2010 (5) TMI 864 - SC - Companies Law

Validity of the provisions of Companies Act, 1956 as amended by the Companies (Second Amendment) Act, 2002, which provides for setting up of National Company Law Tribunal and National Company Law Appellate Tribunal. Whether such wholesale transfer of powers as contemplated by the Companies (Second Amendment) Act, 2002 would offend the constitutional scheme of separation of powers and independence of judiciary, so as to aggrandize one branch over the other? Held that - Since the issues raised in the appeals are of seminal importance and are likely to have serious impact on the very structure and independence of the judicial system, the issue with regard to the constitution of the Tribunals and the areas of their jurisdiction needs to be given a fresh look and therefore, the matter deserves to be heard by a Constitution Bench.

Summary

Issues:
Challenge to the validity of provisions of Companies Act, 1956 as amended by the Companies (Second Amendment) Act, 2002 regarding the establishment of National Company Law Tribunal and National Company Law Appellate Tribunal.

Analysis:
The Supreme Court was presented with the challenge to the provisions of the Companies Act, 1956 as amended by the Companies (Second Amendment) Act, 2002, which introduced the establishment of the National Company Law Tribunal and National Company Law Appellate Tribunal. These provisions aimed to transfer almost all jurisdiction exercised by the High Courts in company matters to the proposed Tribunals. The Court heard arguments from both sides extensively, emphasizing the significance of the issue at hand.

The Court delved into the legal framework concerning the legislative competence to establish Tribunals, citing previous judgments such as L. Chandra Kumar v. Union of India [1997] 3 SCC 261, Union of India v. Delhi High Court Bar Association [2002] 4 SCC 2751, and State of Karnataka v. Vishwabharathi House Building Cooperative Society [2003] 2 SCC 412. It was noted that the Parliament and State Legislatures have the authority to effect changes in the original jurisdiction of the Supreme Court and High Courts under specific entries in the legislative lists.

However, the Court highlighted that previous decisions did not address the extent to which the powers of High Courts could be transferred to Tribunals, excluding judicial review under Articles 226 and 227. The key question raised was whether the wholesale transfer of powers to the Tribunals, as envisaged by the Companies (Second Amendment) Act, 2002, would violate the constitutional principles of separation of powers and independence of the judiciary. This raised concerns about potentially favoring one branch over another.

Recognizing the seminal importance of the issues and their potential impact on the judicial system's structure and independence, the Court concluded that the matter warranted consideration by a Constitution Bench. Therefore, a fresh examination of the constitution of the Tribunals and the scope of their jurisdiction was deemed necessary, highlighting the need for a comprehensive review by a specialized bench to address the complex legal and constitutional implications involved in the case.