Company Law Board and NCLT : A Comparative Study

CORPORATE LAW I

SUBMITTED TO

MR.NEERAJ SHARMA

SUBMITTED BY

HRITWICK PURWAR

16BBL019
 Introduction
The Company Law Board was the body that had power of adjudication of company
related matters. It has been constituted under Section 10E of the Companies Act of 1956,
The business of Company Law Board is being regulated by the Company Law Board
Regulations,1991. On June 1, 2016 a notification was published by the Ministry of
Corporate Affairs, in which by the powers conferred under Section 408 and 410 of the
Companies Act of 2013, it constituted National Company Law Tribunal and National
Company Law Appellate Tribunal.

The Companies Amendment Act (2002), provided for setting up of National Companies
Law Tribunal and an Appellate Tribunal. The setting up of NCLT as an institution to
provide swift and speedy justice mechanism in the corporate sector has been made by the
recommendations of Eradi Committee, under the chairmanship of Justice Balakrishna
Eradi. The setting up of such a kind of institution is not only an effort in faster dispute
resolution mechanism rather it would also improve the ease of doing business in the
country. The setting up of such a body would also lead to reduce the burden of the courts
as the cases from High Courts would be transferred to NCLT. The establishment of
NCLT and NCLAT would also lead to dissolution of Companies Law Board under the
act of 1956.

This paper analyses the scenario before and after the formation and the changes brought
by the formation of National Companies Law Tribunal.

 Objective :
1. To study the history and establishment of NCLT.
2. To study the powers and functions of NCLT.
3. To study the impact of replacement of Company Law Board with National Company Law
Tribunal.

 Review of Literature :

The review of literature gives an idea about the research carried out by other researchers in the
past and also help the researcher to develop his/her idea of research. The literature reviewed is as
under :
 1. The Companies Act, 2013
Universal’s bareact 2018 print edition.
2. Report of The High Level Committee on ‘Law Relating To Insolvency and Winding
Up of Companies, 2000’.
The committee which was headed by Just.Balakrishna Eradi on the insolvency law has
recommended the repeal of Sick industrial Companies Act (SICA) alongwith winding up
of Board for Industrial and Financial Reconstruction (BIFR) and the Appellate Authority
for Industrial and Financial Reconstruction (AAIFR). It suggested for the setting up of
National Tribunal which must have the jurisdiction and power of the Company Law
Board alongwith an amendment to Article 323 B of Constitution of India to vest
jurisdiction and powers of High Courts in matters related to the winding up of the
companies.

3. Avtar Singh, Company Law, EBC, Seventeenth Edition,2018

The book presents thorough study of concepts and changes made in Company Law since
2013. Gives in-depth understanding of Companies Act,2013 along with its amendments.
Topic wise arrangement of matter, explaining the various aspects of company law with
the help of Indian and foreign case laws.

 Research Tools, Techniques and Methodology :

While compiling this project, doctrinal analytical study has been made. Analysis has been
done on the legal provisions and the constitutional framework to find out the answers to
the research problem. A qualitative approach has been followed. Secondary data has been
the only source which has been referred for the study. It includes books, journals,
research papers, electronic sources company law provisions, insights into corporate law
jurisprudence, commentaries by different writers as well as views of different experts
over the topic.

 Scope and Limitations :

 The scope of this paper has been limited to the analysis of relevant literature on the
subject, general comments and recommendations along with relevant judgements. Due to
limitation of space and time only a few literatures and commentaries have been referred.
Though the researcher agrees to the fact that for coming to a sound conclusion, a detailed
analysis of more comments and research is required; but, due to the paucity of time and
resources, the researcher has limited the scope of this paper to the analysis a limited
number of works.

