Need For National Company Law Tribunal

The Companies Second Amendment Bill (2002) has been passed by both the houses of parliament and has also received assent form the President of India thus making it enacted Law. On being notified therefore the relevant provisions as envisaged within the notification will become enforceable from the dates mentioned therein. [1] 

One of the most important features of this new legislation has been the setting up of the National Company Law Tribunal under Part 1B. The objective of setting up this Tribunal as is envisaged by way of the act is to substitute the existing ccompany law board as well as the BIFR on the one hand and The Courts of Law on the other hand thus effectively putting into the hands of one particular institution the powers and functions which are held and carried out by three different institutions. The Central Government shall by notification in the gazette through the use of Section 10FB of the Companies Second Amendment Bill facilitate the setting up of The National Company Law Tribunal so as to exercise all the powers and functions that have been conferred upon it by way of the companies act or other laws that are relevant to its functioning and in force at that point in time.. It is thus evident that the powers and functions of the National Company Law Tribunal would be derived from and discharged under the Companies Act. [2] 

Prior to the passing of Companies (Second Amendment) Act, 2002, Corporates were required to apply to High Courts for proceedings such as merger/amalgamation, reduction of capital and winding up of companies. But the High Courts being over burdened with other matters, used to take very long time to dispose off these matters, and as a result of which the society was not able to derive the intended benefits out of such decision. Even the Winding Up petitions before the various High Courts have been pending for a very long time. Similarly various matters before the Company Law Board (CLB), Board for Industrial and Financial Reconstruction (BIFR) and Appellate Authority for Industrial and Financial Reconstruction (AAIFR) have been pending for a very long period.

The detailed data given in tabular form (Appendix A) will give an indication that many of the Companies which were referred to BIFR had their natural death for want of timely help and assistance from BIFR and as such, resulted in wastage of scarce national resources. [3] 

Therefore, it was desired that, in place of various bodies presently looking into different matters like merger/amalgamation, acquisition and reconstruction, revival and rehabilitation and winding up of Companies, a body should be constituted to handle all these matters and to dispose of all pending matters as well as fast disposal of new matters which might be referred to it in the future. Hence the Government constituted a Committee under the Chairmanship of Justice V. Balakrishna Eradi, a retired Supreme Court Judge, to review the law relating to insolvency and Winding up of Companies and other laws like The Sick Industrial Companies (Special Provisions) Act, 1985 (SICA) etc. The Committee made various recommendations with the main objective of expediting the revival/ rehabilitation of a sick Company and protection of workers’ interest, which were incorporated in the Companies (Amendment) Bill, 2001. The said Bill was subsequently passed by both the Houses of the Parliament and finally got the assent of the President of India on 13th January, 2002 and became the Companies (Amendment) Act, 2002. [4] 

Consistent with the underlying objectives, as aforesaid, and in the backdrop of the experience of administration of SICA and winding up process, the Companies (Second Amendment) Act, 2002 provides for setting up of the National Company Law Tribunal (NCLT) and on setting up of NCLT, all the matters relating to companies which were earlier handled by various High Courts, CLB, BIFR and AAIFR will now be handled by the NCLT. [5] Pending matters with the High Courts and CLB will be transferred to NCLT.

As the SICA has not yet been repealed, the sick Companies will continue to be under BIFR. Only sick ancillary undertakings will come under the jurisdiction of NCLT, as the newly inserted definition of Industrial Undertaking, seems to be faulty. Further, the definition of Industrial Undertaking is explicitly exempting the Small Scale Industries (SSI) from its ambit and therefore, SSI will remain out of the purview of the BIFR and the NCLT both.


