Professional Documents
Culture Documents
ON
NATIONAL COMPANY LAW TRIBUNAL: POWERS AND
FUNCTIONS
SUBMITTED TO:
AMITY LAW SCHOOL, AMITY UNIVERSITY
BY
SUBMITTED BY –
UNDER GUIDANCE OF
Dr ISHA SALUJA
We would like to express our special thanks and gratitude towards our
professor Dr ISHA SALUJA, as well as other staffs of Amity Law
school who were involved in this project paper, who gave me the
golden opportunity to do this project on “NATIONAL COMPANY
LAW TRIBUNAL: POWERS AND FUNCTIONS” it helped us gather
lots of information about which we were totally unaware of prior to the
project work. we would really like to thank them for this.
Secondly, we would also like to thank our parents and friends who
helped us a lot in finalizing this research paper within the limited time
frame.
Thanking You!
Keywords: - National Company Law Tribunal (NCLT), Company Law Board (CLB),
Implementation.
INTRODUCTION
Intended to be introduced in the indian legal system in as early of the year 2002 under the
framework of predecessor Companies Act, 1956 , the setting up of the actual tribunal and
giving it a constitutional validity as a reality took the system more than 10 years in the making
when it finally came into the existence in the the year after the Ministry of Corporate Affairs
(MCA) through a notification with immediate effect established the National Company Law
Tribunal and its appellate authority2, the National Company Law Appellate Tribunal, known
as NCLAT in its short form. The ministry notification not only constituted a new tribunal but
also dissolved the Company Law Board which was entrenched under the Companies Act, 1956.
The establishment consolidated the corporate jurisdiction bifurcated among various authorities
into one single authority3. Put into action after based on Justice Eradi committee
1
Article 142 of the Indian Constitution: Enforcement of decrees and orders of Supreme Court and unless as to
discovery, etc
2
Article 142 of the Indian Constitution: Enforcement of decrees and orders of Supreme Court and unless as to
discovery, etc
3
Various authorise which were consolidated to form NCLT are:
1. Company Law Board
recommendations, which was set up in 1999 to inquire into the existing laws of that time
related to process of companies winding up to ensure its re-model with the lines of modern or
up to date innovations and developments in the field of corporate law or also known as
enterprise law and good governance and to propose reforms in the given procedure stated on
various stages of the winding up followed in the proceedings dealing with the insolvency or
liquidation of the companies to circumvent futile hinderance in accordance with the
international standards and practises in this area. In advancement to the recommendations of
the committee, the Companies (Second Amendment) Act 2002 also pressed for new provision
for establishing the tribunal and its appellate authority to replace the Company Law Board to
dispose of cases in lines with this Amendment and the Companies Act of 1956. Thus it won’t
be wrong to argue that the reason for setting up NCLT and NCLAT were the efforts taken from
our government to have faster resolution mechanism to resolve corporate issues and disputes,
to improve the image of the country as a place of ease of doing busniess. When it cones to its
comes to its composition, NCLT consists of one presiding officer and required numeral of
Technical and Judicial members. Its principle bench is located in the capital of the country,
Delhi and have total number of ten benches in other states of the country located in Mumbai,
Bengaluru, Kolkata etc.
For India as evident from the introduction of this paper, the journey in actual initiation of the
NCLT and NCLAT has been a long one which not only saw its seeds implanted in the previous
Company Act, committees formed and amendments made to the Act and there are many case
laws and reasons which contributed behind this long journey. Like for example the Union of
India v. R. Gandhi, President, Madras Bar Association 4, where even though the constitutional
validity of the proposed structure recommended in the 2002 Amendment Act were held
unconstitutional, the legislative competence of the Parliament to establish the tribunal were
upheld by the apex court after the 2002 Amendment Act constitutional validity was challenged
by the Bar Association of Madras. This posed a delay in the establishment, since the ministry
was directed to make modifications to the Amendment Act, including the selection,
qualification and tenure of the members. These changes were brought in by introduction of
latest Companies Act, 2013, ousting Companies Act, 1956 which included notable assistance
for operations, establishment, powers and control of NCLT and NCLAT in line with changes
required by the Supreme Court in its 2010 judgement. However, the provisions in the new Act
were again challenged by the same Madras Bar Association in Madras Bar Association vs
Union of India & Anr citing contradictions and inconsistency in the new Act with the directions
given by the Supreme Court in the earlier 2010 case 5. The Constitutional Bench of the Apex
As highlighted in the introduction of this paper before the establishment of the tribunal,
corporate jurisdiction were divided among various authorities in which one of the main
authority was the Company Law Board (CLB). There were many reasons why the legislature
felt the need to replace Company Law Board with National Company Law Tribunal and those
following reasons are:-
This is no hidden fact that Indian Courts are burdened with huge pile of cases before
them from getting solved. Thus the primary reason for the establishment was to ease
pressure from the High Courts by shifting the provisions related to companies accounts
investigation, freezing of their assets, winding up of the company, transformation of
public company to a private company, amalgamation, compromise and class suit
actions is now meant to be dealt by NCLT instead of the High courts which also
includes appeals.
