NCLT to re-hear cases with verdicts reserved by CLB

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.