NATIONAL COMPANY LAW TRIBUNAL ( OBJECTIVES Vs REALITY )

By Nirmal Behera

Madhusudan Law College, Cuttack, India

Email- nirmalbhr6@gmail.com

Linkedin- www.linkedin.com/in/nirmal30

 

 

Abstract-

 Since the creation of National Company Law Tribunals (NCLTs) and National Company Law Appellate Tribunals (NCLATs) according to the provisions of Companies Act, 2013 it was expected that disposal of corporate matters and cases will be expedient under the IBC, 2016. The High Courts of concerned jurisdiction were overloaded with insolvency matters and other matters related with corporate bodies. The time consuming procedural proceedings were acting like impediments to justice delivery system and were inefficient to protect creditors of their interest as well as an important economic concern for smooth growth of business in India.

            After establishment of functioning NCLTs/ NCLATs the scenario is that the High Courts are gradually relieved from the burden of excessive corporate cases but the much envisaged objective of speedy disposal of matters and judicial efficacy is yet to be achieved. In this article it is been discussed and outlined the main reasons and loopholes jeopardizing the objectives which were sought to achieved with some report studies.

Introduction- 

The Ministry of Corporate Affairs through a notification dated June 01, 2016 has constituted the National Company Law Tribunal (NCLT) and its appellate authority, the National Company Law Appellate Tribunal (NCLAT). The NCLT and NCLAT are quasi judicial bodies which shall adjudicate issues relating to company law and, insolvency and bankruptcy laws in India. From the very date of constitution of NCLT and NCLAT, the Company Law Board (CLB) constituted under the Companies Act, 1956 has been dissolved and all matters and cases before the  CLB are been transferred to the NCLT. The NCLT is constituted by the Central Government according to the provisions under section 408 and 410 of the Companies Act, 2013.

 

History-

 

Justice Eradi Committee proposed for setting up NCLT and the laws with respect to Insolvency in 1999. Considering the proposal of the Committee, the Companies (amendment) Act, 2002 provided for the provisions for to set up NCLT and NCLAT to replace the existing CLB and transfer of all the cases before the CLB to the NCLT to dispose such cases according to the provisions in the Companies Act, 1956 and 2002 Amendment Act.

The 2002 amendment act was challenged in the High Court by the Madras Bar Association because it was not notified. The constitutional validity was decided by the constitution Bench of the Hon'ble Supreme Court in Union of India v. R. Gandhi, President, Madras Bar Association on May 11, 2010. The Hon'ble Supreme Court held that it is under the legislative competence of Parliament to create the NCLT and the NCLAT, but the particular structure of the NCLT and NCLAT proposed by the 2002 Amendment Act was held unconstitutional. The Government was required to make amendments to the 2002 Amendment Act on the selection of members, tenure of members, and qualification of the judicial and technical members of the Tribunal before it could set up functional Tribunals.

However, even after passing of Hon'ble Supreme Court judgment in May 2010 with respect to constitutional validity of NCLT and NCLAT, the tribunals could not be established. The Parliament of India promulgated the Companies Act, 2013 which replaced the 1956 Act and included substantial provisions with respect to the establishment, powers, operations and jurisdiction of the NCLT and NCLAT in line with the necessary changes required by the Hon'ble Supreme Court in May 2010 judgement.

 

 

The provisions relating to NCLT and NCLAT prescribed under the 2013 Act was  challenged by the Madras Bar Association again with respect to inconsistency with the directions of the Hon'ble Supreme Court  in the provisions of the 2013 Act in the previous judgment of May, 2010. The issue was decided by the Constitution Bench of the Supreme Court on May 14, 2015 in Madras Bar Association v. Union of India & Anr, 2015 wherein the SC held that constitution of both NCLT and NCLAT is constitutionally valid. The SC further held that, in Indian Constitution, it is allowed for the legislature to set up of tribunals as alternatives to the Courts for adjudication on specific matters. But the Hon'ble Supreme Court had ordered some corrections to be made with respect to the eligibility of technical members according to the guidelines in the previous judgment. This had set the way for the constitution of the NCLT and NCLAT under the 2013 Act.

 

Objectives for the Constitution of NCLT and NCLAT-

 

1. Avoiding multiple litigation and ambiguity

It was assumed that multiple litigation could be avoided when NCLT comes into existence, because, NCLT will be the authority for the cases which were previously handled by the High Court, CLB, BIFR etc. The appeals will go to NCLAT or Supreme Court as the case may be, and the Multiplicity of litigations with various forums will be at least reduced.

