Pivotal Role of National Company Law Tribunal and its Significance in the Field of Corporate Law

Introduction

In the previous times, to resolve the problems of a company had a prolonging effect i.e.  they took a lot of time to get solved. Problems like insolvency, selling of shares or their distribution among the investors like debentures, preferential shares was a very difficult task to accomplish as it was quite challenging during the process of distribution. Hence, as it took too much time to get an issue resolved by process of litigation in the specific courts(based on criminal or civil matters).The Central Government after considering these aspects had constituted National Company Law Tribunal (N.C.L.T) under section 408 of the Companies Act, 2013 w.e.f. 01st June 2016.The Ministry of Corporate Affairs ('MCA') on 1st June 2016 notified the constitution of National Company Law Tribunal ('NCLT') and National Company Law Appellate Tribunal (NCLAT) to exercise its powers mentioned under Section 408 and Section 410 of the Companies Act 2013 (Companies Act).One thing to be noted about these tribunals is that in the first phase, the cases of the disputes may be related to arbitration, compromise, arrangements, reconstructions and the winding up of companies, insolvency resolution process of companies and limited liability partnerships under the Insolvency and Bankruptcy Code and are handled by the National Company Law Tribunal ('NCLT').Whereas, if the matter is not resolved, decisions of the tribunal may be appealed to the National Company Law Appellate Tribunal. Ministry of Corporate Affairs has set up eleven Benches, one Principal Bench at New Delhi and ten other Benches at New Delhi, Ahmedabad, Allahabad, Bengaluru, Chandigarh, Chennai, Guwahati, Hyderabad, Kolkata and Mumbai. These Benches are headed by the President Chief Justice (Retd. Ramalingam Sudhakar) at the principal bench. Apart from this it comprises of sixteen Judicial Members and nine Technical Members at different locations. Subsequently, more Benches at Cuttack, Jaipur, Kochi, Amravati, and Indore have been setup and new members have joined in accordance with the norms.

In India, the National Company Law Tribunal is a quasi-judicial organization. Its main function is to adjudicate any disputes that arise within a company (also known as Company Law Disputes). To resolve these disputes quickly, the government emphasised more on easing these processes and hence, the establishment of N.C.L.T and the N.C.A.L.T was one most important step` in this direction. The derivative of these specialised tribunals came from an idea from a Supreme Court case of Sampath Kumar case. What happened in this case was that the Apex Court emphasised more on the pendency of cases in the Lower Courts like the High Courts regarding these matters. Due to the increased growth of the population and various business ideas and the new formulation of new companies, the frequencies of these cases and their pendency increased a lot and due to this explosion and increase in the litigation increased which usually did not come to a conclusion soon. Hence, seeing these scenarios of the pending cases and the complicated process, the Apex Court to reduce the burdens of these Courts suggested the idea of setting up the Tribunals to fulfil the growing need for empowering the Company Law Board. This only entertains or takes up all matters relating to Company Law and other Corporate Laws at one Forum. The Companies (Second Amendment) Act, 2002 includes for the setting up of a National Company Law Tribunal and an Appellate Tribunal which replaced the existing Company Law Board (C.L.B) and Board for Industrial and Financial Reconstruction (B.I.F.R).The setting up of the N.C.L.T and N.C.L.A.T are projected towards the efforts to move to a regime of a quicker resolution to the disputes that arise in a corporate segment which has an ulterior motive of improving the running of a business i.e. without any hurdles.

Major Objectives of National Company Law Tribunal

1.    Simplification of the Process of Dispute Resolution

Making of the process of the company’s dispute resolution is a prime agenda of this tribunal specifically. The formulation of this tribunal(N.C.L.T) was to provide a framework that could consolidate the process of dispute management. Prior to this, there were multiple other forums that existed which were primarily designed to address and resolve these matters relating to disputes; however, these forums or the tribunals which were set up prior failed at managing and consolidating these issues into one fragment which always led to delays and overlapping jurisdiction cases. After the establishment of (N.C.L.T), these problems were resolved to a much greater extent as (N.C.L.T) all these forums or tribunals were clubbed or rather re-formulated to be one entity which ultimately overlooks the segment of these corporate disputes.

2.    Effectiveness of the process of adjudication of the Corporate Disputes

Aforementioned, the primary agenda of this tribunal is to create a uniform and a red tape free medium for adjudication of disputes quickly. N.C.L.T being a quasi-judicial body has similar powers like a Civil Court. Thus, the Central Government aimed at providing one specialized forum to address these concerns. Hence, all corporate disputes, even those of high complexity, can be resolved in a fair, timely, and in an impartial manner.

