companies dispute resolution

In this article, Mohammed G A who is currently pursuing M.A. IN BUSINESS LAWS, from NUJS, Kolkata, discusses dispute resolution under the Companies Act, 2013.

A dispute resolution mechanism is an organized process that addresses disputes or grievances that arise between two or more parties involved in business, legal, or societal relationships. Under the Companies Act 1956, there were a number of dispute resolution forums/bodies to provide judicial settlement in a wide range of business issues and the Indian Companies were required to approach these multiple forums for resolving their disputes based on the subject matter in dispute. This resulted in a backlog of number cases, protracted litigation time, which was considered as major impediments to ease of doing business in India.

With a view to streamlining the process, the Companies Act 2013, has effectuated a single forum for adjudication most of the disputes related to companies in India. Further, over the last few years, Government of India has taken a number of steps in reforming its dispute resolution machinery, to ensure the speedy and efficient disposal of corporate/commercial litigations in India. The establishment of Commercial Courts, amendments in the Arbitration and Conciliation Act, passage of Insolvency and Bankruptcy Code, 2016, (“Bankruptcy Code”), constitution of the National Company Law Tribunal (NCLT) and notification of Companies Mediation and Conciliation Rules, 2016 reflects a complete overhaul in the dispute resolution machinery in India’s Corporate Litigation.

The scope of this article pertains to reviewing and critically examining the key changes in the regulatory framework governing dispute resolution by undertaking a comparative analysis of the Companies Act 1956 with the 2013 Act. Brief reference shall be made to the rules, notifications, circulars and orders issued by the ministry of corporate affairs (‘MCA’) pursuant to the 2013 Act. In this regard the article seeks to answer the following main research questions:

  1. What are the key differences in the positions under the 1956 and 2013 Acts with regard to dispute resolution?
  2. How far the dispute resolution mechanism changed under the 2013 Act?
  3. Has the regime under the 2013 Act fulfilled its objective of providing an effective dispute resolution mechanism under the companies Act?

The various dispute resolution mechanisms/forums under the Companies Act, 2013 have represented below:

companies dispute resolution

National Company Law Tribunal and Appellate Tribunal (Sections 407-434)

  • The setting up national company law tribunal (NCLT) and National Company Law Appellate Tribunal (NCLAT) is a paradigm shift with the objective of establishing a single forum to adjudicate all disputes relating to companies India.
  • The idea of setting up a single forum dealing with all the matters under the Companies Act 1956 was not new and was introduced earlier by the Companies (Second Amendment) Act, 2002 which provided the legislative framework for the Constitution of NCLT. However, the constitutional validity of the NCLT and NCLAT was challenged in Thiru R. Gandhi, President Madras Bar Association V. Union of India[i], wherein the Madras High court held that certain characteristics of the tribunal violated the constitutional principles of separation of powers and independent of the judiciary by vesting essential judicial functions in a non-judicial body consisting of non-judicial members. However, the Supreme Court of India on 11th May 2010 gave a ruling that the provisions of Companies (Second Amendment) Act, 2002 pertaining to transfer of several judicial and quasi- judicial powers under the Act to NCLT are constitutionally valid while holding that the qualifications of technical members and the Composition of selection committee of such members as prescribed in the statute had defects and required correction.
  • In one more judgement in Madras Bar Association vs Union of India[ii] the Hon’ble Supreme Court found that defects as found in Companies (Second Amendment) Act, 2002 also existed in the provisions of the Companies Act, 2013.

After Much debate the government on June 1, 2016,[iii] issued notifications, bringing into effect several sections of the Companies Act 2013, and setting up NCLT and NCLAT.  The NCLT will have 11 benches initially, two at New Delhi and one each at Ahmedabad, Allahabad, Bengaluru, Chandigarh, Chennai, Guwahati, Hyderabad, Kolkata and Mumbai. The NCLT will comprise a president and judicial and technical members, as necessary.

  • The new tribunal would prove an effective and efficient alternative forum to the wide variety of forums/bodies entrusted with enforcement of the company law.  NCLT will replace the Company Law Board (‘CLB’), The Board for Industrial and Financial Reconstruction (‘BIFR’), Appellate authority for industrial and financial corporation (‘AAIFR’) and High Court. The Company Law Board (‘CLB’) is mainly concerned with the shareholder actions relating to oppression and management and miscellaneous aspects such as a change in registered offices, approving share issuance at discount to face value, and investigation of the affairs of the company by an inspector. The Board for Industrial and Financial Reconstruction (‘BIFR’) was established under the purview of the Sick Industrial and Companies (Special Provisions) Act, 1985, for revival and rehabilitation of potentially sick industrial undertakings and for liquidation or closure of non-viable and sick industrial companies.
  • The high court deals with Specific matters under the Act of 1956, mainly, compromise, amalgamation, merger, reduction of share capital, winding up of a company, statutory appeals from the CLB and constitutional writ petitions against orders of BIFR and Appellate authority for industrial and financial corporation (‘AAIFR’).

