Challenge to NLCT and NCLAT - Supreme Court's Judgement - Indian Company Law?

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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 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 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

Tenancy Rights

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‘Tenancy Rights’ and action under SARFAESI Act, 2002?

Banks used to take advantage of the provisions of SARFAESI Act, 2002 earlier in taking possession of the ‘secured asset’ even when the tenant was in possession of the property. Absolutely, there is no difficulty in taking the possession of the ‘secured asset’ using the protection and assistance under Section 14 of the Act if the property was actually in possession of the borrower or the guarantor. Courts were looking into the issue of rights of tenants and the bona fides as the owner of the property can play with the Bank with fictitious arrangements. Any person aggrieved, including a Tenant, can approach the Debt Recovery Tribunal under section 17 of the Act. When a tenant approaches the Court or the Tribunal seeking protection of his rights and questioning the action being taken by the Bank using Section 14 of SARFAESI Act, 2002, the Court or the Tribunal used to look into or emphasize as to:
(a). Whether there are bona fides in the contention of the tenant?
(b). If Tenant relies on any agreement with the landlord, the date of the agreement or the date from when the Tenant was in possession of the property.
(c). The knowledge of the Bank in respect of tenancy while sanctioning the loan.
(c). Whether the agreement between the tenant or the landlord registered and legal?
When a tenant files an application under section 17 of the SARFAESI Act, 2002 questioning the action of taking physical possession of the property by the Bank, the interpretation initially was infavour of the Banks in most of the cases unless the tenant establishes a clear case. However, now, the Courts rightly are emphasizing at the laws protecting the rights of the tenants and as to how the Banks are not allowed to take advantage of the provisions of the SARFAESI Act, 2002. Looking at the plight of the tenants, State Governments must have made laws to protect the rights of the tenants and the tenants used to be protected irrespective of the agreement between the landlord and the tenant while if there exist any agreement, the relevant contents like the payment of advance, rent agreed etc. are taken into consideration. The laws infavour of the tenants are called ‘welfare legislation’ and justified time and again irrespective of the criticism by the landlords that they are being harassed and in most of the times, it becomes very difficult to get the tenants vacated. A tenant can ask for fixation of fair rent irrespective of the clauses in the agreement if there is any agreement and the landlord is asked to follow a procedure in evicting the tenant and the landlord is supposed to establish a ground for getting the tenant vacated. If the landlord wants to get a tenant evicted, he has to approach the Tribunal or the Court under the special legislation protecting the rights of the tenants if there is any such legislation; and even if the landlord wins the case against the tenant, the tenant has got a right of Appeal, a writ jurisdiction or revisional jurisdiction can also be invoked thereafter and matters can even go to the Supreme Court. These laws infavour of tenants are often criticized, but, those continue to have the statutory force unless repealed.
Explaining as to how the rights of the tenants are to be protected and the Banks are not allowed to get the tenants evicted without following the due process of law, the High Court of Kerala, in N.P. Pushpangadan & Others Vs. The Federal Bank Ltd (2011 (4) ILR(Ker) 196, 2011 (4) KLT 134 (FB), 2011 (4) KLJ 93, 2011 (4) KHC 40), was pleased to explain the issues and held as follows:
“22. An owner of a building wish to get his tenant evicted. A particular owner may have so many tenants under him. In view of the provisions of the Kerala Buildings (Lease and Rent Control) Act, a landlord can get an order of eviction only if the grounds enumerated in the Rent Control Act are established. An unscrupulous landlord may apply under Section 133 of the Code of Criminal Procedure and get an order for demolition of the building, even without notice to the tenants. The tenants may, sometimes, be successful in resisting such illegal action, by approaching the civil court. If it were to be held that the Securitisation Act overrides the Kerala Buildings (Lease and Rent Control) Act, a landlord who has let out his building to several tenants and wants to get them evicted can easily manipulate things to achieve that object without recourse to the machinery provided under the Rent Control Act. He can take a loan from a bank on mortgaging the tenanted building, deliberately commit default in repaying the loan and allow the measures under Section 13(4) and 14 of the Securitisation Act to be taken by the secured creditor. The tenants can thus be easily evicted summarily, either before the sale or after sale under the Securitisation Act. If a sale takes place, the landlord can also manage to have it purchased in the name of his confidant. In such cases, how could the civil court or the High Court or the authorities under the Securitisation Act protect the interests of the tenants, if the interpretation of the law is as stated above? If that is the interpretation of law, we would be creating two categories of tenants in respect of tenanted buildings; namely (a) those who are governed by the Kerala Buildings (Lease and Rent Control) Act but whose landlord has not taken any loan and created security interest in respect of the tenanted building and (b) those who are not entitled to the protection of the Rent Control Act only for the reason that the landlord has created a security interest in respect of the building and proceedings under the Securitisation Act have been taken. The Securitisation Act, in our view, does not create such a situation denying the rights of tenants under the Kerala Buildings (Lease and Rent Control) Act.”
