This article is written by Supravo Dey, pursuing Certificate Course in National Company Law Tribunal Litigation from LawSikho.
Table of Contents
Before the establishment of the National Company Law Tribunal (NCLT), the matters related to Companies were scattered to different forums for adjudication.
The Company Law Board established under the Companies Act 1956, had jurisdiction over the matters related to companies and the Board for Industrial and Financial Reconstruction had jurisdiction over the matters related to sick and distressed industries and adjudication of matters related to debts of those industries.
The NCLT was established on June 1 2016, with the following objectives:
- To club every matter related to Companies under one roof,
- To deal with the matters related to sick and distressed industries after the Board for Industrial and Financial Reconstruction failed to meet its objective.
Apart from company matters under the Companies Act, 2013(Act), NCLT has jurisdiction over insolvency proceedings of Companies and limited liability partnerships (LLP) under IBC 2016.
Section 408 of the Companies Act 2013, deals with the provision of the constitution of NCLT under Companies Act 2013, it states that the tribunal shall be consisting of a President, and such members of judicial and technical members as the central government may appoint from time to time as it may deem fit proper for the time being in force.
This article will discuss the matters that are adjudicated by the NCLT under the Companies Act 2013.
Jurisdiction of the NCLT under the Companies Act, 2013
Section 280 of the Companies Act 2013 states the jurisdiction of NCLT under the Companies Act 2013, which are as follows:
- Any suit or proceedings initiated by the company or against the company,
- Any claim made against the company or by the company including its branches over India,
- Any application made under Section 233 of the Act,
- Any scheme submitted under Section 262, (omitted by Section 255 of IBC 2016, Clause 14 of the Eleventh Schedule)
- Matters relating to assets, business, actions, rights, entitlements, privileges, benefits, duties, responsibilities, obligations or in any matter arising out of, or in relation to winding up of the company.
Apart from the jurisdiction mentioned in the Section above NCLT has various other powers to adjudicate matters under the Companies Act 2013 which is overall discussed below along with the jurisdiction.
Change in the financial of the company
After the commencement of the Companies Act, 2013 it became necessary to maintain a particular financial year which will start from 1st April and end on 31st March of the next year, for every incorporated company in India. But if a company is a holding company or subsidiary company incorporated outside India it can file an application under Section 2(41) of the Act for a change in its financial year to consolidate its accounts, if the NCLT deems fit it may allow the application for such change.
Conversion of the company
Every company that wants to convert from public to private company or private to the public company have to take the approval of the NCLT for such conversion as per the provisions of Section 13 (alteration of memorandum of the company) Section 14 (alteration of articles of the company) read with Section 18 (conversion of companies already registered) of the Act. It is totally upon the discretion of the NCLT to approve or reject the application under Section 13,14 read with Section 18.
Variation of shareholder’s rights
When the share capital of the company is divided into different variants (class) of share the rights attached to those variants may be changed with the consent in writing by the holders of those shares.
If any class of holders does not consent to such variants it may file an application under Section 48 of the Act before the Hon’ble Tribunal with a majority of not less than ten per cent of the issued shares for cancellation of such variant.
Refusal to register and rectification of share
As per the provisions of Section 58 of the Companies Act 2013, NCLT has the power to adjudicate matters related to refusal for registration of shares and rectification of shares.
As per the provisions of Section 58 of the Act:
- If after the transfer of share by a transferor to the transferee, the company (private ltd. company) refuses to register the share of the transferee by sending notice of such refusal, the transferee may appeal to the tribunal for such refusal within thirty days from the date receipt of notice and within sixty from the date of transfer if no notice is sent by the company.
- In the case of a public company, the transferee may within sixty days from the date of intimation or within ninety days where no intimidation is sent by the company to appeal to the tribunal for such refusal.
The tribunal after receiving such application under this Section may reject the application or pass an order for rectification of register and registration of the share.
Rectification of registration of a member
As per the provisions of Section 59 of the Companies Act 2013, if the name of a person is entered into the register of member a company or omitted from there or default or delayed in entering, in the register of the company without sufficient cause the affected person may file an application before the Hon’ble Tribunal for rectification of such and the tribunal may either reject the application or pass an order for rectification of the register of the company.
Reduction of share capital
If a company has to reduce its share capital it will require prior approval of the NCLT as per the provisions of Section 66 of the Act. If the tribunal deems that the rights of the creditors of the company will not be prejudiced, the tribunal will pass an order for the reduction of share capital or else will reject the application under Section 66 of the Act.
Restriction on incurring liabilities
If the Debenture Trustee is in the opinion that the company’s assets are insufficient or will become insufficient to discharge its principal amount and when such amount becomes due the Debenture Trustee may file an application under Section 71(9) of the Act before the tribunal for imposing restriction upon incurring further liabilities by the company and if the tribunal deems fit it may impose such restrictions to protect the interests of the debenture holders.
Reopening of the accounts of the company
Generally, the accounts of the company should not be reopened after it is closed, but as per the provisions of Section 130 of the Act, if a concerned person in the opinion that the accounts of the company are prepared fraudulently or there is mismanagement with the affairs of the company for a relevant period of time that makes the reliability of those financial statements of the company questionable, may make an application under Section 130 of the Act, before the tribunal for reopening of the accounts of the company.
