National Company Law Tribunal

Introduction

As the Indian economy underwent significant transformations and experienced a surge in corporate activities, there emerged a recognition of the need for a specialized tribunal to adeptly address intricate corporate disputes, insolvency cases, and matters pertaining to company law. The Companies Act of 2013, which succeeded the Companies Act of 1956, made significant changes to the regulatory framework that governs companies in India, one of which was the induction of NCLT. The Ministry of Corporate Affairs issued a notice on June 1, 2016, announcing the establishment of NCLT and NCLAT, both of which will be operational on the same date. These Tribunals were established as a result of the authority granted by Sections 408 and 410 of the Companies Act of 2013.

At the time of its Constitution in June 2016, approximately 25,000 pending proceedings from the High Courts, the Company Law Board, the Debt Recovery Tribunal and the Board for Industrial and Financial Reconstruction were transferred to the new NCLT benches.

When the establishment of the NCLT was challenged in the Supreme Court, to ease the already burdened courts and to hear all matters relating to company law and other corporate laws, the Supreme Court upheld and permitted the establishment of NCLT and NCLAT under the Companies Act, 2013, in the cases Union of India v. R. Gandhi, President, Madras Bar Association (2010) 11 SCC 1 and Madras Bar Association V. Union of India 2015 SCC Online SC 1094.

Historical Evolution

Justice Eradi Committee (1999)

The Government of India decided to constitute a Committee under the Chairmanship of Justice V Balakrishna Eradi consisting of experts to examine the existing law relating to winding up proceedings of companies in order to remodel it in line with the latest developments and innovations in the corporate law and governance and to suggest reforms in the procedure at various stages followed in the insolvency proceedings of companies to avoid unnecessary delays in tune with the international practice in this field.

In Chapter- 7 (Suggestions and Recommendations of the Committee), the Committee recommended that the Provisions of Part VII of the Companies Act, 1956, be amended to include the provisions for setting up of a National Tribunal 'which will have

(a) the jurisdiction and power presently exercised by Company Law Board under the

Companies Act, 1956;

(b) the power to consider rehabilitation and revival of companies - a mandate presently entrusted to Board for Industrial and Financial Reconstruction (BIFR)/ Appellate Authority for Industrial and Finance Reconstruction (AAFIR) under Sick Industrial Companies Act, 1985 (SICA) ;

(c) the jurisdiction and power relating to winding up of companies presently vested in the High Courts. In view of the above recommendations Article 323B of the Constitution should be amended to set up the National Tribunal. SICA should be repealed and the Companies Act, 1956 be amended accordingly (para 7.1).

The Justice Eradi Committee Report also outlines other specifics of the National Tribunal such as its composition, procedure of liquidation, benches and powers of the liquidators. (para 7.1- 7.8).

2002 Amendment Act

In furtherance to the recommendations of Justice Eradi Committee, the Companies (Second Amendment) Act, 2002 (2002 Amendment Act) vide insertion of new Parts IB and IC provided the provisions for setting up of NCLT and NCLAT to replace the existing Company Law Board (CLB) and for transfer of all matters or proceedings or cases pending before the CLB to the NCLT and to dispose off such cases in accordance with the provisions of the Companies Act, 1956 and the 2002 Amendment Act.

However, owing to Constitutional challenges, the provisions of the 2002 Amendment could not be notified.

Justice JJ Irani Committee (2005)

The Justice JJ Irani Committee in its Expert Report on Company Law published in May 2005 also expressed its hope that the NCLT that was envisaged to be constituted as per the Companies (Second Amendment) Act, 2002 would be constituted speedily (para 24.1 of Chapter XIII) and that it should have a “general, non-intrusive and supervisory role” in the liquidation and rehabilitation process (para 24.2 of Chapter XIII) and should adopt a commercial approach to dispute resolution in a time bound manner.

