NATIONAL COMPANY LAW TRIBUNAL (NCLT) – A step towards ease of doing business in India

The National Company Law Tribunal (NCLT) is a quasi-judicial body in India that adjudicates issues relating to Companies in India. The National Company Law Tribunal was formed or established under the Companies Act, 2013 which was constituted with effect from 1st June, 2016.

The Ministry of Corporate Affairs (Central Government) constituted National Company Law Tribunal (NCLT) and National Company Law Appellate Tribunal (NCLAT) under the provision of section 408 and section 410 of the Companies Act, 2013. It was first introduced by the Companies (Second Amendment) Act 2002 based on the recommendations of ERADI committee.

The newly setup NCLT have eleven (11) Benches, two (2) at New Delhi and one each at Ahmedabad, Allahabad, Bengluru, Chandigarh, Chennai, Guwahati, Hyderabad, Kolkata and Mumbai. Hon’ble Justice S.J. Mukhopadhaya, Retd. Judge, Supreme Court of India has joined as the Chairperson of the NCLAT and Hon’ble Justice M.M. Kumar, Retd. Judge has joined as the President of the NCLT.

The Company Law Board (CLB) constituted under Section 10E of the Companies Act, 1956 has been dissolved w.e.f. 1st June, 2016 by the introduction of National Company Law Tribunal. All matters pending before the CLB on or before dissolution have now been transferred to the NCLT.

CONSTITUTION OF THE TRIBUNAL:

The National Company Law Tribunal consists of a President and such number of Judicial and Technical Members as the Central Government may deems necessary. The President of the Tribunal is a person who is or has been a Judge of the High Court for five (5) years.

Judicial Members are appointed as per section 409(2) of the Companies Act, 2013. Such Judicial Members should have the following qualifications:

1. He is, or has been, a judge of a High Court; or
2. He is, or has been, a district judge for at least Five (5) years; or
3. He has, for at least ten (10) years been an advocate of a Court.

Technical Members are appointed as per section 409(3) of the Companies Act, 2013. A person can be appointed as a Technical Member if he-

1. has, for at least fifteen years been a member of the Indian Corporate Law Service or Indian Legal Service out of which at least three years shall be in the pay scale of Joint Secretary to the Government of India or equivalent or above in that service; or
2. is, or has been, in practice as a chartered accountant for at least fifteen years; or
3. is, or has been, in practice as a cost accountant for at least fifteen years; or
4. is, or has been, in practice as a company secretary for at least fifteen years; or
5. is a person of proven ability, integrity and standing having special knowledge and experience, of not less than fifteen years, in law, industrial finance, industrial management or administration, industrial reconstruction, investment, accountancy, labour matters, or such other disciplines related to management, conduct of affairs, revival, rehabilitation and winding up of companies; or
6. is, or has been, for at least five years, a presiding officer of a Labour Court, Tribunal or National Tribunal constituted under the Industrial Disputes Act, 1947.

POWERS OR MATTERS VESTED TO NCLT:

The National Company Law Tribunal has replaced the existing Company Law Board (CLB), the Board of Industrial and Financial Reconstruction (BIFR) and its appellate authority. Thus, the all matters previously handled by the aforesaid authority will be now handled by the NCLT. The highlights of the matters vested with NCLT are as under:

• Seeking exemption for having Financial Year of a Company which ends on a day other than 31 March under section 2(41) of the Companies Act, 2013.
• Any offence relating to incorporation of a Company by furnishing false or incorrect information can invite the investigation of the NCLT which can inter alia order making the liability of Members unlimited and remove the name of the Company from the Register of Companies.
• Seeking approval for Conversion of a Public Limited Company into a Private Company under the provision of section 14 of the Companies Act, 2013.
• Seeking approval for Issue of further redeemable preference shares in lieu of arrears of dividend or failure to redeem existing preference shares as per the terms of issue under the provision of section 55(3) of the Companies Act, 2013.
• Consolidation or division of share capital which will result in change of voting percentage of Shareholders shall take effect only with the approval of NCLT under the section 61(1) of the Companies Act, 2013.  
• Conversion of Debt into equity by the Government if not agreeable or acceptable to a Company, then such Company can appeal to NCLT within sixty (60) days from the date of communication of order issued by the Government under the section 62(4) of the Companies Act, 2013.
• The Company can make application for reduction of share capital according to provision of section 66 of the Companies Act, 2013.
• Debenture Trustee may file a petition to the NCLT under the provision of section 71(9) of the Companies Act, 2013 and NCLT may impose further restrictions on a Company which has issued debentures from incurring liability on the ground of assets being insufficient assets in the opinion of Debenture Trustee to discharge the principal amount.
• The Company can make application to NCLT under the section 74(2) of the Companies Act, 2013 for seeking further time to repay the deposits.
• The NCLT can call Annual General Meeting (AGM) of a Company on the application of any Member of the Company under the section 97 of the Companies Act, 2013.
• The NCLT can call Meeting of a Company other than AGM either suo-motu or on the application of any Director or Member of the Company who would be entitled to vote at the meeting under the section 98 of the Companies Act, 2013.
• Application by any Member of the Company to NCLT  seeking its direction to direct the Company to permit inspection of Minutes Book of General Meetings, if the same has been refused by such a Company earlier under the provision of section 119 of the Companies Act, 2013.
• A Company can  re-open its Books of Accounts and recast the Financial Statements with the approval of NCLT on an application in this regard made by the Central Government, the Income Tax authorities, the Securities and Exchange Board, any other statutory regulatory body or authority or any other person concerned, on ground that the earlier accounts have been prepared in a fraudulent manner or affairs of the Company is being mismanaged during the relevant period casting a doubt on reliability of the financial statements under section 130 of the Companies Act, 2013.
• A Company can voluntarily seek the permission of NCLT to revise its Financial Statements or Boards report for past three (3) financial years, where Board of Directors believes that they do not comply with the provisions of section 129 and section 139, under the section 131 of the Companies Act, 2013.
• The NCLT can provide relief to the Company or any aggrieved person under provision of section 140 (4) and (5) of the Companies Act, 2013, where an auditor sought to be removed by the Shareholders is using the provisions of sending his representation against his removal to every Shareholders or reading the same in the General Meeting is proved to be abused.
• The NCLT can provide relief to the Company or any aggrieved person under the provision of section 169(4) of the Companies Act, 2013, where an director sought to be removed by the shareholders is using the provisions of sending his representation against his removal to every Shareholders or reading the same in the General Meeting is proved to be abused.
• The NCLT can investigate the affairs of Company under section 213 of the Companies Act, 2013 on application.

