.1 NCLT members and their qualifications required

The National Company Law Tribunal consists of a President and such number of Judicial and
Technical Members as the Central Government may deems necessary. The President of the
Tribunal is a person who is or has been a Judge of the High Court for five years.

Judicial Members are appointed as per section 409(2)16. Such Judicial Members should have the
following qualifications:

 He is, or has been, a judge of a High Court; or

 He is, or has been, a district judge for at least Five years; or
 He has, for at least ten years been an advocate of a Court.

Technical Members are appointed as per section 409(3)17. A person can be appointed as a

Technical Member if he-

 has, for at least fifteen years been a member of the Indian Corporate Law Service or
Indian Legal Service out of which at least three years shall be in the pay scale of Joint
Secretary to the Government of India or equivalent or above in that service; or
 is, or has been, in practice as a chartered accountant for at least fifteen years; or
 is, or has been, in practice as a cost accountant for at least fifteen years; or
 is, or has been, in practice as a company secretary for at least fifteen years; or
 is a person of proven ability, integrity and standing having special knowledge and
experience, of not less than fifteen years, 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; or
 is, or has been, for at least five years, a presiding officer of a Labour Court, Tribunal or
National Tribunal constituted under the Industrial Disputes Act, 1947.

16
Section 409(2), Companies Act, 1956
17
Section 409(3), Companies Act, 1956

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5. CONCLUSION

The establishment of NCLT will prove to be a great help to the corporate world. With the change
in definition of a Sick Company and many other provisions, a lot more companies have come
under the ambit of a Sick Company and thereby can get the needful attention on time. With the
establishment of fund and change in definition of Sick Company and winding up procedures, the
time period for revival and winding up will reduce. But the fund for revival of companies might
come to a naught if the amount is deposited with the Central Government, efforts should be
made to put this into a separate fund thereby avoiding bureaucratic interference. In all efforts are
being made by the central government to achieve its proposed objectives through of avoiding
multiplicity of suits, protection of rights of the workers and to reduce the time period for winding
up of a Sick Company. The tribunal would also allow timely unlocking of the value of distressed
corporate assets, as it would take over the process of liquidation of companies, now performed
by official liquidators attached to high courts.

At a broader level, this development is significant as it might likely alter the face of corporate
litigation in India. While matters such as amalgamations, winding-up, and similar cases being
taken out of the regular Court system, one can expect greater efficiency in resolution of corporate
disputes. Similarly, the most-discussed class action mechanism could potentially alter corporate
behavior. The establishment and constitution of NCLT and NCLAT as exclusive Tribunals for
the administration of all matters arising out of the Companies Act will definitely reduce, if not
wipe out the grave delay involved in the company law proceedings, avoid multiplicity of
litigation before various forums, streamline the process of appeal and reduce the burden on High
Courts.

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BIBLIOGRAPHY

BOOKS

 Shri A.K. Majumdar & Dr. G.K. Kapoor , Company Law and Practice, 17th Ed.,
Taxmann, 2013
 A. Ramaiya, Guide to the Companies Act, 25th Ed., Wadhwa Nagpur, 2015

ARTICLES/ JOURNALS

• PKB and Associates, (2016). National Company Law Tribunal (NCLT) from
[Link]
• Jaya Ranga, (2016). All About National Company Law Tribunal from
[Link]
• Link Legal India Law Services, (2015). Supreme Court Approves Setting Up Of
Company Law Tribunals from
[Link]
URT+APPROVES+SETTING+UP+OF+COMPANY+LAW+TRIBUNALS

ONLINE DATABASES

1. Manupatra ([Link])
2. SCC Online ([Link])
3. JSTOR ([Link])
4. Lexis Nexis ([Link])

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