 Mode of Citation :

For the sake of convenience, a uniform mode of citation has been followed.
Background :
The Company Law Board was a quasi-judicial body formed by Sec,10 E of the
Companies Act of 1956, which calls for the formation of Constitution of a Board for
Company Law Administration. The main objective of having such a board was to protect
the interest of minority shareholders and to regulate the affairs of the company. To act as
an remedy for effective redressal of the issues of the shareholders and took every possible
step in the smooth running of the company. The intention behind the formation of
Company Law Board or for instance any such speecialised tribunals is always to simplify
the procedures involved in the regular court practice and to avoid the delay that is usually
caused due to strict application of provision related to procedural laws. Yet, the
proceedings under Company Law Board, under the provisions of the Companies Act,
1956 were technical and complicated and probems were being faced in the execution of
orders.

Hence, the Ministry of Corporate Affairs vide a notifications dated, 1 June 2016
constituted National Company Law Tribunal and the appellate authority National
Company Law Appeallate Tribunal with effect from aforementioned date.

The outcome of the tribunal could be traced back to the case of S.P. Sampath
Kumar(1987) CITATION NCLTRules2016 \l 1033 , in which it was held by the Hon’ble SC to adopt the
alternative institutional mechanism theory followed by the recommendations of 124 th
Law Commission Report CITATION NCLTRules2016 \l 1033 which suggested the progress made by
different fields of law and increase in number of backlog of cases, there is an urgent need
for the establishment of the specialized independent tribunals. It was followed by the
recommendations of the Eradi Committee CITATION NCLTRules2016 \l 1033 , submitted in the year
2000. NCLT was intended to be introduced as early as in the year 2002, but because of
the litigation, challenging the constitutionality of the Tribunal it had to wait for long. The
Hon’ble Supreme Court in Union of India Vs. R.Gandhi, President Madras Bar
Association (2010) CITATION NCLTRules2016 \l 1033 , upheld the constitutionality of the NCLT as
well as NCLAT. The tribunal was a quasi-judicial body, which got notified under the
Companies Act of 2013 for dealing with the corporate disputes of civil nature. However,
the constitutional validity of NCLT was again challenged in Madras Bar Association Vs.
Union of India (2013) CITATION NCLTRules2016 \l 1033 . SC preserved the validity of NCLT, though
certain provisions were declared as violative of constitution.

The constitution of NCLT/NCLAT has resulted in the dissolution of Company Law

Board (CLB) which was established u/s.10 E of the Companies Act of 1956. All the
CITATION NCLTRules2016 \l 1033
S.P.Sampath Kumar Vs. Union of India 1987 SCC Supl.734
CITATION NCLTRules2016 \l 1033
Law Commission Report No. 124, The High Court Arrears – A Fresh Look, 1988
CITATION NCLTRules2016 \l 1033
Report on Law Relating to Insolvency and Winding Up of Companies, 2000
CITATION NCLTRules2016 \l 1033
Union of India Vs. R.Gandhi, President, Madras Bar Association (2010) 11 SCC 1
CITATION NCLTRules2016 \l 1033
Madras Bar Association Vs. Union of India & Anr. Writ Petition (C) No. 1072 of 2013
pending matters which were before the CLB vide sec.434 of Companies Act, 2013 have
been transferred to NCLT. All the pending matters thereon would now be dealt in
accordance with the provisions as mentioned in the Companies Act, 2013. The Central
Legislature vide powers granted to them under Article 245 of Constitution of India have
passed the order by which powers of the High Court, Appellate Authority for Industrial
and Financial Reconstruction (AAIFR) and Board of Industrial and Financial
Reconstruction (BIFR) to be vested on the Tribunal, hencethe governance of every
registered company under the companies act to be granted to the tribunal, except that of
banking institutions.
NCLT & NCLAT :
NCLT which stands for National Company Law Tribunal has the jurisdiction at the
ground level while National Company Law Appeallate Tribunal, as the name suggests
works like that of appellate authority, in the nature of High Courts. Evidences and
witness are taken into consideration in NCLT, inorder to reach to a conclusion and pass
on the judgement. NCLAT reviews the orders and judgements that have been passed by
the NCLT and deals only on point of law. It is the primary task of the NCLT, to find the
fact and admit the evidences. CITATION NCLTRules2016 \l 1033 Appeal from the orders of the
Appeallate Tribunal would lie directly to the Supreme Court vide Sec.423 of the
Companies Act of 2013.

