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A new phase of Corporate Litigation in India: NCLT replaces CLB

By: Mansi Singh

Close  on the heels of The Insolvency and Bankruptcy Code (Insolvency Code) enacted  in May 2016, the Ministry of Corporate Affairs (MCA) notified[1] the setting up of the National Company Law Tribunal (NCLT) with effect from June 1, 2016 and dissolution of  the Company Law Board (CLB).

The idea of setting up NCLT was proposed for the first time in 2000 by the Justice Eradi Committee formed to examine the laws relating to insolvency and winding up of companies. The Committee proposed the setting up of NCLT to reform the insolvency/dissolution process that involved multiple agencies and court proceedings leading to inordinate delays. The government amended the Companies Act, 1956 (1956 Act) in 2002 to establish the NCLT and the National Company Law Appellate Tribunal (NCLAT) to take over the functions that were being performed by CLB. As the constitutional validity of NCLT was challenged and finally upheld by the Supreme Court of India, the setting up process was delayed.

Significance of NCLT

Prior to the constitution of NCLT, multiple forums dealt with company matters in the following manner:ForumPowersHigh CourtsOrder winding up of companiesCLBHandle matters on oppression and mismanagement in companiesBoard for Industrial and Financial Reconstruction (BIFR)Deal with rehabilitation and revival of companiesAppellate Authority for Industrial and Financial Reconstruction (AAIFR)Hear appeals from the decisions of BIFR

With the constitution of the NCLT, the CLB constituted under the 1956 Act has been dissolved and all existing matters before the CLB have been transferred to the NCLT with effect from its notification date, i.e. June 1, 2016. NCLT will now act as a single forum dealing with settlement of all corporate disputes and related matters, reducing delays and eliminating any scope for overlapping forums or conflicting judgements.

Powers of Adjudication

The NCLT is presently handling the matters that were under the jurisdiction of the erstwhile CLB. A host of other adjudicating powers of the NCLT are expected to be notified in a gradual manner to ensure a smooth transition of matters across fora.

NCLT’s powers of adjudication can be classified broadly on the following basis:

  1. Adjudicating disputes relating to oppression and mismanagement in a company.

  2. Class action suits by members and depositors of a company.

  3. Matters relating to mergers, amalgamations, reduction of share capital, demergers as well as winding up of companies. NCLT will be completely subsuming the company jurisdiction of the High Courts over a period of time.

  4. Adjudicating on the insolvency resolution process and liquidation of companies and limited liability partnerships under the recently enacted Insolvency Code.

An appeal from an order of the NCLT will lie before the NCLAT that has also been set up from June 2016.  Appeals from the orders of NCLAT will lie before the Supreme Court.

Conclusion

The present Government has been proactive in bring about structural changes to enhance the ease of doing business in India as well as simplify the dispute resolution process for businesses. The Arbitration and Conciliation Act,  1996 was amended in October 2015 to make arbitration a preferred mode of settlement of commercial disputes and make India a hub for international commercial arbitrations. A new law was notified on January 1, 2016 to set up commercial divisions and commercial appellate divisions in high courts, and commercial courts at the district level, for speedy disposal of commercial disputes. This was followed by the enactment of the Insolvency Code and the establishment of NCLT, which has completely revamped the manner of redressal of company law related grievances.

The establishment of NCLT as a single forum is a key milestone in the journey towards institutional reforms for quicker resolution of company law matters. While capacity and infrastructure building in the NCLT will evolve over a period of time, the new structure should facilitate a faster and simpler dispute resolution mechanism for corporate disputes.

[1]http://www.mca.gov.in/Ministry/pdf/Notification_02062016_II.pdf?utm

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