The function of the Company Law Board and NCLT

The article throws light on the powers of National Company Law Tribunal along with advantages that flow from the formation of the tribunal. It also discusses the objective behind the formation of National Company Law Tribunal. The article also points out the reasons for the establishment of National Company Law Tribunal that replaced the Company Law Board.
Estimated Reading Time: 9 minutes

Introduction

The National Company Law Tribunal is a quasi-judicial body that resolves disputes that arise in the companies. The disputes are resolved according to the provisions of Company Law. The article discusses in detail the provisions related to National Company Law Tribunal and the constitution of the tribunal. This article throws light on the powers of National Company Law Tribunal along with advantages that flow from the formation of the tribunal. It also discusses the objective behind the formation of National Company Law Tribunal. The article also points out the reasons for the establishment of National Company Law Tribunal that replaced the Company Law Board.

Company Law Board

The objective behind formation of Company Law Board was to ensure that the day to day administration of the Companies Act takes place in an efficient manner and there is cohesion in the performance of functions in Companies. It is an administrative body also called the Board of Company Law administration. The concerned body discharged the functions of Companies. It was set up in February, 1964 in furtherance of section 10F of Companies Act, 1956 by the Central Government. The nature of Company Law board was also a quasi-judicial body. The Company Law board consisted of a number of members as prescribed by the Central Government, the maximum number can be nine and amongst the members will be appointed as the chairman.

As per Section 10F if any party is aggrieved by the decision of the Company Law board, then he can file an appeal against the decision of the Company Law Board before the High Court and the limitation period for filing the same is 60 days from the date of decision. The appeal can be made against the decision in respect of any question of law.[1]

National Company Law Tribunal

The tribunal has been constituted under Section 408 of Companies Act, 2013 by the Central Government. The operation of the tribunal began from 1 June 2016 on the recommendations being made by Justice Eradi Committee. The National Company Law Tribunal, has the objective of resolving disputes that tend to arise between the companies and is a quasi-judicial body. It had the jurisdiction to resolve only the matters pertaining to company law. The rules framed by Central Government govern the tribunals. [2]

The National Company Law Tribunal has replaced the Company Law Tribunal. It has a principal bench in Delhi and 10 other benches in Ahmedabad, Bengaluru, Chandigarh, Chennai, Guwahati, Hyderabad, Allahabad, Jaipur, Kochi, Mumbai and Kolkata. The benches are presided over by the President and 16 Judicial along with 9 technical members. If any party is not satisfied with the decision made by National Company Law Tribunal, then the party can file an appeal before National Company Law Appellate Tribunal and then further appeal can be made to the Supreme Court of India. The appeal made to the National Company Law Appellate Tribunal has to be disposed off within a period of 6 months from the date when the appeal is filed. The Civil courts do not have the jurisdiction to take up any matter that is within the jurisdiction of National Company Law Tribunal. The limitation period for filing an appeal against the decision of National Company Law Tribunal is 45 days from the day when the tribunal delivers its decision. [3]

Constitution of National Company Law Tribunal

The National Company Law Tribunal consists of a President. The person can be appointed as a president if that person has been a judge of High Court for a period of five years or more. The age of president has to range between 50 years to 67 years of age. The National Company Law Tribunal also consists of Judicial members. To be eligible for becoming a Judicial member a person should have been a judge of a High Court or District Court for a period of 5 years or more or should have practiced as an advocate for a period of 10 years or more. The age of a judicial member should be ranging between 50 years to 65 years. The tribunal at last, also consists of Technical members as well. A person can be eligible for being a technical member if either he is a member of Indian Corporate Law Services for a period of 15 years or more or should have practiced as a Chartered Accountant for more than 15 years, or should have an experience of being a Company Secretary for 15 years or more, or should possess the integrity and ability along with special knowledge in the specific field of knowledge for a period of 15 years or more, or he should have been a presiding officer of labour court for 5 years or more to be eligible for becoming the technical member. Another condition is placed in respect of age i.e. 50 years to 65 years. A person needs to age between this range to be eligible as a technical member. The President, Technical and Judicial member are appointed for 5 years from the date of appointment and they can also be re-appointed for one more term i.e. 5 years. [4]

Advantages

The National Company Law Tribunal is a court specially governing the matters that are concerned with the companies registered in India. Since it has technical members as well who take part in decision making, thus the ones who know details about ground level functioning of companies will able to take decision and resolve disputes between companies in a better and more efficient manner. There is already a huge burden of cases on the courts, thus, tribunal which resolves cases related to company law only, ensure that the burden of courts is reduced at the same time there is speedy disposal of cases. [5]

Powers of National Company Law Tribunal

The National Company Law Tribunal can take an action against the companies, which are registered under the companies act, 2013 and have committed fraud of any kind with the investors or cheated them. In this case National Company Law Tribunal has the power to impose fine and a penalty over the companies which are found to be guilty of offence. They can be directed by the tribunal to give compensation to such victims of fraud by the companies. These are called the class action suits which cover within its ambit both, private as well as public companies.

