This article is written by Chandana pursuing B.Com.LLB(Hons) from The Tamil Nadu Dr. Ambedkar Law University (SOEL). This is an article which deals with the Impact of replacement of the Company law board with the National Company Law Tribunal.
National Company Law Tribunal was established on July 1, 2016, on the outcome of the Eradi Committee which was constituted in 1991 under Justice V. Balakrishna Eradi (committee) for examining the existing laws on the insolvency of companies and winding up of companies with the aim of suggesting reforms to avoid delay in the proceedings. The constitutional validity of the tribunal was challenged before the supreme court in the case of Madras Bar Association v. Union of India(2015). The contention raised by the petitioners that the constitution of NCLT was violative of Article 14 of the Constitution of India, but the supreme court rejected the petition filed by petitioners and said that legislatures have the power to enact a law which transfers the cases from courts to tribunals.
Company Law Board
Establishment of Company law board
- Company Law Board was established in May 1991 under Section 10E of Companies Act 1956.
- The powers, function and procedures were governed by the Central Government.
- In the CCompanies Amendment Act, 1998, Companies act authorised the central government to constitute a board which will be called as the board of the company law which is administered as per provision of Section 10E of Companies Act, 1956.
- It shall discharge all the powers and functions as conferred on it by the Companies Act, 1956 and by the central government or any other law.
- But all the powers as discharged by the Company Law Board were ceased with the introduction of the National Company Law Tribunal in 2002.
Constitution of Company Law Board
The board shall consist of members not more than nine members appointed by the Central Government. Among the members, one member is appointed by the Central Government and shall be the chairman of the board.
Powers of Company law board
- The members were given exclusive powers and any acts done by the board cannot be called in question on the grounds of defect in the constitution, the existence of any vacancy among the members of the board as per Section 10E(4) of Companies Act, 1956.
- Company law board shall have the same powers as Civil Procedure Code, 1908 while deciding any proceedings such as:
- Discovering and inspection of documents or other material objects producible as evidence;
- Enforcing the attendance of witnesses and requiring the deposits of their expense;
- Compelling the production of documents;
- Examining the witnesses on oath;
- Granting of adjournments;
- Reception of evidence on affidavits.
- Members of the board were given power under Companies act, 1956 to provide the relief to the shareholder against the oppression and mismanagement.
- Members of the board were given execution powers and the orders which have been executed by the board shall be enforceable in the same way as if a court has been executed.
- Member’s of the board shall have the power to regulate its own procedure but they were guided by the principles of natural justice.
Appeals against the orders of Company Law Board
- Any person who has been aggrieved by the order of the company law board within sixty days (may extend time period on certain circumstances) from the date of order of CLB shall file an appeal to the high court.
- The essential point to take into consideration is that an appeal cannot be filed to the high court if the appeal is related to question in fact.
- An appeal would lie in a high court in whose jurisdiction the registered office of the company is situated.
Enforcement of orders of Company Law Board
As per Section 634A of the Companies Act, 1956 the orders which have been passed by the board is enforceable in the same way as it has been enforced by the courts. When the board is unable to execute its orders it may send to the court which has the jurisdiction over the party against whom the order is to be enforced.
National Company Law Tribunal
Background of National Company Law Tribunal
- High courts were burdened with a huge number of pending cases before NCLT was established and there was too much of delay in deciding winding up matters, matters on mergers or amalgamations, complaints filed by the shareholders against oppression and mismanagement all such reasons felt the need for establishing a special court.
- On Companies (Amendment) Act, 2002 NCLT was formed.
- All the matters which are pending before the high courts now shall stand transferred to NCLT.
Constitution of NCLT
- NCLT was constituted by the Central Government under Section 408 of Companies Act, 2013.
- The members of the tribunal consist of the President of the tribunal, judicial and technical members of the tribunal.
- The president of the tribunal should be the person who has been a judge of the high court for the term of five years as per provision of Section 409 of Companies Act, 2013.
Constitution of National Company Law Appellate Tribunal and appeals from orders of the tribunal
- National Company Law Appellate Tribunal shall be constituted by the Central Government under Section 410 of Companies Act, 2013.
- All the appeals from NCLT shall be filed with NCLAT within forty-five from the date of order of the tribunal and tribunal shall send copies of an order to the tribunal and also to the parties to appeal as provided under Section 421 of Companies Act, 2013.
Benches of Tribunal
- Section 419 of Companies Act, 2013 states there shall be a number of benches of the tribunal and while the principal bench shall be in Delhi.
- NCLT currently has fourteen benches.
- When there is any disagreement of decision among the benches it shall be decided according to the majority of members opinion.
Civil Court has no jurisdiction
- Section 430 of Companies act, 2013 states that no civil court shall have jurisdiction to decide the cases in which the tribunal has the right to decide the case.
Need for the replacement of CLB with NCLT
National company law tribunal and National company law appellate tribunal was constituted as a result of Companies (second amendment) 2002 to replace the existing Company law board and Board for Industrial and financial reconstruction.
The following are some of the reasons for the replacement of CLB with NCLT:
- The primary reason is to reduce the burden of high courts.
- The establishment of NCLT and NCLAT helps in solving disputes faster which in turn helps the businessman in doing their business at ease.
