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May 11
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Posted by:Arunima Bhattacharya
National Company Law Tribunal - Constitution and Jurisdiction

The National Company Law Tribunal (NCLT) was constituted by the Central Government by exercising the powers conferred upon it by section 408 of the Companies Act, 2013 (18 of 2013) on 1st June, 2016 vide an Official Notification released by the Ministry of Corporate Affairs.

The setting up of the NCLT as a specialized institution for corporate justice is based on the recommendations of the Justice Eradi Committee, a committee set up by the Central Government in 1999 to examine the laws relating to Insolvency and Winding up of Companies, with the motive of remodeling it in line with the latest developments and innovations in the corporate law and governance, as well as to suggest reforms in the procedure that is followed at various stages in the insolvency proceedings of companies to avoid unnecessary delays.

Vide insertion of Parts ‘IB’ and ‘IC’ the Companies (Second Amendment) Act, 2002 provided the provisions for setting up of NCLT and NCLAT (National Company Law Appellate Tribunal) to replace the existing CLB (Company Law Board) and for transfer of all matters or proceedings or cases pending before the CLB to the NCLT and to dispose of such cases in accordance with the provisions of the Companies Act, 1956 and this 2002 Amendment Act.

However, this 2002 Amendment could not be brought into effect as its constitutional validity was questioned by the Madras Bar Association, finally decided by the Honourable Supreme Court’s verdict in the case Union of India v. R. Gandhi, President, Madras Bar Association [(2010) 11 SCC 1] on May 11, 2010. The case was presided over by a Constitution Bench consisting of Chief Justice of India K.G. Balakrishnan, Justice R.V. Raveendran, Justice D. K.  Jain, Justice P. Sathasivam and Justice J.M. Panchal. (http://supremecourtofindia.nic.in/scr/2010_v%206_piv.pdf ) The Hon'ble Supreme Court upheld the legislative competence of Parliament to create the NCLT and the NCLAT, but the structure of the tribunals NCLT and NCLAT proposed by the 2002 Amendment Act was held to be unconstitutional. The Government was required to make amendments to the 2002 Amendment Act before it could set up actual and functional Tribunals.  

With the Companies Act, 2013 ("2013 Act") which replaced the 1956 Act and included substantial provisions with respect to the establishment, powers, operations and jurisdiction of the NCLT and NCLAT in line with the necessary changes required by the Hon'ble Supreme Court in May 2010 judgement, The Parliament hoped to finally bring into effect the tribunals as proposed in the 2002 Amendment.

However, the corresponding provisions relating to NCLT and NCLAT prescribed under 2013 Act were again challenged by the Madras Bar Association wherein the Bar contended that the provisions of the 2013 Act were inconsistent with the directions of the Hon'ble Supreme Court in the judgment of May, 2010. This issue has finally been resolved by the Constitution Bench of the Apex Court on May 14, 2015 in Madras Bar Association vs Union of India & Anr [(2015) 8 SCC 583] whereby the Apex Court held that constitution of both NCLT and NCLAT is constitutionally valid, and that it is open for the legislature to provide for set up of tribunals as alternatives to the Courts as a forum for adjudication on specialized matters, provided the tribunal in question had the competence of the Court sought to be replaced.

The Company Law Board (CLB) under the Companies Act, 1956 stood dissolved with the establishment of the NCLT and NCLAT, which also consolidated the corporate jurisdiction of authorities such as the Company Law Board, BIFR (Board for Industrial and Financial Reconstruction), the Appellate Authority for Industrial and Financial Reconstruction (AAIFR), Official Liquidator (OL) and jurisdiction and powers relating to winding up restructuring and other such provisions, vested in the High Courts – all of which are to be subsumed by the NCLT.

 All the matters pending before the CLB were transferred to the NCLT as per the 1st June, 2016 Notification of the Ministry of Corporate Affairs (MCA) which read: “In exercise of the powers conferred by clause (a) of sub-section (1) of section 434 of The Companies Act, 2013 (18 of 2013), the Central Government hereby appoints the 01st day of June, 2016, on which all matters or proceedings or cases pending before the Board of Company Law Administration (Company Law Board) shall stand transferred to the National Company Law Tribunal and it shall dispose of such matters or proceedings or cases in accordance with the provisions of the Companies Act, 2013 or the Companies Act, 1956.” http://www.mca.gov.in/Ministry/pdf/Notification_02062016_III.pdf

With the approval of the NCLT, the Government was also able to pass its Bankruptcy Code, which had adjudicatory authorities NCLT (for companies and limited liability partnerships) and Debt Recovery Tribunal (DRT) (for individuals and partnership firms) as its prime components. On 29th June, 2016 the MCA had set out the criteria for laying down the listing of matters before the National Company Law Tribunal (Principal Bench) and the National Company Law Tribunal, New Delhi Bench, which came into effect on 1st July, 2016. The criteria set out was:

 

Sr. No.

Bench

Matters Pertaining to

1

NCLT, Principal Bench

  • Companies having paid up share capital of more than Rs 50 lakhs; and
  • As per the special order of the President, NCLT

2

NCLT, New Delhi Bench

  • Companies having paid up capital up to Rs 50 lakhs

http://clb.nic.in/orders/order_dated_29.06.2016_NCLT.pdf

11 benches were constituted by the Central Government exercising powers conferred under section 419 of the Companies Act, 2013 and 2 out of these are in New Delhi., with the 10 other branches being at New Delhi, Mumbai, Kolkata, Chennai, Bengaluru, Chandigarh, Allahabad, Ahmedabad, Hyderabad and Guwahati. Hon'ble Justice M.M. Kumar, retired judge of the Punjab and Haryana High Court was appointed as the President of the NCLT and Hon'ble Justice S.J. Mukhopadhaya (Retd.), Supreme Court of India was appointed as the Chairperson of NCLAT (appellate tribunal for hearing appeals against NCLT).

The Tribunal and the Appellate Tribunal is bound by the rules laid down in the Code of Civil Procedure, 1908 and is guided by the principles of natural justice. No civil court has the jurisdiction to any suit or proceeding of any matter over which the tribunal has jurisdiction. Appeal from an order made by the NCLT can be made to the NCLAT within 45 days from the date on which the copy of the order by NCLT was obtained. The Appellate Tribunal is bound to dispose of the appeal within six months. An appeal from the NCLAT goes to the Supreme Court.



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