The National Company Law Tribunal (NCLT) was constituted by the Central
Government by exercising the powers conferred upon it by section 408 of the
Companies Act, 2013 (18 of 2013) on 1st June, 2016 vide an Official Notification
released by the Ministry of Corporate Affairs and all the matters pending before
the Company Law Board (CLB) were transferred to the NCLT.
The setting up of the NCLT as a specialized institution for corporate justice is
based on the recommendations of the Justice Eradi Committee, a committee set
up by the Central Government in 1999 to examine the laws relating to Insolvency
and Winding up of Companies, with the motive of re-modelling it in line with the
latest developments and innovations in the corporate law and governance, as well
as to suggest reforms in the procedure that is followed at various stages in the
insolvency proceedings of companies to avoid unnecessary delays.
The CLB under the Companies Act, 1956 stood dissolved with the establishment of
the NCLT and NCLAT, which also consolidated the corporate jurisdiction of
authorities such as the Company Law Board, BIFR (Board for Industrial and
Financial Reconstruction), the Appellate Authority for Industrial and Financial
Reconstruction (AAIFR), Official Liquidator (OL) and jurisdiction and powers
relating to winding up restructuring and other such provisions, vested in the
High Courts �� all of which are to be subsumed by the NCLT.
Further post establishment of NCLT and NCLAT, no civil court has jurisdiction to
entertain any suit or proceeding in respect of any matter which the Tribunal or
the Appellate Tribunal is empowered to determine by or under this Act or any
other law for the time being in force. Further no injunction can be granted by
any court or any other authority in respect of any action taken or to be taken
in pursuance of any power conferred by or under this Act or any other law for
the time being in force, by the Tribunal or the Appellate Tribunal.
Presently the NCLT has thirteen benches, two at New Delhi (one being the
principal bench) and one each at Ahmedabad, Allahabad, Bengaluru, Chandigarh,
Chennai, Guwahati, Hyderabad, Jaipur, Kochi, Kolkata and Mumbai.
Judicial History: Challenges to the constitutional validity of NCLT
The Constitutional validity of NCLT has been challenged number of times in the
The author has tried to summarise the judicial history below:
Before High Court:
Madras Bar Council, in 2004 filed a writ petition in Madras
High Court challenging constitutional validity of creation of National Company
Law Tribunal ('NCLT') and National Company Law Appellate Tribunal ('NCLAT')
which were incorporated by the Legislature in Parts 1B and 1C of the Companies
Act, 1956 that culminated into Order dated 30 March 2004 of the Madras High
Court. The High Court held that creation of NCLT and vesting the powers
hitherto exercised by the High Court and the CLB in the said Tribunal was not
However, at the same time, the High Court pointed out certain defects in various
provisions of Part 1B and Part 1C of the Act, 1956 and, in particular, in
Sections 10FD(3)(f)(g)(h), 10FE, 10FF, 10FL(2), 10FR(3), 10FT. Declaring that
those provisions, as existed, offended the basic Constitutional scheme of
separation of powers, it was held that unless these provisions are appropriately
amended by removing the defects which were also specifically spelled out, it
would be unconstitutional to constitute NCLT and NCLAT to exercise the
jurisdiction which is being exercised by the High Court or the CLB.
The petitioner felt aggrieved by the High Court judgment vide which
establishments of NCLT and NCLAT was held to be constitutional. On the other
hand, Union of India felt dissatisfied with the other part of the judgment
whereby aforesaid provisions contained in Parts 1B and 1C of the Act, 1956 were
perceived as suffering from various legal and Constitutional infirmities. Thus,
both Union of India as well as the petitioner filed appeals before apex court
against that judgment of the Madras High Court.
The appeals were decided by the Constitution Bench of the apex
court on 11th May 2010 in Union of India v. R. Gandhi, President, Madras Bar
( '2010 judgment'). The Constitution Bench vide this judgment put
its stamp of approval insofar as Constitutional validity of NCLT and NCLAT is
concerned. It also undertook the exercise of going through the aforesaid
provisions contained in Parts 1B and 1C of the Act, 1956 and in substantial
measure agreed with the Madras High Court finding various defects in these
The cause for filing the petition before the Supreme Court was
the allegation of the petitioner that notwithstanding various directions given
in 2010 judgment, the new provisions in the Companies Act, 2013 (the Act,
2013) were almost on the same lines as were incorporated in the Act, 1956 and,
therefore, these provisions suffer from the vice of unconstitutionality as well
on the application of the ratio in 2010 judgment.
