Adjudicating Authority for Corporate Persons

FINAL DRAFT SUBMITTED IN THE PARTIAL FULFILMENT OF THE

COURSE TITLED COMPANY LAW-II FOR ATTAINING THE DEGREE OF
B.A.LL.B.(Hons.)

PROJECT BY:

NAME: Mukul Rathore

COURSE: B.A.LL. B (Hons.)

ROLL NO: 1742

SEMESTER: 8th

SUBMITTED TO: Ms. Nandhita Jha

Assistant professor of law

CHANAKYA NATIONAL LAW UNIVERSITY, MITHAPUR, PATNA –

800001

APRIL 2021

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DECLARATION

I, hereby declare that the project entitled submitted “Adjudicating Authority for Corporate
Persons” in partial fulfilment of the requirements for award of the degree of B.A.LL. B at
CHANAKYA NATIONAL LAW UNIVERSITY, is an authentic work and has not been submitted
to any other University/Institute for award of any degree/diploma.

Mukul Rathore
(1742)
B.A.LL.B.

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ACKNOWLEDGEMENT

Firstly, I would like to express our immense gratitude towards our institution Chanakya National
Law University, which created a great platform to attain profound technical skills in the field
of B.A.LLB. in the subject Corporate law-II, thereby fulfilling our most cherished goal.

I sincerely express thanks to my guide and teacher Mrs. Nandita Jha mam, who helped me
complete this project to the best of my capabilities and patiently attended to my queries and doubts.
I express deep gratitude to my family and friends who continue to push me in the daunting times
of project submission and ultimately, whether directly or indirectly, helping me complete this
project successfully.

Mukul Rathore
(1742)
B.A.LL.B.

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Contents
INTRODUCTION ............................................................................................................................................. 4
Adjudicating authority under companies act and IBC Act: ........................................................................... 6
Adjudicating Authority for corporate persons under IBC act ................................................................... 7
ROLE OF NCLT Under IBC: ............................................................................................................................. 9
NCLT ............................................................................................................................................................ 9
Jurisdiction of NCLT..................................................................................................................................... 10
1. NCLT .................................................................................................................................................... 11
2. NCLAT .................................................................................................................................................. 11
3. Supreme Court ................................................................................................................................ 12
Limitation to the role of Adjudicating authority under Companies act:..................................................... 13
Conclusion and Suggestions........................................................................................................................ 16
BIBLIOGRAPHY ............................................................................................................................................ 17

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INTRODUCTION

Every law is incomplete without an appropriate legislative authority that shall be responsible for
monitoring the effective and smooth functioning of that law. The law is crafted keeping into
account that there shall be a special authority which shall be responsible for resolving the practical
difficulties that arise during the execution and implementation of that law and for justice to the
victims that turn up under that law1. Following the above footsteps, the Insolvency and Bankruptcy
Code, 2016 has two adjudicating authorities. The two adjudicating authorities enshrined under the
Code are as follows:

1. National Company Law Tribunal (NCLT): For Corporate Persons

2. Debt Recovery Tribunal (DRT): For Individuals and Partnership Firms

The Insolvency and Bankruptcy recognized the NCLT as constituted under section 408 of the
Companies Act 2013 to be the adjudicating authority for the purpose of insolvency and liquidation
of corporate persons. The proposal for constituting the NCLT was made by the Eradi Committee.
Also, the NCLT was designed to replace the jurisdiction of the erstwhile Company Law Board
(CLB), the Board for Industrial and Financial Restructuring (BIFR) and the High Court in exercise
of its jurisdiction as Company Court. Once NCLT got constituted and started functioning, the
Bankruptcy Law Reforms Committee in its final report NCLT to be the appropriate adjudicating
authority under the IBC for corporate persons.

NCLT was considered appropriate because under the Companies Act 2013, NCLT had jurisdiction
over the winding up and liquidation process of companies. Similarly, the Limited Liability
Partnership Act, 2008 also conferred jurisdiction to NCLT for dissolution and winding up of
Limited Liability Partnerships.

1
Adjudicating Authority for Corporate Persons - Muds Management.

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AIMS AND OBJECTIVE

• To understand the meaning of Adjudicating Authority under companies act.

• To understand the role of Adjudicating authority under companies act.
• To understand the role of Adjudicating authority for corporate persons under the IBC Act.

HYPOTHESIS

The researcher presumes that the Adjudicating Authority resolves the dispute regarding corporate
personality effectively in the Company Law.

RESEARCH METHODOLOGY

The researcher Relied on the Doctrinal method of research to complete the project.

