2015 (5) TMI 501 - SC - Companies Law

Constitutional validity of provisions relating to the structure and constitution of NCLT and NCLAT in Companies Act, 2013 - Breach of Apex court earlier directions given in the year 2010 related to same matter - In the first instance, NCLAT is concerned, its validity has already been upheld and this issue cannot be reopened. Judgment in the case of 2010 judgment is of a Constitution Bench and that judgment of a co-ordinate Bench binds this Bench as well - Held that - Constitutional validity of NCLT and NCLAT - It is pertinent to point out that in the prayer clause, though challenge is laid to the vires of Section 408, it conspicuously omits Section 410 and, thus, in essence, there is no challenge to the constitution of NCLAT insofar as relief claimed is concerned. Moreover, as pointed out above, the entire writ petition takes umbrage under the Constitution Bench judgment 2010 (5) TMI 393 - SUPREME COURT OF INDIA in 2010. However, at the time of arguments, Mr. Datar primarily challenged the Constitutional validity of NCLAT without making any serious efforts to challenge the constitution of NCLT. As far as NCLT is concerned, he almost conceded that validity thereof stands upheld in 2010 judgment and there is not much to argue. In respect of NCLAT, though he conceded that validity thereof is also upheld in the aforesaid judgment, his endeavour was to demonstrate that there is no discussion in the entire judgment insofar as NCLAT is concerned and, therefore, conclusion which is mentioned in the said judgment at the end, should not be treated as binding or to be taken as having decided this issue. His submission was that in view of the subsequent Constitution Bench judgment of this Court in Madras Bar Association 2014 (9) TMI 821 - SUPREME COURT , wherein establishment of National Tax Tribunal has been held to be unconstitutional, Section 410 should also be meted out the same treatment for the reasons recorded in the said judgment pertaining to National Tax Tribunal. It is difficult to digest this argument for various reasons, which we record in the discussion hereafter. First of all the creation of Constitution of NCLAT has been specifically upheld in 2010 judgment. It cannot be denied that this very petitioner had specifically questioned the Constitutional validity of NCLAT in the earlier writ petition and even advanced the arguments on this very issue. This fact is specifically noted in the said judgment. The provision pertaining to the constitution of the Appellate Tribunal i.e. Section 10FR of the Companies Act, 1956 was duly taken note of. Challenge was laid to the establishments of NCLT as well as NCLAT on the ground that the Parliament had resorted to tribunalisation by taking away the powers from the normal courts which was essentially a judicial function and this move of the Legislature impinged upon the impartiality, fairness and reasonableness of the decision making which was the hallmark of judiciary and essentially a judicial function. Argument went to the extent that it amounted to negating the Rule of Law and trampling of the Doctrine of Separation of Powers which was the basic feature of the Constitution of India. What we are emphasising is that the petitions spearheaded the attack on the constitutional validity of both NCLT as well as NCLAT on these common grounds. The Court specifically went into the gamut of all those arguments raised and emphatically repelled the same. The Court specifically rejected the contention that transferring judicial function, traditionally performed by the Courts, to the Tribunals offended the basic structure of the Constitution. Summarised position in this behalf as follows - A legislature can enact a law transferring the jurisdiction exercised by courts in regard to any specified subject (other than those which are vested in courts by express provisions of the Constitution) to any tribunal. - All courts are tribunals. Any tribunal to which any existing jurisdiction of courts is transferred should also be a Judicial Tribunal. This means that such Tribunal should have as members, persons of a rank, capacity and status as nearly as possible equal to the rank, status and capacity of the court which was till then dealing with such matters and the members of the Tribunal should have the independence and security of tenure associated with Judicial Tribunals. - The Legislature can re-organize the jurisdictions of Judicial Tribunals. Thereafter, the Constitution Bench categorically dealt with the Constitutional validity of NCLT and NCLAT under the caption Whether the constitution of NCLT and NCLAT under Parts 1B & 1C of Companies Act are valid , and embarked upon the detailed discussion on this topic. It becomes manifest from the above that the question of validity of NCLAT was directly and squarely in issue. Various facets of the challenge laid to the validity of these two fora were thoroughly thrashed out. No doubt, most of the discussion contained in paras 107 to 119 refers to NCLT. However, on an insight into the said discussion contained in these paragraphs, would eloquently bear it out that it is inclusive of NCLAT as well. In para 121 of the judgment, which is already extracted above, the Court specifically affirmed the decision of the High Court which held that creation of NCLT and NCLAT was not unconstitutional. In view of this, it is not open to the petitioner even to argue this issue as it clearly operate as res judicata. - Secondly, reading of the Constitution Bench judgment in the matter of National Tax Tribunal would manifest that not only 2010 judgment was taken note of but followed as well. The Court spelled out the distinguishing features between NCLT/NCLAT on the one hand