Business Standard

Making company law tribunal more effective

NCLT president's optimism has to be supported by action on ground

Sayan Ghosal 

The formation of the National Company Law Tribunal (NCLT) on June 1, 2016, marked a decade-long attempt to overhaul company law litigation in India. NCLT President M M Kumar struck an optimistic note while speaking at a recent public function, highlighting the new approach of the tribunal. However, considering the large increase in workload, infrastructure and manpower constraints continue to remain the tribunal's Achilles' heel. Kumar said the crux of the changed approach lay in Section 422 of the Companies Act, 2013, which mandates three months for the completion of proceedings, extendable by 90 days. There was no such guidance for the functioning of the erstwhile Company Law Board (CLB). The CLB had gained notoriety in the past for its laggard approach towards proceedings, leading to long-drawn disputes. Even after constitution of the NCLT, many were sceptical of its eventual efficacy. The lack of underlying rules of procedure led cynics to believe the tribunal was just a change in nomenclature. The National Company Law Tribunal Rules 2016 were eventually framed on July 21, 2016 but many relevant provisions were not notified. Highlighting how the operation of the NCLT differs from the former CLB, Kumar noted that the tribunal imposes heavy costs for adjournments. In his view, these simple measures have already made the tribunal more efficient and lent greater surety to proceedings. The assurance provided by the president could not have come at a better time, with the NCLT now being given the burden of overseeing proceedings under the recently notified Insolvency and Bankruptcy Code 2016, in addition to its enhanced responsibilities under the Companies Act. The new law empowers the tribunal to entertain class action suits.

Upon the relevant notifications being made, the responsibility of supervising compromises. Mergers, amalgamations, winding ups and revival of sick companies, currently being looked after by the high courts and the Board of Industrial and Financial Reconstruction will also fall under the purview of NCLT. Given the gargantuan increase in workload because of the new legislation, the recent change in approach might still be insufficient in clearing up the backlog of pending cases. The issue of appointments still remains unresolved, especially when contrasted with the large increase in matters the tribunal is expected to deal with. The situation is sure to get even more severe as further provisions of the Companies Act are notified in due course. The quality of judicial and technical members is another problem that plagues the NCLT. Company law being a complex subject, requires specialised knowledge and experience, which is hard to find. The dilemma is resulting in the dilution of the grand vision of the tribunal and will require the interplay of multiple government departments to mitigate effectively. Experts have also cited the need for additional benches of NCLT. The tribunal currently has 11 benches in operation, more are required to deal with the mounting load of company litigations. As the tribunal is set to become a one-stop shop for corporate litigation, benches must be constituted at the earliest for smooth functioning of the institution. Although the initial advances in developing the NCLT into a more efficient body are a positive step in the right direction, there is still a lot to be done before the scenario of corporate jurisprudence in the nation sees better days. ADDITIONAL WORKLOAD OF NCLT UNDER THE INSOLVENCY AND BANKRUPTCY CODE, 2016 Hear cases of default by corporate debtors (or personal guarantors) Appoint interim insolvency professional and issue public announcement Declaration of moratorium Confirm or change resolution professionals Approve or reject resolution plan Initiate liquidation process Issue orders directing compliance and cooperation with insolvency professionals Entertain appeals against rejection of claims by liquidator Pass necessary orders in case of preferential transactions Hear creditor grievances and pass orders against undervalued transactions not ordinarily reported by resolution professional/liquidator Pass orders against defrauding creditors or extortionate credit transactions Dissolution of corporate debtor after completion of liquidation process

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First Published: Sun, August 28 2016. 21:34 IST
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