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Challenge to NLCT and NCLAT - Supreme Court's Judgement - Indian Company Law?
The Challenge to the NCLT & NCALT:
The five-judge Bench of the Supreme Court of India comprising Justice KG Balakrishnan, Justice RV Raveendran, Justice DK Jain, Justice P Sathasivam and Justice JM Panchal has delivered its judgment on the legality of the constitution of National Company Law Tribunal and National Company Law Appellate Tribunal under the Companies Act, 1956 through Companies (Second Amendment) Act, 2002.
With the intention of establishing a Separate Tribunal to deal with all issues or disputes under the Companies Act, 1956, a Special Tribunal and Appellate Tribunal called National Company Law Tribunal and National Company Law Appellate Tribunal were sought to be established through the Companies (Second Amendment) Act, 2002. As per the said amendment, as soon as the Tribunal and the Appellate Tribunal is constituted, almost all powers exercised by the High Court under the Companies Act, 1956 sought to be transferred to the NCLT and NCLAT except the judicial review powers exercised under Article 226 and 227 of Constitution of India.
Madras Bar Association, represented by Shri R.Gandhi, has challenged the Companies (Second Amendment) Act, 2002 and especially the constitution of National Company Law Tribunal and National Company Appellate Tribunal before the Madras High Court initially.
The conclusion of Madras High Court:
Justice Jayasimha Babu of Madras High Court has delivered a considered and landmark judgment on the issue of legality of constitution of National Company Law Tribunal and National Company Law Appellate Tribunal. The background of the constitution of Tribunals in India as referred in the Judgment is as follows:
“The Tribunals which are largely a twentieth century phenomenon existed in this country even before the Constitution was framed. The oldest and best known Tribunal is the Income-tax Appellate Tribunal which had been functioning from the year 1941. Industrial Tribunals had also been established prior to 1950. Articles 136 and 227 of the Constitution refer to Tribunals, and make their orders subject to judicial review by the High Court, and with leave, to the Appellate jurisdiction of the Supreme Court. Numerous Tribunals have been created subsequent to 1950 by Parliamentary as well as State legislation. Their exact number however is not easily ascertainable. The Law Commission of India in its 162nd Report submitted in 1998 reviewed the working of the major tribunals in the country – the Income-tax Appellate Tribunal, Customs, Central Excise and Gold (Control) Appellate Tribunal and the Administrative Tribunals, and suggested certain changes to improve their functioning.
The object of constituting Tribunals is to provide a simpler, speedier and more accessible justice than ordinary courts are able to provide, as stated in Wade on Administrative Law. Yet another object of constituting Tribunals is to create specialist Tribunals which would include specialists in the filed, to adjudicate more efficiently and speedily the matters requiring adjudication in that field, and thus command the confidence of all concerned in the quality and reliability of the result of such adjudication.”
The object of constituting Tribunals is to provide a simpler, speedier and more accessible justice than ordinary courts are able to provide, as stated in Wade on Administrative Law. Yet another object of constituting Tribunals is to create specialist Tribunals which would include specialists in the filed, to adjudicate more efficiently and speedily the matters requiring adjudication in that field, and thus command the confidence of all concerned in the quality and reliability of the result of such adjudication.”
The Operative portion of the Judgment of the Madras High Court is as follows:
“In the light of foregoing discussions it is declared that until the provisions in Parts 1B and 1C of the Companies Act introduced by the Companies (Amendment) Act, 2002, which have been found to be defective in as much as they are in breach of the basic constitutional scheme of separation of powers and independence of the judicial function, are duly amended, by removing the defects that have been pointed out, it would be unconstitutional to constitute a Tribunal and Appellate Tribunal exercise the jurisdiction now exercised by the High Courts or the Company Law Board.
The petitioners have also challenged the validity of certain provisions of the Companies (Amendment) Act, 2002, whereby certain powers currently exercised by the Company Law Board, some of which were earlier exercised by the court, were transferred to the Central Government. Most of those powers are only tangentially judicial and are primarily administrative. There is no illegality in such transfer.”
The petitioners have also challenged the validity of certain provisions of the Companies (Amendment) Act, 2002, whereby certain powers currently exercised by the Company Law Board, some of which were earlier exercised by the court, were transferred to the Central Government. Most of those powers are only tangentially judicial and are primarily administrative. There is no illegality in such transfer.”
The Judgment of the Madras High Court was a very detailed, considered and reasoned judgment. The Apprehension of the Petitioners who challenged the Companies (Second Amendment) Act, 2002 and the conclusion of the Court on the issue is summed up in one para of the Judgment as follows:
“The constitution of the National Company Law Tribunal and the Appellate Tribunal in the manner now provided, when considered along with the provisions concerning the Competition Commission under the Competition Act 2002, seems to indicate a pattern of an aggressive executive seeking to take over gradually the judicial power traditionally exercised by the courts under safeguards which ensure the competence, independence and impartiality of the judges, and replacing them by persons who have neither a judicial background nor specialized knowledge of the subject for which the Tribunal is created, and by persons now serving the executive who will continue to retain their lien and loyalty to the executive branch, and be amenable to the influence of executive superiors and their political masters.”