SOURCES OF DATA

Reliance is put on both primary and secondary sources to complete the project.

1. Primary Sources: Statutes, commentaries.

2. Secondary Sources: Books, newspapers and websites.

LIMITATION OF THE STUDY

There is time and resources constraint to research and complete the project.

LITERATURE REVIEW

one of the books being referred for this Project research is Taxman’s Company Law and Practice
by Dr. G.K. Kapoor and Dr. Sanjay Dhamjia (24th ed., 2019) & Company Law by Dr Avtar Singh.
The authors have tried to present the provisions of the law in a simple and lucid style, backed by
most up to date case decisions. The book has effectively dealt with procedural matters in the law;
a number of specimen notices, minutes and resolutions given at relevant places.

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Adjudicating authority under companies act and IBC Act:

According to Section 454 of Companies Act, 2013; The Adjudicating Authority is appointed by the
Central Government for adjudging penalties. The Central Government is required to appoint officers
as it deems fit and at the time of appointment, the concerned adjudicating authority shall not be below
the rank of the Registrar. On the date of appointment of adjudicating authority, the central government
shall specify the jurisdiction in which adjudicating authority shall exercise its powers.2 The
Adjudicating Authority may, by an order; Impose a penalty on the company, officers in default or any
other person who shall be responsible for non-compliance or default of provision under this act. Direct
such company, officers in default or any other person to rectify the default. Before imposing such
penalty, the adjudicating authority shall give the opportunity of being heard to the company, officers
in default or any other person. In case the parties to the proceedings are dissatisfied by the order given
by the adjudicating officer, the concerned parties may prefer an appeal to the Regional Director who
is having such jurisdiction over the order. An appeal shall be filed to the regional director within sixty
days from the date of order of adjudicating authority and shall be submitted in the prescribed form and
with prescribed fees. The regional director after giving reasonable opportunity of being heard shall
pass such orders as he thinks fit, and either confirm, modify or set aside the order appealed against. In
case company contravenes with the order of regional director within ninety days, the company shall be
punishable with fine which shall not be less than INR 25,000 but may extend to INR 5 lakhs. An officer
in default or any other person who is in default shall be punishable with imprisonment which may
extend to six months or with a fine which shall not less than INR 25,000 but which may extend to
INR1 lakh or with both.

Section 454-A of Companies act, 2013 states if the company, officer in default, or any other person
already been subjected to a penalty for default of provisions of this act and commits again such
default within three years from the date of passing such penalty then he shall be liable to pay for
an amount equal to twice the amount of penalty provided for such default.

2
Divesh Goyal, Adjudication of Penalties Under Companies Act, 2013, https://taxguru.in/company-
law/adjudication-penalties-companies-act-2013.html

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Adjudicating Authority for corporate persons under IBC act

Section 60: Adjudicating Authority for corporate persons.

*60. (1) The Adjudicating Authority, in relation to insolvency resolution and liquidation for
corporate persons including corporate debtors and personal guarantors thereof shall be the
National Company Law Tribunal having territorial jurisdiction over the place where the
registered office of the corporate persons located.3

(2) Without prejudice to sub-section (1) and notwithstanding anything to the contrary contained
in this Code, where a corporate insolvency resolution process or liquidation proceeding of a
corporate debtor is pending before a National Company Law Tribunal, an application relating to
the insolvency resolution or 1[liquidation or bankruptcy of a corporate guarantor or personal
guarantor, as the case may be, of such corporate debtor] shall be filed before such National
Company Law Tribunal.

(3) An insolvency resolution process or 2[liquidation or bankruptcy proceeding of a corporate

guarantor or personal guarantor, as the case may be, of the corporate debtor] pending in any
court or tribunal shall stand transferred to the Adjudicating Authority dealing with insolvency
resolution process or liquidation proceeding of such corporate debtor.4

(4) The National Company Law Tribunal shall be vested with all the powers of the Debt
Recovery Tribunal as contemplated under Part III of this Code for the purpose of sub-section (2).

(5) Notwithstanding anything to the contrary contained in any other law for the time being in
force, the National Company Law Tribunal shall have jurisdiction to entertain or dispose of—

(a) any application or proceeding by or against the corporate debtor or corporate person;

(b) any claim made by or against the corporate debtor or corporate person, including claims by or
against any of its subsidiaries situated in India; and

3
Insolvency and Bankruptcy Code (Second Amendment) Act, 2018
4
Ibid.

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(c) any question of priorities or any question of law or facts, arising out of or in relation to the
insolvency resolution or liquidation proceedings of the corporate debtor or corporate person
under this Code.

