INTRODUCTION
The specialised quasi-judicial body, the National Company Law Tribunal (NCLT), was established under Section 408 of the Companies Law, 2013. The NCLT came into existence in 2016 on the recommendations of the V. Balakrishna Eradi Committee for addressing disputes concerning corporate laws and insolvency issues. The Ministry of Corporate Affairs is responsible for NCLT. It has jurisdiction concerning companies, limited liability partnerships, and other similar legal and commercial associations prescribed by the Companies Act. It deals with issues such as mergers and amalgamations, company closure, liquidation of a company, or winding up of a company under the Insolvency and Bankruptcy Code (IBC), 2016. In the first stage, the Ministry of Corporate Affairs has established eleven Benches, one Principal Bench in New Delhi and the other ten Benches in different cities of the country. Currently, there are 15 benches of the National Company Law Tribunal (NCLT) located in different parts of the country. With multiple benches across India, addresses the issue of resolving corporate conflicts easily and effectively.
The core building blocks of the National Company Law Tribunal (‘NCLT’) include the Companies Act, 2013 and the Insolvency and Bankruptcy Code, 2016. The NCLT is a corporate tribunal that was instituted in the ambit of the Companies Act of 2013, which also dissolved the Company Law board and absorbed some of the powers of the High Court and other authorities. It is mentioned within the IBC that the primary entity worth an appointment would be the NCLT for all corporate insolvency cases. It manages the processes intended to try to revive the distressed companies and also to liquidate them to pay off the creditors.
We will examine the interplay of these two major legislative tools and also understand how these two laws allow the NCLT to resolve corporate disputes and also enable the fast-paced resolution of insolvency and aid in the further improvement of corporate governance in India.
Historical Background and Evolution of the NCLT
In the past, before the establishment of the NCLT, a company’s disputes would be settled by a combination of: the Board for Industrial and Financial Reconstruction (BIFR) for sick companies, Company Law Board (CLB) for business disputes and High Courts for matters like winding up and amalgamations. The outcome of such an overlapping system was seen in the form of greater delays, inefficiencies and a lack of decision uniformity. Subsequently, the possibility of introducing a specialised tribunal in which all types of disputes could be resolved much quicker and more efficiently was envisioned.
Among other reform suggestions, the Justice Eradi Committee, created by the Government of India, was tasked with assessing the current state of dispute resolution mechanisms for corporate disputes. They recommended merging the functions of the CLB, BIFR, and the High Courts (for company-related matters) into a single tribunal.
The Companies (Second Amendment) Act, of 2002 introduced provisions for establishing the NCLT and its appellate body, the National Company Law Appellate Tribunal (NCLAT). However, NCLT’s development was postponed on account of a legal proceeding based on a challenge to the constitutionality of NCLT.
The constitutionality of NCLT was challenged in Union of India v. R. Gandhi (2010) based on the argument that it was usurping the court’s sphere of influence. Yet, the Supreme Court of India, in their ruling, restored the power of the NCLT with certain amendments to preserve the judicial independence and the status of the tribunal’s integrity. Upon this decision, steps were taken to establish the tribunal.
The Companies Act of 2013 replaced the earlier Companies Act of 1956 and included detailed provisions (Sections 408–434) for the creation of the NCLT and NCLAT. On June 1, 2016, the NCLT and NCLAT were formally established by the Ministry of Corporate Affairs.
The Companies Act, 2013
Sections 408 to 434 of the Companies Act, 2013 define NCLT’s constitution, Procedure before Tribunal and Appellate Tribunal, Power to punish for contempt and other powers.
Any member of the company is allowed to complain with the NCLT under section 241 if such member thinks that the business of the company is being carried out in a manner that is prejudicial to the member or oppressive to any member. This also includes circumstances where the management’s actions significantly alter control or governance structures.
Once the NCLT has received a complaint, it investigates the allegations and offers appropriate solutions, including the ability to prevent the company from going beyond what is allowed in its Memorandum and Articles of Association or perhaps even nullifying certain resolutions. The tribunal must ensure minority shareholders are protected and good corporate governance practice is maintained.
Further sections 230 to 234 of Company law empower NCLT to sanction mergers, demergers and amalgamation. Companies simply have to file their intentions accompanied by proposals to the tribunal for examination so that legal compliance and fair dealings with all concerned are ensured. The NCLT assesses if these proposals would better serve the interests of shareholders, creditors and other relevant parties. It conducts hearings at which interested parties can speak, therefore it guarantees that the decision-making process is open and fair.
The Companies Act 2013 acts as a standard on the best practices for corporate governance. It lays down an elaborate framework for enhancing the corporation’s modification using a Reporting architecture, Disclosure requirements, Auditors, and other necessary stakeholder protection. All these provisions cumulatively enhance the credibility and the openness of the business environment.
Insolvency and Bankruptcy Code, 2016
The problem of Non-Performing Assets was one of the most important issues that required the management’s attention, and mechanisms to resolve the insolvency were lacking. Insolvency and Bankruptcy Code (IBC), 2016 was enacted to find ways out of the particularly difficult situations in the financial and legal systems of India.
NCLT has been given the duty to admit applications for the restructuring of corporate managers through their Corporate Insolvency Resolution Process (CIRP). According to section 7 of the IBC, the NCLT can be approached by a financial creditor in case such a creditor wants to file an application for default repayment. On receipt of an application, NCLT has the responsibility to verify the existence of a default within 14 days of submission and then has the option of either admitting or rejecting the application after notice is served to the applicant.
Following the admission of an application as a corporate debtor, The NCLT attaches a moratorium as defined in Section 14 between which the corporate debtor is given protection, i.e., the corporate debtor can take actions to institute a civil suit or exercise security interest (s) rights against the corporate body, both of which extend the time within which the corporate body can prepare to execute its plan for dealing with liabilities. But if the resolution plan is not sanctioned within the stipulated timelines or if it does not adhere to the specified standards, then, as per section 33 of the IBC, the NCLT is empowered to take liquidation proceedings. It is mandatory, for each specific case, within 21 days from the date of submission of the application, for the Resolution Plan to be confirmed by a duly qualified body (i.e., not less than 75% of the credit committee of the Company) as per Section 31 of the IBCs. However, this plan ultimately needs to be approved by the NCLT. The NCLT reviews the plan to ensure it complies with all legal requirements and adequately addresses stakeholder interests.
Conclusion
The Companies Act, 2013 and the Insolvency and Bankruptcy Code (IBC), 2016 work together within the jurisdiction of the National Company Law Tribunal (NCLT) to provide a framework for the governance of the Corporates, insolvency and mergers and acquisitions (M&A) in India.
The National Company Law Tribunal (NCLT) plays a critical role in strengthening India’s corporate governance and insolvency frameworks through its adjudicatory functions and regulatory oversight.
Author(s) Name: Dipendra Pandey (SVKM’s Pravin Gandhi College of Law, Mumbai University, Mumbai)
