India – National Company Law Tribunal: The One Stop Shop For All Company Related Disputes!

The constitutional validity of the NCLT and the NCLAT is an issue that was first tested before the Supreme Court of India in Union of India vs. R. Gandhi, President, Madras Bar Association² (the 2010 Judgment). In the 2010 Judgment, while the constitution bench of the Supreme Court held the NCLT and the NCLAT as envisaged by the Part 1B and Part 1C of the Companies Act, 1956 (the1956 Act) to be a fit and proper body, it agreed with the views of the Madras High Court (wherefrom the issue came to the Supreme Court in appeal) that certain provisions of Part 1B and Part 1C of the 1956 Act relating to the appointment and theeligibility for membership of the NCLT and the NCLAT were “defective” and required rectification (by way of amendment).

However, pursuant to the 2010 judgment, the rectification to Part 1B and Part 1C of the 1956 Act to operationalize the NCLT and the NCLAT were not carried out.In 2013, the Companies Act, 2013 (the 2013 Act) was passed by the Parliament and partially notified into effect; although, the provisions in the 2013 Act relating to the NCLT and the NCLAT were not notified. Although the rectifications to Part 1B and Part 1C of the 1956 Act directed by the Supreme Court in the 2010 Judgment had been included in Chapter XXVII of the 2013 Act, the Madras Bar Association filed the present writ petition before the Supreme Court. The Madras Bar Association prayed for a writ of declaration contending that some provisions of Chapter XXVII of the 2013 Act too suffered from the same defects as those observed in the 2010 Judgment, and therefore should be struck down as unconstitutional.

Issues already decided

The issues raised in the present proceedings were primarily three fold:

(a) A challenge to the validity of the constitution of the NCLT and the NCLAT;

(b) A challenge to the prescription of qualifications including their term of office, salary, allowances etc. of the president and the members of the NCLT as well as the chairman and members of the NCLAT; and

(c) A challenge to the structure of the selection committee for appointment of the president/ members of the NCLT, and the chairman/ members of the NCLAT.

At the very outset, the constitution bench of the Supreme Court categorically stated that all issues raised in the present petition were already covered by the 2010Judgement,and consequently chose to adopt the same approach to deal with the impugned provisions of the 2013 Act.

With regard to first issue, the court held that the validity of the NCLT and NCLAT is an issue which is already res judicata since the first case clearly upheld the constitutionality of the NCLT and NCLAT on all accounts

On the second issue, the Supreme Court held Sections 409 (3) (a), 409 (3) (c) and 411 (3) of the 2013 Act relating to the appointment and technical qualifications of members of the NCLT suffer from the same vice as the corresponding provisions in the 1956 Act (as observed in the 2010 Judgment). Accordingly, these provisions were held invalid and the Supreme Court directed that necessary corrections to these provisions, as pointed out in the 2010 Judgment,would need to be carried out. With respect to the third issue (pertaining to the selection committee for selecting the members of the NCLT and the NCLAT), the Supreme Court observed that Section 412 (2) of the 2013 Act was contrary to its observations in the 2010 Judgment. Accordingly, the Supreme Court held that Section 412 (2) of the 2013 Act was invalid and issued directions to rectify the defects in this provision in line with the recommendations in the 2010 Judgment.

One step closer to consolidation

Even in the 2010 Judgment, the Supreme Court showed urgency and directed that the intentions of the legislature to set up a consolidated forum for adjudication of disputes relating to companies be given form at the earliest. In the present decision too, the Supreme Court directed the Union of India to disclose the status of the process of establishing the NCLT and NCLAT, and noted that the only step that remained in establishing the NCLT and the NCLAT was to appoint the president and the members of the NCLT, and the chairperson and members of the NCLAT.

The NCLT and the NCLAT, once established, will be the consolidated bodies which would adjudicate and decide all issues relating to companies in India and cases pending before the various benches of the Company Law Board, the BIFR, the AAIFR and all Company Courts across the country would be transferred to the NCLT and the NCLAT. Although the move to consolidate all proceedings relating to companies in India under the NCLT and NCLAT is an ambitious one, it is also much welcome. The absence of a multiplicity of fora, with often overlapping mandates and jurisdictions, is expected to ensure that proceedings before the NCLT and the NCLAT will be streamlined and will be closed in a more efficient manner.The Supreme Court of India having held both the NCLT and the NCLAT as constitutionally valid and not in violation of the scheme of the constitution, it is now a question of how fast the executive can give effect to the will of the legislature. While the shift from the 1956 Act to the 2013 Act continues to be a rough ride, all companies presently litigating before various fora wait eagerly to see what the shift to, and the performance of the NCLT and the NCLAT holds.