Another interesting recommendation of the Justice Irani Committee Report is to provide it with criminal Jurisdiction (para 24 of Chapter XII)  while the NCLT was envisaged as a forum to be headed by a person with judicial qualifications not less than that of a High Court Judge. Its jurisdiction would extend to civil remedies to company law issues referred to it. However, in order to enable the speedy imposition of penalties in respect of criminal offences, the possibility of vesting certain specified benches of the NCLT with criminal jurisdiction should also be examined. Such benches may comprise members having judicial background only. The process would be subject to appeal to the NCLAT (Appellate Body) which is in any case envisaged to be headed by a person who has been Chief Justice of a High Court or a Justice of the Supreme Court.

First Constitutional Challenge (2004-2010)

The  Companies (Second Amendment) Act, 2002 was challenged by the Madras Bar Association at the High Court of Madras which gave its judgement in R. Gandhi v Union of India in 2004, and on Appeal, its Constitutional Validity was finally decided by a Constitutional Bench of the Supreme Court of India in the 2010 case Union of India v R. Gandhi, President, Madras Bar Association. In this case, while the legislative competence of Parliament to create the NCLT and NCLAT was upheld by the Supreme Court, certain provisions related to the structure of the NCLT and NCLAT proposed by the 2002 Amendment Act were held to be unconstitutional.

The Government was required to make some amendments (such as selection of members, tenure, qualifications etc) to the 2002 Amendment Act to ensure that the provisions of the Companies Act, 1956 as amended by the 2002 Act were in line with the Constitution.

However, despite the 2010 Judgement of the Supreme Court upholding the Constitutional validity of the NCLT and NCLAT, they were not established. Thereafter, the Parliament of India passed the Companies Act, 2013.

Companies Act, 2013

The Companies Act, of 2013 replaced the Companies Act, of 1956. The 2014 Act included substantial provisions relating to the establishment, powers and jurisdiction of the NCLT and NCLAT.

Second Constitutional Challenge, 2015

The Constitutional validity of the provisions related to NCLT and NCLAT in the Companies Act, 2013 were again challenged by the Madras Bar Association, and the matter was conclusively decided by a Constitutional Bench of the Supreme Court of India in Madras Bar Association v Union of India. Like its 2010 judgement, the Supreme Court again upheld the constitutional validity of the NCLT and NCLAT. It also held that the Indian Constitution allowed the legislature to establish tribunals as alternatives to Courts, provided that the tribunal so established has the qualitative trappings and competence of the Court sought to be replaced. Therefore, the Court ordered some provisions relating to the qualification of technical members to be amended to be in conformity with the Constitution and the prescribed guidelines of the judgment.

Constitution of NCLT and NCLAT by Ministry of Corporate Affairs Notifications, 2016

Finally, the NCLT and NCLAT were established under Sections 408 and 410 of the Companies Act, 2013 through the three notifications dated June 1, 2016, issued by the Ministry of Corporate Affairs for this purpose:

1. Notification constituting the National Company Law Tribunal and National Company Law Appellate Tribunal under Sections 408 and 410 respectively of the Companies Act, 2013
2. Commencement Notification under Section 1 (3) of the Companies Act, 2013 and Notification constituting the Benches of the National Company Law Tribunal
3. Transfer of matters or proceedings or cases pending before the Company Law Board to the National Company Law Tribunal

Legislative Framework

Constituting Act

The Central Government has constituted the National Company Law Tribunal (NCLT) under section 408 of the Companies Act, 2013 (18 of 2013) w.e.f. 01st June 2016.

408. Constitution of National Company Law Tribunal.— The Central Government shall, by notification, constitute, with effect from such date as may be specified therein, a Tribunal to be known as the National Company Law Tribunal consisting of a President and such number of Judicial and Technical members, as the Central Government may deem necessary, to be appointed by it by notification, 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 National Company Law Tribunal (NCLT) in India was established by the Companies Act of 2013. Sections 408 of the Companies Act of 2013 are specifically relevant to the establishment and operation of the NCLT. These sections authorise the Central Government to establish the NCLT and define its powers and jurisdiction over corporate disputes, insolvency, and other company law issues.

