The National Company Law Tribunal – NCLT: Basic Information Regarding NCLT

Narendra Kumar

15 Apr, 2021

In order to resolve and decide upon all the matters related to the Company law in India, the Government of India came up with a quasi-judicial adjudicating authority. The authority is called as The National Company Law Tribunal (NCLT), which was constituted on June 1^st, 2016 based on the recommendation of the Justice Eradi committee.

In this blog, we would be discussing NCLT and how it functions.

Why NCLT was Constituted?

NCLT was constituted by Central government under Section 408 of the Indian Companies Act, 2013 to act as a governing body with the main purpose of

• Disposing proceedings pending before the Company Law Board (“CLB”), (the former adjudication authority to settle matters related to Company laws)
• To supervise matters pertaining to winding up, restructuring, arbitration and compromise, and other powers which were in past vested with Hon’ble High Court.

The formation of NCLT dispensed with the issues related to the corporate sector. Further, it also helped to promote the interests of Banks, the financial sector institutions and stakeholders. As a result, thereby dealing with the crisis related to the Non-performing asset.

Why NCLT is Considered as Superior Adjudicating Authority?

NCLT was commissioned as a highly equipped governing body to not only to adjudicate diverse corporate matters but it has also been empowered with wider powers as no civil court has jurisdiction^[1] to entertain any proceeding which tribunal is empowered to determine or which is pending before tribunal and no injunction can be granted by any court or judicial authority in respect of which any action has been taken by tribunal or decision has been made.

Background of NCLT

Although the tribunal was originated on basis of the recommendation of Justice Eradi Committee the foundation was laid by Hon’ble Supreme Court of India vide its judgment namely ‘S.P. Sampath Kumar v. Union of India’ where Hon’ble court expressed its opinion about the need for specialized adjudicating authority and recommended to adopt alternative institutional mechanism theory to settle disputes related to company matters. Further, the Shah Committee reported that there is an urgent requirement to set up independent redressal tribunal to reform laws in India and to deal with corporate disputes of civil nature arising under the Companies Act. Finally, after all these major footsteps, NCLT was constituted by the Central Government.

What Special Powers were given to NCLT when its Foundation was laid?

The government of India vides its notification dated June 1^st, 2016 transferred all the powers formerly assigned with Company Law Board (CLB) to NCLT. Besides, discretionary powers were allocated to NCLT to take up all the proceedings which were pending before CLB from any stage they want to. Even after the inception of NCLT, we witnessed the change in method and procedure of adjudication of matters unsettled u/s 434 of the Companies Act before various forums nationwide.

What are Various Powers that are Currently vested with NCLT?

1. Registration of Companies: NCLT is delegated with the power to take a decision about the legitimacy of any company in case of any procedural error at the time of incorporation and registration of the company. It is also authorized to make decisions with respect to any issue from canceling the registration of the company until the dissolution of the same if registration certificate of the company is obtained by wrongful or illegal manner.
2. Issue related to transfer of shares: Any issue related from transfer shares and securities till adaptation of register of members of companies which were erstwhile assigned with CLB has now been assigned to NCLT under Section 58 and 59 of the Companies Act, 2013. Earlier under Companies Act, 1956 only limited solutions were available for rejection of transfer of shares and debentures but now Companies Act, 2013 covers all the securities issued by companies.
3. Power to investigate: Chapter XIV of the Companies Act, 2013 has empowered NCLT to order an investigation, within or outside India, about the affairs of the company if the application is made by 100 members of the company in contrast to 200 members before. Even NCLT can order an investigation even if a person, who is not directly or indirectly related or deals with the affairs of the company, is able to convince tribunal about the need for an investigation.
4. Power to freeze assets of the company : Companies Act, 2013 has empowered  NCLT not only with the power to freeze company assets to use them on later stage but also when NCLT has ordered an investigation of assets of the company on request of company members or any individual.
5. Conversion of Public Limited Company to Private Limited Company: Any conversion of the public to private limited company needs prior approval of tribunal under Sections 13 to Section 18 r/w rules of the Companies Act. Even NCLT can impose certain restrictions or can specify certain conditions to grant such approval under Section 459 of the Act.
6. Corporate Debt Restructuring (CDR): As per the provisions of Companies Act, 2013, if more than seventy- five percent of the secured creditors approve the approve need of Corporate debt restructuring, they can move to NCLT. The company needs to submit Auditor’s report under Affidavit or such other documents as required by the tribunal.
7. Deposits: Any issues related to deposits which impact rights depositors are dealt with by NCLT under chapter 5 of companies Act, 2013 which were regulated by CLB erstwhile.
8. Safeguarding interests of Shareholders: to resolve the issues related to shareholders particularly non-promoter shareholders are regulated by NCLT now. Any promoter whose rights have been hampered and cheating has been done, he can move to NCLT for safeguarding his interest as per the provisions of Companies Act, 2013. Section 245 of the Companies Act, 2013 safeguard investors from wrongful actions of the company management or any other association linked with it.
9. Compounding of Offence: powers related to the compounding of an offense is governed by NCLT which were assigned with CLB before so all compounding matters will be approved by NCLT which are above the prescribed monetary limit.

Conclusion:

It has been noticed that the constitution of National Companies Law Tribunal was much anticipated and was welcomed by everyone as the tribunal is assigned with powers to make its own procedure which not only helped to expedite trial for speedy disposal of the matter but also helped to resolve matters related to corporate field more efficiently. As judges are designated in these courts that are expert in this field and have vast experience which helps to form world-class redressal tribunal to help companies to implement healthier corporate governance practices

Read our article:Appeal on National Company Law Tribunal Process & Requirement