- Aggrieved parties who are dissatisfied with decisions and orders were given by the company law board can appeal to NCLAT.
- Businessmen and individuals felt there need to be standard jurisdiction to resolve the dispute within concerned time and with less cost.
- With replacing NCLT the shareholders and other individuals were of the opinion along with resolving the dispute faster, it also helps in having an efficient free flow of management.
Explaining the Impact of Replacement of Company Law Board with National Company Law Tribunal through Case laws
In MAIF investment India PTE. Limited v. Ind Bharath Power Infra Limited and ors, an appeal was filed against the NCLT( Hyderabad) where NCLT refused to entertain the petition seeking a rectification in the register of members as per Section 58 of companies act, 2013. It stated the reason for its dismissal that issues raised were to be decided as per the Arbitration Act, 1956 and Insolvency and Bankruptcy Code.
But in the case of Shashi Prakash Khemka v. NEPC Micon and ors Supreme Court held that all the disputes which arose after the Companies Act, 2013 civil courts would be declined to render the remedy and the power would be vested in the NCLT. So in the above case, NCLT shall decide the case as per Companies Act, 2013.
Section 245 of Companies Act, 2013 an application may be filed to the tribunal by either the members of the company or by the depositors or on the behalf of the members or the depositors stating that affairs have been conducted in the manner which is prejudicial to the interest of the company and tribunal shall pass such orders which is binding on the company, members, depositors, audit firm, advisors and all the persons associated with the company.
Oppression and mismanagement
Section 241 of companies act, 2013 states that any member of the company who has the right to complain to the tribunal as per Section 244 of Companies Act, 2013 shall file a complaint to tribunal stating that:
- Affairs of the company are conducted in such a manner which is prejudicial to the public interest or oppressive to him or to any member of the company or which is prejudicial to the company.
- A material change which has been brought by the company which is against the interest of creditors of the company, debenture holders, shareholders of the company and it has brought significant change in the management or control of the company.
- And the tribunal shall decide the matter on filing the application.
Deregistration of companies
Section 7(7) of companies act, 2013 states if tribunal comes to the notice that the company at the of incorporation of the company furnished false or incorrect information or by suppressing any material facts, information or any declarations is filed by the company the tribunal may pass any one of the orders as mentioned below:
Pass such orders as it thinks fit.
- Pass orders for winding of the company.
- Direct the liability unlimited.
Refusal to transfer shares
Section 58 of Companies act, 2013 states a Private company which is limited by the shares or the public company which refuses to register the transfer of shares of the transferor, the company shall within thirty days of transfer send a notice to the transferor, a transferee of such refusal.
- The transferee in return shall file the appeal to the tribunal within thirty days from the date of receipt of the notice and in case no notice is sent by the company to the transferee, the transferee shall file an appeal to the tribunal within sixty days from the date of the instrument of the transfer.
- The tribunal shall hear the orders and after hearing such order shall either reject the appeal or order the company.
- To transfer the shares within ten days of order.
- Direct rectification of the register and also direct the damages to be paid if any sustained by the aggrieved party.
Rule 61 of National Company Law Tribunal Rules, 2016 states:
- It is the discretion of the tribunal to permit any person or professional to communicate its views on a tribunal or on any points or any legal issues as assigned to such amicus curiae.
- Tribunal also permits amicus curiae to have access to the pleading of the parties and they may also submit timely observation.
- Tribunal shall direct either of the party to proceedings involving on a point on which the opinion of amicus curiae has sought.
- Judgment and any opinion made by the judge shall be transferred to the parties and amicus curiae.
Advantages of NCLT
Advantages of NCLT are as follows:
Resolving the disputes at ease and speedier
NCLT is not bound to follow the procedure of CPC, they are guided by the rules law down in Companies act, 2013 and while rendering any decision they are bound to follow the principles of Natural justice principles which helps to resolve disputes at ease and speedier.
Establishment of various benches across India
NCLT currently has fourteen benches with the principal bench at Delhi. By establishing various branches across India it helps in providing justice in a Fastrack manner.
Specialisation of courts
NCLT and NCLAT are specialised courts which have exclusive jurisdiction and which is established by the Ministry Of Corporate Affairs to deal only with corporate affairs. It has reduced the burden on various courts and forums.
Single forum to decide the cases
On the introduction of special courts( NCLT and NCLAT) it reduced the litigation procedures pending before various courts like on high courts, company law board, board for industrial and financial reconstruction and appellate authority for industrial and financial reconstruction, and which are now to be heard and decided by the NCLT and NCLAT.
Winding up of Companies
Companies which want to wound up can do so within a limited period of time.
Class action claims can be filed
When the shareholders of a company are of the opinion that affairs of the company have been conducted in the manner which is prejudicial to the interest of the company then shareholders can file a class action to the NCLT.
Opening employment opportunities to professionals
It opened numerous opportunities to company secretaries to appear before NCLT and to help in advising and assisting the parties and companies.
Over the years it has been proved that the National Company Law Tribunal has played a significant role in resolving corporate issues. By providing speedier remedies to the parties and by opening employment opportunities to professionals it has gained a significant scope.
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