It was, thus, emphasized by the petitioner that the provisions which are
contained in Sections like 408, 409, 411(3), 412, 413, 415, 418 etc. of the Act,
2013 are ultra vires the provisions of Article 14 of the Constitution and,
therefore, warrant to be struck down as unconstitutional. But the Court in
the Madras Bas Association v. Union of Indi
a case, upheld the constitutional
validity of NCLT though held the provisions regarding the constitution of NCLT
to be invalid for not adhering to the previous judgement.
The two most important decisions given by the Constitution Benches of the
Supreme Court of India was in 2015 Madras Bar Assn case - observing the
constitutional validity of the NCLTs and resolving every possible ground that
one can raise against it. The Court upheld the reasoning that Constitution Bench
gave in 2010 judgement but did not mention in detail what was the reasoning and
therefore the author has tried to summarise both the cases for clarity of the
Union of India v. R. Gandhi, President, Madras Bar Association
Contentions: The petitioner challenged the establishments of NCLT as well as
NCLAT on the common grounds that the Parliament had resorted to tribunalisation
by taking away the powers from the normal courts which was essentially a
judicial function and this move of the Legislature impinged upon the
impartiality, fairness and reasonableness of the decision making which was the
hallmark of judiciary and essentially a judicial function.
The Court rejected the argument of unconstitutionality of NCLT and NCLAT on two
- The argument that the constitution of a tribunal was violative of the
doctrine of separation of powers and independence of the judiciary, which
are parts of the basic structure of the Constitution, was invalid because it
is well settled that only constitutional amendments can be subjected to the
test of the basic features doctrine. Legislative measures are not subjected
to basic features or basic structure or basic framework. Legislation can be
declared unconstitutional or invalid only on two grounds, namely, (i) lack
of legislative competence, and (ii) violation of any fundamental rights or
any provision of the Constitution.
The Court relied on several cases like Kuldip Nayar v. Union of
India and State of A.P. v. McDowell & Co. opinion of Chandrachud J.
in Indira Nehru Gandhi v. Raj Narain and Beg, C.J. in his leading judgment of
a seven-Judge Bench in State of Karnataka v. Union of India that said:
No doubt, as a set of inferences from a document (i.e. the Constitution),
the doctrine of 'the basic structure' arose out of and relates to the
Constitution only and does not, in that sense, appertain to the sphere of
ordinary statutes or arise for application to them in the same way.
- The argument that the constitution of a tribunals under Parts 1B and 1C
of Companies Act 1956 was held invalid.
The Court observed that the issue was not whether judicial functions can be
transferred from courts to tribunals. The issue was whether judicial functions
can be transferred to tribunals manned by persons who are not suitable or
qualified or competent to discharge such judicial powers or whose independence
The Court observed that the reason given by the Eradi Committee for suggesting
transfer of the company law jurisdiction from the High Courts to tribunals
was delay and the report said- Long-drawn court proceedings
of court proceedings is the main reason for abnormal delay in dissolution of
companies��. Normally, there is a Company Court with one Company Judge in each
High Court and it is not possible for the court to cope with the work relating
to companies under liquidation. Apart from company matters, the court also
attends to other cases in the High Court. The orders passed by Company Judge are
appealable under Section 483. Normal delays and adjournments sought in court
proceedings further aggravate the problem and unless all the pending cases are
not finally disposed of.
Thus, the tribunals with only judicial members would have served the purpose and
the report did not suggest to include technical members or officers of civil
Parts IC and IB of the Companies Act proposed that 'Judicial Member' and a
`Technical Member', selected under section 10FD, will decide the disputes.
The Court observed that as NCLT takes over the functions of the High Court, the
members should as nearly as possible have the same position and status as High
Court Judges. This can be achieved, not by giving the salary and perks of a High
Court Judge to the members, but by ensuring that persons who are as nearly equal
in rank, experience or competence to High Court Judges are appointed as
members. If there should be technical members, they should be persons with
expertise in company law or allied subjects and mere experience in civil service
cannot be treated as Technical Expertise in company law. The candidates falling
under section 10FD have no experience or expertise in deciding company matters.
