Powers and Function of National Company Law Tribunal
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This article is written by Chandana.L pursuing B.Com.LLB(Hons) from The Tamil Nadu Dr. Ambedkar Law University (SOEL). This is an article which deals with various powers and functions of NCLT under Companies Act, 2013.

Introduction

Before the establishment of the National Company Law Tribunal and National Company Law Appellate Tribunal the powers and functions of the Companies were discharged by the Company law board and Board for Industrial and Financial Corporation. The Central government constituted NCLT under Section 408 of Companies Act, 2013. It commenced on June 1, 2016, and it was set up on the basis of the recommendations of the Justice Eradi Committee.

What is NCLT?

National Company Law Tribunal (NCLT) is a quasi-judicial body which was set up to resolve the disputes which are arising in Indian Companies. It is the successor to the Company Law Board. It is governed by the rules framed by the Central Government. NCLT is a special court where cases relating to civil court have been barred from the jurisdiction.

Powers and Functions of NCLT

Class Action

Section 245 of Companies Act, 2013

  1. 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 stating that affairs have been conducted in the manner which is prejudicial to the interest of the company and seeking all or any of the ground:

The company may be restrained:

  • from doing any act which is outside the scope of MOA and AOA,
  • from committing any breach of the provision of MOA and AOA,
  • and its directors from acting on such resolutions,
  • doing any act which is either contrary to this act or any other act which is in force for time being,
  • declaring any resolution which in turn alters the MOA and AOA and it becomes void if such resolution is passed.

  To claim either damages or compensation or to demand any other suitable action.

  • company or directors of the company for any unlawful, fraudulent or wrongful act or omission committed by them.
  • auditor or audit firm of the company for improper or misleading statements.
  • can seek any other remedy from the tribunal.
  1. where the members of depositors claim damages or compensation or any other action against the audit firm the liability shall fall on the firm and each and every partner who was involved in making the improper or misleading statement. 
  2. the number of members for filing an application to tribunal shall be:
  • Not less than one hundred members or members who are are not holding less than one-tenth shares of total voting power in the company (in case the company is having a share capital) ; or
  • Not less than one-fifth of people on the company’s register of the members (in case the company does not have share capital).
  1. The depositors shall be not less than one hundred depositors or not less than such percentage of total depositors.
  2. The tribunal shall see that the members and depositors have acted in good faith while an application is made for seeking the order.
  3. On the application made by the members or the depositors the tribunal shall issue a public notice to be served on all of the members and depositors, where similar application is made from jurisdiction, the tribunal shall consolidate and consider it as one application and the class members or depositors shall be allowed to choose the lead applicant, and two class-action application filed for the same cause of application shall not be allowed.
  4. The orders which are passed by the tribunal shall be binding on the members, depositors, auditor which includes audit firm, advisors, expert or consultant and any other person associated with the company.
  5. If the company fails to comply with the order which is passed by the tribunal the company shall be punished with   a fine of INR 5 lakhs which may extend to INR 25 lakhs and every officer of default shall be punished with fine INR 25 thousand and which may extend to INR 1 lakh and with the imprisonment of three years.
  6. If the tribunal comes to the conclusion that the application filed is found to be frivolous or vexatious the tribunal shall reject the application and record the reasons in writing and shall order the other party to pay the cost which does not exceed INR 1 lakh.

Deregistration

Section 7(7) of Companies Act, 2013 states if tribunal comes to the notice that the company at the time 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 of members shall be unlimited.

Oppression and mismanagement

Section 241 of Companies Act, 2013 states that any member of the company who has the right to complain to tribunal as per section 244 of the Act, 2013 shall file a complaint to tribunal stating that:

  • Affairs of the company are conducted in such a manner which is prejudicial to 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 either in:
  1. alteration in the board of directors,
  2. alteration of managers,
  3. alteration of the member, or
  4. any other reason.

For such reasons, the members of the company perceive that affairs of the company have been conducted in the manner which is prejudicial to its interest.

  • When the Central Government is of opinion that affairs of the company have been conducted in any one of below manner mentioned and by that tribunal comes to the conclusion that it has been prejudicial to public interest or in an oppressive manner:
  1. a member of the company is either guilty of fraud, misfeasance, persistent negligent, breach of trust or is the default in carrying out the obligations and functions as per law; or
  2. management of the company is not been carried out as per the sound principles or prudent commercial practices; or
  3. when a company is being conducted which causes serious injury to trade, business, industry; or
  4. when a company is being managed with the sole motive to defraud creditors, members, or being managed only for fraudulent or unlawful purposes which is against the public interest;

shall file an application to the tribunal for seeking the remedy.

