In Conversation with Senior Advocate U.K. Chaudhary

Is the National Company Law Tribunal functioning to the satisfaction of all stakeholders?

It’s a big question. National Company Law Tribunal (NCLT) was established on 1.6.2016, after Hon’ble Supreme Court, cleared the decks vide its judgement in the second case titled as ‘Madras Bar Association Vs Union of India and Ors; (2015) 8 SCC 583, which challenged the constitutional vires of certain provisions of Companies Act, 2013. In the earlier case, raising similar issues, regarding provisions of Companies Act, 1956, titled as  Union of India Vs R.  Gandhi, President. Madras Bar Association; (2010) 11. scc.1., the Constitutional Bench of the Hon’ble Supreme Court, held; (i) If the tribunals are to be vested with judicial power, hitherto vested in or exercised, by courts, such tribunals should possess the independence, security and capacity associated with courts (ii) An independent judiciary can exist only when persons with competence, ability, and independence with impeccable character man the judicial institutions (iii) If there should be technical members, they should be persons with expertise in Company Law or allied subjects and mere experience in civil service can not be treated as technical expertise in Company Law. The tribunals can not become providers of sinecure to members of civil services, by appointing them as technical members, though they may not have technical expertise in the field to which the tribunals relate or worse where purely judicial functions are involved. (iv) If these Tribunals are to function effectively and efficiently, they should be able to attract younger members who will have a reasonable period of service. The term of service shall be changed from three years to seven years or five years subject to eligibility for appointment of one or more terms. (v) The administrative support for all Tribunals should be from the Ministry of Law and Justice. (vi) As Tribunals are free from shackles of procedural laws and evidence law, they can provide easy access to speedy justice in a ‘cost affordable’ and user-friendly manner. (vii) When the legislature proposes to substitute a tribunal in place of the High Court, to exercise the jurisdiction, which the High Court is exercising, it goes without saying that the standards expected from the judicial members of the tribunal and standards applied for appointing such members, should be as nearly as possible, as applicable to High Court Judges, which are apart from a basic degree in law, rich experience in the practice of law, independent outlook, integrity, character and good reputation, Therefore, only persons with judicial background, i.e. who have been or are judges of the High Court and lawyers with prescribed experience, who are eligible for appointment as High Court Judges can be considered for appointment as judicial members.

The second judgement reiterated most of the findings of the earlier judgement and thus held: (i) National Company Law Tribunals, thus would not only deal with questions of law but would be called upon to thrash out the factual disputes as well. In this scenario, National Company Law Appellate Tribunal, which is the first Appellate forum, provided under the Companies Act, 2013, will have to revisit, the factual as well as legal issues. (ii) The technical members in National Company Law Tribunal shall be only persons holding the rank of a Secretary or Additional Secretary only, to avoid gradual erosion of the independence of the judiciary.

Looking at the present structure of National Company Law Tribunal and National Company Law Appellate Tribunal, in the light of above observations of the Hon’ble Supreme Court, much is left to be desired in terms of appointments, tenure, skills, expertise and infrastructure, in comparison of High Courts, whose jurisdiction the Tribunal and its Appellate Authority are exercising, now.

At present, how many National Company Law Tribunal and National Company Law Appellate Tribunal benches have been established and working?

There are currently, [as on 1.10.2020] 27 Benches of National Company Law Tribunals at 15 locations, New Delhi, Mumbai, Kolkata, Chennai, Ahmedabad, Allahabad, Hyderabad, Bengaluru, Chandigarh, Cuttack, Guwahati, Jaipur, Kochi, Amrawati, Indore. At some places, like New Delhi, Mumbai, Hyderabad, Ahmedabad, Chennai, Kolkatta etc. etc. there are more than One Benches, constituted by the Hon’ble President of NCLT. Similarly, there are Five Courts of National Company Law Appellate Tribunal, which are based at New Delhi. However, due to pandemic, since May 2020, only a few benches are regularly holding court, in respect of urgent matters only through video conferences. 

How many members are appointed in National Company Law Tribunal and National Company Law Appellate Tribunal?

As on 1.10.2020, there are 42, members in National Company Law Tribunals out of which 20 are judicial members and 22 are technical members. In National Company Law Appellate Tribunal there are 10 members, out of which there are technical members and 4 judicial members. However for over 6 months now, there is no President of National Company Law Tribunal and no Chairperson in National Company Law Appellate Tribunal. Both institutions are headed by Acting President and Acting Chairperson respectively.

This itself reflects the apathy of the Central Government towards tribunals. It is not understood as to why the Central Government can not treat the tribunals seriously and take timely appropriate measures to ensure smooth working of such important tribunals dealing with high stake matters of trade and industry, under the Companies Act and Insolvency and Bankruptcy Code. The appointment of most of the members in one way or other violates the mandate of Hon’ble Supreme Court in the first and second cases as mentioned above. Hence the approach of National Company Law Tribunal and National Company Law Appellate Tribunal, barring few exceptions is more bureaucratic and not as a prominent Judicial Tribunals, dealing with extremely important judicial issues of law and finance.