The table represents the various types of matters which are going to be or proposed to be dealt by the NCLT,

companies dispute resolution

*The provisions for granting these powers have not been notified yet.

Consequences of the introduction of NCLT

  1. Establishment of NCLT has led the consolidation of all the company related matters pending before the various forums such as such as CLB, BIFR and different high courts across the country under one roof and the powers hereto undertaken by these forums will be now carried out by the NCLT. Thus NCLT provides one stop solution for adjudication of company matters
  2. In pursuant of Section 422 of Companies Act, 2013, the NCLT and NCALT are mandated to dispose-off applications filed before it within a period of 3 months from the date of filing. However, an extension of 90 days may be granted by the President of NCLT or Chairperson of NCLALT for the disposal of the matter.
  3. Presently, the high courts are burdened with matters including winding up of proceedings. Transfer of such proceeding to NCLT is expected to reduce the burden. Furthermore, as the appeal from an order of NCLT will lie before the NCLAT, there will further reduction in the burden of high courts, considering that earlier appeal from the CLB was filed before high Court.
  4. With the notification of the provisions of Bankruptcy Code, NCLT would form a forum which offers a completely novel and improved process for the liquidation of Companies in India.

However, not all the provisions related to NCLT and NCLAT have been notified and the Government also appears to have taken a phase-wise approach towards enforcing this framework by transmitting certain matters under NCLT jurisdiction for the time being.

A simple appellate procedure under the Companies Act 2013

  • The Companies Act, 2013 has simplified the appellate procedure, by limiting the number of appellate authorities to two, through which application or petitions can be filed and thereby, ensuring quick and final settlement of disputes.  An aggrieved person against the order of NCLT may appeal to appellate tribunal i.e., NCLAT and all appeals from the NCLAT shall be directly filed with the Supreme Court against any question of law. This may be contrasted with the dispute resolution system under the 1956 Act, which grants statutory appellate jurisdiction to the High Court in respect of decisions passed by BIFR and AAIFR.
  • These appeals are generally heard by a Single Judge of the High Court and a party may file a further appeal to the divisional bench of that High Court followed by a final appeal to the Supreme Court. A new provision by way of Section 422 has also been introduced in the Companies Act, 2013 which unequivocally states that any proceedings presented before the tribunal or appeals filed before the appellate tribunal shall be disposed of as early as possible and the tribunal shall make every possible effort to dispose of the proceeding within three months from the date of presentation before the tribunal or filing of appeal.

Special Courts (Sections 435 – 438)

  • The Central government has been empowered to establish ‘Special Courts’ for the speedy disposal of certain offences punishable under the Companies Act, 2013, with imprisonment of two years or more,  by notification to establish or directly designate to set up Special Courts[i]. The objective behind setting up these courts is to let magistrate courts attempt try minor violations, and that grave offences ought to be managed by Special Courts. To achieve this objective the MCA has notified the provisions dealing with ‘Special Courts’ vide its notification dated 18th May 2016[ii].
  • Further, by another notification[iii] dated 18th May 2016, MCA after obtaining the concurrence of the respective Chief justices of the High Court, has designated eight courts as “Special Courts”. These would be in State of Jammu and Kashmir, Maharashtra, Goa, Gujarat, Madhya Pradesh, West Bengal, and Union territories of Andaman and Nicobar Islands; Dadra and Nagar Haveli and Daman and Diu.  In addition Central Government by further notifications has designated Special Courts in the National Capital territory of Delhi[iv]; States of Rajasthan, Chhattisgarh, Punjab, Haryana, Manipur, Union Territories of Chandigarh and Puducherry, and Districts of Coimbatore, Dharmapuri, Dindigul, Erode, Krishnagiri, Namakkal, Nilgiris, Salem and Tiruppur[v]; and State of Meghalaya[vi]. As per the notifications, these courts have been designated for the purposes of the trial of offences punishable with imprisonment of two years or more in terms of Sec 435 of the Companies Act 2013.

Constitution of Special Court

A Special Court Shall consists of a Judge who shall be appointed by the Central Government of India in consensus with the Chief Justice of High Court within whose jurisdiction the Judge to be appointed is working. A person being appointed as Special Court Judge must be holding the office Session Judge or an Additional Session Judge immediately before such appointment.