421. Appeal from orders of Tribunal CITATION NCLTRules2016 \l 1033 .—

(1) Any person aggrieved by an order of the Tribunal may prefer an appeal to the Appellate
Tribunal.
(2) No appeal shall lie to the Appellate Tribunal from an order made by the Tribunal with the
consent of parties.
(3) Every appeal under sub-section (1) shall be filed within a period of forty-five days from the
date on which a copy of the order of the Tribunal is made available to the person aggrieved and
shall be in such form, and accompanied by such fees, as may be prescribed:
Provided that the Appellate Tribunal may entertain an appeal after the expiry of the said period
of forty-five days from the date aforesaid, but within a further period not exceeding forty-five
days, if it is satisfied that the appellant was prevented by sufficient cause from filing the appeal
within that period.
(4) On the receipt of an appeal under sub-section (1), the Appellate Tribunal shall, after giving
the parties to the appeal a reasonable opportunity of being heard, pass such orders thereon as it
thinks fit, confirming, modifying or setting aside the order appealed against.
(5) The Appellate Tribunal shall send a copy of every order made by it to the Tribunal and the
parties to appeal.

423. Appeal to Supreme Court.— Any person aggrieved by any order of the Appellate Tribunal
may file an appeal to the Supreme Court within sixty days from the date of receipt of the order
of the Appellate Tribunal to him on any question of law arising out of such order: Provided that
the Supreme Court may, if it is satisfied that the appellant was prevented by sufficient cause
from filing the appeal within the said period, allow it to be filed within a further period not
exceeding sixty days. CITATION NCLTRules2016 \l 1033

CITATION NCLTRules2016 \l 1033

[ CITATION Dev18 \l 1033 ]
CITATION NCLTRules2016 \l 1033
Sec. 421 of Companies Act, 2013
CITATION NCLTRules2016 \l 1033
Sec. 423 of Companies Act, 2013
Powers of National Company Law Tribunal CITATION NCLTRules2016 \l 1033 :
1. Registration of Companies

Under Sec.7(7) of the companies act, it allows the tribunal to question for the legitimacy of the
company on the grounds of procedural error at the time of registration or incorporation. Tribunal
can take steps ranging from passing an order for regulation of management to winding up of the
company.

7. Incorporation of company CITATION NCLTRules2016 \l 1033 .—

(7) Without prejudice to the provisions of sub-section (6), where a company has been got
incorporated by furnishing any false or incorrect information or representation or by suppressing
any material fact or information in any of the documents or declaration filed or made for
incorporating such 28 company or by any fraudulent action, the Tribunal may, on an application
made to it, on being satisfied that the situation so warrants,—
(a) pass such orders, as it may think fit, for regulation of the management of the company
including changes, if any, in its memorandum and articles, in public interest or in the interest of
the company and its members and creditors; or
(b) direct that liability of the members shall be unlimited; or
(c) direct removal of the name of the company from the register of companies; or
(d) pass an order for the winding up of the company; or
(e) pass such other orders as it may deem fit: Provided that before making any order under this
sub-section,—
(i) the company shall be given a reasonable opportunity of being heard in the matter; and
(ii) the Tribunal shall take into consideration the transactions entered into by the company,
including the obligations, if any, contracted or payment of any liability

2. Transfer of Shares
The tribunal is also empowered to hear the grievances relating to the refusal of transfer of shares
and debentures by the company, which under the earlier 1956 act was with the Company Law
Tribunal. Though the Companies Act, 2013 wide Sec.58/59 not only empowers the tribunal to
look for the shares and debentures, but rather all kind of securities issued by the company.

