Power of National Company Law Tribunal

Introduction

The Companies Act, 1956 established the Company Law board to adjudicate upon cases that are filed to resolve any conflicts that arise between the company and its members or any other stakeholders of the company. In 2016 an amendment was made and though a notification issued by the Central Government by exercising the powers conferred on it by section 108 of Companies Act, 2013, the Company Law board was replaced by The National Company Law Tribunal and the National Company Law Appellate Tribunal. There had been discussions regarding such replacement of the Company Law Board by the National Company law Tribunal since the Companies (Second Amendment) Act, 2002. But the actual replacement took place on 1 June 2016. This article seeks to discuss the reason behind such amendment being made to the Companies Act. The article will further discuss the powers that are conferred on the tribunal by the provisions of Company Law and through which amendment the concerned provision has come into operation.

What is National Company Law Tribunal

The tribunal has been constituted under section 408 of Companies Act, 2013 by the Central Government. The operation of the tribunal began from 1 June 2016n the recommendations being made by Justice Eradi Committee. The National Company Law Tribunal, has an objective of resolving disputes that tend to arise between the companies and is a quasi-judicial body. It had the jurisdiction to resolve only the matters pertaining to company law. The rules framed by Central Government govern the tribunals.

The National Company Law Tribunal has replaced the Company Law Tribunal. It has a principal bench in Delhi and 10 other benches in Ahmedabad, Bengaluru, Chandigarh, Chennai, Guwahati, Hyderabad, Allahabad, Jaipur, Kochi, Mumbai and Kolkata. The benches are presided over by the President and 16 Judicial along with 9 technical members. If any party id not satisfied with the decision made by National Company Law Tribunal, then the party can file an appeal before National Company Law Appellate Tribunal and then further appeal can be made to the Supreme Court of India.[1]

The National Company Law Tribunal consists of a President. The person can be appointed as a president if that person has been a judge of High Court for a period of 5 years or more. The age of president has to range between 50 years to 67 years of age. The National Company Law Tribunal also consists of Judicial members. To be eligible for becoming a Judicial member a person should have been a judge of High Court or District Court for a period of 5 years or more or should have practiced as an advocate for a period of 10 years or more. The age of a judicial member should be ranging between 50 years to 65 years. The Tribunal at last, also consists of Technical members as well. A person can be eligible for being a technical member if either he is a member of Indian Corporate Law Services for a period of 15 years or more or should have practiced as a Chartered Accountant for more than 15 years, or should have an experience of being a Company Secretary for 15 years or more, or should possess the integrity and ability along with special knowledge in the specific field of knowledge for a period of 15 years or more, or he should have been a presiding officer of labour court for 5 years or more to be eligible for becoming the technical member. Another condition is placed in respect of age i.e. 50 years to 65 years.[2]

Objective behind Tribunals

In the case of S.P. Sampath Kumar v. Union of India1987 SCR (3) 233,the court realised that since the time of independence there has been a steep rise in the population of our country and this has created a huge burden upon our Judicial institutions i.e. The Supreme Court and the High Courts of our country. It was pointed out that this burden on the institutions is responsible for causing pendency in disposal of suits. The Supreme Court therefore realised that there was a need to have independent tribunals or separate institutions that would adjudicate upon matters related to a particular field. It referred to various studies that revealed excessive burden on these institutions and therefore suggesting the setting up of alternative adjudicatory institutions.[3]

Powers of the Tribunal

When the amendment was issued, leading to formation of National Company Law Tribunal, on the same day itself the provisions giving power to the tribunals was also enacted. The tribunal has been given many powers by the law framers.

As per section 7 sub-section 7, the National Company Law Tribunal has the power to impose punishment on a company that has been incorporated through fraudulent means and on the basis of information that is false or through the concealment of any information that is vital or important to the conduct of business in the company. The companies should not incorporate themselves on the basis of information that is false and must not represent their status incorrectly and at the same time should avoid concealment of material information. Otherwise, the National Company Law Tribunal has the power to impose appropriate punishment and take action against such company. [4]

As per the proviso to sub-section 1 of section 14 the Tribunal has to come into the picture if any company wants to change or covert itself from public company to a private company as such company has to obtain approval from the National Company Law Tribunal before it can amend its Articles of Association that has the effect of changing it into a private company from a public company. Articles of association is a document that contains the guidelines about how a company should function internally and specifies that way of obtaining the objectives of the company as have been specified by it under Memorandum of association. For making such alteration the approval of National Company Law Tribunal is mandatory. Then after such conversion has taken place, then the Company is required to submit with the registrar, the alteration to Articles of Association along with the copy of National Company Law Tribunal’s order approving the conversion. Such submission has to be made to the registrar of companies as per section 14 sub-section 2. [5]

As per section 55 sub-section 3, in case if a company becomes unable to redeem any preference shares and is also not in a position to pay the dividend, then such company is required to obtain the approval from preference shareholders along with the approval of National Company Law Tribunal to be able to make an issue of fresh preference shares that are redeemable. It cannot make a fresh issue without taking approval from the Tribunal as this is another power entrusted on the tribunal by Company Law.[6]

