NCLT to re-hear cases with verdicts reserved by CLB
Formation of NCLT has been in the pipe-line for more than a decade
The government has proposed that cases in which judgements have been
reserved by the Company Law Board (CLB) would be heard all over again
by the National Company Law Tribunal (NCLT), once it is set up.
The draft rules floated by the corporate affairs ministry under the
new Companies Act say in such cases, "the tribunal shall reopen the
matter and rehear the case as if the hearing had not taken place".
This is so because CLB ceases to exist once NCLT comes into operation
and all the cases being heard by the CLB by then would be transferred
to the tribunal.
These are proposed rules and the feedback could be given by anyone by
this Saturday. Sunil Seth, senior partner in law firm Seth Dua &
Associates, said: "This may appear to delay the process of justice but
that is the principle applied in a situation like this."Seth said the
genesis of this provision flows from the fact that if a person is
aggrieved by the decision of the CLB, it would need to file its appeal
at the relevant High Court. However, in order to appeal before the
National Company Law Appellate Tribunal (NCLAT), the decision needs to
be that of NCLT. "NCLAT will not entertain the appeal against the
order of CLB. Therefore, NCLT will have to re-hear the matter where
the judgment is reserved by CLB and decide the matter accordingly to
give its order. In such as a case, if a party is aggrieved by the
order of NCLT, it can file an appeal before the NCLAT," Seth added. He
said was a technical requirement of the legal system.
According to Seth, timelines for the formation of the NCLT are still
not very clear. "Further, once formed, the transition stage would have
its own teething troubles and it would still need to be seen whether
the objectives with which the NCLT is proposed to be constituted are
met or not. This would, in my view, depend to a large extent upon the
quality and experience of the members of NCLT."
Mehul Modi, senior director, Deloitte India, said it is not that the
transition will happen in isolation. "My sense is that CLB will
expedite the process of hearings and do not reserve judgment in large
number of cases." The formation of NCLT has been in the pipeline for
more than a decade. The provisions for the formation of NCLT were
initially introduced by amending the Companies Act, 1956. However, the
said provisions were caught in a legal wrangle amid fear that its
structure as proposed by the government flouted the Constitutional
separation of powers by vesting essential functions in the
quasi-judicial body, Seth said.
The matter was deliberated before the Madras High Court and before the
Supreme Court as well. Although the Supreme Court gave its nod for the
tribunal in 2010, the provisions and formation of NCLT is yet to see
the light of the day. Cases not only in CLB but also in district and
high courts relating to earlier Companies Act, 1956, including merger
and acquisitions and winding up of companies would also be transferred
to NCLT.
Companies whose cases are in Appellate Authority for Industrial and
Financial Reconstruction and the Board of Industrial and Financial
Reconstruction (BIFR) will have to make a reference to Tribunal within
a stipulated time.
The decision to set up NCLT as a special institution for corporate
matters is based on the recommendations of several expert committees,
especially the Justice Eradi Committee on Law Relating to Insolvency
and Winding up of Companies.
The committee had examined the Companies Act, 1956 and other related
legislations such as the Sick Industrial Companies (Special
Provisions) Act, 1985 and the Recovery of Debts due to Banks and
Financial Institutions Act, 1993, which highlighted that there were
multiple agencies to deal with matters relating to companies such as
CLB, BIFR and high courts. The proceedings before high courts have
been time-consuming, particularly in case of the winding up of
companies.
There was clearly a need to have an exclusive and composite forum with
specialised knowledge for matters relating to companies and for speedy
dispensation of corporate justice, the committee had recommended.
--
CS A Rengarajan
9381011200
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