(6) Notwithstanding anything contained in the Limitation Act, 1963 or in any other law for the
time being in force, in computing the period of limitation specified for any suit or application by
or against a corporate debtor for which an order of moratorium has been made under this Part, the
period during which such moratorium is in place shall be excluded.5

5
Ibid.

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ROLE OF NCLT Under IBC:

NCLT being the adjudicating authority for corporate persons under the IBC has been vested with
various powers and roles. According to subsection (5) of section 60 of the Code, the NCLT shall
have the power to entertain and dispose.6

NCLT being the adjudicating authority for corporate persons under the IBC has been vested with
various powers and roles. According to subsection (5) of section 60 of the Code, the NCLT shall
have the power to entertain and dispose of the following:

• Any application or proceeding by or against the corporate debtor or corporate person;

• Any claim made by or against the corporate debtor or corporate person including any
claims filed by or against any subsidiaries situated in India and
• Any question of priorities or any question of law or facts arising out of or in relation to the
insolvency resolution or liquidation proceedings of the corporate debtor or corporate
person under this code.

6
https://muds.co.in/adjudicating-authority-corporate-
persons/#:~:text=Role%20of%20NCLT%20under%20IBC&text=Any%20application%20or%20proceeding%20by,cor
porate%20debtor%20or%20corporate%20person%20%3B&text=Any%20question%20of%20priorities%20or,corpor
ate%20person%20under%20this%20code.

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Jurisdiction of NCLT

The state of situation of registered office of the corporate entity shall be the deciding criterion for
insolvency resolution and liquidation of corporate persons, corporate debtors and personal
guarantors thereof.

On this note, the application for initiating the insolvency resolution process or liquidation of
corporate debtors shall be filed before NCLT having jurisdiction over the place where the
registered office of the corporate entity is situated.

Section 430 The Tribunal and the Appellate Tribunal shall have exclusive jurisdiction in respect
of suits or proceeding relating to any matter which they are empowered to determine. No civil
court shall be competent to have jurisdiction on such matters under this Act or any other law for
the time being in force or to grant injunction in respect of any such action taken or to be taken by
the Tribunal or Appellate Tribunal.7

The Section 63 of the code also states that the Civil Courts shall not have any authority to entertain
any suit or proceedings in respect to any matter on which NCLT has power to entertain under the
code.

Also, the Section 9 of the Code of Civil Procedure, 1908 gives power to the courts to try all the
suits of civil nature except suits from which such courts are expressly or impliedly barred.
Therefore, by being barred by section 63 of the code, Civil Courts shall not have jurisdiction over
matters on which NCLT has jurisdiction.

The adjudicating authority for corporate persons shall be NCLT. The appeals if any against the
order of NCLT shall be filed before NCLAT. Further any person aggrieved by the order of NCLAT
may file an appeal to the Supreme Court. The appeal filed before Supreme Court shall be only on
question of law arising out of order passed by order of NCLT or NCLAT.

7
Dr. G.K. Kapoor & Sanjay Dhamjia, Company Law, p.1041 (20th ed., 2017)

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1. NCLT
The adjudicating authority for corporate person as mentioned above shall be the NCLT having
territorial jurisdiction over the place where the registered office of the corporate person is located.
It is important to note that incase where a corporate insolvency resolution process or liquidation
proceedings of a corporate debtor is pending before NCLT, then the application for insolvency
resolution or bankruptcy of personal guarantor of such corporate debtor shall also be filed before
the same NCLT as that of the corporate debtor.

If the insolvency process or bankruptcy proceedings of personal guarantor of the corporate debtor
is appending before any court or tribunal then it shall in such a situation shall transferred to the
same adjudicating authority which is dealing with the insolvency resolution process or liquidation
proceedings of the corporate debtor.

2. NCLAT
Section 421 of the companies act, Any person aggrieved by an order of the Tribunal may, within
forty-five days from the date on which the copy of the order was made available, file an appeal to
the Appellate Tribunal. If the person was prevented from filing the appeal within forty five days
due to sufficient cause, the Appellate Tribunal may extend the period by another forty-five days.
The Appellate Tribunal by order may confirm, modify or set aside the order of the Tribunal
appealed against after giving the parties a reasonable opportunity of being heard. A copy of the
order shall be sent to the Tribunal and the parties to appeal. An appeal under section 421(3) was
dismissed being barred by limitation. The appeal against order of Tribunal was filed 15 days after
period of limitation of 45 days had expired and a further period of another 45 days had also expired.
[Rohan Packaging Product8s Ltd. v. Lakhmichand Gidwani [2018] 96 taxmann.com 416 (NCL-
AT)] If the order was made by the Tribunal with the consent of the parties, no appeal to the
Appellate Tribunal is possible.

