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A PROJECT REPORT ON: - INTRODUCTION OF NATIONAL COMPANY LAW TRIBUNAL AND NATIONAL COMPANY LAW APPELLANT TRIBUNAL UNDER COMPANY ACT 2013

PROJECT SUBMITTED TO:

Dr. DEEPAK DAS

(FACULTY OF LAW)

PROJECT SUBMITTED BY:

SHOAIB ALVI

(SEMESTER VI)

ROLL NO.153

SECTION-A

SUBMITTED ON: 06.04.2017

VI) ROLL NO.153 SECTION-A S UBMITTED ON : 06.04.2017 H IDAYATULLAH N ATIONAL L AW U

HIDAYATULLAH NATIONAL LAW UNIVERSITY

RAIPUR, CHHATTISGARH

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ACKNOWLEDGEMENT

I feel highly elated to work on the topic Introduction of National Company Law Tribunal

and National Company Law Appellant Tribunal under Company Act 2013the practical realization of this project has obligated the assistance of many persons. I express my deepest regard and gratitude to my teachers for their unstinted support. Their consistent supervision, constant inspiration and invaluable guidance have been of immense help in understanding and carrying out the nuances of the project report.

I would like to thank my family and friends without whose support and encouragement, this project would not have been a reality. I take this opportunity to also thank the University and the Vice Chancellor for providing extensive database resources in the Library and through Internet.

My gratitude also goes out to the staff and administration of HNLU for the infrastructure in the form of our library and IT Lab that was a source of great help for the completion of this project

Some printing errors might have crept in, which are deeply regretted. I would be grateful to receive comments and suggestions to further improve this project report.

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Shoaib Alvi

Roll No. 153

Section A

CONTENTS

ACKNOWLEDGEMENTS……………………………………………………………… …02

CHAPTER 1:- INTRODUCTION…………………………………………

……

04-07

OBJECTIVES……………………………………………………

……………

……07

NATURE

OF

STUDY

AND

SOURCES

OF

DATA……………….………………………

…………

…07

CHAPTER 2:- POWERS OF NATIONAL COMPANY LAW TRIBUNAL AND NATIONAL COMPANY LAW APPELLATE TRIBUNAL ……………………………08-15

CONCLUSION……………………………………………………………………….……… 16

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CHAPTER 1:- INTRODUCTION

The constitution of the National Company Law Tribunal and the National Company Law Appellate Tribunal is a paradigm shift with the intention of establishing a specialized forum to adjudicate all disputes/issues pertaining to companies in India. The primary objective of constituting these tribunals is to provide a simpler, speedier and more accessible dispute resolution mechanism.

The Government of India has, after fourteen years since their introduction, constituted the National Company Law Tribunal (NCLT) and the National Company Law Appellate Tribunal (NCLAT) under the Companies Act, 2013 (Companies Act) to provide for a single judicial forum to adjudicate all disputes concerning the affairs of Indian companies. The tribunals have been made effective from 1 June 2016.

The NCLT will have eleven benches initially, two at New Delhi and one each at Ahmadabad, Allahabad, Bangalore, Chandigarh, Chennai, Guwahati, Hyderabad, Kolkata and Mumbai. The NCLT will comprise a president and judicial and technical members, as necessary. Justice M.M. Kumar, former Chief Justice of the High Court of Jammu and Kashmir has been appointed the president of the NCLT. The NCLAT, the appellate body, will consist of a chairperson and a maximum of eleven judicial and technical members. Justice S.J. Mukhopadhaya, a retired judge of the Supreme Court of India, has been appointed the chairperson of the NCLAT.