and NTT on the other hand in arriving at a different conclusion. - Thirdly, the NTT was a matter where power of judicial review hitherto exercised by the High Court in deciding the pure substantial question of law was sought to be taken away to be vested in NTT which was held to be impermissible. In the instant case, there is no such situation. - Fourthly, it is not unknown rather a common feature/practice to provide one appellate forum wherever an enactment is a complete Code for providing judicial remedies. Providing one right to appeal before an appellate forum is a well accepted norm which is perceived as a healthy tradition. Qualifications of President and Members of NCLT in Section 409 of the Act, 2013 - Qualification of Chairperson and Members of NCLAT in Section 411 of the Act, 2013 - What gets revealed from the reading of para 120, particularly, sub-para (ii) thereof that only officers who are holding the ranks of Secretaries or Additional Secretaries alone are to be considered for appointment as technical Members of NCLT. Provisions contained in clauses (c) and (d) of sub-section (2) and Clause (a) and (b) of sub-section (3) of Section 10FD which made Joint Secretaries with certain experience as eligible, were specifically declared as invalid. Notwithstanding the same, Section 409(3) of the Act, 2013 again makes Joint Secretary to the Government of India or equivalent officer eligible for appointment, if he has 15 years experience as member of Indian Corporate Law Service or Indian Legal Service, out of which at least 3 years experience in the pay scale of Joint Secretary. This is clearly in the teeth of dicta pronounced in 2010 judgment. In the counter affidavit, the respondents have endeavored to justify this provision by stating that this variation was made in view of the lack of available officers at Additional Secretary level in Indian Companies Law Service. It is further mentioned that functionally the levels of Additional Secretary and Joint Secretary are similar. These officers have knowledge of specific issues concerning operations and working of companies and their expertise in company law which is expected to benefit NCLT. Such an explanation is not legally sustainable, having regard to the clear mandate of 2010 judgment. Having regard to the aforesaid clear and categorical dicta in 2010 judgment, tinkering therewith would evidently have the potential of compromising with standards which 2010 judgment sought to achieve, nay, so zealously sought to secure. Thus, we hold that Section 409(3)(a) and (c) are invalid as these provisions suffer from same vice. Likewise, Section 411(3) as worded, providing for qualifications of technical Members, is also held to be invalid. For appointment of technical Members to the NCLT, directions contained in sub-para (ii), (iii), (iv), (v) of para 120 of 2010 judgment will have to be scrupulously followed and these corrections are required to be made in Section 409(3) to set right the defects contained therein. We order accordingly, while disposing of issue No.2. Constitution of Selection Committee for selecting the Members of NCLT and NCLAT - Section 412 of the Act, 2013 - The structure of the Selection Committee was found fault with by the Constitution Bench in 2010 judgment. The Court specifically remarked that instead of 5 members Selection Committee, it should be 4 members Selection Committee and even the composition of such a Selection Committee was mandated in Direction No.(viii) of para 120 and sub-para. There is a deviation in the composition of Selection Committee that is prescribed under Section 412 (2) of the Act, 2013. We are of the opinion that this again does not constitute any valid or legal justification having regard to the fact that this very issue stands concluded by the 2010 judgment which is now a binding precedent and, thus, binds the respondent equally. The prime consideration in the mind of the Bench was that it is the Chairperson, viz. Chief Justice of India, or his nominee who is to be given the final say in the matter of selection with right to have a casting vote. That is the ratio of the judgment and reasons for providing such a composition are not far to seek. In the face of the all pervading prescript available on this very issue in the form of a binding precedent, there is no scope for any relaxation as sought to be achieved through the impugned provision and we find it to be incompatible with the mandatory dicta of 2010 judgment. Therefore, we hold that provisions of Section 412(2) of the Act, 2013 are not valid and direction is issued to remove the defect by bringing this provision in accord with sub-para (viii) of para 120 of 2010 judgment. Power to punish for contempt as given to the NCLT and NCLAT under Section 425 of the Act - It was feebly argued by Mr. Datar that power to punish for contempt as given to the NCLT and NCLAT under Section 425 of the Act is not healthy and should be done away with. It was also argued that power given to the Central Government to constitute the Benches is again impermissible as such power should rest with President, NCLT or Chairman, NCLAT. However, we hardly find any legal strength in these arguments. We have to keep in mind that these provisions are contained in a statute enacted by the Parliament and the petitioner could not point out as to how such provisions are unconstitutional. Since, the functioning of NCLT and NCLAT has not started so far and its high time that these Tribunals start functioning now, we hope that the respondents shall take remedial measures as per the directions contained in this judgment at the earliest, so that the NCLT & NCLAT are adequately manned and start functioning in near future. - Decided against the appellant.