Once the application under IBC is admitted by the NCLT from the corporate person then any
person aggrieved by the order of NCLT may prefer an appeal before the NCLAT. Every appeal
shall be filed before NCLAT within thirty days. An appeal can be filed beyond thirty days if

8
Dr. G.K. Kapoor & Sanjay Dhamjia, Company Law, p.1043 (20th ed., 2017)

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NCLAT is satisfied that there was a sufficient cause for not being able to file within the thirty days
duration, but then within fifteen days period after thirty days only.

3. Supreme Court

Section 423 of the companies act, An appeal against the order of the Appellate Tribunal may be filed by
the aggrieved person to the Supreme Court. An appeal to the Supreme Court can be filed only on any
question of law arising out of such order. The appeal must be filed within sixty days of the receipt of the
order extendable by another sixty days if the person was prevented by sufficient cause to file within
time.9

If a person is not satisfied and is aggrieved by the order of NCLAT then in such a case he can file
an appeal to the Supreme Court. The application to be filed shall be based only on question of law
that arouse out of the order only.

The application before Supreme Court shall be filed within forty-five days from the date of receipt
of order of NCLAT. However, the Supreme Court may allow extension beyond forty-five days if
it is satisfied that person was prevented by sufficient clause. The extension allowed shall be only
fifteen days beyond the forty-five days duration.

9
Ibid.

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Limitation to the role of Adjudicating authority under Companies act:

It is a well settled principle that a writ petition may be entertained by the High Court’s only in
absence of any efficacious alternate remedy. However, one of the exceptions to the said rule is
where there is lack of jurisdiction on the part of the statutory/ quasi- judicial authority, against
whose order a judicial review is sought. In the recent case of Embassy Property Developments Pvt.
Ltd. vs. State of Karnataka & Ors., the primary issue for consideration before the Hon’ble Supreme
Court was with regard to the jurisdiction of High Court to grant relief against the order of NCLT,
disrupting the hierarchy laid down by the Code. For the said purpose, the Apex Court examined
the limitations on the power exercisable by the Adjudicating Authority, and held that in case any
party is aggrieved by the decision of NCLT, the Code provides for filing of an appeal before
NCLAT, however, considering the exercise of excess jurisdiction by the NCLT, the High Court
may entertain a petition under Article 226/ 227 of the Constitution.10

An order was passed by the adjudicating authority under Section 454 of Companies Act, 2013 read
with Rule 3 of the Companies (Adjudication of Penalties) rule 2014 for violation of Section 12 of
the Companies Act, 2013.Adjudication of penalties [S.454] The Central Government may appoint
the prescribed number of officers of the Central Government, not below the rank of Registrar, as
adjudicating officers for adjudging penalties under the Act. The adjudicating officer may by an
order impose penalty on the company and its defaulting officer stating non-compliance or default
under the Act. He has to give a reasonable opportunity to be heard to the company or the person
in default. Any person aggrieved of such order may appeal to the Regional Director within 60 days
of receiving the order. Regional Director has to hear parties and give his decision Cori firming,
modifying or setting aside the order. Failure to pay the penalty amount on the part of the company
makes it punishable with fine of not less than Rs 25,000 but extending to Rs 5,00,000. An officer
in such default becomes punishable with imprisonment up to six months or with fine of not less
than Rs 25,000but extending up to Rs 1,00,000, or both.

10
Richa Saraf, Limitation on role of adjudicating authority (December 31, 2019),
http://vinodkothari.com/2019/12/limitation-on-role-of-adjudicating-authority/.

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IBC is a complete code in itself and has an overriding effect over other laws: The Code covers
the entire gamut of law relating to insolvency resolution of corporate persons and others in a time
bound manner, therefore, one of the contentions raised in the matter was that there exists no
room to challenge the orders of NCLT, otherwise than in the manner provided in the Code.11 In
this regard, it was contended that Section 60(5) provides an exclusive jurisdiction to NCTL to
deal with all the matters relating to the corporate debtor. The relevant extract is reproduced
below for reference: “Notwithstanding anything to the contrary contained in any other law for
the time being in force, NCLT shall have jurisdiction to entertain or dispose of –

(a) any application or proceeding by or against the corporate debtor or corporate person;

(b) any claim made by or against the corporate debtor or corporate person, including claims by or
against any of its subsidiaries situated in India; and

(c) any question of priorities or any question of law or facts, arising out of or in relation to the
insolvency resolution or liquidation proceedings of the corporate debtor or corporate person
under this Code.”

