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Published by Enhelion, 2019-11-25 07:28:24

IBC_Module 3

IBC_Module 3


I. The NCLT has been created under the companies act 2013. It is a quasi-
judicial body which has been made to handle the corporate civil disputes.
NCLT has powers and procedures which are similar to those which are vested
to the court of law or judge. The NCLT has the power to objectively determine
the facts, involve the principles of natural justice and draw conclusions from
them. The orders passed by the tribunal can remedy the situation, impose
penalties and may affect the legal rights, duties or privileges of the specific

II. 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.

III. The appellate authority for NCLT is the NCLAT which is authorized to hear
appeals arising from the tribunal. The decisions from the NCLAT can further
be challenged in the Supreme Court via the means of article 136 ie Special
Leave Petition. If 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.

IV. The main difference between NCLT and the NCLAT is that the jurisdiction
vested with NCLT is of primary nature while that of NCLAT is of appellate
nature. NCLAT generally reviews the decisions made by the NCLT, the
evidence and witnesses are presented before the NCLT. NCLAT’s work is
thus limited to review the decision of NCLT on law or fact.

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.


I. National Company Law Tribunal is the outcome of the Eradi Committee.
NCLT was intended to be introduced in the Indian legal system in 2002 under
the framework of Companies Act, 1956 however, due to the litigation with
respect to the constitutional validity of NCLT which went for over 10 years,
therefore, it was notified under the Companies Act, 2013. It is a quasi-judicial

authority incorporated for dealing with corporate disputes that are of civil
nature arising under the Companies Act.
II. However, a difference could be witnessed in the powers and functions of
NCLT under the previous Companies Act and the 2013 Act. The
constitutional validity of the NCLT and specified allied provisions contained
in the Act were re-challenged. Supreme Court had preserved the constitutional
validity of the NCLT, however, specific provisions were rendered as a
violation of the constitutional principles.
III. NCLT works on the lines of a normal Court of law in the country and is
obliged to fairly and without any biases determine the facts of each case and
decide with matters in accordance with principles of natural justice and in the
continuance of such decisions, offer conclusions from decisions in the form of
orders. The orders so formed by NCLT could assist in resolving a situation,
rectifying a wrong done by any corporate or levying penalties and costs and
might alter the rights, obligations, duties or privileges of the concerned parties.
The Tribunal is not mandated to follow any strict provisions of the process of
evidence collection .

Powers of NCLT

1) Class action suit- A class action is a procedural device that permits one or more
plaintiffs to file and prosecute a lawsuit on behalf of a larger group, or “class”. It is in
the nature of a representative suit where the interest of a class is represented by a few
of them. A huge number of geographically dispersed shareholders/depositors are
affected by the wrongdoings. It is a 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 has been any procedural error in the
registration of the company, the tribunal in that case shall be empowered to take steps
which shall include the cancellation of registration and the dissolving of the company.
The tribunal has the power to make the liability of the members of the company

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

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

I. Situs of the registered office of the corporate entity is the deciding criteria for
insolvency resolution and liquidation of corporate persons, corporate debtors
and personal guarantors thereof. Application for initiating 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.

II. With respect to voluntary liquidation, the application shall be filed before the
NCLT having jurisdiction to the place where the registered office of the
company has been situated.

III. 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.
IV. 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 became a
reality I 2016. 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. There are 26 adjudicating members across the 11 NCLT benches. This is
highly inadequate if a comparison is made with other countries where the number is
quite high. There aren’t enough judges at the NCLT currently. 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.

Important Judgements passed on Institution of Applications by NCLT under IBC

Psl Limited v. Jotun India Ltd-

Facts –

1. The appellant was an operational creditor of the respondent. Due to some
unpaid accounts, the appellant initiated winding up petitions of the respondent.
While the petitions were going on, the respondent approached BIFR under
sick industrial companies but it was repealed after Insolvency and Bankruptcy
Code 2016.

2. After this the respondent approached the NCLT for corporate insolvency
resolution process under section 10 of the IBC 2016.

3. The appellant approached the High court to seek the appointment of
provisional liquidator.

4. The Bombay high court after hearing the case decided to pass an order which
would restrain the NCLT to continue to pursue the application filed by

5. The respondent then filed an application in the high court to recall the order

Whether the High Court has jurisdiction to pass an order to stay the proceedings
which have been filed before the NCLT by a corporate debtor?

1. It was held that the winding up petition under Companies Act would be a
matter which would be decided by the court but under the IBC provisions it is
upon the committee of creditors to decide the fate of the company.

2. The provisions of companies act and IBC should be read in a harmonious

3. It has been held that all the proceedings before the Board for Industrial
Reconstruction should be halted and provisions have been made to institute
these proceedings within a particular time frame before the NCLT.

4. It can also be observed that IBC has been introduced as a replacement to SICA
and it cannot be held that the company court has the power to order injunction

5. In cases of winding up petitions the company court cannot order injunction
while the matter is pending in NCLT as it would go against the legislative

6. Therefore, it was held that that there is no bar on NCLT to carry on the
proceedings of the IBC application.

The court by this judgment has cleared the situation where overlapping of IBC and
companies law would take place and has upheld the primacy of the Insolvency and
Bankruptcy Code.

Delayed Claims

The NCLAT has held that the Limitation Act should not be applied to the code. An
opportunity shall be given by the NCLT t the applicant to justify the claim in case it
has been filed after a long delay. This opportunity shall not be given to an application
which has been filed under section 10 by a corporate applicant for initiating
insolvency process against itself.

It has been held that it shall be open to the committee of creditors to decide whether a
claim made after long delay is acceptable. If a creditor is aggrieved by the decision,
then he can apply to the NCLT.

In the ordinance which has been recently released, the code has been amended by
inserting section 238A which provides that the provisions of limitation act,1963 will
be applicable to the proceedings under NCLT, NCLAT,DRT or the DRAT. This
would stop the litigation around the matter of applicability of Limitation Act to the
proceedings under the code.

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