NCLT & NCLAT and Its procedures

Diwakar Prakash Garg, University of Petroleum & Energy Studies, School of Law

Introduction

The National Company Law Tribunal (NCLT) and National Company Law Appellate Tribunal (NCLAT) are two significant institutions under the Insolvency and Bankruptcy Code (IBC) 2016 in India. NCLT was established on June 1, 2016, under the Companies Act, of 2013. Whereas, NCLAT was formed on June 1, 2016, under the Insolvency and Bankruptcy Code, 2016. Both of these institutions have their procedures and workings that are critical for companies undergoing insolvency proceedings. In this article, we will provide an overview of the procedures and working of NCLT and NCLAT and the appropriate provisions[1].

Overview of NCLT

The National Company Law Tribunal (NCLT) is a quasi-judicial body in India. It was established to handle corporate cases related to insolvency and bankruptcy, mergers and acquisitions, and other matters related to the Companies Act, 2013. NCLT is also a successor to the Company Law Board (CLB) and the Board for Industrial and Financial Reconstruction (BIFR). The NCLT has eleven benches located in various cities across India[2].

Procedures and Working of NCLT

The Companies Act of 2013 and the Insolvency and Bankruptcy Code of 2016 define the procedures and workings of NCLT. The following is a brief overview of the procedures and workings of NCLT[3]:

1. Appointment of Resolution Professional: When a company defaults on its payment obligations, a creditor or group of creditors can initiate insolvency proceedings against the company. The NCLT appoints a resolution professional (RP) to manage the affairs of the company during the insolvency proceedings.
2. Admission of Insolvency Application: Once an insolvency application is filed, NCLT reviews the application and decides whether to admit it. The NCLT can also reject the application if it finds that it is incomplete or if there are procedural defects.
3. Moratorium: Once the authorities admit the insolvency application, they impose a moratorium on the company. Hereinafter, no legal proceedings can be initiated against the company during the moratorium period.
4. Committee of Creditors: The NCLT appoints a committee of creditors (CoC) consisting of the financial creditors of the company. The CoC is responsible for taking decisions related to the insolvency proceedings, such as approving a resolution plan.
5. Resolution Plan: The resolution professional prepares a resolution plan for the company, which is presented to the CoC. The CoC votes on the resolution plan and decides whether to approve it or not. Thereafter, If the plan is approved, it is submitted to the NCLT for final approval.
6. Liquidation: If the authorities do not approve a resolution plan, the company goes into liquidation. The assets of the company are sold to repay the creditors.

Overview of NCLAT

The National Company Law Appellate Tribunal (NCLAT) is a quasi-judicial body. It was established to hear appeals against the orders passed by NCLT under the Companies Act, 2013, and the Insolvency and Bankruptcy Code, 2016. NCLAT has its headquarters in New Delhi[4].

Procedures and Working of NCLAT

The Companies Act of 2013 and the Insolvency and Bankruptcy Code of 2016 define the procedures and workings of NCLAT. The following is a brief overview of the procedures and workings of NCLAT[5]:

1. Appeals: Any party aggrieved by the order of NCLT can file an appeal before NCLAT within 45 days of the order.
2. Stay of NCLT Order: NCLAT has the power to stay the operation of the NCLT order during the pendency of the appeal.
3. Appeals Procedure: A bench of two or more members of NCLAT hears the appeal. The parties to the appeal are allowed to present their arguments and evidence before the bench.
4. Finality of NCLAT Order: The order passed by NCLAT is final and binding on the parties to the appeal. However, an aggrieved party can file an appeal before the Supreme Court of India within 60 days of the order.

Appropriate Provisions for NCLT and NCLAT

Various provisions under the Companies Act of 2013 and the Insolvency and Bankruptcy Code of 2016 govern the procedures and workings of NCLT and NCLAT. Some of the appropriate provisions for NCLT and NCLAT are:

1. Section 7 of the Insolvency and Bankruptcy Code, 2016[6]: This section provides for the initiation of the corporate insolvency resolution process by financial creditors.
2. Section 8 of the Insolvency and Bankruptcy Code, 2016[7]: This section provides for the initiation of the corporate insolvency resolution process by operational creditors.
3. Section 9 of the Insolvency and Bankruptcy Code, 2016[8]: This section provides for the initiation of the corporate insolvency resolution process by the corporate debtor itself.
4. Section 10 of the Insolvency and Bankruptcy Code, 2016[9]: This section provides for the filing of an application for voluntary liquidation by the corporate debtor.
5. Section 61 of the Insolvency and Bankruptcy Code, 2016[10]: This section provides for appeals against the orders passed by NCLT.
6. Section 410 of the Companies Act, 2013[11]: This section provides for the establishment of NCLAT.