2. Speedy disposal of matters

It is a known fact that cases with CLB or BIFR and High Court go for long periods, but with NCLT, the proposal was that of speedy disposal of cases considering the time limit prescribed for disposing of the cases. The NCLT and the NCLAT are under a mandate to dispose of cases before them within 330 days from the insolvency commencement date. A time limit of 3 months has been provided to dispose the cases from the date of admission of application of insolvency resolution, with an extension of 90 days with sufficient reasons to be recorded by the President or the Chairperson. 

3. Decrease in the hardships of the parties

Speedy disposal will save time, money and energy of the Creditors and Corporate Debtors concerned and thus, undue hardships will be reduced.

4. Decrease in the pressure on High Courts

The process of mergers or amalgamations and acquisitions, and winding up were court driven process and lengthy process and therefore the number of pending cases with the High Court was high. Hence any appeal from the NCLAT will lie to the Supreme Court being the apex authority but not the High Court. Thus, NCLT will reduce the burden on High Courts.

Problems and Issues with the NCLT/ NCLAT Proceedings-

1.      Lack of enough precedence

The Central Government has constituted National Company Law Tribunal (NCLT) under section 408 of the Companies Act, 2013 with effect from 01st June 2016. It is comparatively new to other established tribunals. The proceedings that have been held in NCLT/ NCLAT are very less and hence the judgements are not enough to make a code of precedents based on which reference can be taken for similar cases. Precedents are very necessary and unparalleled need of any efficient justice delivery system. Absence of exact and related precedence can certainly slowdown the justice delivery mechanism and consequently renders failure to the very purpose for which NCLT/ NCLATs were meant to be.

 

2.      Lack of infrastructure

Another most evident problem is the inadequate infrastructure of NCLTs as well as other tribunals in India. Most of the tribunals are in areas and locations which are easily missed through naked eyes while looking for them in their jurisdiction areas. Unless there is a much known land mark or visible large board, it takes a while to find the Tribunal. Even if the tribunal is accessed somehow, the size of the office and the court rooms are found to be inadequate and congestive to such extent that barely 20 people can attend a court room proceeding at once. So, if the accommodation itself cannot hold enough lawyers or professionals and representatives, it is difficult to expect disposal or even hearing of many cases and matters without significant inconvenience.

3.      Vacant Positions

It is not unknown that tribunals in India lack enough officials to run them smoothly and the National Company Law Tribunal is not an exception. The appointment of officials in the NCLTs and NCLATs is either delayed or incomplete. The Central Government seems to relying on notifications and by-laws more than actually addressing the practical issues of efficiency related to lack of sufficient officials in tribunals. The officials include competent Court Officers, Law Officers, Data entry Operators etc. It is impossible to make a Court Room function with robust justice delivery mechanism without such competent officials.

4.      Access to justice

The National Company Law Tribunal has only 16 benches of which six are at New Delhi from which one is the principal bench and 2 at Ahmedabad, 2 at Chennai, 1 at Bengaluru, 1 at Allahabad, 1 at Chandigarh, 1 at Guwahati, 1 at Cuttack, 3 at Hyderabad, one is at Amaravathi, 2 at Kolkata, 1 at Jaipur, 1 at Kochi and 5 at Mumbai.

Considering the amount of corporate matters in pending and the new cases every year arising, the geographical and political extension of business organisations in India, the physical distance of the tribunals from many branches from the big to small companies is very significantly and considerably far even within the jurisdiction of the concerned NCLT/ NCLAT. Having enough numbers of benches and offices of tribunals in all India level is yet far from reality.

5.      Inordinate Delay of Proceedings and Delay in Admission of Matters

There have been plethoras of reports suggesting that delay condonations and delay in admission of cases into NCLTs/ NCLATs have resulted in significant losses of creditors and an increase in legal expenditure of companies.

Reports Studies-

Below are some reports where it is evident that there is an urgent need to have a look on the provisions and rules of Condonations and Admission of cases into NCLTs/NCLATs-

It has been more than 530 days since the Essar Steel matter was admitted to NCLT. The delay is estimated to cost lenders almost Rs 17 crore losses. There are serious concerns that NCLTs are not strictly adhering to prescribed statutory timelines.  About 30% of the ongoing Corporate Insolvency Resolution Process (CIRP) cases have exceeded the time ceiling, with an additional having crossed the six-month deadline being 20 percent (Kant, 2019). Delays in the Corporate Insolvency Resolution Process (CIRP) and increasing number of applications for insolvency resolution have become burden on the existing infrastructure of the National Company Law Tribunal (NCLT), also the growing number of applications has been inadequate for the infrastructure of the Adjudicating Authority (Palepu, 2018). Since the Insolvency & Bankruptcy Code (IBC) mandates a period of 14 days for admission of a case and 180 days time limit for its resolution with a possible extension of not more than 90 days, the scenario is different. Only admission time for cases is being almost four or five months, a situation that has compelled banks to compromise in case of small and medium defaulters. Such scenario is pushing banks towards restructuring under Section 230 of the Companies Act. Creditors make arrangements with the members of the company to restructure debt ( Moneycontrol News, 2019).In order to effectively dispose the pending cases within the NCLT in the upcoming years, it would require 80 more benches (Sen, 2017).