Compromise or arrangement between the company and its creditors
The NCLT has the power to adjudicate matters relating to compromise and arrangement (renegotiation) between the company and its creditors or class of creditors. The application for compromise and arrangement may be made by the company or the creditors or the class of creditors of the company under Section 230(1) of the Act. The tribunal also has the power to supervise and enforce such compromise and arrangements as per the provisions of Section 231 of the Act.
Oppression and mismanagement
The Companies Act 2013, gives power to the NCLT to adjudicate matters relating to oppression and mismanagement.
As per the provision of Section 241 of the Act, if a complaint is made to the tribunal by any member of the company that:
- The affairs of the company have been dealt with in such a manner that it is prejudice to the public interest or oppressive to the member or any other member or members of the company, or
- Any material change made to the company such as alteration of the board of directors or share capital, for the interests of a creditor or shareholders or debenture holders which is prejudice to the members or class of members of the company.
Upon receiving an application under Section 241 of the Act, if the tribunal deems fit that there is a conduct of oppression or mismanagement with the affairs of the company it may provide appropriate relief to the applicant as per the provisions of Section 242 of the Act.
As per the provisions of Section 245 if there is a conduct of mismanagement with the affairs of the company which is prejudice to the member/s or depositor/s of the company, persons affected by such act may approach the tribunal for appropriate relief under this Section 245 of the Act.
Winding up of a company
If any application under Section 272 is made by the company, any contributor/s (central or state government), registrar of the company or any person authorised by the central or state government to the tribunal for winding up of the company, the company may be wound up by the tribunal in the following cases as prescribed under Section 271 of the Act, after receiving Application under Section 272:
- If the company by a special resolution decided to wound up the company by the tribunal,
- If the company acted against the sovereignty or integrity or security of the nation.
- If on an application filed by the registrar of the company or person authorized by the government, the tribunal is in the opinion that the company is unlawful or a sham created for an unlawful purpose.
- If the company made default in filing with the registrar its annual returns or financial statements for the past five consecutive years.
- If the tribunal is of the opinion that the company is required to be wound up.
Winding up of foreign companies
The tribunal has the power under Section 376 of the Act to wound up the companies as unregistered companies that are incorporated outside India and carrying business in India but cease to carry business in India.
Matters under Companies Act 2013 that are either substituted or omitted by IBC 2016
Matters under Companies Act 2013, that are either substituted or omitted by IBC 2016, for adjudication before NCLT:
1. Revival and determination of sickness
Section 253 to 269 of the Companies Act 2013, used to deal with determination and revival of sick industries and matters relating to default of debts but after commencement of IBC 2016, it is omitted by Section 255, 11th Schedule (Clause 8).
In the present time,
- A financial creditor can file corporate insolvency resolution process (CIRP) of a corporate debtor (borrower company that made a default) under Section 7 of IBC 2016,
- An operational creditor can file CIRP of a corporate debtor under Section 9 of IBC 2016,
- If the corporate debtor shows financial distress or is going to make a default in the near future it can initiate its own CIRP by filing an application under Section 10 of IBC.
As per the provision of Section 5(7) of IBC 2016, financial creditor means the creditor against whom a financial debt is owed. For the purpose of this Section, financial debt means money borrowed against interest as defined under Section 5(8) of IBC. For example; loans by banks, bonds issued by companies etc.
As per the provision of Section 5(20) of IBC 2016, an operational creditor is a creditor against whom an operational debt is owed. For the purpose of this Section operational debts means debt or claim arises out of goods and service as defined under Section 5(21) of IBC. For example; services that are provided to the companies by the service providers such as electricity, goods purchased by the company against which an invoice is generated against the company.
As per the provision of Section 3(8) of IBC corporate debtor means a company against whom a debt is owed by any person.
2. Voluntary winding up
Before commencement of IBC 2016, a company has two options for winding up i.e. either by the tribunal or voluntarily as stated in Section 270 of the Companies Act 2013, but after commencement of IBC this provision is substituted by Section 255 of IBC 11th Schedule (Clause 9) and now a company can only be wound up by a tribunal.
3. Voluntary liquidation or liquidation
Before commencement of IBC 2016, a company can liquidate or wind up voluntarily as per the provisions of Sections 304 to 323 of the Companies Act 2013, but after commencement of IBC, this provision is omitted by Section 255 of IBC 11th Schedule (Clause 16).
Now a company can be liquidated under IBC in the following ways:
- A company against whom an insolvency proceeding is going on maybe liquidated by an order of the tribunal. The tribunal if deems fit that the company cannot be revived by insolvency proceeding it may pass an order for liquidation of the company as per the provision of Section 33 of IBC.
- A company that has not committed any default may initiate its own liquidation proceeding as per the provisions of Section 59 of IBC.
From the above discussions, it can be seen that NCLT has jurisdiction over every matter related to companies, under the Companies Act 2013. Matters related to restructuring, management, share capital, winding up and every kind of grievances against the company if anybody is prejudiced by any act of the Company such as oppression and mismanagement.
Though NCLT has jurisdiction over every kind of matters related to companies under the Companies Act 2013, some matters related to companies are transferred from the Companies Act to IBC for adjudication before NCLT.
Following matters are now adjudicated by NCLT under IBC:
- Determination of sickness and revival of company and insolvency proceedings against the companies,
- Liquidation and voluntary liquidation.
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