SC upholds validity of Company Law Tribunal

The Supreme Court has upheld the constitutional validity of the National Company Law Tribunal (NCLT) and its appellate forum under the Companies Act of 2013. Thus, it has paved the way for setting up the National Company Law Tribunal and the National Company Law Appellate Tribunal, a move that will help in faster disposal of corporate disputes and improve the ease of doing business in India.

  • Now, these tribunals would adjudicate cases which were so far being dealt by high courts, Company Law Board , Board for Industrial and Financial Reconstruction and Appellate Authority for Industrial and Financial Reconstruction.
  • However, the SC has held a few provisions as invalid. It noted that the selection committee was made a five-member body under the 2013 Act even though previous judgement held that it should have four-members, comprising the CJI or his nominee, a senior Judge of the Supreme Court or high court chief justice and Secretaries in Ministry of Finance and Company Affairs and in Ministry of Law and Justice. Now, the selection committee would be composed of four members, instead of the five as provided by the law. The four members would be the chief justice or his nominee with a casting vote, a senior apex court judge, finance or company affairs secretary, and secretary of the law ministry.
  • The court has also quashed Section 409(3)(a) and (c) and Section 411(3) of the Act providing for qualifications of technical members. It held that for appointment of technical members to NCLT, directions contained in the 2010 judgment should be scrupulously followed. According to the court’s directions, the technical members would now be limited to only the ranks of additional secretary and secretary, as determined by an earlier constitution bench ruling from 2010.

Background:

Lawyers’ body Madras Bar Association (MBA) had approached the Supreme Court claiming that the government had not incorporated changes in the companies law regarding the two tribunals—the NCLT and the NCLAT—which the apex court had directed in a 2010 verdict.

Effects of the decision:

  • Entities will now have the option of approaching the National Company Law Appellate Tribunal (NCLAT) to appeal against a judgment of NCLT.
  • To challenge a NCLAT decision, they can now directly approach the Supreme Court.

National Company Law Tribunal:

  • National Company Law Tribunal (NCLT) is a proposed quasi-judicial body that will govern the companies in India.
  • It will be established under the Companies Act, 2013 and is a successor body of the Company Law Board.
  • NCLT will have the same powers as assigned to the erstwhile Company Law Board (which are mostly related to dealing with oppression and mismanagement), Board for Industrial and Financial Reconstruction (BIFR)(revival of sick companies) and powers related to winding up of companies (which was available only with the High Courts).
  • 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.

Powers of NCLT:

  • Most of the powers of the Company Law Board under the Companies Act, 1956.
  • All the powers of BIFR for revival and rehabilitation of sick industrial companies;
  • Power of High Court in the matters of mergers, demergers, amalgamations, winding up, etc.;
  • Power to order repayment of deposits accepted by Non-Banking Financial Companies;
  • Power to wind up companies;
  • Power to Review its own orders.

Sources: The Hindu, MCA, PIB, BS, TOI.

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