Govt’s draft rules for company law tribunal is a welcome move

Experts said that there was no doubt that bringing all disputes arising out of law being adjudicated at one place was a welcome move


Last year, the Supreme Court asked the government to proceed with setting up the tribunal, after giving certain directions regarding the appointment process. Photo: Mint
Last year, the Supreme Court asked the government to proceed with setting up the tribunal, after giving certain directions regarding the appointment process. Photo: Mint

New Delhi: The government’s decision to notify its draft rules regarding the soon-to-be-set-up National Company Law Tribunal (NCLT) is being seen largely as a positive move.

The Companies Act, 2013 brought an overhaul in the system, a big part of which was a combined tribunal and an appellate forum which would cater to all disputes arising out of the law. This includes cases that will be transferred from the Company Law Board and the Board for Industrial and Financial Reconstruction.

The legality of the tribunal was challenged and upheld by a Constitution bench of the apex court, once in 2010 and finally in May 2015. Last year, the Supreme Court asked the government to proceed with setting up the tribunal, after giving certain directions regarding the appointment process.

A notification issued last week by the corporate affairs ministry laid down two different rules, apart from one set of general rules, which would govern procedure on cases related to mergers between companies, and claims of oppression and mismanagement in the company by shareholders.

Ritu Bhalla, senior litigation partner at law firm Shardul Amarchand Mangaldas, Delhi, said that these rules were a step in the direction of setting up the tribunal.

“The Supreme Court cleared the decks for the NCLT in May 2005. The Companies Act 2013, which also brought the NCLT, was the first step towards ease of doing business. These rules of procedure will help demystify the Act,” she said.

The NCLT is a step towards consolidation and doesn’t take away from specialization the different fora brought. Experts said that there was no doubt that bringing all disputes arising out of law being adjudicated at one place was a welcome move.

Bhalla highlighted a special provision in the new rules.

“The law for the first time envisages the concept of an amicus curiae, a friend of court, to assist the NCLT in specific matters. This would ensure that specialised help is available to the tribunal members. It would mean that the question of lack of specialisation in the new NCLT will not arise,” Bhalla said.

Lalit Kumar, corporate partner at J. Sagar Associates, also shared a similar view.

“The NCLT won’t hamper specialization of different fora. It is just the other way. Earlier, company law related matters were scattered across three fora—the high court, the CLB and the BIFR. This way there will be specialised benches, all consolidated under one roof,” he said.

The ministry of corporate affairs has opened the floor for public consultation till 17 February.

While prior public consultations weren’t held for rules in this manner, the scenario might be changing.

Bhalla said that this was one of the few times such consultation was being held. Prior public consultation from stakeholders is slowly becoming a norm, Kumar added.

As for the tribunal, in an interview shortly after the Supreme Court direction last year, senior advocate Arvind Datar called the company tribunal a retrograde idea. He said that appointments alone would take up a lot of time, and delay the process.

However, those on the industry side are more hopeful.

“Tribunalisation has been held valid under the constitution in many judgments. As for when the NCLT will become functional, they have started the process of finding judicial and technical members. These are short-term initial transitional issues, which should not overshadow the overall good move,” Kumar said.

The draft rules have carried forward some of the more problematic provisions from the earlier law. Bhalla pointed out that the earlier provisions for a 48-hour notice in cases filed for oppression and mismanagement or filing a caveat (in the apprehension of a case being filed against them) were missing in the present rules. She added that the rules requiring detailed filing of evidence had not been changed, which could delay amalgamations.

“Aside from these, on the whole, the rules show a hope for a workable system. It is one of the few times consultation has been sought from stakeholders. It’s a good sign for the NCLT,” she said.

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