3.    Efficient Insolvency Resolution of cases

After the establishment of N.C.L.T, a pivotal role was played by it in solving any disputes related to company and their disputes. Apart from this, the central role is also played in the insolvency resolution process. After the introduction of THE INSOLVENCY AND BANKRUPTCY CODE, 2016 the matters related to it have been a responsibility of the N.C.L.T. This  objective under the ambit of N.C.L.T has been very beneficial for both corporate and individual entities. N.C.L.T is the authority that may initiate or adjudicate any matters relating to the insolvency proceedings. The core duties it has to appoint professionals pertaining to this forte and observe the proceedings of the insolvency resolution. The core motive of this is to maintain transparency and give efficient resolution of insolvency cases which directly benefits both the creditor and the debtor.

4.    Protection of the interests of the Stake-holders

Apart from the overall development of the corporate sector, another important aspect of N.C.L.T is that it is considerate of the interests of the stakeholders as well(these may include shareholders, employees, creditors and others).The N.C.L.T takes into account of the concerns that arise amongst the stakeholders or any rights related to it are not violated. It is ensured by the tribunal that everything is done within time-bound limits, and balances the interests of all stakeholders involved. Basically, the judgments given regarding the proceedings give remedies for any oppression or mismanagement of companies, which protects the rights of minority shareholders and promotes corporate governance.

 5.    Corporate Restructuring and Growth

The N.C.L.T involves rigorous promotion of corporate restructuring and facilitating the growth of the businesses. N.C.L.T has been setup or has been vested with the responsibility to setup the required programs of arrangement of amalgamation or if any compromise that happens between the companies. The objective related to corporate restructuring is achieved if the companies follow mergers and acquisition.

The above-mentioned objectives are distinct in their own segments, but the one thing that is common among all is that they are structured in such a way that any process that is happening in the tribunal regarding the corporate field is done with utmost transparency and is done in best interests of stakeholders by maintaining any requisite safeguards against any norms or misuse or abuse of the corporate restructuring.

POWERS OF N.C.L.T & N.C.L.A.T

Tribunals like National Company Law Tribunal (N.C.L.T) has a consolidated jurisdiction of the following authorities: -

1. The Board for Industrial and Financial Reconstruction (B.I.F.R).
2. The Company Law Board. (After the formulation of N.C.L.T & N.C.L.A.T, the Company Law Board stood abolished).
3. “Jurisdiction and powers relating to winding up, restructuring, reduction of share capital and other such provisions, vested in the High Courts.”
4. “The Appellate Authority for Industrial and Financial Reconstruction including those pending under the Sick Industrial Companies (Special Provisions) Act, 1985.”
5. Civil Courts do not have the jurisdiction of the matters that are generally handled by the N.C.L.T.
6. Once N.C.L.T grants an insolvency to a case or grants an insolvency petition under the Insolvency and Bankruptcy Code (I.C.B), the case would not be dismissed even after the parties agree to have a mutual settlement or reach a mutual ground of adjustments. This decision that is made by the N.C.L.T could be only overturned by the Apex Court, under Article 142 of the Indian Constitution.

FUNCTIONS and POWERS of N.C.L.T

Before understanding the scope of how this tribunal works, it is important to understand that the tribunal is bound by rules which are mentioned in the C.P.C i.e. the Code of Civil Procedure. Along with Code of Civil Procedure, it has to follow the principles of natural  justice, or any act or regulation that has been implemented by the Central Government. Both the N.C.L.T and the N.C.L.A.T have the power to control their own procedures as no civil courts have a jurisdiction to consider any suit or a case arising in respect of the matter that is to be decided by the Tribunal(N.C.L.T) or the Appellate Tribunal(N.C.L.A.T).

Registration of Companies

As per the Companies Act of 2013, it has authorised the N.C.L.T with the questioning of the legitimacy of the companies due to any discrepancies or any errors in the procedures followed, which may have happened during the incorporation or registration of the business or a company or a firm. If in case any discrepancies are found or any procedural errors are found, the N.C.L.T authority has the right to cancel the registration of the company or the business or to dissolve the company if such errors persisted. Along with these powers, the N.C.L.T could even change the liability or the constitution of members from limited members to a certain amount or to an unlimited count. In some specific situations, the N.C.L.T may also deregister a company if it thinks it is illegal or the company has obtained it by any illegal means or has suppressed any material facts in declarations signed. This is done as per Section 7(7) of the Companies Act. The N.C.L.T may pass orders which it thinks are fit for the situation or it may pass orders for winding up of the company(Section 242 of Companies Act, 2013). 