Jurisdiction

Company Law

Section 280 of the Companies Act, 2013, specifically addresses the jurisdiction of the National Company Law Tribunal (NCLT) in resolving suits, proceedings, or claims involving a company.

Section 280 Jurisdiction of Tribunal.— The Tribunal shall, notwithstanding anything contained in any other law for the time being in force, have jurisdiction to entertain, or dispose of,— (a) any suit or proceeding by or against the company; (b) any claim made by or against the company, including claims by or against any of its branches in India; (c) any application made under section 233; (d) any scheme submitted under section 262; (e) any question of priorities or any other question whatsoever, whether of law or facts, including those relating to assets, business, actions, rights, entitlements, privileges, benefits, duties, responsibilities, obligations or in any matter arising out of, or in relation to winding up of the company, whether such suit or proceeding has been instituted, or is instituted, or such claim or question has arisen or arises or such application has been made or is made or such scheme has been submitted, or is submitted, before or after the order for the winding up of the company is made.

This provision empowers the NCLT to adjudicate on issues related to the merger and amalgamation of companies, ensuring that such processes adhere to the stipulated legal provisions. Additionally, cases pertaining to the oppression and mismanagement of a company, as outlined in Chapter XVI of the Companies Act, 2013, fall under the purview of the NCLT's jurisdiction. The NCLT, in these instances, serves as the designated forum for the resolution of complex corporate matters, providing a specialized and authoritative venue for legal proceedings associated with corporate entities.

NCLT is also  empowered to consider class action suits, enabling collective legal action either by shareholders or depositors against a company for perceived wrongful acts. This provision holds significance for empowering minority stakeholders, fostering corporate governance, and enhancing transparency within companies. The Companies Act of 2013 introduces a class action suit provision under Section 245.

Under Chapter XV of the Companies Act of 2013, the tribunal also reviews and approves compromises and arrangements between a company and its creditors or members.

Insolvency and Bankruptcy Code, 2016

Under the Insolvency and Bankruptcy Code, 2016, the NCLT is a critical forum for initiating and overseeing the Corporate Insolvency Resolution Process (CIRP), which is the systematic procedure for addressing the insolvency of a corporate debtor. Corporate insolvency is characterized by the failure of a corporate entity to meet its debt obligations, whether in full, in part, or by instalment, when they are due and payable. The initiation of CIRP can be triggered by different entities: a financial creditor can initiate it under section 7, an operational creditor under section 9, and a corporate applicant representing the corporate debtor under section 10 of the Code. The tribunal is responsible for addressing issues concerning the liquidation of companies, whether initiated voluntarily or compelled under Chapter XX.

Limited Liability Partnership

In addition to companies, the NCLT also holds jurisdiction over Limited Liability Partnerships (LLPs). The tribunal is empowered to arbitrate disputes and address issues pertaining to the establishment, operation, and dissolution of LLPs.

Appellate jurisdiction from executive body decisions

The NCLT functions as an appellate forum for cases stemming from decisions made by various regulatory authorities. This encompasses appeals against the rulings of entities such as the Registrar of Companies (RoC), the Securities and Exchange Board of India (SEBI), and the Competition Commission of India (CCI), among others.

Governance Structure

The National Company Law Tribunal is constituted of a President and Judicial and Technical Members as prescribed. The Central Government appoints the Tribunal's President in consultation with the Chief Justice of India. The Central Government appoints members based on the recommendations of a Selection Committee.

Provisions relating to members of the tribunal

Qualifications

The president of NCLT must be a judge who has served a minimum of five years as a judge of a High Court.

A judicial member can be:

• A judge serving or having served as a judge of the High Court,
• A District Judge having served for a minimum of five yearss, or
• An advocate having ten years of practising experience.

Appointment of Members

The procedure for the appointment of members is outlined in Section 412 of the Companies Act.

1. The appointment of the President of the Tribunal, as well as the Chairperson and Judicial Members of the Appellate Tribunal, will be made following consultations with the Chief Justice of India.