3. Investigative Power
Chapter XIV of the Companies Act, 2013 empowers the tribunal for the Inspection, Enquiry and
Investigationinto the affairs of the company and has eased the process.
According to the Companies Act, 2013 application by only 100 members would allow
investigation into the company affairs, while the previous act required an application of 200
members. Moreover, any person who is not related to the company can also persuade the tribunal
for conducting an investigation into the affairs of the company. Investigations ordered by the
NCLT can be conducted both in India or any other part of the world.
Under Sec. 209 of the Companies Act of 2013 it allows for search and seizure of the document if
there is reasonable ground to believe that the documents are likely to be destroyed, mutilated,
CITATION NCLTRules2016 \l 1033
[ CITATION Adi17 \l 1033 ]
CITATION NCLTRules2016 \l 1033
Sec.7 of Companies Act,2013
altered, falsified or secreted. While under Sec.221 it allows for the freezing of the assets of
company on inquiry and investigation.
4. Converting a public limited company into a private limited company
Under Sec. 18 o fthe Companies Act of 2013, any company priorly registered in any class, can
be converted into a company of another class with the prior permission of the Tribunal. Under
Sec. 459, the tribunal is empowered to impose certain restriction on grant of approval for such
conversion.

5. Reopening and Revision of Financial Accounts

Before the incorporation of Companies Act of 2013, instances of falsification and fraud were
witnessed under the act of 1956. Inorder to avoid this, measures have been incorporated under
the Act of 2013. Sec.130 and Sec.131 prohibit the company from suo-motto starting new bank
accounts or audit them. It can only be done as per the procedure prescribed in the 2013 Act. U/s
130, it is a mandatory provision to re-open the account on the orders of court or the Tribunal.
The Sec.131 provides for voluntary revision of the account by the directors, by approaching the
tribunal, if it appears to them that they do not comply with the provisions stated in Sec.129 or
Sec.134 of Act of 2013.
Impact of Replacement of Companly Law Board with
CITATION NCLTRules2016 \l 1033
NCLT :
1. Jurisdiction
While certain provisions are yet not clear, though a fully functional NCLT would cover
the powers and functions vested in :
a. Company Law Board(CLB)
b. Board of Industrial and Financial Reconstruction (BIFR)
c. Appellate Authority for Industrial and Financial Reconstruction(AAIFR)
d. Powers related to winding up of companies, restructuring and the provisions that
were vested in the High Courts.
2. Amicus Curiae
The National Company Law Tribunal Rules, 2016 have provision for the appointment of
Amicus Curiae for opinion on the related issue.
61. Amicus Curiae.-
(1) The Tribunal may, as its discretion, permit any person or persons, including the
professionals and professional bodies to render or to communicate views to the Tribunal as
amicus curiae on any point or points or legal issues as the case may be as assigned to such
amicus curiae.
(2) The Tribunal may permit amicus curiae to have access to the pleadings of the parties and
the Tribunal shall enable the parties to submit timely observations on brief provided by the
amicus curiae.
(3) The Tribunal shall be at liberty to direct either of the parties or both the parties to the
proceedings involving a point on which the opinion of the amicus curiae has been sought, to
bear such expenses or fee as may be ordered by the Tribunal.
(4) The judgment and any appended opinions shall be transmitted to the parties and to amicus
curiae. CITATION Dur16 \l 1033

3. Ousting of Civil Court Jurisdiction

Under the Companies Act of 1956, there was no expressed provision for the ousting of
the jurisdiction of Civil Court. Companies Act of 2013, after formation of Tribunal, vide
Sec.430 has expressed provision for civil court to have no jurisdiction.