The NCLT and NCLAT have been the subject of various legal challenges regarding their constitutionality and validity. Some of the notable cases related to the constitutionality of NCLT and NCLAT are:

1. Madras Bar Association v. Union of India[12]: In this case, the Madras Bar Association challenged the constitutionality of various provisions of the Companies Act, 2013, which dealt with the establishment of NCLT and NCLAT. The Madras Bar Association contended that the provisions violated the basic structure of the Constitution. Also that the establishment of NCLT and NCLAT was against the principle of separation of powers. However, the Supreme Court dismissed the petition and upheld the constitutionality of NCLT and NCLAT.[13]
2. Rojer Mathew v. South Indian Bank Ltd[14].: In this case, the Supreme Court held that the procedure followed by NCLT in the appointment of members to the tribunal violated the principle of separation of powers. The court held that the power to appoint members to the tribunal cannot be exercised by the executive branch of the government. Hence, An independent body must make the appointments.
3. Union of India v. R. Gandhi[15]: In this case, the Supreme Court held that the provision of the Companies Act, 2013, which allowed the government to choose the members of NCLT was unconstitutional. The court held that the appointments must be made by an independent body and not by the government.
4. Essar Steel India Ltd. v. Satish Kumar Gupta[16]: In this case, the Supreme Court upheld the constitutionality of the Insolvency and Bankruptcy Code, 2016, which provided for the establishment of NCLT and NCLAT. The court held that the Code was a valid exercise of legislative power and was in line with the constitutional scheme.
5. Innoventive Industries Ltd. v. ICICI Bank[17]: In this case, the Supreme Court upheld the constitutionality of the Insolvency and Bankruptcy Code, 2016, and the establishment of NCLT and NCLAT. The court held that the Code was a comprehensive legislation aimed at resolving insolvency and bankruptcy issues. Also that it was in line with the constitutional scheme.

The Companies Act of 2013 established the NCLT and NCLAT as institutions. The primary objective of NCLT and NCLAT is to provide a forum for the speedy resolution of corporate disputes and insolvency cases. Furthermore, The Companies Act, of 2013, provides for the constitution, powers, and functions of NCLT and NCLAT.

Constitution of NCLT

The Companies Act, of 2013, provides for the constitution of NCLT. The tribunal consists of a President and such number of Judicial and Technical Members as the Central Government may notify. The President of NCLT must be a person who has been a judge of a High Court for at least five years or who has been a member of the Indian Legal Service for at least twenty years.

The Judicial Members of NCLT must be persons who have been a judge of a High Court or have been District Judges for at least ten years. The Technical Members of NCLT must be persons who have been a member of the Indian Corporate Law Service or who have held a post, not below the rank of Registrar or Deputy Registrar of the High Court or Registrar of Companies for at least five years[18].

Powers and Functions of NCLT

The NCLT has the power to hear and dispose of cases related to the Companies Act, 2013, and the Insolvency and Bankruptcy Code, 2016. The tribunal has the jurisdiction to adjudicate on matters related to:

1. Winding up of companies
2. Compromise and arrangements
3. Oppression and Mismanagement
4. Reduction of share capital
5. Rectification of the register of members
6. Refusal to transfer shares
7. Cases related to the Insolvency and Bankruptcy Code, 2016[19]

Furthermore, NCLT can also exercise any other powers conferred on it by the Companies Act, 2013, or any other law.

Constitution of NCLAT

The Companies Act, of 2013, provides for the constitution of NCLAT. The appellate tribunal consists of a Chairperson and such number of Judicial and Technical Members as the Central Government may notify. Moreover, The Chairperson of NCLAT must be a person who has been a judge of the Supreme Court or who has been a Chief Justice of a High Court.[20]

The Judicial Members of NCLAT must be persons who have been a judge of a High Court or have been District Judges for at least ten years. The Technical Members of NCLAT must be persons who have been a member of the Indian Corporate Law Service or who have held a post, not below the rank of Registrar or Deputy Registrar of the High Court or Registrar of Companies for at least five years[21].