On the same point, the High Court of Madras in Indian Bank Vs. M/s Nippon Enterprises South (2011 (2) CTC 474, 2011 (2) LW 521, 2011 AIR (Mad) 238), was pleased to observe as follows:
“36. Under Section 13(4) of the SARFAESI Act, the secured creditor can take possession of the secured assets of the borrower. There can be no difficulty in taking such possession of the secured assets either under Section 13(4) or under Section 14 of the SARFAESI Act, if the secured asset is in the possession of the borrower or guarantor, as the case may be. SARFAESI Act entitles the creditor to take possession of the secured assets either by issuing possession notice under Section 13(4) or by making application to the Chief Metropolitan Magistrate/District Magistrate to take physical possession under Section 14. Though the function of Chief Metropolitan Magistrate/District Magistrate is only ministerial, the provision of Section 14 confers drastic power to take possession even by use of force. The difficulty arises only in cases where the possession of the property is in the hands of the tenant (lessee). The SARFAESI Act does not contain any specific provision enabling the secured creditor to take possession from the hands of a tenant (lessee). On the other hand, the TN Rent Control Act contemplates that a tenant is entitled in law to continue to be in possession unless he is evicted under the provisions of the said Act. SARFAESI Act being mainly procedural and the TN Rent Control Act being exclusively dealing with the substantive right of tenants, both the Acts operate on different fields. Only in the event the SARFAESI Act contains a provision to enable the bank to take possession of a secured asset from a lessee, then only it can be held that there is conflict between the SARFAESI Act and the TN Rent Control Act in which case, the TN Rent Control Act should give way for the SARFAESI Act to have overriding effect. However, there is no such provision in the SARFAESI Act enabling the bank to take possession from the lessee, though the Act speaks of the right of the bank to take possession of the secured asset. Moreover, right from Section 13(2) till exhausting the provision of appeal, the bank deals only with the borrower/guarantor and the lessee is nowhere in the picture, as the Act does not require the bank to involve the lessee/tenant as well in the proceedings. Thus, we do not find any overlapping or inconsistency between these two Acts. When there is no such overlapping or repugnancy between these two provisions in respect of taking possession from the lessee, it has to be held that physical possession of the secured assets from the lessee/tenant can be taken only by invoking the provisions of the TN Rent Control Act.”
It is a different case if it is clearly proved that a person claiming to be a tenant and the agreement with the land-lord is fictitious though it is very difficult to establish mala fides on the part of the Bank.
If the legal proposition is allowed to be settled in the near future that the Banks can not override the provisions of the laws made by State Governments in the interests of the tenants and Banks can not evict the tenants using Section 14 of SARFAESI Act, 2002, then, both the interests of the Banks and also the borrowers are to be looked-into carefully. The Banks can sell the secured assets by following the due procedure and there is no need for the Banks to take physical possession of the property before selling the properties in auction. There were some conflicting judgments as to the responsibilities of the Banks in taking physical possession of the property even after confirmation of sale infavour of the bidder and the need of Banks to take physical possession of the properties while conducting the auction. However, as I think, it is settled that the Banks can auction the property under the provisions of SARFAESI Act, 2002 without taking actual possession of the property and there is no responsibility on the part of the Bank in getting the physical possession of secured asset even when the auction sale is concluded and the price is received unless it is agreed otherwise at the time of Auction. But, the interesting issue is like:
What happens to the value of the property if it is sold without taking actual possession of the property?
When a Bank sells the property in Public Auction or other permitted means without actually taking the physical possession of the property, the Bank may get lesser price for the property as the bidder has to take the risk of getting the tenant vacated. The Banks can justify selling the property for a lesser price in view of the compulsions and the legal position. The borrower or the guarantor who has mortgaged the property with the Bank may have a different and serious contention in this regard. When the property is sold for a lesser price in view of the risk involved in getting the tenant vacated, the Borrower may not agree to that contention and may seriously contend that the property is undervalued and sold for a lesser price. The Borrower has every right to raise these kinds of arguments as the balance sale consideration after adjustments, should go to the borrower or the guarantor as the case may be. Again, if the sale consideration is not sufficient to meet the liability, the Bank may initiate further proceedings against the borrower for the remaining.
It all depends upon the facts of that particular case like the outstanding amount, the value of the property and the contention of the borrower or the owner of the property and there may not be any hard-and-fast rule on these complicated issues under SARFAESI Act, 2002. The borrower or the guarantor can not speak for the tenant and it is for the tenant to ask for the protection of his rights when the Bank initiates steps to take physical possession of the property. The responsibilities of the owner of the property in normal circumstances may be different and in normal circumstances, the owner may be duty bound to ensure that no third party disturbs the tenant.
Note: the views expressed are my personal and do not represent anyone or organization.