Complimenting to the first reason listed above, the reduction of burden from the High
courts will also facilitate faster dispute resolution for the companies stakeholders which
will improve the image of the country in ease of running busniess and ensure efficient
free flow of management.
Due to bifurcation of the dispute resolution authorities there was a persistent demand
from the individuals and busniess houses to have a standard jurisdiction in form of a
single dispute resolution authority which is both time and cost effective.
To secure quicken implementation of bankruptcy code in India.
In Shashi Prakash Khemka v. NEPC Micon and ors6, the Supreme court held that all disputes
brought into the legal system after the Companies Act, 2013 will be given remedy as decided
by the NCLT.
6
CIVIL APPEAL NOS.1965-1966 OF 2014
POWERS AND FUNCTIONS OF NATIONAL COMPANY LAW
TRIBUNAL
Class Action: From the beginning, the fear of company law has been the protection of the
interests and rights of various partners, particularly non-promoter investors. There have been
numerous errors that have been acknowledged, with investors being the main culprits. The
financial experts found that they had lost their well-earned money on speculations made in
several registered organisations that they had invested in, and that these organisations had
ultimately succeeded in defrauding their partners and investors. Investors have a good selection
of remedies available to them under the Companies Act of 2013 in the event that fraud is
committed. Investors now have a means of retaliation against the perpetrator in addition to
making various groups included parties for a common lawsuit more certainly a class action
lawsuit. Accordingly, the wrongdoers and ancillaries will now have to compensate the
investors and contributors for the losses they sustained as a result of the company's dishonest
business activities.
A class action lawsuit is a specialised element that enables the plaintiff(s) to present a claim on
behalf of a larger group, known as a class. The concept of class action litigation is similar to
an agent suit when a select few of the participants speak to the interests of a group of people,
including their rights and obligations. For investors who are geographically dispersed and are
affected by the wrongdoings of the corporation, a class action lawsuit is beneficial. It can be a
useful tool when a couple can take legal action for the benefit of the masses. To protect
investors from the wrongdoing of the company management or other foundations and
professionals associated to the body corporate, Section 245 has been added to the Companies
Act, 2013. The class action lawsuit affects both private division and open part organisations. It
may be started in opposition to any corporation that was formed in accordance with the
Companies Act of 2013 or a previous Companies Act of 1956 7. The keeping money
organisations are the principal exceptions to class action lawsuits.
Registration of Companies: Companies Act of 2013 allows for the scrutiny of any
company's legitimacy in light of specific procedural errors made during the registration and
consolidation processes. The NCLT has the authority to take a variety of actions, such as
deleting the registration or dissolving the firm. Significantly expanding the charge or danger
against an individual is the Tribunal's power. This new method for de-registrating a company
has been made available under Section 7(7) of the Act of 2013 in certain exceptional situations
where the registration endorsement was obtained illegally or improperly.
Refusal to Transfer shares: Additionally, the NCLT has the authority to consider appeals
regarding the dismissal of organisations, the transfer of shares and securities, and the
adjustment of an individual's enrollment under Sections 58 and 59 of the Companies Act of
2013, all of which were once under the purview of the CLB. Backpedaling to the 1956
demonstration, the only securities covered by the remedies available for foreswearing of
transfer or transmission were the firm's shares and debentures. However, thanks to the 2013
Act, the scope of the same has been broadened to include all securities issued by a company.
7
http://www.lawstreetindia.com/experts/column?sid=164
Contracts governing the transfer of securities that are marked between at least 2 people about
the shares of an open company are expressly affirmed by the provisions governing cures in the
event of default or extortion by the company.
Deposits: In shifting eras in 2014, Chapter V of the Companies Act, 2013, which regulates
deposits, was advised, and CLB was the expert to take on matters under this section. With its
public release, these part V powers have currently been transferred from CLB to NCLT8.