The National Company Law Tribunal will be constituted of as per the provisions under Section 10FC a President and an Equal number of Judicial and Technical member as the Central Governement deems fit to be appointed by way of notification in the official gazette. The total number of members in the Tribunal however cannot at at any point of time exceed 62 in number. [6] 

The Eligibility criteria for members of the National Company Law Tribunal have been laid down in Section 10FB wherein it has also been indicated as to what the desired age limit and eligibility requirements for membership are While it is desired that the technical memebers of the Tribunal be drawn from different fields of expertise and knowledge there are also persons from the administrative services which appears to corporate laws and knowledge and eexpertise in that field as an essential requirement. Members to the Tribunal however it is opined by way of the bill would not be selected merely because of an administrative position which the individual may have held previously it is thus evident that for the purpose being selected to the Trribunal more eemphasis is given to the amount of Administrative Experience an individual hass as opposed to the qualifications and positions in office he has held. For the purpose of selecting Judicial Members, the Act recommends that individuals wwho have been ffunctioning in the Labour Court, the Tribunal or the National Tribunal Under the Industrial Disoutes act be considered eligible for the post of a judicial member [7] 

The Central Government shall constitute NCLT on the basis of recommendations of The Selection Committee, which will be consisting of the Chief Justice of India or his nominee as Chairman of the Committee and Secretaries of the Ministry of Finance and Company Affairs, Labour Law & Justice as members of the Committee. The NCLT will be headed by its President who has been a Judge of the High Court or is eligible to be appointed as a Judge of a High Court and such number of judicial and technical membersFor the purposes of selection of Judicial Members the eligibility criteria is setup with the objective of allowing only those individuals who are functioning as part of the Judiciary as well as those who are practicing as Advocates s opposed to mere bureaucrats functioning in a certain department of either the Central or the State Government. [8] This eligibility criteria has been instituted and is stressed during the time of selection of members of the Tribunal because of the fact that more emphasis is given to the amount of practical knowledge an individual possesses and as regards individuals in the judicial side, practical experience can be gained only through carrying out functions which are not merely administrative in nature and thus the Bill recommends that individuals employed in the administration should not be considered to be selected for a quasi judicial post within the tribunal in order to maintain its efficacy. [9] 

Tenure of Members

The Companies Bill also provides for the tenures of the members of the National Company Law Tribunal and it recommends that the age of retirement or superannuation for the president should be at the age of 67 years, while in the case of the other members of the Tribunal it mandates that the 65 years should be the age of retirement. The Bill provides that as regards the term of appointment of the president and the other members of the tribunal it is fixed at a term of three years from the date of appointment, the bill however provides for the scope of reappointment. This thus implies that as regards the term of appointment and the question of reappointment of the President and the other members of the Tribunal, they would be subject to the whims and fancies of the Central Government, the Executive in the Bureaucracy as well as the political persons involved in the functioning of the Tribunal. Since a system which places so much power into the hands of the executive for conducting a task as important as appointment and reappointment of its members, it is but obvious that some amount of bias would come into the procedure. It is thus important that a member once found to be fit and efficient towards the functioning of the Tribunal should not be subjected to the mercy of the executive for the task of reappointment. The independence of the members of the Tribunal as well as its effective and judicial functioning would be impaired seriously if Executive Intervention in such a serious issue is allowed by way of the statute. [10] 

Bench Strength

The Companies (Second Amendment) Bill mandates that the benches of the National Company Law Tribunal be setup in a manner so as to compulsorily have a bench comprising of at least two members one of whom shall be a Judicial Member and the other a Technical Member and such bench has to be situated in each city which has a High Court. This format of distribution is essential for the efficacious functioning of the National Company Law Tribunal as a minimum of Thirty One Benches across India would be required in order to carry out the function of the High Courts which are presently vested with the powers to deal with and resolve disputes as entailed in the Companies Act. The objective of implementing such a system is made with the purpose of making the National Company Law Tribunal as accessible to aggrieved parties as the conventional Courts of Law. However taking into consideration the fact that the amount of work that these benches would have to deal with would vary from city to city depending it has been recommended by way of the Bill that a system implementing circuit benches working intermittently in small cities with a smaller amount of work and a number of benches in cities with a large amount of work be implemented in order to allow the benches to function efficiently. [11] It is also necessary for the purpose of efficacious settlement of disputes that the territorial jurisdiction of each bench be made explicit in order to avoid any delay or difficulty on the part of the aggrieved party towards having their dispute resolved.

