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Legalese | January 2017

Simplifying Corporate Adjudication

Krrishan Singhania, Partner; Nishant Upadhyay, Associate; and Ashwin Vasista, Associate, at Singhania & Co, Solicitors & Advocates.

The establishment of a National Company Law Tribunal (NCLT) and its Appellate Tribunal (NCLAT) will provide for an efficient, timely and one stop-shop dispute resolution mechanism, preventing fragmentation of disputes relating to companies before multiple forums.

The concept of establishing a separate and judicial body for resolving corporate disputes was evolved in the year 2002, by an amendment to the erstwhile Companies Act, 1956. However, the proposed quasi-judicial body could not be notified by the Central government due to various legal hurdles in formation and constitution of the same.

The Central government had set up the Eradi Committee, headed by former Supreme Court Judge Justice V Balakrishna Eradi for looking into the legal aspects on establishing a single judicial body for corporate dispute resolution, and a law relating to insolvency of companies.

After the enactment of the new Companies Act 2013, the Ministry of Corporate Affairs (MCA) vide its notification no. S.O. 1935(E) dated June 1, 2016 (hereinafter referred to as ¨notification¨), has notified the provisions relating to establishment of a National Company Law Tribunal (NCLT) and its Appellate Tribunal (NCLAT) with immediate effect. One of the reasons behind establishing NCLT & NCLAT is to have separate and specialised tribunals to deal with matters and disputes arising out of the Companies Act, Insolvency and Bankruptcy Code, Board for Industrial and Financial Reconstruction (BIFR), Reserve Bank of India (RBI), etc. NCLT shall have jurisdiction to resolve all corporate civil disputes and the NCLAT shall act as its appellate authority. On July 21, 2016, the Ministry of Corporate Affairs also notified the National Company Law Tribunal Rules, 2016 (NCLT Rules), laying down the procedures and functions of the tribunals.

The Establishment of NCLT and NCLAT will provide for an efficient, timely and one stop-shop dispute resolution mechanism, preventing fragmentation of disputes relating to Companies before multiple forums. This is a welcome step towards ease of doing business and will have far reaching impact on foreign investment in the Indian Economy.

What is NCLT?
The National Company Law Tribunal is a single window institution for corporate justice. It´s a separate quasi-judicial body for company law matters.

The establishment of NCLT aims to consolidate the corporate jurisdiction of the Company Law Board; Board for Industrial and Financial Reconstruction and its Appellate Authority; High Court or District Court in relation to matters pertaining to arbitration, compromise, arrangements and reconstruction; and the Central government. The NCLT will also have jurisdiction under the Insolvency and Bankruptcy Code, once it is notified. It is also important to note that as the provisions relating to reduction of share capital, winding up and compromise and arrangements under the Companies Act 2013 have not been notified, the jurisdiction of these matters will remain with the High Court until these provisions are made effective.

Even though the NCLT has been conferred the power to pass orders where a company has been incorporated by any fraudulent action or by furnishing false information, the power to remove the name of the company from the register of companies would still continue with the Registrar of Companies.

Under the earlier regime, companies used to face the issue of multiple and fragmented proceedings before various courts and tribunals. This issue will surely be resolved by the establishment of NCLT. The tribunal will not only provide for a simplified dispute resolution procedure, but will also make the procedure timely and cost-effective.

The notification also introduces class action suits for the very first time, giving impetus to shareholder activism. The tribunal shall have the jurisdiction to entertain class action suits, collectively initiated by 100 or more shareholders. Class action suits can be used by minority shareholders to sue directors or auditors of the company for their misconduct or unwarranted acts or when the company´s affairs are not being managed in its best interests. Such a remedy will give rise to better corporate governance practices and curb arbitrary and oppressive decisions of the management.

Vide its notification, the MCA has constituted eleven benches of NCLT, the principal bench being located at New Delhi, and other benches at Ahmedabad, Allahabad, Bengaluru, Chandigarh, Chennai, Guwahati, Hyderabad, Kolkata and Mumbai. There shall be two benches at New Delhi including the principal bench. The Appellate Tribunal shall have only one bench and shall be located in New Delhi. Under the earlier regime, there were only five benches of the Company Law Board. Thus, 11 benches will provide for greater accessibility and reduce the burden of each bench.

The Tribunal is to be headed by the President who shall be appointed in consultation with the Chief Justice of India. It is also pertinent to note that such a person appointed shall be a person who is a serving Judge of the High Court or has served as a Judge of the High Court, for at least five years.

The Appellate Tribunal is to be headed by the Chairperson who shall be appointed in consultation with the Chief Justice of India. It is also pertinent to note that the person appointed shall be the one who is serving as Chief Justice of the High Court or as a Judge of the Supreme Court or has served as Chief Justice of the High Court or as a Judge of the Supreme Court.

The President of the Tribunal shall hold the office for five years or until he/she attains the age of 67 years, whichever is earlier. Members of the Tribunal shall hold office for five years at or until he/she attains the age of 65 years, whichever is earlier. President and Members of the Tribunal are also eligible for re-appointment.

The chairperson of the Appellate Tribunal shall hold the office for 5 years or until he/she attains the age of 70 years, whichever is earlier. Members of the Tribunal shall hold office for 5 years at or until he/she attains the age of 67 years, whichever is earlier.

No person who is below the age of 50 years shall be eligible for appointment as President of NCLT and/or Chairperson of NCLAT and/or as Member of the Tribunal and/or Appellate Tribunal. Chairperson and Members of the Appellate Tribunal are also eligible for re-appointment. The appointment of technical members along with judicial members will ensure that the disputes are adjudicated by subject experts; thereby increasing the efficiency of dispute resolution.

Adjudication procedure
The President shall constitute the benches for hearing the matter before the Tribunal. The composition of benches of the Tribunal shall be one Judicial Member and one Technical Member. The President may constitute a single Judicial Member bench for adjudication of the specified matters. At any stage, the President may transfer the case to a two-member bench. The President shall constitute one or more benches of a three or more member bench in respect of cases relating rehabilitation, restructure or reviving of companies.

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