Role of India’s National Company Law Tribunal

November 4, 2016 Posted by India Briefing Reading Time: 5 minutes

By Pritesh Samuel

In June, the Ministry of Corporate Affairs (MCA) amended the Companies Act of 2013, introducing the National Company Law Tribunal (NCLT) and National Company Law Appellate Tribunal (NCLAT), and replacing the Company Law Board (CLB) after 14 years of deliberations.

The NCLT will be a single judicial forum to judge all disputes concerning the affairs of Indian companies. Both the NCLT and NCLAT were made effective from June 1; they should enable faster implementation of the bankruptcy code and also reduce the burden of hundreds of cases pending in the courts.

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The Framework

The NCLT consolidates the corporate jurisdiction of the Company Law Board, Board of Industrial and Financial Reconstruction, the Appellate Authority for Industrial and Financial Reconstruction and Jurisdiction and powers related to the winding up, restructuring, and other provisions as vested with the High Courts. With the NCLT and NCLAT now in place, the Company Law Board formed under the Companies Act of 1956 has been made redundant.

While the new tribunals can deal with all company disputes, excluding criminal prosecution as under the Companies Act, their powers are currently limited. Issues relating to the investigation of a company’s accounts, freezing of assets, class action suits, and conversion of a public company to a private one will be decided by the NCLT, while appeals will be looked at by the NCLAT rather than the High Courts. Issues related to compromise, amalgamation, and capital reduction will continue to be decided by the courts. The aim is to gradually allow other issues including reduction of share capital, merger, de-mergers, and settlement to be transferred to the NCLT.

For the NCLT, the government has appointed 11 Benches – two in Delhi and one each in Ahmedabad, Bangalore, Chandigarh, Chennai, Guwahati, Hyderabad, Kolkata, and Mumbai to use its powers. The NCLT also has two classes of members – Judicial and Technical members. The NCLAT will have eleven members for hearing appeals. Selection of members is done by a selection committee headed by the Secretary of the MCA.

The Tribunals So Far

While the tribunals were made effective on June 1, they only started functioning from July 1, which left many lawyers confused as to which forum to approach. In addition, there was little clarity on the transfer of cases from the CLB to the NCLT. Nevertheless, recent reports show that around 4,000 cases were transferred to the NCLT after the CLB was dissolved. Lawyers have stated that at the moment the NCLT is hearing previous cases from the Company Law Board and high courts as well as some new cases but maintain that it is still early to comment. Changes will come about slowly given the multiple jurisdictions involved. Nevertheless, the infrastructure is now in place.

Observations

The introduction of both these tribunals is a step in the right direction as the government looks to make India more business friendly. Once stipulations under the Companies Act and Bankruptcy Code are effective, the tribunals will provide necessary solutions for companies facing issues related to winding up, mismanagement, and insolvency of businesses. Being the only tribunals for arbitrating company disputes, they will eliminate the overlap of or occurrence of conflicting rulings and will minimize the delays in the resolution of disputes, which is a big relief for litigants.

The real challenge for Prime Minister Narendra Modi’s government will be to deliver on its promise of the NCLT being a specialized tribunal handling corporate cases with expertise. The real competency of the tribunals will be decided by the technical strength of their membership and once the Insolvency and Bankruptcy code comes into implementation. Time will tell how things shape up, but for now companies can hope to get speedy justice.

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