Powers and Functions of NCLT :

The constitution, notification and functioning of the benches of the National Company Law Tribunal are regulated by way of Section 10 FL of the Companies (Second Amendment) Bill. It has been mandated by way of the Act that the Principal bench of the Tribunal at New Delhi should be presided over by the President of the Tribunal. It has been envisaged by way of the Act that all orders that are passed by the National Company Law Tribunal derive their authority from Section 10 FM (1) and thereby pass such orders as it may deem fit subsequent to giving the aggrieved parties in dispute before it an opportunity to be heard. The tribunal also draws its power to rectify mistakes apparent from its records by way of section 10 FM (2) and it is compelled to rectify all such mistakes within a period of two years of passing such erroneous orders subsequent to forwarding a notice regarding the orders to the parties concerned. The tribunal is also empowered to delegate its powers by way of Section 10 FO. The National Company Law Tribunal is also capable of vide Section 10 FP allowed to seek the assistance of the Chief Metropolitan Magistrate and The District Magistrate for the purpose of enforcing and ensuring that the orders which are passed by it are followed through as against any company or any individual connected with such a company as well as any sick industrial company and if the Magistrate acts in accordance with the directions of the National Company Law Tribunal then the actions of the Magistrate cannot be called into question for any reason whatsoever. [12] 

The Companies Act of 1956 has also been amended by way of the Companies (Second Amendment) Bill 2002 one of the salient features of which has been the creation of an Appellate Tribunal for the first time under Company Law with the object of providing a mechanism which implements the purpose of hearing all appeals by parties from the orders made by the National Company Law Tribunal. [13] 

According to the section 10 FQ of the Act, any person who is aggrieved by the order or decision which is passed by the National Company Law Tribunal can appeal against such order to the Appellate Tribunal with the object of redressal. The section however provides that if the order or decision in question is made by the National Company Law Tribunal with the consent of both the parties to the dispute then the order in question cannot be appealed against by either party to the appellate tribunal. The scope for appealing to the appellate tribunal against an order made by the National Company Law Tribunal is also barred by limitation and cannot be entertained by the Appellate tribunal beyond a period of forty five days from when the aggrieved party has received a copy of the order made by the National Company Law Tribunal in the matter of the dispute to which he was a party. There are certain reasonable exceptions to this rule however.

All proceedings before the National Company Law Tribunal or The Appellate Tribunal are considered to be within the ambit of Judicial Proceedings as envisaged within Sections 193 and 228 of the Indian Penal Code. The Bill provides that the Tribunal or the Appellate Tribunal must be deemed to be within the ambit of a Civil Court for the purposes of Section 195 of the Civil Procedure Code. As a result of these implied similarities any order which is passed either by the National Company Law Tribunal or the Appellate Tribunal can be enforced in the same manner that a decree or an order made by a court of law can be enforced. The National Company Law Tribunal and the Appellate Tribunal shall have the same powers jurisdiction and authority in respect of contempt of itself as the High Court has and may exercise the contempt jurisdiction under the Contempt of Courts Act of 1971 [14] 


The formation of the National Company Law Tribunal with its proposed wide reach all over India by virtue of its location, powers, functions and jurisdiction should be a mechanism of great importance to a large number of people, primarily because of the fact that the National Company Law Tribunal is not another name for the conventional Company Law Board, nor does its powers, functions, jurisdictions or area of work similar to that of the Company Law Board. The National Company Law Tribunal has been established as an alternative to the Company Law Board, the Board for Industrial and Financial Reconstruction and The Company Court and seeks to exercise its powers and functions through its benches. Although it cannot be said for sure how efficacious the substitution from the previous formal method of dispute resolution will be in comparison to the working of the proposed National Company Law Tribunal since it is still in its infancy and it is far too early to say if in fact it would be an effective alternative to the courts and other institutions.

The National Company Law Tribunal however if implemented would have certain definite benefits such as removing the burden of legal work from the shoulder of the Company Courts as well as the other institutions which are required for the smooth working and speedy conveyance of justice. The National Company Law Tribunal would exercise its original jurisdiction to resolve disputes before it. In order for the National Company law Tribunal and the idea behind implementing it to be successful the independence of the tribunal must be ensured and preserved.