Regarding the statute on deposits under the 1956 demonstration and the 2013 demonstration,
there was an obvious difference in its essence. Before the creation of the NCLT, the
arrangements for deposits under the 2013 Companies Act were then disclosed. In order to find
a solution for the claims and exclusions relating to the firm that affect their rights in the position
of the contributors, troubled investors now additionally have a remedy of class action lawsuits.
Tribunal Ordered Investigations: The Companies Act of 2013's Chapter XIV grants
NCLT a variety of examination-related responsibilities. The Tribunal's three supremely
important powers are:
A. Power to organise exams: According to the Companies Act's provisions, a 2013
examination of the company's concerns may be requested with the use of 100 people, whereas
200 people were needed for the same prior to the 2013 demonstration. Furthermore, the tribunal
has the authority to set up an examination if any individual who isn't affiliated with the
corporation can persuade NCLT about the existence of criteria to do so. Any examination that
the NCLT requests may be conducted anywhere in the world, including in India. Plans have
been made for asking for and receiving assistance from international courts and examination
organisations.
8
Company Law, Avtar Singh
9
https://cleartax.in/s/national-company-law-
tribunal#:~:text=NCLT%20works%20on%20the%20lines,in%20the%20form%20of%20orders.
B. Power to solidify resources of the company: The NCLT is not the only entity with the
authority to preserve a firm's advantages for use at a later time when the company is being
examined; in some circumstances, other parties may also request the NCLT to conduct an
examination.
Auditors Certificate: The draught guidelines displayed by MCA state that a corporation
does not required to submit a reviewer's endorsement to NCLT if it is recorded or unlisted. The
authentication of the current evaluator is crucial for ensuring consistency with the MCA-
recommended bookkeeping standard. Prior to this, only organisations that have been registered
with SEBI were needed to provide this confirmation. This development will assist in lowering
the adaptability of bookkeeping for unlisted organisations and further manage the capital-
diminishing procedure.
Corporate Debt Restructuring(CDR): The NCLT can be contacted if more than 75% of
secured loan supervisors consider that a corporate obligation rebuilding is necessary, in
accordance with the NCLT's draught principles. The Companies Act of 1956 did not grant this
type of office to the existing lessees. Additionally, the candidate must reveal through testimony
various matters such as the inspectors report adjusting the liquidity test following the CDR
safeguards for the loan bosses, the creditors duty proclamation, and the valuation report
evaluated by an enrolled valuer speaking to the shares and all of the advantages of the company.
10
Avtar Singh, Company Law
EMERGING ROLE OF NATIONAL COMPANY LAW TRIBUNAL
Legal experts and investors believe that The National Company Law Tribunal, which is already
anticipating about 2,000 financial catastrophe cases, can also see the explosion of new events
that could obstruct the deadline once the financial controller redesigned how advance defaults
are to be handled. Financiers state that while only a small part of major cases are now being
attempted, there are a few examples in the SME (small and medium enterprises) and mid-cap
region where the rebuilding process has been finished but failed. The key management tool for
defaulters is RBI's rejection of all obligation rebuilding programmes and creation of time-
bound targets for terrible advances. If a goal plan does not fail in one hundred and eighty days,
accounts with a total obligation of more than Rs 2,000 crore must be brought to NCLT within
15 days, according to RBI. "NCLT is as of now under stress because they don't have as many
people and that they were battling to manage the strain," says RBI. Approximately 5,000 cases
have so far been referred to NCLT, which was established in June 2016, and more than 500
cases are currently at various stages of hearing in which bankruptcy decision-making began.
Presently, India has one NCLAT and eleven NCLT seats. Six specialised experts and sixteen
legal providers make up the 22 members of NCLT. It is anticipated that the new seats will
increase in Bhubaneswar, Jaipur, and Kochi. Currently, the NCLT has 10 seats across Delhi,
Ahmadabad, Allahabad, Bengaluru, Chandigarh, Chennai, Guwahati, Hyderabad, Kolkata, and
Mumbai, with Delhi housing its most important seat. To handle a growing number of debt
claims, the Ministry of not actually decided to establish Special courts under the National
Company Law Tribunal (NCLT).11 It is very likely that 30 adjudicators will be used in Special
Courts. The special courts may not have many specialised personnel, but they are unable to
function without attorneys. Courts to be establishment 3 in Mumbai, in New Delhi and one
each in Chennai, Kolkata and Hyderabad.
