The New Corporate Adjudicator – NCLT

Hardeep Sachdeva, Anshuman Singh | September 2016

The concept of establishing specialized institutions for adjudication of disputes for reducing the burden of courts and lessening the lengthy court processes has been implemented in the Indian Legal System from time to time. In furtherance of this endeavor the Ministry of Corporate Affairs (MCA) notified on June 1, 2016 for the constitution of the National Company Law Tribunal (NCLT) and National Company Law Appellate Tribunal (NCLAT) with effect from the June 01, 2016. Though the idea of creating the NCLT and the NCLAT was first sought to be implemented through the Companies (Second Amendment) Act, 2002 and subsequently through the Companies Act, 2013, court proceedings before the Supreme Court in R. Gandhi v. Union of India and Madras Bar Association v. Union of Indic challenging the constitutional validity of the provisions pertaining to the NCLT and the NCLAT in the Companies Act, 1956 and the Companies Act, 2013, respectively, kept the creation of the NCLT and the NCLAT in abeyance.

With the establishment of the NCLT and NCLAT, the Company Law Board under the Companies Act, 1956 shall stand dissolved. The NCLT will function through eleven benches, located at Ahmedabad, Allahabad, Bangalore, Chandigarh, Chennai, Guwahati, Hyderabad, Kolkata and Delhi (Delhi will additionally the principal bench of the NCLT).

Certain provisions of the Companies Act, 2013 such as investigation of a company’s accounts, conversion of a public company to a private company, class action suits, will now be adjudicated upon by the NCLT (with the NCLAT acting as the appellate authority for all matters in appeal therefrom) however, matters relating to, winding-up capital reduction, amalgamations and compromises still continue to be under the jurisdiction of the high courts. In time the power to adjudicate on matters relating to capital reduction, winding-up and compromise, amalgamations will be transferred to the NCLT. Thus, not only will the NCLT replace the CLB, but it will also handle various cases of companies currently whose jurisdiction lies with the high courts, the Board for Industrial and Financial Reconstruction, and the Appellate Authority for Industrial and Financial Reconstruction.

ADJUDICATION OF CERTAIN MATTERS UNDER THE INSOLVENCY AND BANKRUPTCY CODE, 2016

Recently, the Insolvency and Bankruptcy Code, 2016 (Bankruptcy Code) received the assent of the President of India and become an Act, however its provisions will be notified in a phased manner. Unlike the CLB whose jurisdiction was limited to matters pertaining to the Companies Act, 1956, the NCLT will also be empowered to adjudicate on matters in relation to the Bankruptcy Code. The 11th schedule of the Bankruptcy Code proposes amendments to various sections of the Companies Act, 2013 (which have a bearing on the powers and functions of the NCLT and the NCLAT). These include: (a) Chapter XIX (Revival and Rehabilitation of Sick Companies), which will be omitted in entirety; (b) Section 424 (Procedure before Tribunal and Appellate Tribunal) will be amended to include reference to the Bankruptcy Code; and (c) Section 434(1)(c) and 434(1)(d) (Transfer of certain pending proceedings) will be amended to reflect the reference to the Bankruptcy Code.

OUSTER OF CIVIL COURT JURISDICTION

Section 430 (Civil court not to have jurisdiction) of the Companies Act, 2013 has been notified by the MCA which provides for the ouster of civil court jurisdiction in respect of any matter which the NCLT and NCLAT are empowered to determine by or under the Companies Act, 2013, or under any other law for the time being in force.

CONCLUSION

Thus, as of now, most of the provisions of the Companies Act, 2013 pertaining to the functioning and powers of the NCLT and the NCLAT have been brought into force, however problems may yet arise over issues such as the qualifications of the technical members of the NCLT and the NCLAT. One must recall that the Supreme Court’s ruling in the case of Madras Bar Association v. Union of India had struck down the provisions of Section 409(3)(a) and (c) (Qualification of President and Members of the NCLT) Section 411(3) (Qualification of Chairperson and Members of the NCLT); and Section 412(2) (Selection of Members of the NCLT and the NCLAT) insofar as the qualifications of the technical members of the NCLT and the NCLAT, and the constitution of the selection committee for the NCLT were concerned. Though the Companies Amendment Bill, 2016 provides for the amendment of these impugned sections in line with the Supreme Court’s ruling in Madras Bar Association v. Union of India, the Companies Act, 2013 as it now stands, does not incorporate these changes.

With a notification announcing the members of the NCLT and the NCLAT likely in the near future, it remains to be seen whether this would result in further litigation pertaining to the NCLT and the NCLAT.

About Author

Hardeep Sachdeva

Hardeep Sachdeva is a Senior Partner with AZB & Partners. He is a corporate lawyer with extensive experience of more than two decades and has special focus in M&A & Corporate Advisory and Private Equity across several sectors including real estate, retail, e - commerce, hospitality, health care, technology, education, infrastructure, insurance, alcoholic beverages, consumer durables, automotive products and family foundations.

Anshuman Singh

Anshuman Singh is a Legal Counsel and Company Secretary with experience in finance, automotive and healthcare industries. His areas of interests include be-spoke contracts, litigation, governance and advocacy matters. He currently works with Max Healthcare Institute.