 

Reports on the Government Response-

The Ministry of Corporate Affairs (MCA) has brought ‘Winding-up Rules’, which provides for summary of procedures for winding up of companies of specified thresholds (K.R.Srivats, 2020).The government is taking steps to strengthen the NCLT and NCLAT  to reduce pendency of cases (India, 2019). The government has made efforts to ease the pressure on the National Company Law Tribunal (NCLT). The number of NCLT members will be raised to 60 from 32 and the new members would be hired for NCLT benches in Delhi and Mumbai (Ray, 2018).

 

Conclusion-

There have been many instances where the Government has made effort to bridge the gap between the expectations and reality by several notifications through Ministry of Corporate Affairs and have justified the problems associated with undue delay, poor infrastructure and inadequate numbers of tribunals of NCLTS/ NCLATs. However, there is an urgent requirement of a holy nexus between the judiciary and the executive, to come out with a holistic solution to above outlined issues. Fast proceedings of justice delivery system is not only business friendly but also in support of a robust developing economy. It is a matter of fact that since the establishment of NCLTs/ NCLATs and enactment of the Companies Act, 2013, the ease of doing business international ranking of India have improved significantly, but if the problems of increasing number of pending corporate cases remains unaddressed, undoubtedly the business and investment sentiments of people both in India and abroad will hit a setback.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Bibliography

Moneycontrol News. 2019. Higher NCLT waiting time pushes banks towards one-time settlements. Moneycontrol News. [Online] June 10, 2019. [Cited: 01 07, 2010.] https://www.moneycontrol.com/news/business/higher-nclt-waiting-time-pushes-banks-towards-one-time-settlements-4079921.html.

Business Standard. 2019. NCLT yet to fire fully with over half of admitted cases still unresolved. Business Standard. [Online] February 13, 2019. [Cited: 01 07, 2021.] https://www.business-standard.com/article/markets/nclt-yet-to-fire-fully-with-over-half-of-admitted-cases-still-unresolved-119021300015_1.html.

India, Press Trust Of. 2019. Govt taking all steps to strengthen NCLT, NCLAT. ET Government.com. [Online] December 02, 2019. [Cited: 01 07, 2021.] https://government.economictimes.indiatimes.com/news/governance/govt-taking-all-steps-to-strengthen-nclt-nclat/72333842.

Iyengar, Suresh P. 2019. Banks pay the price for delay in resolution of insolvency cases. BuinessLine. [Online] June 17, 2019. [Cited: 01 07, 2021.] https://www.thehindubusinessline.com/economy/policy/delay-in-resolving-insolvency-cases-has-cost-banks-25000-cr/article24187271.ece.

K.R.Srivats. 2020. New rules for fast-track winding up of firms may lighten NCLT’s burden. BusinessLine. [Online] January 29, 2020. [Cited: 01 07, 2021.] https://www.thehindubusinessline.com/economy/policy/new-rules-for-fast-track-winding-up-of-firms-may-lighten-nclts-burden/article30685529.ece.

Kant, Amitabh. 2019. IBC delayed is IBC denied. THE ECONOMIC TIMES. [Online] June 14, 2019. [Cited: 01 07, 2021.] https://economictimes.indiatimes.com/blogs/et-commentary/ibc-delayed-is-ibc-denied/.

Palepu, Advait Rao. 2018. Delays in top 12 corporate insolvency cases cost lenders Rs 40 billion. Business Standard. [Online] November 14, 2018. [Cited: 01 07, 2021.] https://www.business-standard.com/article/economy-policy/delays-in-top-12-corporate-insolvency-cases-cost-lenders-rs-40-billion-118111301734_1.html.

Ray, Atmadip. 2018. Government to raise NCLT members to 60 from 32 soon to ease pressure. The Economic Times. [Online] December 04, 2018. [Cited: 01 07, 2021.] https://economictimes.indiatimes.com/news/economy/policy/government-to-raise-nclt-members-to-60-from-32-soon-to-ease-pressure/articleshow/66940172.cms?from=mdr.

Sen, Shreeja. 2017. NCLT needs 69 benches to handle current case load: report. mint. [Online] April 06, 2017. [Cited: 01 07, 2021.] https://www.livemint.com/Companies/SsqYQbOsh3hABpkx21KCaK/NCLT-needs-69-benches-to-handle-current-case-load-report.html.