Transferability of Shares

N.C.L.T has an authority to hear grievances in matters in which rejection of companies in transfer of shares and securities under Section 58 or Section 59 of the Companies Act. Prior to the establishment of the N.C.L.T, these sections fell under the ambit of the Company Law Board (1956).As per the earlier norms of the Company Law Board, the grievances regarding the rejection or the transfer of shares were limited to only debentures and shares. This changed when this tribunal came into effect and now covers all the securities that may be issued by any company.

Deposits 

As per Chapter V of the Companies Act of 2013, deals along with any deposits and the Law Board (the Company Law Board), this was the main authority that took up cases as per the norms mentioned. Now this power is vested in the N.C.L.T, The depositors although have a remedy  in class action suits for seeking remedy for the omissions and acts on the part of the company that impact their rights as depositors in the N.C.L.T.

POWERS

CLASS ACTION-Section 245 of the of Companies Act, 2013

As per the above section, the tribunal may entertain applications filed by either the members or the depositors of the company (on behalf of the company or the members which may state the affairs that were conducted in the manner which was prejudicial to the company’s interest). The company may be restrained from doing any acts 

1. Which are prescribed outside the scope of the Memorandum of Association or Article of Association or from committing anything that may lead to the breach of the Memorandum of Association or Article of Association.
2. Doing any act which may be either contrary to the current act.
3. If any resolution passed makes or alters the prescribed procedure in the Memorandum of Association or Article of Association, which ultimately makes it void.

One can also claim damages or demand suitable actions if anything unlawful, fraudulent or wrongful act or omission committed. To address a problem there is a procedure and eligibility criteria that has to be met before a petition or an application is submitted.

OPPRESSION AND MISMANAGEMENT 

As per Section 241 of Companies Act, 2013 it is stated that any member of the company who has the right to complain to tribunal and as per section 244 of the Act, 2013 shall file a complaint to tribunal stating that:

• Affairs of the company are conducted in such a manner which is prejudicial to public interest or oppressive to him or to any member of the company or which is prejudicial to the company.
• If any material change has been introduced by the company which is against the interest of creditors of the company, debenture holders, shareholders of the company and it has brought an adverse change in the management or control of the company either in:

1. alteration in the board of directors,
2. alteration of managers,
3. alteration of the member, or
4. any other reason whatsoever.

For few of such reasons, the members of the company perceive that affairs of the company have been conducted in a manner which is prejudicial to its interest.

If in any situation, the Central Government is of opinion that the affairs of the company have been performed in one of the below listed manner and by that tribunal comes to the conclusion that it has proved the prejudicial interest to the public or in an oppressive manner:

1. If a member of the company is either found guilty of fraudulence, misfeasance, persistent negligence, breach of trust or any compliance related matter which is the most important part in carrying out the obligations and functions as per norms of the industry.
2. If the management of the company has not been carried out as per the principles laid.
3. When a company conducts anything that may cause or causes serious injury to trade, or the industry.
4. If the intention of the company has been clear or the company is being managed with the sole motive to defraud the creditors, members, or to commit any fraudulent or unlawful activities which has the ulterior motive against the public interest;

The remedies for the above actions are only granted if a petition is filed in the tribunal.

INVESTIGATION POWERS

As per Section 213 of Companies Act, 2013 puts forward the conditions that may result in investigation into the company’s affairs.

If an application is made to the tribunal by a Company: -

• Having share capital: If a company has a share capital and it has to file an application at least or not less than one hundred members (earlier 200 members were needed to file an application) are required to file an application in the tribunal

If an application is to be made by any other person other than the member of the company to the tribunal stating any circumstances that require an investigation, he /she may persuade the N.C.L.T to take actions. Based on the reported circumstances, the N.C.L.T has the power to investigate the matter accordingly. Few of the circumstances are mentioned below when :-

1. The affairs of the company have been conducted only with an intent to defraud the creditors or the members or any of the other persons. Any indulgence of the company in any fraudulent activities or unlawful activities or oppression of its members.
2. In some cases when the members of the company fail to provide all the relevant information of the company or relating to the affairs of the company which they are expected to give including the information relating to the calculation of commission payable to managing director, director or any other manager of the company, the tribunal may after giving the reasonable opportunity to the parties and if the tribunal feels that the affairs of the company should be investigated and for such purpose, the central government shall appoint an inspector to investigate.

Provided after investigation it is proved that the company has been involved in affairs that were conducted only with the intent to defraud the creditors or the members or any of the other persons, or either for fraudulent or unlawful purposes, or way it is oppressive to its members, or were engaged in the formation of the company or management of its affairs of the company were either guilty of fraud, misfeasance and misconduct, then every individual of the company who has flawed or is in default shall be punished for fraud.      

