New Delhi: A five-judge Supreme Court (SC) constitution bench on Tuesday cleared the decks for the establishment of a National Company Law Tribunal (NCLT) on the basis of new guidelines on the composition and functioning of these tribunals.
By eliminating several intermediate steps, NCLT will expedite the disposal of corporate disputes and winding up petitions.
At present, disputes are first raised at the level of the Company Law Board (CLB) and then the high courts.
Similarly, the winding up of companies is referred to the Board for Industrial and Financial Reconstruction, an appellate body, and then the high courts.
Once the changes are implemented, the references will be made directly to NCLT, the appellate tribunal and finally to SC.
This is similar to the procedure pursued by the Competition Commission of India.
Presently, the various high courts of the country are clogged with regular civil and criminal cases, slowing the disposal of company disputes. CLB website shows that there are 2,870 cases pending for the 2008-2009 period.
According to the latest data from the law ministry, as of 30 June there were a total 52,592 cases pending before SC, an aggregate of 4,017,956 cases pending before the high courts, and 27,119,092 cases pending before all the subordinate courts put together—adding up to a total backlog of 31.18 million cases, the largest for any country.
“This is welcome news as the establishment of NCLT will reduce the pendency of cases,” said O.P. Dua, a Delhi high court lawyer. “It has been a trying time for CLB.”
The government envisaged the formation of NCLT through an amendment to the Companies Act in 2002.
NCLT was expected to take over the role of the high courts and CLB pertaining to various matters under the Companies Act.
However, the Madras high court in 2004 held the proposed NCLT to be unconstitutional and ruled that it encroached upon the powers of the judiciary.
Under the Companies Amendment Act, 2002, the members of the tribunal were to be appointed by the Central government and the head of the tribunal didn’t have to be a judge.
The apex court delivered its judgement on a petition filed by the Centre which had appealed against the Madras high court order.
The bench, headed by outgoing Chief Justice of India (CJI) K.G. Balakrishnan, upheld the Madras high court judgement in principle and also warned against the tribunalization of the justice system and the placing of executive and technical members on a quasi-judicial body. Instead, it argued that the judiciary should be a key part of the process.
Accordingly, it cleared the establishment of the body subject to new guidelines. Under the proposed dispensation, NCLT would be headed by a retired high court judge.
Further, any bench consisting of both judicial and technical members would have a majority belonging to the first group.
Tribunal members will be appointed by a committee consisting of CJI, a serving SC judge or high court chief justice, the law secretary and the trade secretary.
“We have been waiting for the establishment of NCLT for a long while,” said a senior official of the ministry of company affairs, while indicating that the government would shortly proceed on the amendments proposed by SC. “It is well timed as the new Companies Act is expected to be passed (soon).”