NATIONAL COMPANY LAW TRIBUNAL AND NATIONAL COMPANY LAW APPELLATE TRIBUNAL

[Mr. M. GOVINDARAJAN]

INTRODUCTION:

The Companies Act, 1956 ('Act' for short) provides remedies under various sections that could be solved through Company Law Board and High Court. The Central Government constituted a high level committee on Law relating to Insolvency of Companies under the Chairmanship of Justice V. Balakrishna Eradi (retired) with other experts to examine the existing laws to winding up proceedings of the company in order to remodel it in line with the latest developments and innovations in Corporate laws and governance and to suggest reforms to the procedures at various stages followed in insolvency of the company in order to avoid unnecessary delay, in tune with the international practices in the world.

FINDINGS AND RECOMMENDATIONS OF COMMITTEE:

The Committee identified the following areas which are contributed to inordinate delay in finalization of winding up/dissolution of companies:

* Filing statement of affairs;

* Handing over updated books of accounts;

* Realization of debts;

* Taking over possession of assets of the company and sale of assets;

* Non availability of funds for the Official Liquidator to discharge his duties;

* Settlement of list of creditors;

* Settlement of list of contributories;

* Finalization of income tax proceedings; and

*Disposal of misfeasance proceedings.

The Committee recommended various amendments in regard to the provisions of the Companies Act, 1956 for setting up of a National Company Law Tribunal ('NCLT') which will combine the powers of Company Law Board under the provisions of Companies Act, 1956, BIFR and AAIFR under the Sick Industrial Companies (Special Provisions) Act, 1985 as also the jurisdiction and powers relating to winding up vested in the High Courts. Some powers of the Company Law Board are vested in Central Government.

The Central Government accepted the recommendations of Eradi Committee. The Company (Second Amendment) Act, 2002 was passed for providing for establishment of NCLT and NCLAT to take over the functions of CLB, BIFR, AAIFR and the High Courts.

Sec.10FA was inserted by the amendment act which provides that on and from the commencement of the Companies (Second Amendment) Act, 2002 the Company Law Board Administration constituted under Sec. 10E (1) shall stand dissolved.

Part 1B of the Act deals with the National Company Law Tribunal. Part 1C of the Act deals with the National Company Law Appellate Tribunal ("NCLAT').

NATIONAL COMPANY LAW TRIBUNAL:

Sec.10FB gives powers to the Central Government to constitute National Company Law Tribunal to exercise and discharge such powers and functions as are, or may be, conferred on it by or under this Act or any other law for the time being in force. The Tribunal shall consist of a President and such number of judicial and technical members not exceeding sixty two as the Central Government may deems fit, to be appointed by the Government by Notification in the official gazette.

Qualifications of President and Members:

The Central Government shall appoint a person who has been, or is qualified to be, a Judge of a High Court as the President of the Tribunal. A person shall not be qualified for appointment as Judicial Member unless he-

* has, for at least fifteen years, held a judicial office in the territory of India; or

* has for at least ten years been an advocate of a High Court, or has party held judicial office and has been partly in practice as an advocate for a total period of fifteen years; or

* has held for at least fifteen years a Group A post or an equivalent post under the Central Government or a State Government (including at least three years of service as a Member of the Indian Company Law Service (Legal Branch) in Senior Administrative Grade in that service); or

* has held for at least fifteen years a Group A post or an equivalent post under the Central Government (including at least three years of service as a Member of the Indian Legal Service in Grade I of the service.

The qualifications prescribed for the technical member are as follows:

* Fifteen years in Group A post or an equivalent post under the Central Government or a State Government (including at least three years of service as a Member of Indian Company Law Service (Account Branch) in Senior Administrative Grade in that service); or

* Is, or has been a Joint Secretary to the Government of India under Central Staffing Scheme, or any other post under the Central Government or a State Government carrying a scale of pay which is not less than that of a Joint Secretary to the Government of India for at least five years and has adequate knowledge of, and experience in dealing with problems relating to company law; or

* Is, or has been, for at least fifteen years in practice as a Chartered Accountant under the Chartered Accountants Act, 1949; or

* Is, or has been for at least fifteen years in practice as a Cost Accountant under the Costs and Works Accountants Act, 1959;

* Is, or has been for at least fifteen years working experience as a Secretary in whole time practice under the Company Secretaries Act, 1980; or

* Is a person of ability, integrity and standing having a special knowledge of, and professional experience of not less than twenty years in science, technology, economics, banking, industry, law, matters relating to industrial finance, industrial management, industrial reconstruction, administration, investment, accountancy, marketing or any other matter, the special knowledge of, or professional experience in, which would be in the opinion of the Central Government useful to the Tribunal; or

* Is, or has been, a Presiding Officer a Labor Court; Tribunal or National Tribunal constituted under the Industrial Disputes Act, 1947; or

* Is a person having a special knowledge of and experience of not less than fifteen years in the matters relating to labor.

