NCLT – Understanding National Company Law Tribunal and its power

National Company Law Tribunal is the outcome of the Eradi Committee. NCLT was intended to be introduced in the Indian legal system in 2002 under the framework of Companies Act, 1956 however, due to the litigation with respect to the constitutional validity of NCLT which went for over 10 years, therefore, it was notified under the Companies Act, 2013. It is a quasi-judicial authority incorporated for dealing with corporate disputes that are of civil nature arising under the Companies Act. However, a difference could be witnessed in the powers and functions of NCLT under the previous Companies Act and the 2013 Act. The constitutional validity of the NCLT and specified allied provisions contained in the Act were re-challenged. Supreme Court had preserved the constitutional validity of the NCLT, however, specific provisions were rendered as a violation of the constitutional principles.

NCLT works on the lines of a normal Court of law in the country and is obliged to fairly and without any biases determine the facts of each case and decide with matters in accordance with principles of natural justice and in the continuance of such decisions, offer conclusions from decisions in the form of orders. The orders so formed by NCLT could assist in resolving a situation, rectifying a wrong done by any corporate or levying penalties and costs and might alter the rights, obligations, duties or privileges of the concerned parties. The Tribunal isn’t required to adhere to the severe rules with respect to appreciation of any evidence or procedural law.

Major Functions of NCLT

Registration of Companies

The new Companies Act, 2013 has enabled questioning the legitimacy of companies because of specific procedural errors during incorporation and registration. NCLT has been empowered in taking several steps, from cancelling the registration of a company to dissolving any company. The Tribunal could even render the liability or charge of members to unlimited. With this approach, NCLT can de-register any company in specific situations when the registration certificate has been obtained by wrongful manner or illegal means under section 7(7) of the Companies Act, 2013.

Transfer of shares

NCLT is also empowered to hear grievances of rejection of companies in transferring shares and securities and under section 58- 59 of the Act which were at the outset were under the purview of the Company Law Board. Going back to Companies Act, 1956 the solution available for rejection of transmission or transfer were limited only to the shares and debentures of a company but as of now the prospect has been raised under the Companies Act, 2013 and the now covers all the securities which are issued by any company. 

Deposits

The Chapter V of the Act deals with deposits and was notified several times in 2014 and Company Law Board was the prime authority for taking up the cases under said chapter. Now, such powers under the chapter V of the Act have been vested with NCLT. The provisions with respect to the deposits under the Companies Act, 2013 were notified prior to the inception of the NCLT. Unhappy depositors now have a remedy of class actions suits for seeking remedy for the omissions and acts on part of the company that impacts their rights as depositors.

Power to investigate

As per the provision of the Companies Act, 2013 investigation about the affairs of the company could be ordered with the help of an application of 100 members whereas previously the application of 200 members was needed for the same. Moreover, if a person who isn’t related to a company and is able to persuade NCLT about the presence of conditions for ordering an investigation then NCLT has the power for ordering an investigation. An investigation which is ordered by the NCLT could be conducted within India or anywhere in the world. The provisions are drafted for offering and seeking help from the courts and investigation agencies and of foreign countries.

Freezing assets of a company

The NCLT isn’t just empowered to freezing the assets of a company for using them at a later stage when such company comes under investigation or scrutiny, such investigation could also be ordered on the request of others in specific conditions.

Converting a public limited company into a private limited company

Sections 13-18 of the Companies Act, 2013 read with rules control the conversion of a Public limited company into the Private limited company, such conversion needs an erstwhile confirmation from the NCLT. NCLT has the power under section 459 of the Act, for imposing specific conditions or restrictions and might subject granting approvals to such conditions.

source: https://cleartax.in/s/national-company-law-tribunal

NCLAT: NCLT Cannot Decide Legality Of A Foreign Decree

The NCLAT has once again held that the NCLT, for the purpose of initiating insolvency, has no jurisdiction to decide whether a foreign decree is legal or illegal.

The judgment is in response to an appeal filed against the Principal Bench order which got into the merits of a foreign decree, in the case of Usha Holdings LLC vs. Francorp Advisors. The Principal Bench found that the foreign decree did not satisfy the requirements of Section13 and 44A of the Civil Procedure Code, and hence the debt was not enforceable.

The NCLAT, however, disagreed and held that NCLT has no authority to decide the legality of a foreign decree. While doing so, it relied on the NCLAT judgment in the case of Binani, and recorded that,

“we hold that the Adjudicating Authority not being a Court or ‘Tribunal’ and ‘Insolvency Resolution Process’ not being a litigation, it has no jurisdiction to decide whether a foreign decree is legal or illegal.”

The reliance on the Binani judgment may be misplaced. The text of the judgment (or at least the portion quoted) does not make any reference to or is in any way related to the power of the NCLT with respect to enforcement of foreign decrees.

However, a previous judgment of the NCLAT provides better reasoning as to why NCLT is not the competent court to decide on validity of a decree, in insolvency proceedings. In the case of V.R. Hemantraj vs. Stanbic Bank Ghana Ltd, the NCLAT found that an application under Section 7, 9 or 10 is not a recovery proceeding, or proceeding for determination of claim on merit.

It further held that the NCLT is not required to write a detailed decision as to which are the evidence relied upon for its satisfaction. The NCLT is only required to be satisfied that there is a ‘debt’ and default has occurred.

Both judgments make reference to the term ‘Adjudicating Authority’  and not ‘NCLT’, because the NCLT has the powers of a Civil Court under provisions of the Companies Act, but the Adjudicating Authority under the IBC does not.