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The Constitutional Validity of The NCLT’s Establishment and its Function in Dispute Resolution

The National Company Law Tribunal is the result of the Eradi Committee, and it is intended to be implemented in the Indian legal system under the Companies Act, 1956. However, due to a ten-year legal battle over the constitutional validity of NCLT’s foundation, it was announced under the Companies Act of 2013. In this blog, we will discuss its constitutional validity and function in dispute resolution.

Introduction

Tribunals are not defined by any law. Courts have ruled that tribunals are not courts in several cases. The Supreme Court (SC) held in Sampath Kumar vs Union of India that the adoption of the theory of alternative institutional mechanism would lead to faster case disposition, reducing the burden on the High Court and that the creation of these tribunals is within the legislative competence of Parliament and state legislatures, as stated in Article 245 of the constitution read with provisions under List I. 

Except for criminal prosecutions for violations of the Companies Act, the NCLT is a quasi-judicial body intended to adjudicate all company-related disputes. It resulted in the dissolution of the Company Law Board (CLB) and the removal of civil courts’ authority, with all ongoing cases being transferred to the National Company Law Tribunal (NCLT). The Tribunal is not governed by the same strict evidentiary and procedure standards as the courts. It can make decisions based on the principles of natural justice. It was also decided that the civil court’s jurisdiction is fully barred in instances where the NCLT has been given power.

The constitutional validity of the establishment of NCLT

Since the passage of the Companies (Second Amendment) Act, 2002, one of the most contentious issues in company law has been the legality of the NCLT. The constitutionality of the NCLT has been questioned by the courts on several occasions.

R. Gandhi, President of the Madras Bar Association (MBA), filed the first writ case challenging the constitution’s constitutional validity before the Madras High Court under Article 226 of the constitution in Thiru R. Gandhi against Union of India. The creation of NCLT/NCLAT and vesting in them responsibilities previously exercised by High Courts and CLB was not ruled illegal by the Madras High Court.

2010 judgement

Union of India v. R. Gandhi, President, Madras Bar Association was the case before the Supreme Court. The Constitution Bench affirmed the NCLT’s constitutional legality, ruling that vesting the powers and jurisdiction of the High Court in business law disputes in them was not unconstitutional.

2015 judgement

A writ petition was filed with the Supreme Court under Article 32[21] of the Constitution following the passing of the Companies Act, 2013. MBA was the one who submitted the writ petition this time. Because the petitioners were aware of the principle of res judicata, they only requested that the NCLT be declared illegal because the 2010 judgement was silent on the issue.

Role of NCLT in dispute resolution

The NCLT offers numerous significant benefits, including a speedier dispute resolution mechanism and uniformity in decision-making. NCLT was created to resolve and/or control the following types of conflicts and/or activities:

All processes under the Companies Act, including arbitration, compromise, reconstruction, and winding up, are decided by the Tribunal.

It oversees corporate mismanagement and oppression investigations. A former employee of a corporation can also file a lawsuit.

Only when the NCLT has approved the conversion of a public business to a private firm can a dispute be filed.

It also deals with firms that dry up their depositors’ and stockholders’ wages in order to perpetrate fraud and misbehaviour. The tribunal compensates these investors/depositors.

It has the power to investigate and deregister a company that has been registered fraudulently or illegally.

If a dispute arises and the firm refuses to record a transfer of its securities, the transferee might file a complaint with the NCLT.

The NCLT settles disputes involving requests for the auditors of a corporation to be replaced if they have been involved in any fraudulent behaviour – the NCLT can even order such a change Suo moto.

The NCLT settles disputes by approving a plan for a company’s resurrection and rehabilitation based on a request from any shareholder or the company itself.

NCLT approval is required for a corporation to lower its share capital.

Apart from the issues, NCLT also deals with a variety of other conflicts. The strain on Indian courts would have been enormous if that had not been the case. It facilitates a quick resolution of disputes, gives a single point of contact, avoids duplication of actions before many fora, and decreases the workload of the High Court and District Court. The establishment of the NCLT is aimed at resolving corporate disputes more quickly, making it easier to conduct business.

Conclusion

The establishment and constitution of the NCLT as the sole tribunal for the administration of all matters arising under the Companies Act will undoubtedly reduce, if not eliminate, the catastrophic delays in company law proceedings, avoid multiple litigations before different forums, streamline the appeals process, and reduce the burden on the High Courts and District Courts.

By Pragati Sengar