Other Provisions:

Sec. 10FE provides that the President and every other Member of the Tribunal shall hold office as such for a term of three years from the date on which he enters upon his office but shall be eligible for re-appointment. No President or other Member shall hold office as such after he has attained-

* in the case of the President, the age of sixty seven years;

* in the case of any other Member, the age of sixty five years;

The President or other Member may retain his lien with his parent cadre or Ministry or Department, as the case may be, while holding office as such.

Sec. 10FF provides that the Central Government shall designate any Judicial Member or Technical Member as Member Administration who shall exercise such financial and administrative powers as may be vested in him under the rules which may be made by the Central Government. Sec. 10FI deals with the resignation of President and Member. Sec. 10FJ deals with removal and suspension of President and Member.

Sec. 10FL deals with benches of tribunal. It shall be competent for the Members authorized in this behalf to function as a Bench consisting of a single Member and exercise the jurisdiction, powers and authority of the Tribunal in respect of such class of cases or such matters pertaining to such class of cases, as the President of the Tribunal may, by general or special order, specify. Sec. 10FM deals with the orders of tribunal. Sec. 10FN provides that the tribunal shall have power to review its own order. Sec. 10FP gives power to Tribunal to seek assistance of Chief Metropolitan Magistrate and District Magistrate.

APPELLATE TRIBUNAL:

Section 10FQ provides that any person aggrieved by an order or decision of the Tribunal may prefer an appeal to the Appellate Tribunal. No appeal shall lie to the Appellate Tribunal from an order or decision made by the Tribunal with the consent of parties. Every appeal shall be filed within a period of forty five days from the date on which a copy of the order or decision made by the Tribunal is received by the appellant and it shall be in such form and accompanied by such fee as may be prescribed. The Appellate Tribunal may entertain an appeal after the expiry of the said period if it is satisfied that the appellant was prevented by sufficient cause from not filing the appeal in time. On receipt of the appeal the Appellate Tribunal shall, after giving parties to the appeal an opportunity of being heard, pass such orders thereon as it thinks fit, confirming, modifying or setting aside the order appealed against. The appeal shall be dealt with as expeditiously as possible and endeavor shall be made to dispose of the appeal finally within six months from the date of the receipt of the appeal.

Sec. 10FR provides that the Appellate Tribunal shall consist of a Chairperson and not more than two Members, to be appointed by Central Government for hearing appeals. The Chairperson shall be a person who has been a Judge of the Supreme Court or the Chief Justice of a High Court. A Member of the Appellate Tribunal shall be a person of ability, integrity and standing having special knowledge of, and professional experience of not less than twenty five years in, science, technology, economics, banking, industry, law, matters relating to labour, industrial finance, industrial management, industrial reconstruction, administration, investment, accountancy, marketing or any other matter, the special knowledge of, or professional experience in which, would be in the opinion of the Central Government useful to the Appellate Tribunal.

Sec. 10FT deals with the tenure of Chairperson and Members. The tenure shall be three years. No Chairperson and other member shall hold office as such after he has attained-

* in the case of the Chairperson, the age of seventy years;

* in the case of any other Member, the age of sixty seven years.

Sec. 10FU deals with the resignation of the Chairperson and Members. Sec. 10FV deals with removal and suspension of Chairperson and Members of the Appellate Tribunal.

SELECTION COMMITTEE:

Sec.10FX provides that the Chairperson and Members of the Appellate Tribunal and President and Members of the Tribunal shall be appointed by the Central Government on the recommendations of a selection committee consisting of-

* Chief Justice of India or his nominee - Chairperson;

* Secretary in the Ministry of Finance and company Affairs - Member;

* Secretary in the Ministry of Labor - Member;

* Secretary in the Ministry of Law and Justice - Member;

* Secretary in the Ministry of Finance and Company Affairs - Member.

The Joint Secretary in the Ministry or Department of the Central Government dealing with this Act shall be convenor of the Selection Committee.

Right to Legal Representation:

Sec.10GD provides that the applicant or the appellant may either appear in person or authorized or authorize one or more Chartered Accountants or Company Secretaries or Cost Accountants or Legal practitioners or any officer to present his or its case before the Tribunal or Appellate Tribunal.

Appeal to Supreme Court:

Sec.10GF provides that any person aggrieved by any decision or order or the Appellate Tribunal may file an appeal to the Supreme Court within sixty days from the date of communication of the decision or order of the Appellate Tribunal to him on any question of law arising out of such decision or order. The Supreme Court may, if it is satisfied that the appellant was prevent by sufficient cause from filing the appeal within the said period, allow it to be filed within a further period not exceeding sixty days.