While the tribunals have been set up to deal with all company related disputes (except any criminal prosecution for offences under the Companies Act), the powers currently provided to the NCLT and the NCLAT under the recent notifications are limited. It is expected that further notifications will soon be issued to allow the NCLT and the NCLAT to exercise complete gamut of powers prescribed under the Companies Act. 1

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Creation of Appellate Tribunal

One of the important provisions of the Companies (Second Amendment) Bill, 2013 is to provide for the creation of Appellate Tribunal under the legislation which will hear appeals from the NCLT. It has been constituted under Section 10FR. AN appeal can be made to the Appellate Tribunal under Section 10FQ. However, not all appeals to the Appellate Tribunal are allowed from the NCLT. Those orders made by the NCLT which were with the consent of both parties, appeals can’t be allowed against such orders. 45 days is the period within which appeal must be made to the Appellate Tribunal and but delay can be condoned if there is sufficient reason for the delay. When an order is given by the appellate tribunal then a copy has to be given to the parties concerned and also the NCLT.

The composition of the Appellate tribunal will consist of a Chairperson and two members. The Chairman of the appellate tribunal should be a person who is qualified to be a Supreme Court Judge or Chief Justice of High Court. The member of the appellate tribunal should be a person who has experience of not less than 25 years in the field of science, technology, medicine, economics, banking or any such field whose experience might be valuable in Appellate Tribunal. Section 10FT of the legislation says that Chairperson and members will hold office for a period of 3 years and the upper age limit for Chairperson is 70 years and for members is 67 years. Section 10 FZ says that no action will lie upon the members of the Appellate Tribunal for actions taken in good faith. Under Section 10FZ, the immunity against prosecution will also cover the employees of the tribunal or any such person who has been duly authorized by the Appellate Tribunal to discharge any function. 2

One of the unique features of the Appellate tribunal is that it will not be bounded by procedure laid down in CPC 1908. It is the principle of natural justice that will guide the Appellate Tribunal regarding the procedures. For the purpose of discharging the functions assigned under the Act the tribunal as well as the appellate tribunal shall have the same power as are vested in a civil court under CPC while trying a suit in respect of matter specified, namely, the summoning and enforcing the attendance of any person and examining him on oath, requiring the discovery and production of materials and receiving evidence on affidavits.

2 Creation of Appellate Tribunal, (http://www.nishithdesai.com/information/research-and-articles/nda-hotline/nda- hotline-single-view/newsid/3409/html/1.html), Last visited on 16 th March 2017.

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The proceedings of the tribunal or appellate tribunal will be considered to be judicial proceedings in consonance of Section 193 and 228 of the IPC. The tribunal and Appellate Tribunal will have all powers which are vested in the civil court. But, it must be noted, that the jurisdiction of civil court is not barred in all matters and in cases, where the tribunal thinks that the civil court can look into the matter in a more competent matter, then the matter can be referred to the civil court.

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Objectives-

To study introduction of National Company Law Tribunal and National Company Law Appellant Tribunal under Company Act 2013.

To study powers of National Company Law Tribunal and National Company Law Appellant Tribunal under Company Act 2013.

Nature of Study and Sources of Data

This research project is qualitative analytical and descriptive in nature. It is largely based on secondary & electronic sources of data books & other references. The original sources of law such as Statues, Case laws and Law Commission Reports, as guided by the faculty of Corporate Law have also been widely referred to.

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CHAPTER 2:- POWERS OF NATIONAL COMPANY LAW TRIBUNAL AND NATIONAL COMPANY LAW APPELLATE TRIBUNAL

The constitution of Benches of the Tribunal is given under Section 10FL and the principal bench will be in New Delhi. The principal bench will be presided over by the President of the NCLT. The power of giving orders and rectifying the orders are derived from Section 10FM (1) and section 10FM (2) of the Act. Under Section 10 FM (1), the tribunal will hear the parties concerned and then pass order and under Section 10FM (2), the tribunal can re-hear the matter under 2 years and can rectify the order if there is a mistake of law. Section 10FP gives power to the tribunal to ask for assistance from the Chief Metropolitan Magistrate and DM to enforce its decree against the company or persons connected with the order.