As per section 58 and 59 of the Companies Act, 2013 the National Company Law Tribunal can take an action against the companies which cause losses to the investors by refusing to transfer shares and mishandling the transfer registration. They have the power of curbing this malpractice. The National Company Law Tribunal hears the matter and then may decide to order the company to make a transfer of the hares within a period of 10 days from the date of tribunal’s order or order the company to pay damages to investors to have suffered losses as a result of non-transfer. If such order made by tribunal is not complied with, then the Tribunal has the power to impose punishment on such person. Such punishment mat include imprisonment ranging between 1 year to a maximum period of 3 years and with a fine which cannot be less than Rs. 1,00,000 and extending to a maximum amount of Rs. 5,00,000.[7]

If any stakeholder in a company feels that the interests of a certain section of shareholders are being oppressed as well as the interest of the company at large are being sacrificed to satisfy the interests of a particular section of persons and for personally benefitting them by oppressing the others, then the ones who are being oppressed can approach the tribunal to seek justice and the tribunal is empowered to take an action against such oppression. This power flows through section 241, 242, 243, 244 and 245 of the Company Law[8]

Section 447 and 448 address another problem that is faced by the investors. There were many instances of injustice being caused by the companies in form of creating false and manipulative books of accounts. These instances can be controlled by the National Company Law Tribunal by exercising their powers. The companies are not allowed to reopen their accounts; however, they can review the same. As per section 130 of Companies Act, 2013 the National Company Law Tribunal has the power to command companies to reopen their accounts in certain circumstances. But the companies do not have the power to reopen their books of accounts. The reopening of accounts will be permitted when accounts that were prepared before, were prepared in a fraudulent manner or when the accounts prepared earlier cannot be relied upon because the affairs of company were not being properly and efficiently managed. The tribunal has the power to allow such reopening of accounts. [9]

According to section 97, in case if any member of a company, approaches the National Company Law Tribunal, with a grievance that the company has defaulted in holding the Annual General meetings on time, then the tribunal can order such company to hold the meeting. The concerned person in the company is required to comply with the tribunal’s order and hold the meeting, if he fails to comply then he along with other persons of the company who are responsible for holding the meeting, can be punished by the tribunal.[10]

The tribunal also has the powers of investigating into the working affairs of a company. Such investigation can be ordered if a complaint is made against a company by at least 100 members of the company. The investigation can be initiated and at the same time the National Company Law Tribunal also has the power to freeze the company’s assets and place other forms of restrictions. This power is flowing through section 221 of Companies Act, 2013. The application made by the members to the tribunal should disclose, that the affairs of the company have been carried out merely with an intention of committing fraud to the investors or other members or that the purpose for which business is being conducted is fraudulent and unlawful or it should reveal that a company’s conduct of business is being oppressive to certain section of members while giving personal benefit to others or it should reveal that the persons who are responsible for conducting business activities in the companies are guilty of committing fraud or some kind of misconduct with other members who have also invested in the company or it shows that the concerned members of company have not disclosed all the information that is vital to the business to other stakeholders of company. In case if the tribunal finds any of the above cases being proved then it can initiate investigation to which the Central Government appoints an investigator or inspector. After the completion of investigation if any person is found guilty then such person can be punished or penalised by the Tribunal. This power flows through section 213. As per section 224 sub-section 5, the tribunal also has the power of taking an action in pursuance of the report as prepared by the inspector after completion of investigation into the affairs of the company.[11]

Conclusion

The amendment to the Company Law led to the formation of National Company Law Tribunal which replaced the earlier body known as the Company Law Board. There were many reasons behind making such amendment and the impact of such amendment was that there was speedy disposal of matters related to company law and a lesser burden was created over the High Courts and Supreme Court. The powers entrusted with the National Company Law Tribunal ensure that the companies abide by the provisions of Company Law and there is no oppression being caused to the members of the company along with other stakeholders of the company.

References:

[1]Avtar Singh, Company Law (17th ed. Eastern Book Company, 2018).

[2] B.K. Goyal, Company Law 237 (13th ed. Singhal Law Publications, 2018).

[3]Dr. G.K. Kapoor; Dr. Sanjay Dhamija, Company Law-A Comprehensive Text Book on Companies Act 2013 168 (22nd ed. Taxmann, 2019).

[4]Avtar Singh, supra, 235.

[5] Kumar Deep, India: Constitution of National Company Law Tribunal (NCLT) And National Company Law Appellate Tribunal (NCLAT): Comprehensive Analysis, Mondaq connecting knowledge and people (15 August 2016), https://www.mondaq.com/india/corporate-and-company-law/518892/constitution-of-national-company-law-tribunal-nclt-and-national-company-law-appellate-tribunal-nclat-comprehensive-analysis.

[6] Diva Rai, Powers and Function of National Company Law Tribunal under Companies Act, IPleaders (11 June 2020), https://blog.ipleaders.in/powers-and-function-of-national-company-law-tribunal-under-companies-act/.

[7] P.P.S. Gogna, Textbook of Company Law 48 (11th ed. S. Chand & Co, 2015).

[8]Avtar Singh, Supra, 238.

[9] Divesh Goyal, NCLT & NCLAT Under Companies Act, 2013, Taxguru Complete tax solutions (2 June 2016), https://taxguru.in/company-law/nclt-nclat-companies-act-2013.html.

[10] Diva Rai, Powers and Function of National Company Law Tribunal under Companies Act, IPleaders (11 June 2020), https://blog.ipleaders.in/powers-and-function-of-national-company-law-tribunal-under-companies-act/.

[11] SonalNagpal, Overview of Companies Act, 1956 & Company Law Board (CLB),Taxguru Complete tax solutions (1 July 2013), https://taxguru.in/company-law/overview-companies-act-1956-company-law-board-clb.html.