Module_5

NCLT- Introduction





Creation

NCLT was formed through the recommendation of the Eradi committee and came
into existence in 2016.
The NCLT hears the matters pertaining to Companies Act,2013 and IBC,2016 this
means that all the cases which have been pending in the high court, Company Law
Board, DRT and the BIFR have been transferred to the NCLT.
It has been created under the Companies Act 2013 and is a Quasi-Judicial body which
has been made to handle the corporate civil disputes.
It has powers and procedures which are similar to those which are vested to the
court of law or judge and has the power to objectively determine the facts, involve
the principles of natural justice and draw conclusions from them.

Nature and power

The orders passed by the tribunal can remedy the situation, impose penalties and
may affect the legal rights, duties or privileges of the specific parties.
The difference between the tribunal and the court is that the tribunal is not bound
the by strict judicial rules of evidence and procedure. It has the follow the procedure
based on the principles of natural justice.

Appellate authority

The appellate authority for NCLT is the NCLAT. NCLAT is authorized to hear appeals
arising from the NCLT.
The decision coming from NCLAT can further be challenged in the Supreme Court via
the means of article 136 which is special leave petition.
The party is aggrieved by the decision of the tribunal may or may not bring an appeal
into the NCLAT. The appellate tribunal then can review the decision and has the
power to set aside, review or modify the order of the NCLT.

Difference between NLCT and NCLAT

The main difference between NCLT and NCLAT pertains to the jurisdiction. While

the jurisdiction vested with NCLT is of primary nature, the jurisdiction vested with
NCLAT is of appellate nature.

NCLAT generally reviews the decisions made by the NCLT, the evidence and
witnesses are presented before the NCLT. Therefore, the work of NCLAT is just
limited to review the decisions of NCLT either on law or on fact or both.

Difference between a court and a Tribunal

In the case of Union of India v. R.Gandhi President, Madras Bar Association, the difference
between a court and tribunal was established. The term court refers to place where
jurisdiction is administered or refer to judges who exercise judicial functions. Courts are
established by the state for administration of justice that is for the exercise of the judicial
power of the state to maintain and uphold the rights, to punish wrongs and to adjudicate
the disputes. Tribunals on the other hand are special alternative mechanisms, usually
brought into existence by or under a statute to decide disputes, arising out of any
administrative law. The difference between court and tribunal was further established

1) courts are established by the state and are entrusted with the state’s inherent
judicial power for administration of justice in general. Tribunals are stablished under
a statute to adjudicate upon dispute arising under the said statute, or disputes of a
specified nature. Therefore all courts are tribunals, but all tribunals are not courts.

2) Courts are exclusively manned by judges. Tribunals have a judge as the sole member,
or can have a combination of a judicial member and a technical member who is an
expert in the field to which the tribunal relates. Some highly specialized fact finding
tribunals may have only technical members, but they are rare and are exceptions.

3) While courts are governed by statutory procedure rules, in particular the code of
civil procedure and the evidence act, requiring an elaborate procedure on decision
making, tribunals generally regulate their own procedure and may apply CPC only
when it is required. The tribunals are also not restricted by the rules of evidence act.

BACKGROUND



NCLT came into existence due to the recommendations of the
Eradicommittee. It was intended to be introduced in 2002 however it got
delayed due to litigation pertaining to its validity.
It is a quasi-judicial authority incorporated for dealing with corporate
disputes that are of civil nature arising under the Companies Act. One can
easily spot the difference between the old Companies Act and the 2013 Act.
The constitutional validity of the NCLT and specified allied provisions
contained in the Act were challenged and it was observed by the supreme
court that the NCLT stands valid whereas some of its provisions were
rendered as a violation of the constitutional principles.
NCLT functions on the same lines of a normal court of law and has an
obligation to be fair and unbiased in its conduct. It has to work in accordance

to principles of natural justice and has to offer conclusions in the form of
orders.
The orders which have been given by the NCLT assist in resolving a dispte ,
rectifying a wrong done by a corporate or levying penalties and costs and
might alter the rights, obligations, duties or privileges of the concerned parties.
Like a normal court of law, the Tribunal isn’t required to adhere to the severe
rules with respect to appreciation of any evidence or procedural law.