Summary

Issues Involved:
1. Constitutional validity of the National Company Law Tribunal (NCLT) and National Company Law Appellate Tribunal (NCLAT).
2. Qualifications, term of office, and salary allowances of the President and Members of NCLT and NCLAT.
3. Structure of the Selection Committee for appointing President/Members of NCLT and Chairperson/Members of NCLAT.
4. Incidental issues regarding the power to punish for contempt and the power given to the Central Government to constitute Benches.

Detailed Analysis:

Issue 1: Constitutional Validity of NCLT and NCLAT
The court upheld the constitutional validity of NCLT and NCLAT, referencing the 2010 judgment which had already affirmed their constitutionality. The petitioner's challenge to NCLAT was dismissed, as the 2010 judgment had specifically addressed and upheld the creation of both tribunals. The court emphasized that the validity of NCLAT had been directly and squarely addressed in the 2010 judgment, making any further challenge on this ground untenable. The court also distinguished this case from the National Tax Tribunal case, noting that the jurisdiction and functions of NCLT and NCLAT are different from those of the National Tax Tribunal.

Issue 2: Qualifications and Terms of Office
The qualifications for technical members of NCLT and NCLAT were found to be inconsistent with the 2010 judgment. The court pointed out that only officers holding the ranks of Secretaries or Additional Secretaries should be considered for appointment as technical members. Section 409(3) of the Companies Act, 2013, which allowed Joint Secretaries with certain experience to be eligible, was declared invalid. Similarly, Section 411(3) was also held invalid for not adhering to the standards set in the 2010 judgment. The court directed that the corrections specified in the 2010 judgment must be followed scrupulously.

Issue 3: Structure of the Selection Committee
The court found the composition of the Selection Committee under Section 412(2) of the Companies Act, 2013, to be invalid as it deviated from the structure mandated in the 2010 judgment. The 2010 judgment had specified a four-member committee with the Chief Justice of India or his nominee having a casting vote, which was not provided in the 2013 Act. The court rejected the respondents' justification for this deviation, emphasizing the need to adhere to the binding precedent of the 2010 judgment.

Incidental Issues
The court dismissed the arguments against the power to punish for contempt and the power given to the Central Government to constitute Benches, finding no constitutional infirmity in these provisions.

Conclusion:
The writ petition was partly allowed. The court declared certain provisions of the Companies Act, 2013, invalid and directed the respondents to make necessary amendments to comply with the 2010 judgment. The court also urged the respondents to expedite the process of making NCLT and NCLAT functional by appointing the necessary personnel.