Offences Triable by Special Court

According to the Section 436 of the Companies Act, 2013, below mentioned offences are triable by Special Courts,

  • Offences for which the Companies Act, 2013, accommodates imprisonment of two years or more;
  • Cases sent by a Magistrate (where he believes detention is unessential) for any offence deliberated under the Companies Act, 2013. This provision will come into force when a person is arrested and kept in custody, and it creates the impression that the inquiry cannot be finished within of 24 hours period as required under the Code of Criminal Procedure, 1973 (CrPC) and there are justifications for believing that the charges or information is established, and detainment is authorized by Magistrate for a period of not more than 15 days (if authorized  by Judicial Magistrate) or 7 days (if authorized by Executive Magistrate), as the case may be. In such cases, the Special Court has the same force as the Magistrate having ward to attempt such case;
  • Take acquaintance of an offence under the Companies Act, 2013, without the suspect being committed to it for trial upon examination of the police report of the facts constituting such offence or if a complaint if filed on that behalf
  • Try at the same trial in addition to an offence under the Companies Act, 2013, an offence for which a suspect may be charged under CrPC.
  • The Special Court may try summary proceedings for any offence under Companies Act, 2013, which is punishable with imprisonment for a term not more than three years. However, in the case of any conviction during this summary trial, a sentence of imprisonment should not exceed more than one year.

All offence under the Companies Act shall be triable by the Special Court having jurisdiction over the area of the registered office of the company in relation to which the offence is committed. The provisions of the CRPC, 1973 shall apply to the proceedings before a Special Court. The Special Court shall be deemed to be a Court of Session and the person conducting a prosecution before a Special Court be deemed to be a Public Prosecutor.

Mediation and Conciliation Panel (Section 442)

  • In general parlance, mediation means an intervention of some neutral third party in a dispute with an intention to resolve the dispute.
  • The Constitution of Mediation and Conciliation panel was the new provision which was inserted in the Companies Act, 2013. Sec 442 of Companies Act 2013 authorises the Central Government to maintain a panel of experts to be called as mediation panel for the purpose of effectuating mediation between parties during any proceedings pending before Central Government or NCLT or NCLAT.
  • This provision has come into force with effect from 1st April 2014 vide its notification dated 26th March 2014 by MCA[vii]. On 9th September 2016, MCA notified the Companies (Mediation and Conciliation) Rules, 2016 which provides rules and guidelines for empanelment as Mediators or Conciliators. The Rules ensure that the Panel acts in good faith, by specifying certain ethics that should be followed by every member of the Panel, these include, upholding principles of natural justice towards the parties, especially by keeping in view of the relationship of faith that should be maintained throughout the proceedings[viii].
  • According to this provision, the parties to the dispute may voluntarily apply to the relevant authority i.e., Central Government, NCLT or NCLAT (as the case may be) to refer the matter to the Mediation Panel. Alternatively, the Central Government, NCLT and the NCLAT before which any proceedings are pending may, on its own, refer any matter pertaining to such proceedings to the Mediation Panel. The Mediation Panel shall dispose of the matter within three months from the date of reference. However, disputes relating to investigations initiated under Chapter XIV of the 2013 Act i.e. those involving serious and specific allegations of fraud, or misfeasance and malfeasance of the officers of the company, or cases involving prosecution for criminal and non-compoundable offences cannot be referred to mediation conciliation panel
  • The goal of all mediation is to facilitate the parties to arrive at an amicable settlement and at the same time it ensures the protection of confidentiality of information of the parties to the dispute and prohibits the use of such of the information in any other proceedings. Also, the mediation process is cost effective and less time consuming when compared adjudication before Courts, Tribunals or even arbitral tribunal.
  • If the mediation is successful, it may result in a settlement agreement with the consent of all parties and the same shall be submitted by the panel to the relevant authority and the aggrieved parties can file its objections before relevant authorities. If the settlement does not arrive between the parties to the dispute then panel may refer the matter back to the relevant authority for adjudication of the matter.

Compounding of certain offences (Section 441)

  • Compounding of an offence is a settlement mechanism, by which, the offender (Company or an officer thereof) is given an option to pay money as a replacement for of his prosecution, thereby avoiding a prolonged litigation (Bradford Investments Plc. (No.2), Re, 1991 BCLC 688). It is a short cut method to circumvent litigation and to bring an end to a default.
  • The MCA vide its notification dated 1st June 1, 2016, notified Section 441 of Companies Act, 2013, dealing with “Compounding of Certain offences”[ix]. The concept of compounding of offence is not new, Section 441 of 2013, Act is a re-enactment of Section 621A of the Companies Act, 1956.It provides for compounding of certain offences involving the imposition of fine as punishment and it provides a silver lining for settlement of offences out of court within a short time frame.