As per section 58 and 59 of the Companies Act, 2013 the National Company Law Tribunal can take an action against the companies which cause losses to the investors by refusing to transfer shares and mishandling the transfer registration. They have the power of curbing this malpractice. The National Company Law Tribunal hears the matter and then may decide to order the company to make a transfer of the hares within a period of 10 days from the date of tribunal’s order or order the company to pay damages to investors to have suffered losses as a result of non-transfer. If such order made by tribunal is not complied with, then the tribunal has the power to impose punishment on such person. Such punishment mat include imprisonment ranging between 1 year to a maximum period of 3 years and with a fine which cannot be less than Rs. 1,00,000 and extending to a maximum amount of Rs. 5,00,000.  [6]

If any stakeholder in a company feels that the interests of a certain section of shareholders are being oppressed as well as the interest of the company at large are being sacrificed to satisfy the interests of a particular section of persons and for personally benefitting them by oppressing the others, then the ones who are being oppressed can approach the tribunal to seek justice and the tribunal is empowered to take any action against such oppression. [7]

Section 447 and 448 address another problem that is faced by the investors. There were many instances of injustice being caused by companies in the form of creating false and manipulative books of accounts. These instances can be controlled by the National Company Law Tribunal by exercising their powers. The companies are not allowed to reopen their accounts; however, they can review the same. As per section 130 of Companies Act, 2013, the National Company Law Tribunal has the power to command companies to reopen their accounts in certain circumstances. But the companies do not have the power to reopen their books of accounts. The reopening of accounts will be permitted when accounts that were prepared before were prepared in a fraudulent manner or when the accounts prepared earlier cannot be relied upon because the affairs of the company were not properly and efficiently managed. The tribunal has the power to allow such reopening of accounts. [8]

If a company has been formed through means that are fraudulent and illegal, then the National Company Law Tribunal has the power to deregister of dissolve such company. It may also direct the liability of the members to be unlimited, and this is also within the powers of the tribunal.

The tribunal also has the powers of investigating into the working affairs of a company. Such an investigation can be ordered if a complaint is made against a company by at least 100 members of the company. The investigation may be initiated, and at the same time, the National Company Law Tribunal also had the power to freeze the company’s assets and place other forms of restrictions. This power is flowing through section 221 of Companies Act, 2013. The application made by the members to the tribunal should disclose, that the affairs of the company have been carried out merely with the intention of committing fraud to the investors or other members or that the purpose for which business is being conducted is fraudulent and unlawful or it should reveal that a company’s conduct of business is oppressive to a certain section of members while giving personal benefit to others or it should reveal that the persons who are responsible for conducting business activities in the companies are guilty of committing fraud or some kind of misconduct with other members who have also invested in the company or it shows that the concerned members of the company have not disclosed all the information that is vital to the business to other stakeholders of the company. In case if the tribunal finds any of the above cases being proved, then it can initiate an investigation to which the Central Government appoints an investigator or inspector. After the completion of the investigation if any person is found guilty, then such a person can be punished or penalised by the tribunal. [9]

As per section 13 to 18 of the Companies Act, 2013 read with Rule 41 of Company Incorporation Rules 2014, the approval of National Company Law Tribunal is required to be obtained by the companies who wish to convert themselves into a private company from a public company and even after giving approval of such conversion National Company Law Tribunal also has the power to place further restrictions on the same. [10]

Conclusion

The formation of National Company Law Tribunal and National Company Law Appellate Tribunal has been appreciated as the formation of these bodies has reduced the burden placed on courts and ensured speedy disposal of matters related to disputes in companies. Another reason for the appreciation of tribunals is that it takes into consideration the interests of stakeholders and also protects them from any kind of exploitation by the ones who hold power in the company. These tribunals keep a strict check on the companies to ensure that the companies do not commit any kind of fraud or engage in any illegal activities. The tribunals have been entrusted with many powers in order to ensure that there is no fraud being committed by companies while carrying out business activities.

Bibliography


[1] Avtar Singh, Company Law (17th ed. Eastern Book Company, 2018).

[2] Dr. G.K. Kapoor; Dr. Sanjay Dhamija, Company Law-A Comprehensive Text Book on Companies Act 2013 178 (22nd ed. Taxmann, 2019).

[3] B.K. Goyal, Company Law 107 (13th ed. Singhal Law Publications, 2018).

[4] Avtar Singh, supra, 275.

[5] Avtar Singh, Supra, 276.

[6] Kumar Deep, India: Constitution of National Company Law Tribunal (NCLT) And National Company Law Appellate Tribunal (NCLAT): Comprehensive Analysis, Mondaq connecting knowledge and people (15 August 2016), https://www.mondaq.com/india/corporate-and-company-law/518892/constitution-of-national-company-law-tribunal-nclt-and-national-company-law-appellate-tribunal-nclat-comprehensive-analysis.

[7] Diva Rai, Powers and Function of National Company Law Tribunal under Companies Act, IPleaders (11 June 2020), https://blog.ipleaders.in/powers-and-function-of-national-company-law-tribunal-under-companies-act/.

[8] Sonal Nagpal, Overview of Companies Act, 1956 & Company Law Board (CLB),Taxguru Complete tax solutions (1 July 2013), https://taxguru.in/company-law/overview-companies-act-1956-company-law-board-clb.html.

[9]Sonal Nagpal, Overview of Companies Act, 1956 & Company Law Board (CLB),Taxguru Complete tax solutions (1 July 2013), https://taxguru.in/company-law/overview-companies-act-1956-company-law-board-clb.html.

[10] Diva Rai, Powers and Function of National Company Law Tribunal under Companies Act, IPleaders (11 June 2020), https://blog.ipleaders.in/powers-and-function-of-national-company-law-tribunal-under-companies-act/.

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