In 2000, when the Eradi Committee on Insolvency and Bankruptcy recommended setting up specialised tribunals to adjudicate all matters relating to companies, it was probably inconceivable that it would take 16 years for these specialised company law tribunals to see the light of the day. Although they existed in the statute since 2002, the creation of company law tribunals was fraught with difficulties until recently when, in May 2015, the Supreme Court in Madras Bar Association v Union of India upheld the constitutionality of the National Company Law Tribunal (NCLT) and the National Company Law Appellate Tribunal (NCLAT) and gave the go ahead for the creation of the NCLT and the NCLAT.
By way of June 1 2016 notifications, the Ministry of Corporate Affairs notified:
- the constitution of the NCLAT and NCLT along with their locations;
- the dissolution of the Company Law Board, which had been constituted under the Companies Act 1956, and the transfer of all its matters and proceedings to the NCLT; and
- various sections of the Companies Act 2013.
The constitution of the NCLT and NCLAT is an important step towards facilitating business for companies in India, as it seeks to consolidate jurisdiction for various aspects of corporate litigation which were previously divided between a number of forums – namely:
- the Company Law Board, which had jurisdiction over company law matters;
- the High Court, which had jurisdiction over the winding-up of companies and amalgamation and merger schemes;
- the Board for Industrial and Financial Reconstruction, which had jurisdiction over the revival and rehabilitation of sick companies; and
- the Appellate Authority for Industrial and Financial Reconstruction, which heard appeals of Board for Industrial and Financial Reconstruction orders.
Certain provisions of the Companies Act 2013 and the Insolvency and Bankruptcy Code 2016 are being notified in a phased manned. The vesting of jurisdiction with the NCLT and NCLAT is also being carried out. Therefore, a complete consolidation of jurisdiction is yet to be achieved. Once the Companies Act 2013 and the Insolvency and Bankruptcy Code 2016 are notified in their entirety, the NCLT will be the sole forum for matters regarding:
- company law;
- the winding-up of companies;
- the rehabilitation and revival of sick companies; and
- insolvency and bankruptcy.
The consolidation of jurisdiction will prevent overlapping and conflicting judgments and reduce the burden on the high courts, thereby promoting speedy disposal of corporate litigation.
At present, the NCLT has 11 benches: two in New Delhi (one being the principal bench) and one in Ahmedabad, Allahabad, Bengaluru, Chandigarh, Chennai, Guwahati, Hyderabad, Kolkata and Mumbai, respectively. The territorial jurisdiction of the benches is divided in order to cover all states and union territories in India. The NCLT comprises one president, 15 judicial members and eight technical members.
The jurisdiction of the NCLT and NCLAT is limited to the provisions notified thus far. To date, the NCLT has jurisdiction to pass orders on matters relating to:
- incorporating a company by furnishing false information;
- altering articles of association with the effect of converting a private company into a public company;
- issuing and redeeming preference share capital;
- converting debentures and loans into equity shares;
- altering share capital which results in a change in voting percentage;
- a company's failure to redeem or pay interest on debentures;
- damages for fraud;
- calling annual general meetings and members' meetings;
- refusing the inspection of the minute books from general meetings;
- reopening accounts;
- voluntary revisions of financial statements or a board's report;
- removing auditors and directors;
- investigating a company's affairs;
- investigating a company's ownership;
- protecting employees during investigation;
- freezing a company's assets during investigation and inquiry;
- imposing restrictions on securities;
- any actions in pursuance of an inspector's report;
- preventing oppression and mismanagement;
- inspecting, producing and evidencing documents by the registrar of companies; and
- compounding certain offences.
In addition to this, the principal bench in New Delhi has exclusive jurisdiction to decide matters relating to:
- class action (Section 245 of the Companies Act 2013);
- foreign companies (Sections 379 to 393 of the Companies Act 2013);
- government enterprise annual reports (Section 394 of the Companies Act 2013); and
- all matters in New Delhi relating to companies with paid-up share capital exceeding Rs5 million (approximately $75,000).
Some important provisions of the Companies Act 2013 which have not yet been notified include:
- the NCLT's power to approve a scheme of arrangement or compromise;
- the reduction of share capital;
- the winding up of companies; and
- the rehabilitation and revival of sick companies.
Therefore, these matters will continue to be heard by the high courts and the Board for Industrial and Financial Reconstruction (for the rehabilitation and revival of sick companies) until the applicable provisions are notified.
Similarly, although the Insolvency and Bankruptcy Code 2016 received the president's assent on May 28 2016, its provisions are being notified in a phased manner. The provisions empowering the NCLT to exercise jurisdiction for corporate debtors, limited liability partnerships and other limited liability entities (which may occasionally be specified by the central government) are not yet notified. Once the provisions are notified in their entirety, the NCLT will be the adjudicatory forum for companies and limited liability partnerships under the Insolvency and Bankruptcy Code 2016.
The NCLAT is the appellate body and appeals from NCLT orders must be filed before the NCLAT within 45 days of receipt of a copy of the order. This can be extended by an additional 45 days if a valid reason prevented the appellant from filing the appeal on time. Thereafter, an appeal regarding a question of law can be filed before the Supreme Court within 60 days from receipt of the NCLAT order. This can be extended for an additional 60 days if a valid reason prevented the appellant from filing the appeal on time.
Although the NCLAT has been notified, it is not yet operational. It will comprise one chair and a maximum of 11 judicial and technical members.
In consonance with the nature of corporate litigation, the Companies Act allows chartered accountants, company secretaries and cost accountants to appear before the NCLT and NCLAT. The Companies Act 2013 thus broadens the opportunities available to these professionals, as they can now argue matters like winding up or approval of a scheme of arrangement or compromise – actions which were previously filed before the high court and under the exclusive jurisdiction of lawyers. However, appeals to the Supreme Court arising from an NCLAT order still fall under the exclusive jurisdiction of lawyers.
With the phased notification of the Companies Act 2013 and the Insolvency and Bankruptcy Code 2016, India is still a bit away from the complete consolidation of jurisdiction with respect to company law matters. However, once all the provisions are notified and a complete consolidation is achieved, corporate litigation in India will be far simpler and speedier.
For further information on this topic please contact Binsy Susan Baby or Akshay Sharma at Shardul Amarchand Mangaldas & Co by telephone (+91 11 4159 0700) or email (binsy.susan@AMSShardul.com or akshay.sharma@AMSShardul.com). The Shardul Amarchand Mangaldas & Co website can be accessed at www.amsshardul.com.
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