In this blog post, Saurabh Kumar, Manager of the Legal and Regulatory Division of Bharti Airtel Limited, Jaipur, who is currently pursuing a Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata, writes about the impact of creation of the National Company Law Tribunal on corporate litigation practice.

Introduction

In line with the emphasis of Government of India on ease of doing business, various legal reforms have been carried out and to provide a single judicial forum to adjudicate all disputes concerning the affairs of Indian Companies, the Ministry of Corporate Affairs had issued a notification[1] on 01^st June 2016, in the exercise of their powers u/s 408 & 410 of the Companies Act 2013, which paves the way for constitution of National Company Law Tribunal (from now on referred as NCLT) and National Company Law Appellate Tribunal (from now on referred as NCLAT). Initially, the provision for the creation of NCLT was introduced by the Companies (Second Amendment) Act 2002 through recommendations of the Eradi Committee. The Eradi Committee was formed to examine existing law relating to winding up proceedings of companies in order to re-model it in line with the latest developments and innovations in corporate law and governance and to suggest reforms in the procedure followed at various stages in the insolvency proceedings of the companies to avoid unnecessary delays in tune with the international practice in this field[2]. The provision introduced in 2002 remained in abeyance before release of the notification dated 01^st June 2016.

The NCLT will have 11 benches initially, with a principal bench at New Delhi with one more in New Delhi, and one each at Ahmedabad, Allahabad, Bengaluru, Chandigarh, Chennai, Guwahati, Hyderabad, Kolkata, and Mumbai. The NCLT will comprise of a President and, Judicial and Technical members. Similarly, the NCLAT will comprise of a chairperson and not more than 11 judicial and technical members. The jurisdiction of every bench has been notified to cover all the States of India.

The establishment of the NCLT consolidates the corporate jurisdiction of following authorities:

1. Company Law Board
2. Board for Industrial and Financial Reconstruction

• The Appellate Authority for Industrial and Financial Reconstruction

1. Jurisdiction and powers related to winding up, restructuring and other provisions vested in High Court.

Impact of creation of NCLT[3]

The formation of NCLT and NCLAT as a single forum to deal with matters of company law is a welcome move for various stakeholders. The impact of creation of NCLT & NCLAT can be summarized as follows:

1. Single forum:

 Before coming into force of the present notification, the matters of Company Law were dealt by Company Law Board, Board of Industrial and Financial Reconstruction and its appellate authority, High Courts, thus there was multiplicity of proceedings and forums to adjudicate issues related to companies. The constitution of NCLT & NCLAT will replace the existing Company Law Board and Board of Industrial and Financial Reconstruction and its appellate authority and will also subsume the company jurisdiction of High Court. The tribunals will act as the single forum for adjudication of company law matters and will provide holistic solutions to issues being faced by companies. The tribunals will eliminate any scope of overlapping or conflicting judgment’s and will also minimize delays in resolution of disputes. The intent of the creation of NCLT & NCLAT is to consolidate powers and jurisdiction vested in the Central Government, Company Law Board, and High Court earlier, and assigns them to a single authority for speedier & simplified dispute adjudication process.

2. Class action claims:

A class action suit refers to a lawsuit that allows a large number of people with a common interest in a matter to sue or to be sued as a group. The class action suit came into the spotlight in 2009 when Satyam scam broke out and at that time no provision existed for filing a class action claim. In the year 2013 with the amendment to Companies Act, a provision was introduced as Section 245 of Indian Companies Act 2013 which provided for the filing of class action claims, but the provision was in abeyance until issue of the notification dated 01 June 2016. Thus, now if more than a hundred shareholders find that the affairs of the company are not being managed in its best interests, they may approach NCLT for alleged misconduct on the part of directors or auditors of the company. The present provision will curtail the arbitrary decisions of the management and interest of the small number of shareholders will not be affected.

3. Accessibility:

The notification stipulates setup of eleven benches of National Company Law Tribunal spread across India to cover all the regions. The significant increase in some benches will surely aid easy accessibility for the company law related matters. Previously, the Central Law Board was managing litigations with only five benches which proved insufficient in catering to the needs of increasing litigations involving company law matters. Before the release of notification, in certain matters, High Court also had jurisdiction to entertain some specific company law matters, which will now be taken care of by the NCLT. The appeals arising out of an order passed by NCLT will be filed with NCLAT.

4. Speedier remedy:

In comparison to the lengthy procedure being followed by Company Law Board and High Court for adjudication of company law matters, the NCLT and NCLAT have been empowered to regulate its own procedures for disposal of cases within a time line of 3 months and exceptional extension of 90 days based on the reasons to be recorded in writing by the President/Chairman of the NCLT/NCLAT respectively. A mandate has been assigned to the NCLT/NCLAT for speedy disposal of cases within the prescribed timelines.

5. Phased introduction:

In view of the limited provision being made effective, the NCLT has jurisdiction to (i) entertain any claims of oppression and mismanagement of the company, (ii) adjudicate proceedings and cases filed before the Company Law Board under the Companies Act 1956 which now stands transferred to NCLT, (iii) exercise powers under Sections  241, 242(except subsections 1(b) and 2(c) & (g)), 243, 244, 245 and 434(1)(a) & (b) and (2) of the Companies Act 2013. With the enactment of NCLT, the Company Law Board stands dissolved and all the pending matters will be transferred to NCLT. Presently, the matters related to (i) compromises, arrangements and amalgamations; (ii) revival and rehabilitation of sick companies; and (iii) winding up of companies, is not covered in the scope of NCLT and the same may be transferred to NCLT at later stages. The appeals from the order of NCLT shall be filed with NCLAT and any further appeal against the order of NCLAT shall be filed with Supreme Court of India. Currently, for matters about the winding up of companies and sick companies, parties would have to continue to approach the concerned High Courts, the BIFR or its appellate authority.

Conclusion

The notification dated 01^st June 2016 will transform the way company matters were dealt with till now, a speedier resolution of the litigations is expected and at the same time, it will reduce the burden of High Courts. Specialized forums are a boon for legal reforms and will benefit companies. Presently, the scope of the NCLT would remain limited to adjudicating the litigations that would have otherwise been filed with the CLB, and eventual effect would subsume the company jurisdiction of High Court.

Footnotes:

[1] Gazette Extraordinary dated 01 June 2016 – S.O. 1932(E) and S.O. 1933(E)

[2] Article published on mondaq.com titled NCLT replaces CLB from June 2016

[3] Article published on mondaq.com titled Constitution of NCLT & NCLAT – A new era of Company Law Litigation in India