2. Members of the Tribunal and Technical Members of the Appellate Tribunal will be appointed based on the recommendations of a Selection Committee. This committee comprises:

  a. The Chief Justice of India or their nominee as Chairperson.

  b. A senior Judge of the Supreme Court or Chief Justice of a High Court as a Member.

  c. The Secretary in the Ministry of Corporate Affairs as a Member.

  d. The Secretary in the Ministry of Law and Justice as a Member.

  In case of a tie-in vote during the Selection Committee's meeting, the Chairperson holds a casting vote.

3. The Secretary of the Ministry of Corporate Affairs will serve as the Convener of the Selection Committee.

4. The Selection Committee has the authority to establish its procedure for recommending individuals under subsection (2).

5. The absence of a member or any defect in the constitution of the Selection Committee does not render the appointment of Tribunal or Appellate Tribunal Members invalid.

Term of Office

413. Term of office of President, chairperson and other Members.—

(1) The President and every other Member of the Tribunal shall hold office as such for a term of five years from the date on which he enters upon his office, but shall be eligible for re-appointment for another term of five years.

(2) A Member of the Tribunal shall hold office as such until he attains,— (a) in the case of the President, the age of sixty-seven years; (b) in the case of any other Member, the age of sixty-five years: Provided that a person who has not completed fifty years of age shall not be eligible for appointment as Member: Provided further that the Member may retain his lien with his parent cadre or Ministry or Department, as the case may be, while holding office as such for a period not exceeding one year.

(3) The chairperson or a Member of the Appellate Tribunal shall hold office as such for a term of five years from the date on which he enters upon his office, but shall be eligible for re-appointment for another term of five years.

(4) A Member of the Appellate Tribunal shall hold office as such until he attains,— (a) in the case of the Chairperson, the age of seventy years; (b) in the case of any other Member, the age of sixty-seven years:

Provided that a person who has not completed fifty years of age shall not be eligible for appointment as Member:

Provided further that the Member may retain his lien with his parent cadre or Ministry or Department, as the case may be, while holding office as such for a period not exceeding one year.

Salary and Allowance of member

Section 414 talks about the following:

414. Salary, allowances and other terms and conditions of service of Members.—

The salary, allowances and other terms and conditions of service of the Members of the Tribunal and the Appellate Tribunal shall be such as may be prescribed:

Provided that neither the salary and allowances nor the other terms and conditions of service of the Members shall be varied to their disadvantage after their appointment.

Removal And Resignation

The resignation and removal provisions for members of the National Company Law Tribunal (NCLT) are outlined in Sections 415 and 416 of the Companies Act, 2013.

Resignation (Section 415):

Any member, including the President, Chairperson, or Member, has the option to resign by submitting a written notice to the Central Government. Upon receiving the resignation notice, the member will continue to hold office for three months, or until the appointment of a successor or the expiration of the term, whichever comes first.

Removal (Section 416):

The Central Government, in consultation with the Chief Justice of India, has the authority to remove the President, Chairperson, or any Member of the NCLT based on specific grounds. These grounds include adjudication as insolvent, conviction of an offense involving moral turpitude, physical or mental incapacity, acquisition of interests likely to prejudice their functions, or abuse of position prejudicial to public interest. Grounds 2 to 5 require a reasonable opportunity for the individual to be heard before removal.

For removal on grounds of proven misbehavior or incapacity, an inquiry is conducted by a Supreme Court Judge nominated by the Chief Justice of India, following a reference by the Central Government. The affected individual is informed of the charges and given an opportunity to respond. The Central Government, with the concurrence of the Chief Justice of India, may suspend the member during the inquiry until a decision is reached based on the Supreme Court Judge's report. Rules for such inquiries are to be established by the Central Government in consultation with the Supreme Court.

4. Digitisation

Main Website

The main website of the National Company Law Tribunal provides extensive information about the tribunal’s functioning. It provides information about it’s establishment, and governance procedures as well as structure. It also gives avenue to check online the status of cases ongoing, history, and any secondary legislation related to the operation of the tribunal. Further the data about disposal of cases is also linked to, divided according to the act under which the cases were disposed of. The procedure for proceedings under the RTI (Right to Information) Act, details of all the benches in the tribunal, appellate authorities, and E-filing procedures are also available..