Aside from debt and financial disaster issues, the NCLT also handles mergers and acquisitions
and cases involving venture law. Two of the crucial 12 events that the RBI alludes to have been
resolved. In addition to the experts working on a move-line bankruptcy system that will demand
the NCLT to update its foundation, e-courts may be built up so that pass-line debt legal disputes
can occur inside the wards that exhibit a capacity with the Indian experts. The UNCITRAL
(United Nations Commission on International Trade Law) Model Law on Cross-Border
Insolvency, 1997, was created with the goal of providing the most comprehensive successive
judicial framework to address pass-line bankruptcy difficulties. The expressed Model Law has
been embraced through 44 nations, along with Singapore, the United Kingdom, and the United
States. In 2016 the equivalent has been brought about the reception of The Insolvency and
Bankruptcy Code.
11
https://thelawbrigade.com/company-law/role-of-national-company-law-tribunal-its-formation/
CASE LAWS
Innoventive Industries Vs ICICI Bank
Facts
Innoventive Industries requested that the insolvency resolution proceedings be started at the
Mumbai Bench of the National Company Law Tribunal ("NCLT") after Innoventive was
determined to be in default under the IBC. Since all Innovative responsibilities and remedies
for compliance activities were temporarily stopped for 2 years in accordance with notifications
made under the 1958 Maharashtra Relief Undertaking ("Maharashtra Act"), Innoventive's main
defence was that no debt was lawfully owed. 12
Main Contentions
1. Could the appeal be kept up as it was made by Innoventive's former directors following the
hiring of an insolvency counsel to run the business?
2. Did the Maharashtra Act and the IBC genuinely offend you?
3. Will the non-obstante provision in IBC section 238 take precedence over the provision in
section 4 of the Maharashtra Act?
NCLT Judgement
On January 17, 2017, the NCLT ruled that the Maharashtra Relief Undertaking (Special
Provisions Act) would take precedence over the non-obstante in the Maharashtra Relief
Undertaking (Special Provisions Act), 1958 ("Maharashtra Act") due to the non-discriminatory
clause in Section 238 of the IBC, 2016 ("Maharashtra Act"). As IBC is a Central Act and
Central law supersedes State law, the Maharashtra Relief Undertaking (Special Provisions
Act), 1958 ("Maharashtra Act") is a State Act.
Judgment of NCLAT
Upheld decision Of NCLT
Judgment of Supreme Court
The SC ruled that former directors who are no longer in management cannot appeal on behalf
of the company once an insolvency professional has been hired to administer it. As a result, the
appeal was not valid in this particular instance. However, the Supreme Court did not tend to
dismiss the appeal based on this one argument. The judges believed it was important to provide
a full ruling because this was the first case to be transferred under the IBC and they wanted all
courts and tribunals to be aware of the paradigm shift in Indian insolvency law.
12
https://corporate.cyrilamarchandblogs.com/2017/09/innoventive-industries-limited-v-icici-bank-limited-
paradigm-shift-insolvency-law-india/
In order to determine whether there is any conflict between the IBC and the Maharashtra Act,
the Supreme Court thoroughly examined numerous case laws and constitutional principles and
proposed, among other things, the following ideas:
a) The difference must be obvious and direct, and it must be of a nature that brings the
two Acts or portions of them into open conflict with one another, creating a situation in
which they are at odds with one another. When two laws create different legal results
when applied to the same evidence, this happens.
b) While there may be no direct conflict, the legislation of the State may be inoperative
because the Parliamentary law is intended to be a complete, exhaustive or exclusive
code and superior to state Code.
Facts
Due to a default on payments, the Committee of Creditors started the CIRP process against
Binani Industries. 99.43% of the Committee of Creditors (COC) approved Rajputana
Properties Private Limited's Resolution Strategy at the meeting on March 14, 2018, which
took place.
However, 10.53 percent of the COC, who were compelled to approve the "Resolution
Program," indicated their disapproval. They claimed that in comparison to other financiers
who served as the corporate guarantors for the corporate debtor, they had not been treated
fairly. In accordance with Sections 30 and 31 of the IBC and Regulation 39 of the 2016
Insolvency and Bankruptcy Board of India Rules, the RP submitted a request for approval
of the Resolution Plan in Binani Cement Limited.