The doyens of the Madras Bar Association Shri Aravind P.Datar, Senior Advocate and Shri V.T.Gopalan, the then Additional Solicitor-General has rendered exceptional assistance to the Court in the matter before Madras High Court and the same is acknowledged by the Madras High Court in its judgment as follows:
“We place on record our appreciation to Mr.Arvind Datar, learned senior counsel of petitioner, whose research and cogent presentation has helped to clarify and bring out the significance of the issues involved, and to Mr.V.T.Gopalan, learned Additional Solicitor-General who, with his usual fairness presented the case for the respondent with great vigour, and also placed before the court all the relevant materials.”
Appeal to the Supreme Court:
The Judgment of the Madras High Court on the issue of constitution of National Company Law Tribunal and National Company Law Appellate Tribunal was appealed before the Supreme Court and the Supreme Court has now delivered a land-mark judgment on the issue and the judgment has further strengthened the conclusion of Madras High Court and the apprehensions expressed. The Madras High Court has never questioned the legislative competency in establishing National Company Law Tribunal, but, expressed its concern over the independence of the mechanism and its effectiveness. It’s really laudable.
Further process:
Now, the entire Companies Act, 1956 sought to be reorganized with some inclusions and deletions through Companies Bill, 2009. I don’t know as to how the Government has proceeded with the Companies Bill when an important issue on the Constitution of National Company Law Tribunal and National Company Law Appellate Tribunal was pending before the Apex Court. Now, the concerned ministry has to take note of the judgment of the Apex Court and should make needed changes to the proposed bill and then, the Companies Bill can be introduced in the Parliament and it needs to be passed. It will take some time, but, the entire issue can be quicken as the needed infrastructure for the establishment of National Company Law Tribunal and National Company Law Appellate Tribunal was already in place as I believe.
My opinion on the Tribunal:
Many feel that there is lot of difference between a Tribunal and the Court, but, I disagree with the notion. The Tribunal is also a Court intended to resolve the disputes, but, it is constituted under a special enactment and may follow different procedure as enshrined in the enactment.
A constitution Bench of the Supreme Court in the case of Associated Cement Companies Ltd. V. P.N.Sharma, AIR 1965SC1595, speaking through our great justice Gajendragadkar, C.J., while holding that the appellate authority under the Punjab Welfare Officers Recruitment and Conditions of Service Rules, 1952, is a Tribunal, observed:
“…Special matter and questions are entrusted to them for their decision and in that sense, they share with the courts one common characteristic; both the courts and the Tribunals are ‘constituted by the State and are invested with judicial as distinguished from purely administrative or executive functions…’ They are both adjudicated bodies and they deal with and finally determine disputes between parties which are entrusted to the jurisdiction….As in the case of courts, so in the case of Tribunals, it is the State’s inherent judicial power which has been transferred and by virtue of the said power, it is the State’s inherent judicial function which hey discharge. Judicial functions and judicial powers are one of the essential attributes of a sovereign State, and on considerations of policy, the state transfers its judicial functions and powers mainly to the courts established by the Constitution; but that does not affect the competence of the State, by appropriate measures, to transfer a part of its judicial powers and functions to Tribunals by entrusting to them the task of adjudicated upon special matters and disputes between parties. It is really not possible or even expedient to attempt to describe exhaustively the features which are common to the Tribunals and the courts, and features which are distinct and separate. The basis and the fundamental feature which is common to both the courts and the Tribunals is that they discharge judicial functions and exercise judicial powers which inherently vest in a sovereign state.”
The observations of Justice Gajedragadkar were also referred in the Judgment of Madras High Court.
Thus, there is no much difference logically between the Court and the Tribunal and both are meant to resolve the disputes.
My apprehension:
I have the privilege of observing the proceedings of High Court in Company matters and also the proceedings of Company Law Board. At present, the High Court discharges very complicated functions under Companies Act, 1956 like entertaining winding-up petitions and entertaining applications seeking sanction of the Court for a scheme of amalgamation etc. The Company Law Board also discharges complicated responsibilities under section 397/398 of the Companies Act, 1956 and other provisions.
There are many limitations and we know the functioning of the office of the Official Liquidator at present and we also aware of the proposed move to get the services of Advocates and Experts as liquidators. It’s a serious issue to deal with and requires serious consideration by the Government and also Courts. In my personal opinion, the High Court was able to discharge its functions under Companies Act, 1956 very well and the proceedings of Company Court were effective to a great extent. Instant orders were passed if the situation demands and most of the orders passed by the High Court while exercising Company Jurisdiction were obeyed and implemented by the parties concerned.
But, when it comes to the proceedings of the Company Law Board, many express their dissatisfaction that they are being unnecessarily troubled and many feel that they are not able to get justice though they could establish a clear case before the Board. It is also frequently seen as to the respect given to the orders of the Company Law Board. Again, the powers of the Company Law Board were limited by the express language used in the Act and also due to the ruling on its own competence and jurisdiction. These issues are taken note of by the Legislature and sought to be addressed in the proposed Companies Bill, 2009.
We have seen tremendous corporate growth in the recent past and with the technological revolution and its adoption in governance like MCA scheme, the incorporation and management of Companies have become so easy though there are complications in the Course.
We need to provide an effective and speedy redressel to the Corporate and they can not be waiting for months and years for a redressel. Handling a Company dispute is a complicated thing and requires lot of care, concentration and specialization. It is to be seen as to how the proposed National Company Law Tribunal and the National Company Law Appellate Tribunal functions in future.
Note: I have only given a brief of the issue and I am aware of the fact that a lot can be said on the issue.
About the Author
V.DURGA RAO, Advocate, Madras High Court - Email: vdrao_attorney@yahoo.co.in
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