E-Filing

There is provision for filing petition or appeal cases online on the website’s e-filing portal. The persons or representatives filing the case must register on the website first, and follow the procedure provided according to the type of petitioner. Depending on the type of case, the petitioner/appellant must choose the right forum, i.e. NCLT or NCLAT. After which the requisite details must be provided for the case. The website provides the petitioner with information regarding the status of the case, listing date, and any relevant orders by the tribunal. Similarly, it also allows filing applications pertaining to the cases. NCLT also checks defects in online filings, after which the petitioner or application has an option to re-file a case by editing it according to the objections raised. An extensive manual is available for the procedure with all the requisite details.

E-cause List

NCLT provides online the cause list that is taken up by the tribunal benches which is updated daily.(https://nclt.gov.in/all-couse-list) The PDF document first mentions the Bench, the date of the proceedings to be taken up, and the mode of hearing, i.e. whether it’s physical or virtual hearing. In case of virtual hearings, the link for the video conference is provided. The coram of the bench is provided right before the details of the causes. The Cause list itself specifies the petition/appeal or the application no, the applicable act and section, the name of the parties, and the counsel for both parties.

Case Status

The NCLT website provides for checking the status of a case. One must search according to either the filing number, case number, party name, or the advocate name applicable to the case, then provide the bench and other applicable information. There is also a public repository of cases filed which can be accessed through another link which provides case details with minimal information of bench and the time range, unlike the earlier repository which requires specific knowledge of the case.

Tribunal Orders

The orders directed by the NCLT can be accessed through the link provided for the same. The orders have to be searched according to either the date of the order or of the judgment, the case no, the petitioner or advocates name. One can also search for orders delivered by a particular judge.

Disposal Report

NCLT provides a rudimentary set of data on the disposal of cases on it's website divided by whether it was disposed under the Insolvency and Bankruptcy Code, 2016, or the Companies Act, 2013. The major sections covered under the IBC are sections 7, 9, 10, 94, 95,59. Under the Companies Act the major sections covered are section 230 to section 232.

Research that engages with NCLT

Pulling back the curtain: examining the NCLT through data

The article explores the functioning of the National Company Law Tribunal. It goes into challenges faced by the tribunal like transparency, scheduling, and case delays. It used empirical analysis to do the analysis and recommend systemic reforms for the same. The issues it identifies are the need to improve the scheduling of members presiding over the cases, the necessity for clear data on disposals, and overall transparency. It also goes into capacity constraints which affect the full functioning of the tribunal.

Estimating Capacity Requirements of the National Company Law Tribunal: Notes from the Field

This chapter in Technology and Analytics for Law and Justice explores the metrics used to examine a court's capacity requirements to argue for the adoption of the Weighted Caseload Method (WCM) framework for the determination. In this case, the aim is to provide a metric for determining what the sanctioned strength of the NCLT tribunal should be, to be able to fulfil its functions. It explores the existing criteria and methods to determine the required sanctioned strength, points out that parameters such as pendency and disposal rates are inadequate in helping determine the required strength, and introduces ‘judge time’ as the alternative parameter.

The understanding is that courts should meet the needs of the people and the sanctioned strength numbers should align with this objective taking into account this quantum. The strength is optimal if it takes into account the future estimate of workload, enables delivery of cases according to expectations, and uses the resources to maintain the strength judicially.

Issues and Challenges

Vacancies in NCLT Member Appointments

The NCLT grapples with a critical challenge due to a substantial number of vacancies in member appointments, significantly impacting its functionality. Among the sanctioned 63 positions, including the President, 31 Judicial, and 31 Technical members, an alarming 36% remain vacant or inactive. A DAKSH study analyzing 1,661 cause lists from January to March 2023 revealed a shortfall in the Coram, with only 21 judicial members and 19 technical members in attendance. This shortage leads to unpredictability and chaos for lawyers and litigants across benches, as members must juggle multiple assignments daily, resulting in staggered starting times. Benches like Chennai Bench Court-I and Kolkata Bench Court-II face scheduling challenges, exacerbating the issue. The strain on members is evident, with frequent instances of judicial members appearing in multiple courts on the same day, sometimes without technical members. This situation not only hampers NCLT efficiency but also underscores the urgent need to address vacancies for a smoother tribunal operation and timely resolution of corporate disputes.