A lesser percentage was proposed for the claims of other financial creditors, such as the
Export-Import Bank of India (72.59%) and State Bank of India-Hong Kong (10%), whereas
the Resolution Plan of Rajputana Properties Pvt. Ltd. provided that the Financial Creditors,
such as "Edelweiss Asset Restructuring Company Limited," "IDBI Bank Limited," "Bank
of Baroda," "Canara Bank," "Bank of India," and "State Bank of India," would Some of the
lenders claimed that the resolution plan was biassed, therefore they applied to the NCLT to
have it ignored so that they may submit fresh proposals. 13
Issues
a) Whether RP exceeded his power in Appointing Other Professionals and Outsourcing
Works?
b) Whether Non Considering of revised offer from Ultratech is Violative of Provisions
Under IBC?
13
https://www.ijlmh.com/binani-industries-ltd-v-bank-of-baroda-and-another-an-
analysis/#:~:text=The%20case%20of%20Binani%20Industries,the%20auctions%20of%20stressed%20assets.
Judgement
a) Whether RP exceeded his power in Appointing Other Professionals and Outsourcing
Works?
The Tribunal observed that costs incurred by RP in engaging people was exorbitant and
directed costs should be reasonable.
b) Whether Non-Considering of revised offer from Ultratech is Violative of Provisions
Under IBC?
Yes, It is violative as the CoC decided to negotiate with only the H1 bidder which is against
the basic provisions Of code aimed at maximising value. The Coc went ahead with
Approval of plan submitted by Rajputana Properties which is Unjust and Arbitrary,
Company which was not an H1 bidder was as Disqualified from the Bidding Process. which
is not valid due to the following:
Negotiation only With H1 Bidder Not the test Of the code. RP should Act independent Of CoC,
his resolution Plan should Be fair across all Categories Of Creditors.
RP and CoC should aim at Maximisation of Value, Receipt of Email not a Criteria For
rejection
He is duty bound To place all plans that satisfy requirements Of Sec. 30(2)
Any plan/bid submission till CIR process is not concluded to be taken to its logical
conclusion.
NCLT Judgement
The two investment firms of the Mistry family's complaint are dismissed by NCLT Mumbai
on the basis of viability, according to the court, because they did not meet the requirements for
filing a case of alleged exploitation of minority shareholders under the Companies Act, 2013—
10% ownership in a company.
Ratan Tata and the corporate board's allegations of systemic abuse are rejected by NCLT
Mumbai, as are Mistry's petitions defending his removal as chairman of Tata Sons. The court
stated that it found little merit in the plaintiff's allegations of poor management in Tata Group
entities. NCLT Mumbai also refuses petitions requesting a waiver from the two investment
firms on the grounds that they have at least 10% share of a filing their case of oppression and
mismanagement against Tata sons by SP Group.14
NCLAT Judgement
Mistry's investment companies are appealing the NCLT decision that denied their requests for
maintenance to the NCLAT. They also contested the denial of their request for a waiver. On
September 21, 2017, NCLAT approved petitions from the two investment firms asking for a
waiver in order to file a lawsuit of injustice and poor management against Tata Sons, however
Mistry's other appeal on sustainability was denied on the grounds that the firms did not. On
December 18, 2019, the NCLAT reinstated Cyrus Mistry as executive chairman of Tata Sons
Ltd. However, it postponed its implementation for four weeks to provide Tata Group time to
file an appeal.
SC Judgement: Awaited
14
https://www.businessinsider.in/thelife/personalities/news/cyrus-mistry-vs-tata-group-decoding-the-battle-
of-prestige-between-indias-most-prominent-parsi-families/articleshow/94000771.cms
Mack Soft Tech Pvt. Limited&Anr. Vs Quinn Logistics India Pvt.
Limited
Issue
Whether Financial Creditor Can Claim Its Dues & File Action Under IBC For in Case Of
No Supporting Documents or Over Limitation Period?
Judgement
Limitation Act, 1963 is not valid for claiming amount under IBC but Application Under Sec-7
is Time –Barred For 3 Years. But in this case, the cause of action is continuing, therefore,
application Under Sec-7 Is Admissable. 15
CONCLUSION
NCLT is the successor to the company law board. With the establishment of NCLT, there will
be a speedy remedy in resolving the company law disputes and will be disposed of
expeditiously. Appeals can be made by an aggrieved party from any decision or order passed
by NCLT within the period of forty-five days of the receipt of an order or decision to NCLAT.
Further, NCLAT gives its decision within six months from the date of receipt of the appeal. No
civil court has jurisdiction to decide the cases where NCLT and NCLAT are empowered to do
so.
15
https://ibclaw.in/mack-soft-tech-pvt-ltd-vs-quinn-logistics-india-ltd-nclat-new-delhi/