However, the decision of the Tribunal or the Appellate Tribunal is not binding and there is a provision for filing an appeal to Supreme Court under section 10GF. However, proviso to section 10GF says that that appeal has to be filed within 60 days from the date of communication of order of tribunal. However, the Supreme Court may allow belated filing of application if the cause for delay is genuine. If there is delay in filing the application, then the law can be circumvented by filing an appeal under Article 136 of the Constitution under Special leave Petition. Then, it is upon the Supreme Court to allow or not allow the appeal under Article 136 the researcher is of the view that a time period of 60 days to file an appeal is less and the time must be extended to 90 days, so that aggrieved people are not deprived of the right to appeal because of short limitation period.

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The NCLT has been given wide powers under the Companies Act to adjudicate:

1. Cases initiated before the Company Law Board (CLB) under the Companies Act, 1956 (Old

Act) (which, pursuant to NCLT's constitution, stand transferred to the NCLT);

2. All proceedings pending before any district court or High Court under the Old Act including

proceedings relating to arbitration, compromise, arrangements and reconstruction and winding up of companies (which, upon the relevant notification being issued, shall stand transferred to the NCLT);

3. References/inquiries/proceedings pending before the Board for Industrial and Financial Reconstruction (BIFR), including those pending under the Sick Industrial Companies (Special Provisions) Act, 1985 (SIC Act), which would be abated, upon relevant notification being issued, and referred to the NCLT within 180 days from the date of abatement;

4. Appeals or any other proceedings pending before the Appellate Authority for Industrial and

Financial Reconstruction (AAIFR), including those pending under the SIC Act, which would be abated, upon relevant notification being issued, and referred to the NCLT within 180 days from the date of abatement; and

5. Fresh proceedings pertaining to claims of oppression and mismanagement of a company,

winding up of companies and all other powers prescribed under the Companies Act. 3

6 The Tribunal and the Appellate Tribunal shall have, for the purposes of discharging its functions under this Act, the same powers as are vested in a civil court under the Code of Civil Procedure, 1908 while trying a suit in respect of the following matters:

(a)

Summoning and enforcing the attendance of any person and examining him on oath;

(b)

Requiring the discovery and production of documents;

(c)

Receiving evidence on affidavits;

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Subject to the provisions of the Indian Evidence Act, 1872, requisitioning any public record or document or copy of such record or document from any office;

(e)

Issuing commissions for the examination of witnesses or documents;

(f)

Reviewing its decisions;

(g)

Dismissing a representation for default or deciding it ex parte;

(7)

Any order made by the Tribunal or the Appellate Tribunal may be enforced by that Tribunal

in the same manner as if it were a decree made by a court in a suit pending therein.

(8) All proceedings before the Tribunal or the Appellate Tribunal shall be deemed to be judicial

proceedings within die meaning of sections 193 and 228, and for the purposes of Section 196, of the Indian Penal Code.

(9) No civil court shall have jurisdiction to entertain any suit or proceeding in respect of any matter which the Tribunal or the Appellate Tribunal is empowered to determine by or under this Act or any other law for the time being in force and no injunction shall be granted by any court or other authority in respect of any action taken or to be taken in pursuance of any power conferred by or under this Act or any other law for the time being in force.

In addition, the recently enacted Insolvency and Bankruptcy Code, 2016 (Bankruptcy Code), also provides wide powers to the NCLT to adjudicate upon the 'insolvency resolution process' and liquidation of corporate debtors. However, the Bankruptcy Code is yet to be notified and made effective.

In light of the limited provisions under the Companies Act which have been made effective, presently, the NCLT has jurisdiction to:

1. Entertain any claims of oppression and mismanagement of a company and to pass any order

that the NCLT may deem fit in this regard;

2. adjudicate proceedings and cases initiated before the CLB under the Old Act, which now stand

transferred to the NCLT; and

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3. Exercise powers under various sections of the Companies Act which have been notified and made effective by the Government of India, including (a) power to pass any order against a company incorporated by providing false information or by fraud, (b) power to grant approval for alteration of articles of a company, if such alteration changes its nature from public to private, and (c) power to provide approval for issuance of redeemable preference shares by a company under certain circumstances.

