What are NCLT and NCLAT? Why has the Supreme Court accused them of 'rot'?

The National Company Law Tribunal (NCLT) and National Company Law Appellate Tribunal (NCLAT) are quasi-judicial bodies that hear cases related to Indian companies. These tribunals exercise power under the new Companies Act, 2013. While the tribunals have exclusive jurisdiction, aggrieved parties can appeal to the Supreme Court within 60 days if dissatisfied with the NCLAT ruling.

On Wednesday, the Supreme Court issued a show-cause notice to two National Company Law Appellate Tribunal (NCLAT) members for allegedly defying orders in a company dispute. While issuing the notice, Chief Justice of India D Y Chandrachud said, "NCLT and NCLAT have got down to a rot now. The case is an illustration of that rot."

This situation arose in regard to an annual general meeting (AGM) of Finolex Cables and a tussle between cousins Prakash Chhabria and Deepak Chhabria over the company's control. Rakesh Kumar and Alok Srivastava of the appellate tribunal delivered a judgement despite the SC having put out a status-quo order on the matter.

Here is a closer look at the tribunals and its role in company law.

National Company Law Tribunal (NCLT)

The National Company Law Tribunal (NCLT) is a quasi-judicial body established under the Companies Act of 2013 to resolve corporate civil disputes. It has the same powers and procedures as a judge or a court of law and evaluates facts, makes decisions based on natural justice principles, and issues orders according to its findings.

The NCLT consists of a president, judicial, and technical members appointed by the central government, and it handles fact-finding and evidence-gathering.

NCLT was established to ensure speedy judgment of cases, considering the burden on judges and courts with numerous pending cases. Parties that are dissatisfied with the tribunal's judgment can appeal to NCLAT and then to the Supreme Court for further legal recourse.

National Company Law Appellate Tribunal (NCLAT)

The National Company Law Appellate Tribunal (NCLAT), or appellate tribunal, was constituted under Section 410 of the Companies Act, 2013, to hear appeals against the orders of NCLT. NCLAT acts as an intermediate appellate forum where appeals are heard after the tribunal's decision. NCLAT also handles appeals against orders passed by the Insolvency and Bankruptcy Board of India (IBBI) and the Competition Commission of India (CCI). Its decisions can be appealed to the Supreme Court.

NCLAT structure and members

The NCLAT consists of a chairperson, three judicial members, and two technical members. The appellate tribunal can consist of no more than 11 members in total.

All members must be at least 50 years old. For judicial members, applicants should have been a judge of a high court or a district judge for at least five years or have a minimum of ten years of experience. At the same time, technical members require at least 15 years of experience as a chartered accountant, cost accountant or company secretary.

The NCLAT has two benches, one principal bench in New Delhi and the other in Chennai.

A retired judge of the Supreme Court, Ashok Bhushan, is the current chairman of NCLAT. He took up the position after a nearly 20-month gap following the retirement of its first chairperson, Justice S J Mukhopadhaya.

Legal representation for NCLT and NCLAT

Parties involved in proceedings before NCLT or NCLAT can either represent themselves or appoint legal representatives, chartered accountants, company secretaries, or cost accountants to represent them.

Why were NCLT and NCLAT formed?

The creation of both NCLT and NCLAT was driven by the need to enforce new rights due to increasing state activities and evolving justice demands. The purpose of these tribunals is to strike a balance between a court and a government agency, ensuring fairness and efficiency in handling corporate civil disputes.

The primary jurisdiction is with NCLT, which handles fact-finding and evidence-gathering, while NCLAT handles appeals, evaluating NCLT's decisions on points of law or fact.

Both tribunals have the same jurisdiction, powers, and authority as a High Court to deal with contempt of the tribunal cases.

Finolex case

While the Supreme Court had filed a status quo on October 13 regarding the Finolex Cables AGM results, NCLAT ruled that Deepak Chhabria would remain the chairman of Finolex Cables on the same day. Prakash Chhabria has filed a contempt petition with the Supreme Court, which has been taken into consideration. As per the top court's orders, the NCLAT chairperson, Justice Ashok Bhushan, will conduct an inquiry.