The Court upheld the decision of the High Court that the
creation of the National Company Law Tribunal and the National Company Law
Appellate Tribunal and vesting in them, the powers and jurisdiction exercised by
the High Court in regard to company law matters, are not unconstitutional. The
Parts I-B and I-C of the Act as structured back then were held to be
unconstitutional they may be made operational by making suitable amendments as
suggested in the judgement.
Madras Bar Association v. Union of India
Before proceeding to the contentions of the petitioner, it becomes necessary to
highlight what the Supreme Court said about its previous 2010 judgement.
The Court summarised the position taken in 2010 judgement as follows:
- A legislature can enact a law transferring the jurisdiction exercised by
courts in regard to any specified subject to any tribunal.
- All courts are tribunals and any tribunal to which any existing
jurisdiction of courts is transferred should also be a Judicial Tribunal.
Such Tribunals will have as members, persons of a rank, capacity and status
as nearly as possible equal to the rank, status and capacity of the court
which was till then dealing with such matters.
- In context of securing the independence of judiciary, the Court observed
that the Tribunals should normally have only judicial members as
indiscriminate appointment of technical members in all Tribunals will dilute
and adversely affect the independence of the Judiciary and lastly,
- The Legislature can re-organize the jurisdictions of Judicial Tribunals
and while constituting Tribunals, the it can prescribe the qualifications/
eligibility criteria but that would be subject to Judicial Review. The court
may interfere to preserve the independence and standards of judiciary. Such
an exercise will be part of the checks and balances measures to maintain the
separation of powers and to prevent any encroachment, intentional or
unintentional, by either the legislature or by the executive.
Contentions and Court's reasoning:
- The petitioner primarily challenged the Constitutional validity of NCLAT
and not the constitution of NCLT. The petitioner conceded that validity of NCLAT
was upheld in the 2010 judgment but because in the 2010 judgment the discussion
and reasoning pertained only regarding NCLT and nothing insofar as NCLAT was
concerned, therefore, conclusion which is mentioned in the 2010 judgment at the
end, should not be treated as binding or to be taken as having decided this
The Court held that the question of validity of NCLAT was directly and squarely
discussed in the 2010 judgement. Various facets of the challenge laid to the
validity of these two fora were thoroughly thrashed out. Though, most of the
discussion in 2010 judgement refers to NCLT, however, on an insight into the
said discussion, it would eloquently bear it out that it is inclusive of NCLAT
as well. The Court, in 2010 judgement, specifically affirmed the decision of the
High Court which held that creation of NCLT and NCLAT was not
unconstitutional. Therefore, the issue was hit by res judicata.
- The other contention of the petitioner was that because the
constitutionality aspect of both the forum have been dealt with in the
National Tax Tribunal (NTT) judgment wherein formation of National Tax
Tribunal has been held to be unconstitutional, therefore, that judgement should be followed
and constitution of NCLAT should be held illegal.
The Court rejected the
argument on following grounds:
- Terming such argument to be as adventurism, the Court observed that as
far as NCLAT and NCLT are concerned, their validity has already been upheld
and this issue cannot be reopened.
- The Court distinguished between the NTT and 2010 judgement and said that the NTT was a matter where power of judicial review exercised by the High Court
in deciding the pure substantial question of law was sought to be taken away to
be vested in NTT which was held to be impermissible. In the instant case, there
is no such situation. On the contrary, NCLT is the first forum in the hierarchy
of quasi-judicial fora set up in the Act, 2013. In this scenario, NCLAT which is
the first appellate forum provided under the Act, 2013 to examine the validity
of the orders passed by NCLT, will have to revisit the factual as well as legal
issues. Therefore, situation is not akin to NTT.
In 2000, when the Eradi Committee on Insolvency and Bankruptcy recommended
setting up specialised tribunals to adjudicate all matters relating to
companies, it was probably inconceivable that it would take 16 years for these
specialised company law tribunals to see the light of the day. Although they
existed in the statute since 2002, the creation of company law tribunals was
fraught with difficulties until recently when, in May 2015, the Supreme Court
in Madras Bar Association v Union of India upheld the constitutionality of the
National Company Law Tribunal (NCLT) and the National Company Law Appellate
Tribunal (NCLAT) and gave the go ahead for the creation of the NCLT and the
NCLAT. The Court upheld the reasoning given in the R Gandhi (2010) judgement by
the Constitution Bench.