POWERS OF CLB TRANSFERRED TO CENTRAL GOVERNMENT:

As already mentioned some of the powers of the Company Law Board are transferred to Central Government, the details of which are furnished as below:

* Sec.17 - Special resolution and confirmation for alteration of Memorandum;

* Sec. 18 - Alteration to be registered within three months;

* Sec. 19 - Effect of failure to register;

* Sec. 43 - Consequences of default in company with conditions constituting a company a private company;

* Sec. 49 - Investments of company to be held in its own name;

* Sec.79 - Powers to issue shares at a discount;

* Sec. 113 - Limitation of time for issue of certificate;

* Sec. 117B - Appointment of Debenture Trustees and duties of Debenture Trustees;

* Sec.118 - Right to obtain copies and inspect trust deed;

* Sec. 141 - Rectification of Register of Charges;

* Sec. 144 - Right to inspect copies of instruments creating charges and Company's register of charges;

* Sec. 163 - Place of keeping and inspection of Registers and Returns;

* Sec. 167 - Power to call Annual General Meeting;

* Sec. 188 - Circulation of Members resolution;

* Sec. 219 - Right of Members to copies of Balance Sheet and Auditor's Report;

* Sec. 225 - Provisions as to resolutions for appointing or removing auditors;

* Sec. 284 - Removal of Directors;

* Sec. 304 - Inspection of Register;

* Sec. 307 - Register of Director's Shareholdings.

POWERS OF CLB TRANSFERRED TO NCLT:

As already mentioned some of the powers of the Company Law Board are transferred to NCLT, the details of which are furnished as below:

* Sec.55A - Powers of SEBI;

* Sec.58 A - Deposits not to be invited without issuing an advertisement;

* Sec. 58AA - Small depositors;

* Sec.80A - Redemption of redeemable preference shares etc.,

* Sec. 111 - Power to refuse registration and appeal against refusal;

* Sec. 111A - Rectification of register on transfer;

* Sec. 117C - Liability of company to create security and debenture redemption reserve;

* Sec. 186 - Power to order meeting to be called;

* Sec. 203 - Power to restrain fraudulent persons from managing companies;

* Sec. 235, 236, 241, 247 - Investigation of the affairs of a company;

* Sec. 250 - Imposition of restriction upon shares and debentures and prohibition of transfer of shares or debentures in certain cases;

* Sec. 251 - Saving for legal advisers and bankers;

* Sec. 269 - Appointment of Managing or Whole Time Director or Manager to require Government approval only in certain cases;

* Sec. 388B - Reference of cases against Managerial personnel;

* Sec. 388C - Interim order;

* Sec. 388D - Decision;

* Sec. 388E - Power of Central Government to remove managerial personnel on the basis of decision;

* Sec. 397, 398, 399, 400, 401, 402,403,404,405, 407, 408, 408 - Prevention of Oppression and Mismanagement;

* Sec. 610 - Inspection, production and evidence of documents kept by Registrar;

* Sec. 614 - Enforcement of duty of Company to make returns to Registrars;

* Sec. 635B - Temporary protection of employees;

* Sec. 637A - Power to accord approval etc., subject to conditions and to prescribe fee on applications;

* Sec. 640 A - Exclusion of time required in obtaining copies of order.

POWERS OF BIFR TRANSFERRED TO NCLT:

The Companies (Amendment) Act, 2002 introduced Part VIA dealing with revival and rehabilitation of sick industrial companies. The powers of BIFR are transferred to NCLT in this regard as detailed below:

* Sec. 424A - Reference to Tribunal;

* Sec. 424 B - Inquiry into working sick industrial company;

* Sec. 424 C - Power to make suitable order on completion of inquiry;

* Sec. 424 D - Preparation and sanction of schemes;

* Sec. 424 E - Rehabilitation by giving financial assistance;

* Sec. 424 F - Arrangement for continuing operations etc., during inquiry;

* Sec. 424 G - Winding up of sick industrial company;

* Sec. 424 H - Operating Agencies to prepare complete inventory etc.,;

* Sec. 424 I - Directors not to dispose of assets;

* Sec. 424 J - Power to call for periodical proceedings;

* Sec. 424 K - Misfeasance proceedings;

* Sec. 424 L - Penalty for certain offences.

POWERS OF HIGH COURT TRANSFERRED TO NCLT:

As already mentioned some of the powers of the High Court are transferred to NCLT, the details of which are furnished as below:

* Sec. 75 - Return to allotments;

* Sec.101 - Application for confirming order, objections by creditors and settlement of list of objecting creditors (Reduction of share capital);

* Sec. 102 - Order confirming reduction and powers on making such order;

* Sec. 103 - Liability of members in respect of reduced shares;

* Sec. 243 - Application for winding up of Company or an order under Sec. 397 or 398;

* Sec. 391 - Power to compromise or make arrangements with creditors or members;

* Sec. 392 - Power to enforce compromise and arrangements;

* Sec. 394 - Provisions for facilitating reconstruction and amalgamation of companies;

* Sec. 394A - Notice to be given to Central Government for application under Sec. 391, 394;

* Sec. 395 - Power and duty to acquire shares of shareholders dissenting from scheme or contract approved by majority;

* Sec. 396 - Power of Central Government to provide amalgamation of companies in National interest;

* Part VII- Winding up of companies;

* Part X - Winding up of unregistered companies.

The provisions of the Companies Act, 1956 as detailed above as incorporated by means of Companies (Amendment) Act, 2002 are yet to be notified since litigation arised against the constitution of National Company Law Tribunal and National Company Law Appellate Tribunal which will be discussed in subsequent articles.