A New Corporate Adjudicatory Forum – The National Company Law Tribunal

The Ministry of Corporate Affairs has constituted the National Company Law Tribunal (“NCLT”) vide notification S.O. 1935(E) with effect from 1st June 2016. 

As per the above referenced notification the NCLT shall be initially functioning with eleven Benches – two at New Delhi and one each at Ahmedabad, Allahabad, Bengaluru, Chandigarh, Chennai, Guwahati, Hyderabad, Kolkata and Mumbai. The principal bench of NCLT shall be at New Delhi.

The NCLT is intended to provide a consolidated and single forum to adjudicate upon all corporate matters and disputes. The Company Law Board stands dissolved from the date of the from 1st June 2016, and all matters pending before the CLB shall stand transferred to NCLT.

In fact, subject to further notifications, once the NCLT is fully functional it shall also replace:

  • Board of Industrial and Financial Reconstruction; and
  • Appellate Authority for Industrial and Financial Reconstruction.

Further, the jurisdiction and powers relating to reduction of share capital winding up, restructuring, compromise or arrangement (merger/demerger), and other such provisions, currently vested in the High Courts shall also be conferred in favour of the NCLT. 

At present only certain provisions of the Companies Act, 2013 relating to powers of the NCLT have been notified, which include the power to:

  • entertain any claims of prejudicial or oppressive conduct of an enterprise and pass any order that may deem fit in such cases;
  • investigate into of the ownership of the company and pass any order against a Company incorporated by providing false information by fraud, misrepresentation or suppression of material fact;
  • grant approval for alteration of Articles of a Company (provided that such alteration should change its nature from public to private);
  • provide approval for issuance of redeemable preference shares by a Company;
  • call annual general meeting, meetings of members in specified cases;
  • remove the auditor suo moto or on application made by the Central Government;
  • remove directors in accordance with the provisions contained therein;
  • investigate into of the ownership of the company;
  • freeze the assets or impose restrictions on the securities held by a Company pending an inquiry and/or investigation; and
  • entertain a petition in the event a Company fails to redeem the debentures or pay interest on them.

In addition to the above, shareholders and creditors can now file class action suits against the company for breaching the provisions of the Act. In so far as enforcement is concerned, NCLT also may ask for assistance from the Chief Metropolitan Magistrate to enforce its decree against the company or persons connected with the order. An appeal at the first instance against the order of the NCLT shall lie before the National Company Law Appellate Tribunal, and a second appeal may be filed before the Supreme Court.

The Draft Insolvency and Bankruptcy Code, has also conferred NCLT with wide powers in relation to matters concerning revival and rehabilitation of sick companies, and liquidation process of companies. However, the said statute is yet to be notified and made effective.

The Government is notifying the provisions relating to NCLT in a phased manner. As highlighted earlier, a number of the Companies Act, 2013 provisions related to mergers, amalgamations and restructuring are yet to be notified.  In addition a number of rules and regulations will also need to be notified to make it completely operational.