Further, since Section 238 stipulates that the provisions of this Code shall have effect,
notwithstanding anything inconsistent therewith contained in any other law for the time being in
force or any instrument having effect by virtue of any such law, the only option available with
the RP is to move an application before NCLT under the provisions of the Code.

The Apex Court discussed the limitation on the jurisdiction of NCLT to exercise its power under
Section 60(5). It held that NCLT is a creature of a special statute to discharge certain specific
functions, and it cannot be elevated to the status of a superior court having the power of judicial
review over administrative action. Observing that NCLT is not even a civil court, which has been
granted the jurisdiction, by virtue of Section 9 of the Code of Civil procedure, to try suits of civil
nature, and therefore, NCLT can only exercise only such powers which are within the contours
of jurisdiction prescribed by the statute, which it is required to administer.

11
Ibid.

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Citing an instance where a corporate debtor may have suffered an order at the hands of the Income
Tax Appellate Tribunal, at the time of initiation of CIRP, the Apex Court observed that if Section
60(5)(c) of the Code is interpreted to include all questions of law or facts under the sky, an RP will
then claim a right to challenge the order of the Income Tax Appellate Tribunal before the NCLT,
instead of moving a statutory appeal under Section 260A of the Income Tax Act, 1961, and the
jurisdiction of NCLT laid down in Section 60(5) cannot be stretched so far as to bring such absurd
results.

Jurisdiction based on consensus between parties: One of the contentions raised in the appeal was
that since the State of Karnataka recognized the jurisdiction of NCLT for raising all its contentions,
it was not open to the Government to later question the jurisdiction of the NCLT in next round of
litigation. The Apex Court held that the fact that the Government of Karnataka conceded to the
jurisdiction of the NCLT does not ipso facto provide NCLT with the jurisdiction to entertain any
application. NCLT is a creature of statue, any jurisdiction to the NCLT has also been granted by
the statute, and the mere agreement between parties to approach a particular court or tribunal does
not automatically provide jurisdiction to a court.12

12
Ibid.

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Conclusion and Suggestions

Every law is incomplete without an appropriate legislative authority that shall be responsible for
monitoring the effective and smooth functioning of that law. The law is crafted keeping into
account that there shall be a special authority which shall be responsible for resolving the practical
difficulties that arise during the execution and implementation of that law and for justice to the
victims that turn up under that law.

There is always confusion about Provision of Adjudication of Penalties and Authority having
power of Adjudication Under Companies Act, 2013. Through, this project made an attempt to
explain Provisions of Adjudication of Penalties and Authority having power of Adjudication
Under Companies Act, 2013.

Adjudication of Penalties is New Concept under Companies Act, 2013. In earlier Companies Act,
1956, there were no such provisions like this. As all of us are aware that Compliances and
governance has been increased under Companies Act, 2013. Minor non-compliances like failure
to file every resolution or agreement, failure to furnish information about DIN, failure of filling of
forms etc. ‘Non-Filing of MGT-14 within 30 days, non-filing of AOC-4 within 30 days and non-
filing of MGT-7 within 60 days” are proposed to be brought within the purview of the Adjudication
by Registrar of Companies.

From the above discussion, it is clear that the jurisdiction of Adjudicating Authority is confined
only to contractual matters between parties, and an order passed by a statutory/ quasi- judicial
authority under certain special laws, or which falls in the realm of public law, cannot be determined
by NCLT. A decision taken by the government or a statutory authority cannot, by any stretch of
imagination, be brought within the fold of “arising out of or in relation to insolvency resolution”
as appearing in Section 60 of the Code. The correctness of the said decision can be called into
question only in a superior court vested with the power of judicial review over administrative
action.

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BIBLIOGRAPHY

BOOKS

1. Dr. G.K. Kapoor & Sanjay Dhamjia, Company Law, (20th ed., 2017)
2. Avtar Singh, Introduction to Company law, (11th ed. 2014)

WEBSITE

1. Richa Saraf, Limitation on role of adjudicating authority (December 31, 2019),

http://vinodkothari.com/2019/12/limitation-on-role-of-adjudicating-authority/.
2. Divesh Goyal, Adjudication of Penalties Under Companies Act, 2013, https://taxguru.in/company-
law/adjudication-penalties-companies-act-2013.html
3. https://ibclaw.in/section-60-adjudicating-authority-for-corporate-persons/
4. https://taxguru.in/company-law/adjudication-penalties-companies-act-2013.html