2022 (8) TMI 551 - SC - Companies Law

Constitutional Validity of N/N. S.O. 3412 (E) dated 20 September 2019 issued by the Ministry of Corporate Affairs - appointment of 28 candidates as Members of the National Company Law Tribunal for a tenure of three years - contrary to the provisions of Section 413 of the Companies Act 2013 or not - HELD THAT - A Selection Committee was constituted for the selection of Members of the NCLT. The Selection Committee was chaired by the Chief Justice of India. On 29 March 2022, the President of the NCLT addressed a communication to the Union Government recording that the tenure of 23 Members would come to an end in June July 2022 and that the resultant vacancies would create difficulties in the pan-India functioning of the NCLT. The President of the NCLT requested that the probable vacancies may be factored in during the course of the deliberations in the selection process. The meeting of the Selection Committee was convened on 20 April 2022. Following the meeting of the Selection Committee on 20 April 2022, a report was obtained from the President of the NCLT about the work performance and suitability of 23 Members. The Selection Committee then opined that there was no specific provision which empowered it to consider the issue of revising the term of office of the Members of the NCLT. The Committee however observed that considering the sensitive nature of the functions and duties of the Members of the NCLT, and considering the verification reports bearing on the character, antecedents, performance and suitability of the Members, the Union government may take appropriate action in the matter - Appointment of persons as members of the NCLT for a period of three years is not contemplated by the provisions of Section 413(1). An administrative notification for appointment has to be consistent with the statute which governs appointments to the Tribunal. Whether this Court should in the exercise of its jurisdiction under Article 32 of the Constitution entertain a petition filed by the Bar Association and direct the extension of tenures, especially in view of the supervening developments which have taken place in the meantime? - HELD THAT - In the present case, there is no challenge to the Rules or the provisions of the statute itself. The petitioners have instead sought an extension of the tenure of the retiring Members, who are not petitioning parties to the proceedings before this Court. The prayer for extension is also at a belated stage when the tenure of the Members is nearing its end. Not only had the Members consciously accepted the post for a duration of three years, the Selection Committee also already directed the government to take appropriate action basis the performance report. The Union Government has accordingly issued the notification dated 14 June 2020 extending the tenure of two judicial and six technical members. The appropriate course of action to be followed in the present case would be to allow the selection process which has been initiated to continue so that it can be concluded at an early date. The interest of the Bar Association which has moved these proceedings is that the vacancies in the Tribunal should be filled in on an expeditious basis so that work does not suffer and the functioning of the Tribunal is not hampered. The Bar Association cannot have a choice in regard to who should be a Member of the Tribunal. Petition disposed off.

Summary

Issues Involved:
1. Locus standi of the petitioner Bar Association.
2. Validity of the impugned notification prescribing a three-year tenure for NCLT members.
3. Right of the appointees to continue beyond the three-year term.
4. Supervening developments and their impact on the relief sought.
5. Compliance with Section 413 of the Companies Act 2013 in future appointments.

Issue-wise Detailed Analysis:

1. Locus Standi of the Petitioner Bar Association:
The Court examined whether the National Company Law Tribunal Bar Association had the standing to challenge the notification dated 20 September 2019. The Union government argued that since the Members of the NCLT accepted their appointments for three years without raising any grievances, the Bar Association lacked the locus standi to question the term of appointment. The Court noted that the issue of locus standi needed to be resolved before addressing the substantive claims.

2. Validity of the Impugned Notification Prescribing a Three-Year Tenure:
The petitioner contended that the notification issued by the Ministry of Corporate Affairs, which appointed 28 candidates as Members of the NCLT for a tenure of three years, was contrary to Section 413(1) of the Companies Act 2013. Section 413(1) stipulates a five-year term for NCLT Members. The Court acknowledged that the notification prescribing a three-year term was inconsistent with the statutory provision.

3. Right of the Appointees to Continue Beyond the Three-Year Term:
The petitioner sought a modification of the tenure from three years to five years for the Members appointed under the impugned notification. The Court noted that none of the appointees had challenged the three-year term, and some had even applied for reappointment. The Court found it inappropriate to entertain the petitioner's plea for extending the tenure, especially since it would involve evaluating the suitability and performance of individual Members who were not parties to the proceedings.

4. Supervening Developments and Their Impact on the Relief Sought:
The Court considered the supervening developments, including the ongoing selection process for new NCLT Members. The Selection Committee, chaired by the Chief Justice of India, had initiated the process of filling vacancies, including those arising from the end of the three-year term of the Members appointed on 20 September 2019. The Union government had also issued a notification on 14 June 2022, extending the tenure of two Judicial Members and six Technical Members for five years or until they attain the age of 65. The Court held that granting relief to the petitioner would interfere with the ongoing selection process.

5. Compliance with Section 413 of the Companies Act 2013 in Future Appointments:
The Court directed that future appointments to the NCLT must comply with the statutory provisions of Section 413 of the Companies Act 2013, which prescribes a five-year term for Members. The Court emphasized that administrative notifications must align with the governing statute.

Conclusion:
The Court concluded that while the notification prescribing a three-year term was not in consonance with Section 413 of the Companies Act 2013, the Members did not challenge it, and the selection process for new appointments was already underway. The Court decided not to extend the tenure of the 23 Members appointed on 20 September 2019. However, the notification extending the tenure of eight Members until they attain the age of 65 years was upheld. The petition was accordingly disposed of, and pending applications were dismissed.