Powers and Functions of NCLAT

The NCLAT has the power to hear and dispose of appeals against the orders passed by the NCLT. The appellate tribunal can hear appeals related to:

1. Orders passed by NCLT related to the winding up of companies, compromise and arrangements, oppression and mismanagement, reduction of share capital, the rectification of the register of members, and refusal to transfer shares.
2. Orders passed by the Insolvency and Bankruptcy Board of India, NCLT, or the Resolution Professional related to the Insolvency and Bankruptcy Code, 2016[22].

Additionally, NCLAT can also exercise any other powers conferred on it by the Companies Act, 2013, or any other law.

Conclusion

The National Company Law Tribunal and National Company Law Appellate Tribunal are institutions established under the Companies Act, 2013. The establishment of these forums aimed to provide a speedy resolution of corporate disputes and insolvency cases. The Companies Act of 2013 and the Insolvency and Bankruptcy Code of 2016 define the constitution, powers, and functions of NCLT and NCLAT.

The NCLT has the power to hear and dispose of cases related to the Companies Act, 2013, and the Insolvency and Bankruptcy Code, 2016. Whereas, the NCLAT has the power to hear and dispose of appeals against the orders passed by the NCLT. Furthermore, The NCLT and NCLAT have the jurisdiction to adjudicate on matters related to the winding up of companies, compromise and arrangements, oppression and mismanagement, reduction of share capital, the rectification of the register of members, and refusal to transfer shares, among others.

The functioning of NCLT and NCLAT is critical to maintaining a robust corporate governance system in India. So These institutions play a vital role in ensuring transparency, accountability, and fairness in corporate affairs. Moreover, The timely resolution of disputes and insolvency cases by NCLT and NCLAT helps in maintaining the confidence of investors and stakeholders in the Indian corporate sector.

Overall, NCLT and NCLAT are important institutions that provide a framework for the efficient and effective resolution of corporate disputes and insolvency cases. So their continued functioning is crucial for the growth and development of the Indian economy.

Also Read: Mergers and Acquisitions in Indian Law. Click Here!

[1] Purushottam Grover, National Company Law Tribunal- A single window institution for corporate justice. Available at http://www.icsi.edu/WebModules/Programmes/PCS/7PCS/BG%20PCS-6-Grover.pdf (last seen at 10:00 pm, 24-03-2023)

[2] Ibid.

[3] Ananya Mathew, Powers of NCLT and NCLAT, 3 (5) IJLSI Page 74 – 87 (2021), DOI: https://doij.org/10.10000/IJLSI.111057

[4] Mahajan, Kahnav, Inherent Powers of NCLT/NCLAT vis-à-vis IBC (October 28, 2019). Available at SSRN: https://ssrn.com/abstract=3312306  also at http://dx.doi.org/10.2139/ssrn.3312306

[5] Ibid.

[6] Insolvency and Bankruptcy Code, 2017 §7

[7] Insolvency and Bankruptcy Code, 2017 §8

[8] The Insolvency and Bankruptcy Code, 2017 §9

[9] Insolvency and Bankruptcy Code, 2017 §10

[10] Insolvency and Bankruptcy Code, 2017 §61

[11] The Companies Act, 2013 §410

[12]  Madras Bar Association v. Union of India, (2015) 8 SCC 583

[13] Dr. Mamta Biswal, Company Litigation, and Jurisdictional Issues: An Incessant Challenge in India, 2 SCC J-19, J 20-J 21 (2017).

[14] Rojer Mathew v. South Indian Bank Limited, (2020) 6 Supreme Court Cases 1

[15] [2010] 11 SCC 1

[16]  8 SCC 531

[17] 2017 (11) SCALE 4

[18] S.N. Gupta, National Company Law Tribunal – The Company Court of Tomorrow., www.icsi.edu/docs/…/NATIONALCOMPANYLAWTRIBUNAL-SMGUPTA.doc.

[19] Ibid.

[20] Supra at 18.

[21] Ibid.

[22] Supra at 18.