REOPENING OF ACCOUNTS 

As per Section 130 of the Companies Act of 2013, except on the order of the Union Government, Income Tax Authorities, statutory bodies, Securities and Exchange Board of India, the company may not disclose any accounts or any financial statements to any entity apart from the appropriate and competent (which has the rightful jurisdiction) tribunal. This opening of accounts and recasting of its financial statements shall be only allowed when the company was either indulged in the activities of fraud or the affairs of the company were mismanaged. But before any of the above mentioned, the N.C.L.T has to priorly inform the concerned authorities with a specific time period window.

FREEZING OF ASSETS & COVERISION OF A COMPANY

While the N.C.L.T has various other powers, one another power of this tribunal involves freezing of the assets(under Section 221 of the Companies Act 2013 if in any stage a company comes under the investigation or scrutiny of the N.C.L.T. Apart from this, the N.C.L.T may also convert a Public Limited Company to a Private Limited Company under Section 13 to 18 read with Section 41 of the Companies Act 2013(Basically when a company converts from public to private the approval of N.C.L.T is required for the conversion)

IMPORTANCE OF THE TRIBUNAL

Before times had a completely different way of approach while handling company disputes, the methods to delve into the case and entertain it was not a single process and was not done by a single legal entity. The Pre N.C.L.T era these disputes of a company were handled by various forums such as the C.L.B, High Courts and other tribunals. This approach was fragmented and was the core reason of delays as there were inconsistencies in the judgements or lack of specialised expertise in the sector, hence complicating the matters. This was solved to a great extent after the establishment of the N.C.L.T, its introduction brought a significant shift in the corporate landscape as it adjudicated the matters under a specialised single body that is the N.C.L.T or N.C.L.A.T. The main thing to be noted about this was the composition of the tribunal which is now experienced in handling the matters related to the corporate sector and its disputes (basically has expertise in the segment). Another important thing to consider it that efficient dispute resolution was done as the setting up of specific tribunal lowered the amount workload on the other Courts resulting in quick decisions less delays, and ensuring timely justice. Due to this, the transparency while conducting and delivering case judgements increased too by management of scenarios like oppression, mismanagement, and other corporate governance issues. N.C.L.T has played a crucial role in promoting ethical and important corporate governance principles within companies which was much needed in this fast developing country which has potency of generating many big businesses.

CONCLUSION

The National Company Law Tribunal (N.C.L.T) has been a crucial balustrade of India's corporate legal segment. It has ensured a multifaceted role in ensuring the smooth functioning and regulation in the fast-pacing corporate sector. The specialised in the sectors like dispute resolution and its tendency of quickly solving the cases have all added up to the transparency and accountability it has toward the corporate landscape.

Though it has diverse functions, that could be ranging from insolvency proceedings to mergers and acquisitions or anything related to the legal framework of the corporate sector, the N.C.L.T has become an indispensable institution for maintaining order, upholding corporate governance standards. Its decisions and rulings have proven to be have far-reaching implications, which ultimately shapes the corporate conducive business environment. As India's corporate sector is rapidly evolving and expanding, the N.C.L.T's role has become increasingly pivotal in navigating the complexities of corporate law by maintaining justice.

FREQUENTLY ASKED QUESTIONS

What is the difference between a Tribunal and a Court?

The main difference is that a Tribunal is a Quasi-Judicial body which has the power to act as a court in cases which have special matters which are conferred to them by statutes. Whereas, the Courts are the part of Judicial System and derives powers from the State.

What is the National Company Law Tribunal (N.C.L.T) and its Functions?

The N.C.L.T is a Quasi-Judicial body established under the Companies Act, 2013, to hear cases relating to the company disputes in India. It consolidates the corporate jurisdiction of various courts and tribunals. Its main function was to listen to cases of corporate framework such as the insolvency matters or mergers and acquisitions or mismanagement or conversion of companies etc.

Can the orders of the National Company Law Tribunal be appealed?

Yes, the orders passed by the National Company Law Tribunal can be appealed in the National Company Law Appellate Tribunal (N.C.L.A.T).

Who heads the National Company Law Tribunal (NCLT)?

The National Company Law Tribunal (N.C.L.T) is headed by the Chief Justice (Retd) Ramalingam Sudhakar and heads the principal bench of N.C.L.T. The National Company Law Tribunal 

Who can file an N.C.L.T case?

A case may be filed by the company or companies themselves for e.g., in case of merger or demergers, or it can be filed by shareholders for cases like mismanagement, oppression etc, or it may be filed by the creditors under the Insolvency and Bankruptcy Code (IBC), or it may be initiated by the employees, the Central Government (includes authorised agencies) for winding up of companies and ultimately by the regulatory authorities like S.E.B.I or the Reserve Bank of India (RBI).