Powers of NCLT




1) Class action suit

A class action is a procedural device that allows one or more plaintiffs to file and
prosecute a case on behalf of a larger group, or “class”.
If a huge number of geographically dispersed shareholders/depositors are affected
by the wrongdoings a class action suit can be useful tool where a few may sue for
the benefit of the whole or where the parties form a part of a voluntary association
for public or private purposes, and may be fairly supposed to represent the rights
and interests of the whole.
Section 245 has been introduced in the new company law to provide relief to the
investors against a large set of wrongful actions committed by the company
management or other consultants and advisors who are associated with the
company.
Class action can be filed against any type of companies, whether in the public sector
or in the private. It can be filed against any company which is incorporated under
the Companies Act, 2013 or any previous Companies Act. The Act provides only one
exemption i.e. banking companies.

2) Deregistration of Companies
If there occurs a procedural error in the registration of companies, in that case the
tribunal has the power to take steps which shall include the cancellation of
registration and dissolving the company. The tribunal has the power to make the
liability of the members of the company unlimited.

3)Oppression and mismanagement
Where the conduct of the company appears to be prejudicial to the minority
shareholders or members, they can have the company wound up on just and
equitable grounds.

4) Refusal to transfer shares
The NCLT has the power to hear the grievances of refusal of companies to transfer
securities and rectification of register of members.

5) Deposits

6) Reopening of accounts and revision of financial statements

7) Ordering investigations

8) conversion of public onto private company

9) Tribunal convened annual general meeting

10) compounding of offences

11) change in financial year– Every company shall have a uniform financial year
ending on march 31st. There is an exception that can be made wherein the company can
come and apply to the tribunal to have a different financial year.





Role of NCLT under the Insolvency and
Bankruptcy Code,2016

Adjudicatory authority for IBC

The IBC has recognised the NCLT, which has been constituted under section 408 of the
Companies Act,2013, as the adjudicating authority for the purpose of insolvency resolution
and liquidation for corporate persons.
In dealing with the application relating to the insolvency resolution or bankruptcy of
personal guarantor of corporate debtor the NCLT shall be vested with the powers of DRT
dealing with the insolvency resolution or bankruptcy of individual.

Jurisdiction of NCLT




The place where the registered office of the corporate entity is situated is the criteria
for deciding the jurisdiction for the purpose of insolvency resolution and liquidation
of corporate persons, corporate debtors and personal guarantors. The application for
initiating the insolvency resolution process or liquidation of corporate debtor shall be
filed before the NCLT having jurisdiction over the place where registered office of
the corporate entity is situated.
For cases pertaining to voluntary liquidation, application must be filed before the
NCLT having jurisdiction to place where the registered office of the company is
situated.

The adjudicating authority for partnership firms and individuals is DRT but in a
scenario where an individual is personal guarantor of a corporate debtor and a
corporate insolvency resolution process or liquidation proceeding of such corporate
debtor is pending before the tribunal, an application relating to the insolvency
resolution or bankruptcy of personal guarantor of such corporate debtor shall also
be filed before such NCLT.
In dealing with the application relating to the insolvency resolution or bankruptcy of
personal guarantor of corporate debtor the NCLT shall be vested with the powers of
DRT dealing with the insolvency resolution or bankruptcy of individual.

Chaos created by transfer of cases



Quality problem


NCLT was formed out of the recommendation of the Eradi committee and came into
existence in year 2016 due to pending litigation.
Now, the NCLT will hear all the matters pertaining to Companies Act,2013 and
IBC,2016 meaning that all the pending proceedings from High courts and the
company law board, DRT and the BIFR have to be transferred to the NCLT.
This means that the judges are expected to have both commercial know how and
judicial wisdom. But in reality, they show a lack of knowledge and experience and
thus is leading to problems and chaos.

Quantity Problem

It’s not just the quality of members that the NCLT is struggling with; quantity is a
problem too.
The number of adjudicating members across 11 NCLT benches is just 26 which is
extremely inadequate especially when compared to other countries. The number of
judges AT NCLT is not enough.
A creditor initiating the insolvency resolution proceedings would need to establish
there is a debt, a default has occurred and that it has corresponded with the debtor
to attempt to recover that debt. In order for the proceeding to be initiated, a person
from the NCLT has to review these points within 14 days as per the Insolvency Code.
It is difficult to meet this, given there aren’t enough judges or administrative
representatives of the NCLT who can perform this task.