All appeals against any order of the NCLT may be filed by the aggrieved parties with the NCLAT. Any appeal against the orders of the CLB before the constitution of the NCLT would continue to lie before the relevant High Court and not the NCLAT. Currently, for matters pertaining to the winding up of companies and sick companies, parties would have to continue to approach the concerned High Courts, the BIFR or the AAIFR.

The formation of the NCLT and the NCLAT is a significant step towards attaining fast and efficient resolution of disputes relating to affairs of the Indian corporate. It is expected that once all relevant provisions under the Companies Act and the Bankruptcy Code are made effective, these tribunals would provide holistic solutions to issues being faced by companies, including those of winding up, oppression/mismanagement and insolvency. Being the sole forum dealing with company related disputes, these tribunals would also eliminate any scope for overlapping or conflicting rulings and minimise delays in resolution of disputes, thus, proving to be a boon for litigants.

IMPACT OF INTRODUCTION OF NCLT:

Currently matters involving same companies or parties would be spread across various forums such as High Courts for winding up and merger/amalgamation schemes, CLB for oppression and mismanagement and before the Board of Industrial Financial Reconstruction (“BIFR”) pursuant to reference under Sick Industrial Companies Act, 1985. On multiple occasions, litigants would adopt the approach of moving various forums causing multiplicity of proceedings and delays.

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The NCLT aims at consolidating the various forums and providing a one stop shop for adjudication of company matters. 4

The NCLT and NCLAT are expected to dispose-off appeals, applications and petitions filed before it within a period of 3 months from the date of the filing. An extension of 90 days may be granted by the President of NCLT or Chairperson of NCLAT for disposal of the matter.

Currently the High Courts were burdened with company matters including winding up proceedings. Transfer of such proceedings to NCLT is expected to reduce the burden. Additionally, as appeal from an order of NCLT will lie before the NCLAT, High Courts will have a further reduced burden, considering that earlier, appeal from the order of Company Law Board was filed before High Court. However, an area of concern is that NCLAT may be faced with a very high volume of appeals which earlier stood divided amongst various High Courts.

Thus, there would be a need for multiple members of the NCLAT. However considering the requirements for being appointed as a member of the NCLAT are fairly high, there may be a dearth of such qualified members causing delay in disposition of appeals.

With the notification of the provisions of the Bankruptcy Code, NCLT would form a forum offering a completely new and improved process for liquidation of companies in India.

CLASS ACTION

A much awaited reform brought into effect along with the introduction of the NCLT, is the statutory remedy of class action proceedings. Class action proceeding is one where a group or class of people similarly affected can initiate a proceeding collectively. This allows reducing time and costs and also inspires confidence amongst the parties as they act collectively. Currently, class action proceedings were initiated in form of representative’s suits, minority action for oppression & mismanagement, proceedings before the consumer forums or through public interest litigation. However, none of these provided a holistic remedy.

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Dearth of such a remedy was felt particularly in the wake of the Satyam Scam, where the public shareholders in India had no remedy as opposed to the bondholders in the United States. With the notification of Section 245 of the Companies Act, 2013, members and depositors in a company have the additional remedy in form of class action proceedings which could be initiated before the NCLT.

The recent surge in shareholder activism in India makes the introduction of class actions remedy highly interesting. It is a critical tool now in the hand of minority shareholders who may question the decisions made by the management and the intent thereof.

NATIONAL COMPANY LAW APPELLATE TRIBUNAL

A. Constitution of the Appellate Tribunal

The Central Government shall by notification constitute an Appellate Tribunal called the National Company Law Appellate Tribunal consisting of a Chairperson and not more than two Members, to be appointed by the Government, for hearing the appeals under this Act[s 10FR (1)]

The Chairperson of the Appellate Tribunal shall be a person who has been a Judge of the Supreme Court or Chief Justice of the High Court [s 10FR(2)]. The other Members of the Appellate Tribunal shall be persons of ability, integrity and standing having special knowledge of and professional experience and of not more 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 the opinion of the Central Government useful to the Appellate Tribunal.[s 10FR (3)]. 5