About the Author

V.DURGA RAO, Advocate, Madras High Court.
Email: vdrao_attorney@yahoo.co.in

Time Limits of Medical Negligence Claims

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Time Limits of Medical Negligence Claims

Solicitors are frequently asked whether or not medical negligence claims are restricted by certain time limits. This is a very good question, and in short, the answer is yes. Under the Limitation Act 1980, medical negligence claims must be settled within three years. There are, however, some exceptional circumstances which are discussed below.
Establishing a Limitation Date
When you make a medical negligence claim, your solicitor will need to establish a ‘date of limitation’ - ie. the day your claim must be settled by. This will be exactly three years from the date you first suspected you were the victim of medical negligence. So if a patient has had the wrong limb amputated, the error would have been recognised soon after the operation. Thus the time limit will start from the date the wrong-site surgery happened.
However, there are some circumstances in which a patient will only realise negligence has occurred some time after the event. For example, if a cancer patient is given an overdose of radiation therapy, he/she may not suffer any symptoms until years later. In such cases, the three years will start from the day the claimant was diagnosed with radiation exposure.
Are There Any Exceptions to the Rule?
Nevertheless, there are some exceptions to the three year rule. Firstly, a claimant who has a permanent mental disability will not be restricted by time limits whatsoever. If this mental incapacity is temporary, the date of limitation will not start until capacity has returned.
Secondly, those under the age of 18 are considered to be minors and are exempt from limitation until they become an adult. This means the three years will only start when they turn 18. Therefore even if the negligence occurred when a claimant was five years old, he/she will have until their 21st birthday to settle their claim.
Can the Time Limit be Extended?
The period of limitation can, in some cases, be extended. However, this will be the decision of the courts, and so you cannot be certain that an extension will be granted.
Rather than rely on the discretion of the courts, potential claimants should instead contact a medical negligence solicitor as soon as they suffer injury. Claims take a long time to prepare, and so the sooner a claim is started the better. Even if you have been the victim of a serious incidence of medical negligence, a solicitor may be unable to help if you leave it too late. Indeed, many will not take a case that is too close to the date of limitation.
If you believe you have suffered because of a substandard level of medical care, you need to speak to a solicitor as soon as possible. Remember, there are strict time limits at play, so do not delay in seeking expert legal advice.