The Constitutional validity of the Tribunal was challenged on the grounds of
violating basic structure of the constitution and that the legislature did not
have powers to transfer judicial functions of courts to tribunals so violates
rule of law and doctrine of separation of powers. In its 2010 judgement, the
Court held that one can only challenge the constitutional amendments on the
ground of violating basic structure and not any other legislation.
Moreover, The Court observed that the issue was not whether judicial functions
can be transferred from courts to tribunals. The issue was whether judicial
functions can be transferred to tribunals manned by persons who are not suitable
or qualified or competent to discharge such judicial powers or whose
independence is suspect.
Rule of law:
Independent judicial tribunals for determination of the rights of
citizens, and for adjudication of the disputes and complaints of the citizens,
is a necessary concomitant of the rule of law. The rule of law has several
facets, one of which is that disputes of citizens will be decided by Judges who
are independent and impartial; and that disputes as to legality of acts of the
Government will be decided by Judges who are independent of the executive.
Another facet of the rule of law is equality before law. The essence of the
equality is that it must be capable of being enforced and adjudicated by an
independent judicial forum.
Legislature has the competence to transfer any particular jurisdiction from
courts to tribunals provided it is understood that the tribunals exercise
judicial power and the persons who are appointed as
President/Chairperson/Members are of a standard which is reasonably approximate
to the standards of mainstream judicial functioning. On the other hand, if a
tribunal is packed with members who are drawn from the civil services and who
continue to be employees of different Ministries or government departments by
maintaining lien over their respective posts, it would amount to transferring
judicial functions to the executive which would go against the doctrine of
separation of powers and independence of the judiciary.
The Eradi Committee recommended setting up separate tribunals to exclusively
deal with company matters and transfer of company law jurisdiction from the High
Court to such tribunals. Tribunals with only judicial members would have served
the purpose sought to be achieved. It did not suggest that such tribunals should
have technical members. The jurisdiction relating to company cases which the
High Courts are dealing with can be dealt with by tribunals with judicial
Therefore, the Court conceded the fact that legislature can transfer the
judicial functions but what would violate the doctrine of separation of powers
and rule of law is the constitution of the tribunals ie. judicial + technical
members or officers from civil services. Thus, the Court struck down the
provision appointing technical members in the NCLT.
The constitution of the National Company Law Tribunal has had a great impact in
the field of Company Law. This is because it has revamped the version of the
conventional Company Law Board. Apart from that the functions and powers of the
NCLT are also very different from the functions and powers of the conventional
CLB. So far, it has proved to be a boon. Firstly, it has removed a lot of burden
from the shoulder of the Courts and other institutions. The power of the
Tribunal of exercising original jurisdiction over matters has ensured that there
is a speedy conveyance of justice and smooth working of the justice system.
Presently, the tribunal also has the power to hear class action suits which
brings forth another distinctive sort of investor majority rules system in
India, which has been followed in various western nations. This will help Indian
organizations in actualizing more beneficial corporate administration hones and
will extend the value to the investors.
This not only is expected to bring much awaited change in Corporate Insolvency
and speedy disposal of Corporate Cases �� be it matter before BIFR, AAIFR,
Company Law Board, High Court for winding-up, merger, demerger, reduction of
share capital or any arrangement or reconstruction; but also open vast
opportunities for Professionals especially Company Secretaries.
Thus, the importance of NCLT and NCLATs cannot be denied and the Madras Bar Assn
case has resolved all the doubts that can be raised against the constitutional
validity of the establishment of such Tribunals.
- Shri Justice V. Balakrishna Eradi, Report of High level Committee on Law
Relating to Insolvency and Winding up of Companies, 2000, p.47.
- Union of India v. R. Gandhi, President, Madras Bar Association, (2010)
11 SCC 1 (India).
- Madras Bas Association v. Union of India ,2015 SCC Online SC 1094
- Kuldip Nayar v. Union of India, (2006) 7 SCC 1 (India)
- State of A.P. v. McDowell & Co, (1996) 3 SCC 709 (India)
- Indira Nehru Gandhi v. Raj Narain, 1975 Supp SCC (India)
- State of Karnataka v. Union of India, (1977) 4 SCC 608,125(India)
- Supra note. 1 �116
- Supra note.1 �117
- Supra note.2
- Madras Bar Association v. Union of India and Anr, 2015 SCC OnLine SC 388
- Supra note.3 p.11