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The Members of the Appellate Tribunal are mere Technical Members and not Judicial Members unlike the Tribunal. The tenure of the Chairperson and the Members is for three years and they can be reappointed. The age of superannuation of the Chairperson is 70 years and that of the Members is 67 years. [s10FT]. One interesting point is to be noted here, the words in Section 10FE(1) is “not more than two Members”, so it appears that the Appellate Tribunal can function even if no Member is appointed, as long as the Chairperson is appointed, moreover the Appellate Tribunal can function even if only one Member is appointed. But this may cause difficulty in case of a deadlock. In any case the provision needs urgent amendment. 6

B. Appeal from order of the Tribunal

All appeals from the Tribunal shall lie to the National Company Law Appellate Tribunal. But no appeal shall from an order or decision made by the Tribunal with the consent of the parties. [s 10FQ(2)]. The limitation period to file an appeal is prescribed as 45 days from the date on which a copy of the order or decision of the Tribunal is received by the appellant [s 10FQ (3)].

Such appeal shall be made in the prescribed form and accompanied by fee as may be prescribed [s 10FQ (3)]. The Appellate Tribunal may condone the delay in filing appeal if it is satisfied that the appellant was prevented by sufficient cause from not filing the appeal in time [s 10 FQ (2)].

On receipt of an appeal, the Appellate Tribunal shall, after giving the 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 [s 10FQ(4)]. Copy of ever order in appeal shall be sent to the Tribunal and parties to the appeal [s 10 FQ (5)]. Section 10FQ (6) provides that the appeal should be heard expeditiously and endeavour shall be made to dispose of the appeal finally within six months from the date of the receipt of the appeal. C. Benches of the Tribunal There is no provision for forming benches of the Appellate Tribunal. It appears that all Members of the Tribunal will constitute a bench. 7

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Power to Punish for Contempt

The Appellate Tribunal has the same jurisdiction, powers an authority in respect of contempt of itself as the High court has. The Appellate Tribunal shall exercise this power subject to the Contempt of courts Act, 1971, subject to certain modification 1. The reference therein to a high court shall be construed as including a reference to the Appellate Court 2. The reference to the Advocate general in Section 15 of the said Act shall be construed as reference to such Law officers as the Central Government may specify. Limitation The provisions of the Limitation Act, 1963(36 of 1963) shall, as far as may be, apply to an appeal made to the Appellate Tribunal [s 10GE]. 8

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CONCLUSION

The establishment of NCLT will prove to be a great help to the corporate world. With the change in definition of a Sick Company a lot more companies have come under the ambit of a Sick Company and thereby can get the needful attention on time. With the establishment of fund and change in definition of Sick Company and winding up procedures, the time period for revival and winding up will reduce. But the fund for revival of companies might come to a naught if the amount is deposited with the Central Government, efforts should be made to put this into a separate Fund thereby avoiding bureaucratic interference. In all efforts are being made by the central government to achieve its proposed objectives through of avoiding multiplicity of suits, protection of rights of the workers and to reduce the time period for winding up of a Sick Company. Now what is required is to see that the provisions of this Act are strictly implemented and the objectives are achieved.

The constitution of NCLT marks another seminal shift in the Indian judicial landscape and clearly demonstrates that the judicial system is turning for the better. The CLB stands scrapped and the matters will now be dealt with by the NCLT. Further, the notification of the provisions of Bankruptcy Code is imminent and it is expected that upon such notification NCLT would take over the corporate insolvency matter from courts. Thus, a complete overhaul of the system is taking place. This is further demonstrated by the constitution of the first commercial courts in the country. Commercial courts have been set up in Gujarat and the High Courts of Delhi, Mumbai and Himachal Pradesh have also constituted its commercial divisions. However, introduction of any new reforms brings with it its own set of challenges. The NCLAT may be overburdened with appeals. Further with statutory second appeal on any question of law to Supreme Court being available under Section 423 of the Companies Act, 2013, a large number of cases may be delayed on account of pendency of appeal before the overburdened Supreme Court.

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