Vacancies in Administrative Staff

The NCLT grapples with significant challenges due to administrative staff vacancies across its 15 zones. Of the 20 Joint, Deputy, and Assistant registrars, Bengaluru, Chandigarh, and Guwahati have only Assistant Registrars, potentially impacting case efficiency. New Delhi and Ahmedabad have Joint or Deputy Registrars, while other zones like Chennai and Hyderabad have a mix. Mumbai, despite having five benches and a large caseload, has only one Deputy Registrar, risking operational inefficiencies. The disparities highlight a need for addressing vacancies to ensure equitable administrative support, crucial for the tribunal's smooth functioning and timely case resolution. Addressing these issues is paramount for enhancing overall efficiency and service quality in the NCLT.

Increasing Volume of Filed Matters

An increase in the number of main cases filed and the introduction of interlocutory applications (IAs) have been identified as significant contributors to delayed disposals across various NCLT benches. To analyze this trend, DAKSH utilized the NCLT Case Information System (CIS) to examine the filing patterns of both new cases and interlocutory applications in the New Delhi, Mumbai, and Chennai zones. The examination covered comparable periods from 2020 to 2023, with total filing patterns available from the year 2021 onward due to the mandatory implementation of e-filing in 2020. This data provides insights into the escalating caseload and the growing complexity of matters brought before the NCLT, potentially contributing to challenges in timely case resolution.

Inconsistent Format of Cause List

Mumbai's cause lists pose challenges by grouping Interlocutory Applications (IAs), Compromise Applications (CAs), and Resolution Plans within the same cell, causing difficulty in consumption and tracking. In contrast, Chennai employs a more organized approach, assigning a separate row for each IA or Miscellaneous Application (MA) in the cause list, facilitating easier tracking in complex proceedings. However, the Bangalore bench faces issues with case management tools due to cause list PDF files being presented as images, hindering automated parsing and prompt updates for lawyers. Addressing these formatting challenges in cause lists is crucial for improving clarity, efficiency, and automation in case management processes across NCLT benches.

Pendency and Disposal of Cases

As of August 2022, data from the NCLT website reveals that 79% of the cases numbered by the tribunal have been disposed of. Notably, Companies Act cases accounted for just over 60% of the total cases numbered, but they constituted 84% of the cases that have been disposed of. This suggests a higher rate of resolution for Companies Act cases compared to other types of cases. On the other hand, a relatively larger share of Insolvency and Bankruptcy Code (IBC) cases remained pending before the NCLT, indicating potential challenges or complexities in the resolution process for these specific cases.

Under the Insolvency and Bankruptcy Code (IBC), the Corporate Insolvency Resolution Process (CIRP) can be initiated by financial creditors, operational creditors, or corporate applicants/corporate debtors. As of March 2023, IBBI reports 6,571 CIRPs admitted since 2016, with 69% closed and 31% ongoing. Among closed cases, 45% led to liquidation, 40% were appealed, reviewed, settled, or withdrawn, and 15% closed through resolution plans. Notably, despite NCLT data indicating 31,203 IBC cases in August, IBBI reported 6,567 as of March. Additionally, NCLT data shows 23,608 cases settled before admission, highlighting variations in reporting and outcomes between NCLT and IBBI sources.

Way Forward

• The establishment of a dedicated Tribunal Management Service is proposed. This service would oversee essential infrastructure, technology implementation, and process management within the NCLT. Such a dedicated team could contribute significantly to the tribunal's overall efficiency and effectiveness. Overall, these solutions aim to address the operational challenges faced by the NCLT and enhance its functionality in resolving corporate and commercial disputes.