Proposed NCLT and NCLAT - Challenges?

          Everybody knows that the legislature has proposed to constitute a special tribunal to deal with the issues under the Companies Act, 1956 through Companies (Second Amendment) Act, 2002.  The constitution of National Company Law Tribunal and Appellate Tribunal is challenged by the Madras Bar before the High Court of Madras. Justice Jayasimha Babu of Madras High Court has passed a considered and laudable judgment while disposing of the Writ Petition filed by the Madras Bar challenging Companies (Second Amendment) Act, 2002. Senior Advocate Sri Aravind P.Datar has appeared for the Petitioner before Madras High Court in the Writ Petition referred to and placed all the material and the history of constituting Special Tribunals in India.

         Though, there was lot of discussion on tribunalization as the High Court has referred, the validity of the constitution of National Company Law Tribunal has not been declared illegal by the Madras High Court as such, but, has pointed-out vital defects in appointing of presiding officers to the Tribunal etc. Every effort has been made by the Madras High Court to preserve the independence and efficiency of the Tribunal laudably. The order passed by the Madras High Court challenging the Companies (Second Amendment) Act, 2002 and especially the constitution of National Company Law Tribunal and the Appellate Tribunal, went to Supreme Court and the Supreme Court has upheld the order of the Madras High Court and declared that the constitution of NCLT and NCLAT is legal. The order of the Apex Court is on expected lines and there should not be any compromise with the independence and efficiently of the Dispute Redressel Mechanism.  Before the proposed amendment to the Companies Act, 1956 proposing to constitute National Company Law Tribunal, the High Court and the Company Law Board used to entertain Company Petitions under the Companies Act, 1956.

        Constituting Tribunals with the intention of providing a specialist mechanism aiming at speedier justice is not a new phenomenon in India and it has started even before independence as pointed out in the Judgment of Madras High Court while disposing of the Writ Petition filed by the Madras Bar.

        All issues connected to constitution of Tribunals were looked into and the constitution and functioning of Tax Tribunals and Debt Recovery Tribunals etc. have also been discussed at length by the Constitutional Courts while looking into the issue of validity of constitution of National Company Law Tribunal and Appellate Tribunal.

        I am of the strong opinion that the functioning of the proposed NCLT and NCLAT can not be seen at par with other Tribunals like Tax Tribunals and the Debt Recovery Tribunals. Tax law and interpretation of provisions dealing with payment of tax are always complicated and there are many authorities to look into the challenge by the assesses and we are also observing the functioning and the aim of Settlement Commission now. A finding on a Tax dispute may not, in many cases, threaten the functioning of the Company or the assesses. When it comes to the adjudication by the Debt Recovery Tribunals, Banks are supposed to be very careful while granting loans and they will get all the required documents and security from the borrower. Usually, the borrower tries to prolong a dispute before the Debt Recovery Tribunal while it is also true that there can be a genuine litigation before the Debt Recovery Tribunals at times.

        When it comes to the functioning of the NCLT and NCLAT under the Companies Act, 1956, the proposed Tribunal discharges very complicated responsibilities. Despite the Complications, the High Court while exercising Company Jurisdiction could deal with the Winding-up Petitions and the Petitions for grant of sanction under section 391 and 394 of the Companies Act etc. well. The Company Law Board too discharges very complicated responsibilities under the Companies Act, 1956 and especially the Petitions under section 397/398 of the Companies Act, 1956.

        A Company dispute can not be seen at par with a civil dispute and Company Law is very complicated. Many corporates feel that they lack an effective redressel mechanism to get their corporate rights protected under the Companies Act, 1956. When we look at the functioning of the Company Law Board and especially the proceedings under section 397/398 of the Companies Act, 1956, we can find lot of interesting things. There are propositions like “disputed facts can not be decided by the Company Law Board” and the Company Law Board has certain limitations on its power under section 397/398 of the Act and it makes a corporate or a shareholders to be in dilemma as to where they should go to get their corporate rights protected. The corporates really scare to approach a Civil Court for getting their corporate rights protected as it will take lot of time and also as the Civil Court lacks the needed expertise in understanding the complications and the subject of Company Law. These are all practical problems and the proposed NCLT and NCLAT should address all these issues, as otherwise, the object constituting a single specialistic forum under the Companies Act, 1956 will get defeated and turning the clock back will definitely be a difficult thing to think of.

        With a logical analysis, we can find the glaring difference between the functioning of Company Court and the Company Law Board now. While the litigants or the corporates effectively implement the orders of the Company Court, the Company Law Board is taken for granted and the power of contempt of the orders of the Board has been a complicated issue to deal with. Again, High Court, while exercising the powers under the Companies Act, 1956, used to be very effective and speedy given the complications and I am not exaggerating the situation and my opinion is based on my personal observation and facts which can not be denied as I feel.

        But, it can be seen from the express bar on the jurisdiction of the Company Law Board in the proposed Companies Bill, that the legislature is committed to establish a single and effective forum to deal with all issues under the Companies Act, 1956 and we are also aware of the background of constituting a special tribunal called National Company Law Tribunal and everyone is aware of the report of the Committees.

        Nobody can deny the merits of the constitution of National Company Law Tribunal provided that it functions well as intended by the legislature.

I am of the view that the proposed National Company Law Tribunal and Appellate Tribunal can not be seen at par with other Tribunals and it would be really interesting to look into the functioning of the National Company Law Tribunal and the Appellate Tribunal. The constitution of National Company Law Tribunal and the Appellate Tribunal should provide speedy and effective redressel to the corporates under the Companies Act, 1956 as otherwise, turning the clock back will definitely be difficult and it will also affect the corporate growth to a great extent.

Note: The views expressed are my personal and I have dealtwith the issue in brief and I am aware of many other issues touching the subject.