Other Important Matters/Powers:

• Power in relation to compromise, arrangement and amalgamations under the chapter XV of the Companies Act, 2013.

• Power in relation of prevention of Oppression and Mismanagement under chapter XVI of the Companies Act, 2013.

• Power in relation of Revival and Rehabilitation of Sick Companies under chapter XIX of the Companies Act, 2013.

• Power in relation to winding-up under chapter XX of the Companies Act, 2013.

• Power to compound the offences where maximum amount of fine can be imposed exceed five lakh rupees (Rs. 5,00,000) under the section 441 of the Companies Act, 2013.    

National Company Law Tribunal – Ease of doing business in India

TRANSFER OF PENDING PROCEEDINGS:

According to section 434 of the Companies Act, 2013 certain proceedings which were previously being handled by other authorities are now transferred to NCLT:

1. All matters, proceedings or cases pending before the Company Law Board (CLB) shall stand transferred to National Company Law Tribunal (NCLT) under section 434(1)(a) of the Companies Act, 2013.
2. Any person aggrieved by any decision or order of the CLB may file appeal to the High Court within 60 days from the date of communication of the decision or order under section 434(1)(b) of the Companies Act, 2013.
3. All proceedings with High Court or District Court shall stand transferred to NCLT under section 434(1)(c) of the Companies Act, 2013.
4. Any appeals or any reference or inquiry pending before the Authority for Industrial and Financial Reconstruction (AAIFR) and Board of Industrial and Financial Reconstruction (BIFR) shall stand abated.

ADVANTAGES OF NCLT & NCLAT:

The constitution of NCLT and NCLAT was a step towards to improving the ease of doing business by bringing all aspects of Company law matters under one roof. Some of most important advantages are as under:

• Single Window: The most important benefit that the tribunals will act as a single window for settlement of all Company law related disputes effectively. It shall avoid unnecessary multiplicity of proceedings before various authorities or courts.
• Speedy Process: The NCLT and the NCLAT are under a mandate to dispose of cases before them as expeditiously as possible. In this context, a time limit of three (3) months has been provided to dispose of cases, with an extension of ninety (90) days for sufficient reasons to be recorded by the President or the Chairperson, as the case maybe.
• Reduction of work of High Court: The number of pending cases with High Court is too high and now the matters in respect to compromise, arrangement, amalgamations and winding-up transferred to NCLT. Accordingly, The NCLT and the NCLAT will reduce the work of overburdened High Courts.
• The speedy disposal of cases will save time, energy and money of the parties.

Hence, with the constitution of NCLT and The NCLAT, we do hope that not only the corporate would obtain its benefits but stakeholders would also be benefitted.

SCOPE OF COMPANY SECRETARY IN PRACTICE UNDER NCLT:

The constitution of National Company Law Tribunal and National Company Law Appellate Tribunal has given various opportunities to Company Secretary in practice. A practicing Company Secretary can represent cases or appear before the National Company Law Tribunal and National Company Law Appellate Tribunal.

This is the first time when a Company Secretary in Practice can appear for matters relating with compromise, arrangement and amalgamations and winding up.

Since all power of BIFR have been transferred to National Company Law Tribunal and all matters before BIFR and AAIFR would also be dealt by NCLT and NCLAT respectively. Accordingly, Company Secretaries in Practice could play a role in this area.   

The new Bankruptcy and Insolvency Code also gave the NCLT the role of adjudicating bankruptcy cases for Companies. Accordingly, Company Secretaries in Practice could play a role in this area.

A Company Secretary in Practice can be appointed as a Technical Member of National Company Law Tribunal subject to working experience of fifteen year (15 Yrs.) as Company Secretary in Practice. Also Company Secretary in practice has been authorized to appear before National Company Law Appellate Tribunal.

Decisions of the NCLT may be appealed to the National Company Law Appellate Tribunal (NCLAT). The NCLAT will act as the appellate forum and all appeals from the orders of the NCLT will be heard by it. Appeals from the NCLAT will be heard by the Supreme Court of India.

CONCLUSION:

The constitution of National Company Law Tribunal and National Company Law Appellate Tribunal was a step towards to improving the ease of doing business by bringing all aspects of Company law matters under one roof. It is aimed to provide a speedy and efficient disposal of the matters. Further, it will also reduce the work of overburdened High Courts.

The National Company Law Tribunal and National Company Law Appellate Tribunal a great opportunity for Company Secretaries to show their knowledge or expertness of the Company Law.

The Central Government (Ministry of Corporate Affairs) has notified the rules for NCLT mechanism on 22nd July, 2016. The Companies (Amendment) Bill 2016 which provided for amendments to the Companies Act 2013 included amendment to be made on constitution of NCLT and NCLAT.  

Pawan Barodiya can be contacted at 
Phone : +91 9818340919/ +91 9602464949, E-mail : cs.pawanbarodiya@gmail.com, pkbndassociates@gmail.com