Investigation powers

  Section 213 of Companies Act, 2013 states: 

  • When an application is made to the tribunal by:
  1. Company having share capital: Not less than one hundred members or members who are are not holding less than one-tenth shares of total voting power in the company; or
  2. A company having no share capital: Not less than one-fifth of people on the company’s register of the members. 
  • When an application is made by any other person other than the member of the company to the tribunal stating one of the circumstances:
  1. affairs of the company have been conducted only with the intent to defraud the creditors or the members or any of the other persons.
  2. business is being conducted either for fraudulent or unlawful purposes.
  3. business is being conducted in such a way it is oppressive to its members.
  4. business is being formed only with sole motive for unlawful or fraudulent purposes. 
  5. persons who were engaged in the formation of the company or management of its affairs of the company were either guilty of fraud, misfeasance or misconduct towards the company or any of its members.
  6. When members of the company have failed to give all the information to the company relating to the affairs of the company which they are expected to give including the information relating to the calculation of commission payable to managing director, director or any other manager of the company and the tribunal may after giving the reasonable opportunity to the parties, the tribunal feel that the affairs of the company should be investigated and for such purpose, the central government shall appoint an inspector to investigate.

Provided after investigation it is proved that:

  • affairs of the company have been conducted only with the intent to defraud the creditors or the members or any of the other persons, or
  • business is being conducted either for fraudulent or unlawful purposes, or
  • business is being conducted in such a way it is oppressive to its members, or
  • business is being formed only with the sole motive for unlawful or fraudulent purposes,
  • persons who were engaged in the formation of the company or management of its affairs of the company were either guilty of fraud, misfeasance or misconduct towards the company or any of its members.

Then every officer of the company who is in default and a person who is engaged either in the formation of the company or managing the affairs of the company shall be punished for fraud.      

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Reopening of accounts

Section 130 of Companies Act, 2013 states that.

  • Except on the order of central government, income tax authorities, SEBI, statutory body, the order made by a court of competent jurisdiction or tribunal the company shall not open its accounts or recast its financial statements and shall be allowed to do so when:
  1. Earlier accounts were prepared in a fraudulent manner.
  2. affairs of the company were mismanaged and casting a doubt on reliability of financial statements.
  • Before passing such orders, the tribunal shall give the notice to concerned authorities.

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 shall send a notice to the transferor and 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 instrument of the transfer.
  • The tribunal shall hear the orders and after hearing such order shall either reject the appeal or order the company. 
  1. To transfer the shares within ten days of an order.
  2. Direct rectification of the register and also direct the damages to be paid if any sustained by the aggrieved party.
  • If any person contravenes with the order shall be punishable with imprisonment for a term which shall be not less than one year but may extend to three years and with the fine which shall not be less than INR 1 lakh but may extend to INR 5 lakh.

Conversion of Public Company into Private Company

Section 13 to 18 of Companies Act, 2013 read with the Rule 41 of Companies(Incorporation) rule 2014 states when a company converts from a public company into private company an approval of NCLT tribunal is required for such conversion. The tribunal may impose such terms and conditions as in section 459 of Companies Act, 2013.

Annual General Meeting

As under section 97 and 98 of Companies act, 2013, if the members of the company fail to convene the meeting within a particular time and the member of the company may give an application to the tribunal to convene such meeting, the tribunal as such as the power to convene those meetings.

Winding up of the company

Section 242 of Companies Act, 2013 a company may be wound by the tribunal when the affairs of the company have been conducted in any one of below manner, set under section 242 of the companies act, 2013 and by that tribunal comes to the conclusion that the company has been prejudicial to public interest or in an oppressive manner.

Additional Powers

  1. Section 221 of Companies Act, 2013 power of the tribunal to freeze the assets of the company.
  2. Section 2(41) of Companies Act, 2013 power to change the financial years of the company registered.

Conclusion

NCLT is the successor to the company law board. With the establishment of NCLT, there will be a speedy remedy in resolving the company law disputes and will be disposed of expeditiously. Appeals can be made by an aggrieved party from any decision or order passed by NCLT within the period of forty-five days of the receipt of an order or decision to NCLAT. Further, NCLAT gives its decision within six months from the date of receipt of the appeal. No civil court has jurisdiction to decide the cases where NCLT and NCLAT are empowered to do so.


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