What kind of cases, National Company Law Tribunal’s and National Company Law Appellate Tribunal are dealing with?

All National Company Law tribunals are dealing with all cases under the provisions of Companies Act, 1956, after transfer from, erstwhile Company Law Board and High Courts and all new cases under the provisions of Companies Act, 2013 and under the Insolvency and Bankruptcy Code, 2016. However, the cases under I & B Code have taken primacy over the Company matters, in view of the strict timelines, as laid-down in code. Hence, there is the general grievance of litigating public that company cases have taken back seat as most of the time of all Benches of National Company Law Tribunal is consumed in dealing with cases under the I & B Code. This has lead to undue delay in disposal of important cases of mergers, amalgamations, demergers, reduction of capital. Oppression and mismanagement and other miscellaneous company petitions. In this regard some balancing act is required in National Company Law Tribunal, where, there could be some dedicated benches dealing with only Company Cases, whereas other Benches can deal with I & B Code cases, as ‘Adjudicating Authority’ or there may be a division of time, schedules such as I & B Code cases may be taken up in the morning session and Company Cases in the afternoon session or even roaster may be divided on the basis of certain days, fixed for I & B Code cases and some days for company matters. It is well known that delay in disposal of cases, will lead to denial of justice and may defeat, the very purpose for which National Company Law Tribunals are established as a substitute for High Courts. The approach of National Company Law Appellate Tribunal is this regard is more balanced as it has certainly dedicated benches for hearing Company Appeals and other benches hearing appeals under I & B Code or benches dealing with limited appeals under the I & B Code and rest appeals under the Companies Act, 2013.

What is the role of National Company Law Tribunal and National Company Law Appellate Tribunal under the provision of I & B Code 2016?

National Company Law Tribunal’s and National Company Law Appellate Tribunal are playing a very important and constructive role in implementing the provisions of I & B Code, as ‘Adjudicating Authority’. All National Company Law Tribunal, benches are dealing with Applications of Financial Creditors, under Section 7, operational creditors under Section 9 and Corporate Debtors under Section 10, under I & B Code and expeditiously deciding the applications within the time prescribed by law. As on 1.4.2019, National Company Law Tribunal has disposed of over 6000 cases under the I & B Code and is also dealing with 9000 cases which are pending at various stages along with allied and connecting multiple applications in the pending cases. It is responsible for the recovery of over 2 Lakh crores through the process of initiation of Corporate Insolvency Resolution Process (CIRP), under the I & B Code. The Banks and Financial Institutions have now an effective and quick remedy to address their (Non-Performing Assets) NPA’s and trade and Industry is also now awakening to a new reality, where Bankers and other financial creditors can not be taken for a ride anymore. However, some careful monitoring system is necessary for Banks also to eliminate fraudulent lending and fraudulent transactions, to stem the rot in the Banking Sector.

How is the impact of Insolvency and Bankruptcy Code 2016, on SME’s and role of National Company Law Tribunal and National Company Law Appellate Tribunal?

To begin with, I & B Code made no difference between a large corporate debtor and other Companies in the MSME, sector. All companies except a financial services provider company were treated as Corporate Debtor and liable for being proceeded with under Section 7, 9 or 10 as the case may be with fault restrictions of Section 29A of the I & B Code. However, Sector 240A was inserted in the I & B Code w.e.f. 6.6.2018, by Insolvency and Bankruptcy (seemed Amendment) Act, 2018, whereby it was stated that Clauses (c) and (h) of Section 29A shall not apply to a resolution applicant in respect of CIR process of any micro, small and medium enterprises and Central Government in the public interest was empowered by notification to direct that any of the provisions of I & B Code shall not apply to MSME’s or apply with such modifications as may be specified in the notification. The net effect of this amendment was that promoters and guarantors of MSME’s became entitled to give Resolution Plan for their own companies under CIRP but in the MSME’s sector.

The National Company Law Tribunal as ‘Adjudicating Authority’ and National Company Law Appellate Tribunal as its Appellate Authority, can now ensure that promoters/guarantors are given fair opportunity to participate in the Resolution Process, by not just participate in the meetings of Committee of Creditors (CoC) but also engage in the process as Resolution Applicants in respect of their own company as a Corporate Debtor. Even Insolvency and Bankruptcy Board of India (IBBI) can play a very constructive role in educating the promoters of Crores of MSME’s as Companies, likely to face CIR Process under the I & B Code and frame necessary rules and regulations in this regard. MSME’s for the purposes of Section 240A is clarified in the Explanation, which means any class or classes of enterprises classified as such under Section 7 of Micro, Small and Medium Enterprises Development Act, 2006.