430. Civil court not to have jurisdiction.— No civil court shall have jurisdiction to entertain any
suit or proceeding in respect of any matter which the Tribunal or the Appellate Tribunal is
empowered to determine by or under this Act or any other law for the time being in force and no
injunction shall be granted by any court or other authority in respect of any action taken or to be
taken in pursuance of any power conferred by or under this Act or any other law for the time
being in force, by the Tribunal or the Appellate Tribunal. CITATION NCLTRules2016 \l 1033

4. Appeals – Eliminating role of High Court

CITATION NCLTRules2016 \l 1033

[ CITATION Dur16 \l 1033 ]
CITATION Dur16 \l 1033
[ CITATION NCLTRules2016 \l 1033 ]
CITATION NCLTRules2016 \l 1033
Sec.430 of Companies Act, 2013
 The role of the High Courts has been eliminated. The Appeals from the NCLT i.e.
Tribunal would go to NCLAT CITATION NCLTRules2016 \l 1033 i.e. Appellate Tribunal, and from
there directly to the Supreme Court CITATION NCLTRules2016 \l 1033 . Therefore, High Court would
not come in the hierarchy.

5 . Other professionals allowed to represent

Previously, in CLB the power to represent was only under the hands of Company
Secretaries, Chartered Accountants and Cost Accountants. But, as per the Sec. 432 –
Right to Legal representation, the power has been extended to other professionals as well
and the same has been re-iterated wide rule 63 of NCLAT Rules, 2016.

6. Increase in number of benches

CLB previously had 5 benches, one principal bench at New Delhi and four regional
benches located at New Delhi, Kolkata, Mumbai and Chennai. Whereas, the newly
formed NCLT would have 11 benches, one principal bench at New Delhi and regional
bench each at New Delhi, Ahmedabad, Allahabad, Bengaluru, Chandigarh, Chennai,
Guwahati, Hyderabad, Kolkata and Mumbai. It is expected to have benches in each state
of India.

7. Filing of Class Action Suit

Under Sec. 245 of the Companies Act, 2013 one or more plaintiff can file a suit on behalf
of large number of shareholders or deposit holders. The long chain of cheating, fraud and
improprieties drain out the investments and savings of the shareholders. This provision
has acted as a relief for safeguarding the rights of the shareholders by providing for the
adequate compensation by the companies, if found guilty of fraudlent practices. Such
suits can be filed against private and public companies. Banking companies act as an
exception.

CITATION NCLTRules2016 \l 1033

Supra note 7
CITATION NCLTRules2016 \l 1033
Supra note 8
Conclusion :
The present paper assessed the legal provisions, background, powers and impact that has been
brought about after the formation of the aforementioned tribunal. The constitution of specialised
tribunal would have the experts from the field of corporate law, which would ease the procedure
involved because of the expertise that would be brought about by the constituting members of
the tribunal and thus help in speedy imparting of justice. The formation of NCLT after the
dissolution of CLB would also ease the process so involved. This can be concluded that the
NCLT would help in reducing the burden of different forums and the courts, where the company
related matters were previously registered. This could be seen as a welcoming step in the history
of corporate law in India which would have long term and far reaching effects in company
governance.
Works Cited :

1. Devi, D., & Kannappan, M. A Study on National Company Law Tribunal. International Journal of Pure
and Applied Mathematics , 119 (17), 723-734.

2. Durrani, R. (2016, June 21). Impact of Replacement of Company Law Board with National Company
Law Tribunal. (Legal Now) Retrieved November 11, 2018, from Medium Corporation:
https://medium.com/legalnow/impact-of-replacement-of-company-law-board-with-national-company-
law-tribunal-d1c2ec9f2e6a

3. Ministry of Corporate Affairs. (2016). National Company Law Tribunal Rules, 2016. New Delhi: The
Gazette of India : Extraordinary.

4. Singh, A. P. (2017, July 17). Role of National Company Law Tribunal & Its Formation. Retrieved
November 10, 2018, from International Journal of Legal Developments and Allied Issues:
http://ijldai.thelawbrigade.com/index.php/2017/07/17/role-of-national-company-law-tribunal-its-
formation/#_ftn9