NCLT and NCLAT Explained (With Sections)

Introduction: NCLT and NCLAT — A Brief Overview

The Companies Act, 1956, couldn’t keep pace with India’s post-liberalization corporate needs. To address this gap, the Companies Act, 2013, introduced NCLT and NCLAT under Sections 408 and 410. These tribunals replaced the outdated Company Law Board (CLB) to handle corporate disputes more efficiently.

• Section 408: Constitution of NCLT.
• Section 410: Constitution of NCLAT.

Both tribunals were established via a notification issued on June 1, 2016, by the Ministry of Corporate Affairs (MCA). They ensure quicker resolution of cases involving corporate governance, insolvency, and related issues.

Constitution and Structure of NCLT and NCLAT

1. Constitution of NCLT [Section 408]

The Central Government constitutes the NCLT with:

• A President.
• Judicial Members and Technical Members as deemed necessary.
  The tribunal exercises powers and functions as prescribed under the Act or any other applicable laws.

2. Constitution of NCLAT [Section 410]

The Central Government constitutes NCLAT as an appellate body with:

• A Chairperson.
• A maximum of 11 Judicial and Technical Members to hear appeals against NCLT orders.

Qualifications of Members

NCLT Members [Section 409]

President:

• Must be or have been a High Court Judge for at least 5 years.

Judicial Members

• High Court Judges.
• District Judges with 5+ years of experience.
• Advocates with 10+ years of experience (including time spent in judicial or tribunal roles).

Technical Members:

15+ years in roles such as:

• Indian Corporate Law Services (at least 3 years as Joint Secretary or above).
• Chartered Accountant, Cost Accountant, or Company Secretary.
• Labour Court or Tribunal presiding officer.

Special expertise in law, finance, accountancy, or corporate management.

NCLAT Members [Section 411]

Chairperson:

• Must be or have been a Supreme Court Judge or Chief Justice of a High Court.

Judicial Members:

• High Court Judges or NCLT Judicial Members with 5+ years of experience.

Technical Members:

• 25+ years of expertise in law, finance, accountancy, corporate management, or related fields.

Selection and Term of Office

Selection Process [Section 412]

Members of NCLT and NCLAT are selected by a five-member committee chaired by the Chief Justice of India (or nominee) and include senior government officials from corporate affairs, law, and finance ministries.

Term of Office [Section 413]

NCLT Members:

• Term: 5 years, eligible for reappointment.

Retirement age:

• President: 67 years.
• Other Members: 65 years.

NCLAT Members:

• Term: 5 years, eligible for reappointment.

Retirement age:

• Chairperson: 70 years.
• Other Members: 67 years.

Jurisdiction and Powers of NCLT

1. Key Functions of NCLT

• Class Action Suits [Section 245]: Safeguards minority shareholder rights by allowing collective lawsuits.
• Oppression and Mismanagement [Sections 241–242]: Prevents prejudicial company affairs and grants remedies like director removal.
• Insolvency Proceedings [IBC, 2016]: Resolves corporate insolvency and liquidation cases.
• Reopening Accounts [Section 130]: Directs revision of financial statements.
• Conversion of Public to Private Company [Section 14]: Approves status alteration.
• Company Investigations [Section 213]: Orders probes into company affairs based on credible evidence.

2. Procedure

The tribunal follows the Code of Civil Procedure, 1908, but can regulate its procedures independently.

Jurisdiction and Powers of NCLAT

1. Appellate Jurisdiction [Section 421]

Hears appeals against NCLT orders and decisions under the Insolvency and Bankruptcy Code (IBC) and the Competition Act, 2002.

2. Timeline for Appeals

Appeals must be filed within 45 days of the NCLT order.

3. Binding Nature of Orders [Section 424]

NCLAT orders are binding on all parties unless challenged before the Supreme Court.

Key Judicial Precedents

1. Union of India v. R. Gandhi (2010)

• Upheld the constitutionality of NCLT and NCLAT.
• Mandated specific qualifications and streamlined selection processes for members.

2. Madras Bar Association v. Union of India (2020)

• Clarified eligibility and appointment criteria for tribunal members.

Challenges and Suggestions

Challenges

1. Backlogs: Increasing case load affects timely resolution.
2. Infrastructure Issues: Lack of adequate facilities and manpower.
3. Awareness: Many stakeholders remain unaware of NCLT and NCLAT’s functions.

Suggestions

1. Increase Benches: Establish more benches across India.
2. Speedy Appointments: Fill vacancies promptly to avoid delays.
3. Awareness Campaigns: Educate businesses and individuals about tribunal powers.