Three major developments/changes brought by Section 441 are,

  1. Offences punishable with (a) imprisonment or fine; or (b) imprisonment or fine or both; shall now be compounded with permission of Special Court.
  2. Presently, any offence punishable with fine only, cannot be compounded, if the inquiry against such company has been initiated or is pending under 2013, Act.

The financial limit for compounding of offence by Regional Director has been elevated from INR 50,000 to INR 5 Lakhs.

Compoundable offences and authorities authorised to Compound the offence

Any offence punishable with fine only and where the maximum amount of fine which may be imposed for such offence does not exceed five lakh rupees may be compounded by the Regional Director. Any offence punishable under this Act with fine only and where the maximum amount of fine which may be imposed for such offence exceeds five lakh rupees may be compounded by the NCLT. The offences which are punishable by fine or Imprisonment; fine or Imprisonment or with both may be compoundable with the permission of Special Court. The same has been represented below:companies dispute resolution

Non-Compoundable offences

Compounding of offences is not possible in the following circumstances:

  1. If either the investigation against the company or officer thereof has been initiated or is pending [Third Proviso to Section 441(1)].
  2. Where similar offence committed has been compounded and period of three years has not expired [Section 441(2)].
  3. Any offence which is punishable under this Act with imprisonment only OR with imprisonment and also with the fine; cannot be compounded [Section 441(2)]

Analysis of Section 441 viz-a-viz Section 621A

Third proviso to Section 441(1) of Companies Act, 2013 provided that the offence cannot be compounded where either the investigation has been initiated or is pending. However, under the 1956 Act, no such provision was there and the offence could have been compounded during the period of investigation also

Serious Fraud Investigation Office (Sections 211 and 212)

Serious Fraud Investigation Office (SFIO) is a multi-disciplinary fraud investigation agency established under Ministry of Corporate Affairs. It consists of experts in the field of the capital market, accountancy, information technology, forensic audit, law, investigation, company law, and taxation for detecting and prosecuting or recommending for prosecution white-collar crimes/frauds. SIFO was constituted by the Government of India on 9 January 2003, since then it continues as a non-statutory body of the Ministry of Corporate Affairs[i].

The Companies Act 2013, gave a statutory recognition to SFIO by establishing the SIFO and empowering it to act as a nodal agency for investigating of frauds in the affairs of the company under Sections 221 and 212, respectively, which were notified by MCA 26th March 2014[ii]. In 1956, Act there was no specific provision for SIFO and the investigation by SIFO was done only on the request by MCA. SFIO is conferred with the powers of a magistrate and issue orders for the arrest of a person.  The terms and conditions of service of Director, experts and other officers of SIFO are specified in Companies (Inspection, Investigation and Inquiry Rules), 2014.[iii]


From the above data is clear that Government of India has taken various measures to amend the legislation and introduced the new provisions in the Companies Act, 2013 and address public concern over corporate accountability and responsibility. This establishment of NCLT and NCLAT will reduce, a multiplicity of litigations, ensure speedy and efficient resolution of company related disputes in India. However, not all the provisions related to NCLT and NCLAT have been notified and the Government also appears to have taken a phase-wise approach towards enforcing this framework by transmitting certain matters under NCLT jurisdiction for the time being.

Further, the new provision in the 2013 Act with regard to the compounding of offences, Special court, and the establishment of mediation panel, provision of statutory status to SIFO is a boon and all concerned companies hope for speedy settlement of disputes. This new provisions under the Companies Act, 2013, would help India to improve its global ranking, in World Bank report as the country for ease of doing business.

[i] ((Accessed on 25 Feb 2017)

[ii] (Accessed on 25 Feb 2017)

[iii] ((Accessed on 25 Feb 2017)

[iv] (Accessed on 23 Feb 2017)

[v] (Accessed on 23 Feb 2017)

[vi] (Accessed on 23 Feb 2017)

[vii] (Accessed on 23 Feb 2017)

[viii] (Accessed on 23 Feb 2017)

[ix] (Accessed on 23 Feb 2017)

[vii] (Accessed on 24 Feb 2017)

[viii] (Accessed on 24 Feb 2017)

[ix] (Accessed on 24 Feb 2017)

[x] (2010) 11 SCC 1

[xi] 2015) 8 SCC 583

[xii] Notification No. S.O. 1934(E), S.O. 1935(E) & S.O. 1933(E) dated June 1, 2016

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