NCLT: An Analysis Of Its Constitutional Validity And Functions

Key takeaways

• According to the provisions of the Companies Act of 2013, it was established on June 1st, 2016, (Section 408).
• The NCLT is a quasi-judicial organisation created to settle all business-related disputes, with the exception of criminal proceedings for violations of the Companies Act.
• NCLT is still in its early stages, it is currently impossible to predict how effective this alternative will turn out to be.

India's National Company Law Tribunal, also known as NCLT, is a quasi-judicial organisation that decides cases involving companies around the country. According to the provisions of the Companies Act of 2013, it was established on June 1st, 2016, (Section 408). The Eradi Committee produced the National Company Law Tribunal, which is intended to be integrated into the Indian legal system under the Companies Act, 1956. However, it was revealed under the 2013 Companies Act because to a ten-year legal dispute over the constitutionality of NCLT's foundation.

There is no legal definition of tribunals. In numerous instances, courts have decided that tribunals are not courts. The creation of these tribunals is within the legislative competence of Parliament and state legislatures, as stated in Article 245 of the constitution read with provisions under List I, the Supreme Court (SC) held in Sampath Kumar v. Union of India. The adoption of the theory of alternative institutional mechanisms would result in faster case disposition, reducing the burden on the High Court.

The NCLT is a quasi-judicial organisation created to settle all business-related disputes, with the exception of criminal proceedings for violations of the Companies Act. The National Company Law Tribunal took over all pending cases after the Company Law Board (CLB) was abolished and civil courts lost their authority as a result (NCLT). The Tribunal is not subject to the same stringent rules of procedure and evidence as the courts. It has the capacity to decide in accordance with natural justice's precepts. Additionally, it was established that when the NCLT has been given authority, the civil court's jurisdiction is completely barred.

Professionals like Chartered Accountants, Cost Accountants, and Company Secretaries now have more opportunities thanks to the NCLT because they are now qualified to be appointed as technical members of the tribunal if they have at least 15 years of experience, as well as to represent their parties in front of the tribunals.

The Board for Industrial and Financial Reconstruction (BIFR) and the Appellate Authority for Industrial and Financial Reconstruction (AAIFR) under the Sick Industrial Companies (Special Provisions) Act, 1985, would likewise lose their authority with the creation of NCLT. Professionals like Chartered accountants, Cost Accountants, and Company Secretaries now have more opportunities thanks to the introduction of NCLT, as they are now qualified to be appointed as technical members of the tribunal with a minimum of 15 years of experience, as well as to represent their parties in front of the tribunals.

Chapter XXVII of the Companies Act of 2013 and Parts 1B and 1C of the Companies Act of 1956 both clearly define the structure and duties of these giant tribunals.

Constitutional validity of NCLT

The validity of the NCLT has been one of the most divisive topics in company law since the introduction of the Companies (Second Amendment) Act, 2002. The NCLT's constitutionality has been called into doubt by the courts numerous times.

The first writ petition under Article 226 of the constitution challenging the constitutional validity of the constitution was brought by R. Gandhi, President of the Madras Bar Association (MBA), against the Union of India. The Madras High Court did not rule that the establishment of NCLT/NCLAT and the transfer to them of duties formerly performed by High Courts and CLB were unlawful.

The National Company Law Tribunal's creation, with its responsibilities, authority, and broad scope as a result of the number of benches, will have a significant impact on the area of company law. This is due to the fact that it is not merely a modernised version of the traditional Company Law Board. It serves as an alternative to the three tribunals previously mentioned, in addition to the CLB. Additionally, the NCLT's capabilities differ significantly from those of the traditional CLB. Since the NCLT is still in its early stages, it is currently impossible to predict how effective this alternative will turn out to be.

Functions of NCLT

• The NCLT offers a wide range of important advantages, including a quicker dispute resolution process and consistency in decision-making. NCLT was established to eliminate or regulate the following types of disputes or activities:
• The Tribunal makes decisions about all procedures governed by the Companies Act, including arbitration, compromise, reconstruction, and winding up.
• It is in charge of investigations of business mismanagement and oppression. A corporation's former employee may also bring a claim.
• A dispute cannot be brought until the NCLT has authorised the transformation of a public company into a private company.
• It also addresses businesses that withhold the salaries of their depositors and stockholders in order to commit fraud and other wrongdoing. The tribunal pays these depositors and investors compensation.
• It has the authority to look into and deregister a company that was registered improperly or fraudulently.
• The transferee may protest to the NCLT if a dispute arises and the firm declines to record a transfer of its securities.
• When a company's auditors are accused of engaging in any fraudulent activity, the NCLT resolves issues surrounding such petitions, and it has the authority to even mandate such a change Suo moto.
• On the basis of a request from any shareholder or the company itself, the NCLT resolves disputes by approving a plan for the resurrection and rehabilitation of a company.
• A company cannot reduce its share capital without receiving NCLT permission.
• In addition to the problems, NCLT also resolves other difficulties. If that hadn't been the case, the burden on Indian courts would have been tremendous. It makes it easier to settle conflicts quickly, provides a single point of contact, prevents repeated actions before several fora, and lightens the workload of the High Court and District Court.
• The NCLT's creation aims to facilitate easier commercial operations by resolving corporate disputes more rapidly.

Conclusion

The NCLT would be advantageous in many ways if properly implemented. Without a doubt, the creation and constitution of the NCLT as the sole tribunal for the handling of all matters arising under the Companies Act will lessen, if not completely do away with, the excruciatingly long delays in company law proceedings, prevent multiple lawsuits before various forums, streamline the appeals process, and lessen the workload on the High Courts and District Courts. The ability of the Tribunal to exercise original jurisdiction over disputes will also be advantageous since it will ensure that justice is delivered quickly and that the legal system runs smoothly. Additionally, the process will be streamlined. Last but not least, the NCLT's independence must be maintained for the plan to succeed.