National Company Law Tribunal is the outcome of Eradi Committee, intended to be
introduced in Indian legal system under the framework of Companies Act,1956.
However, due to litigation with respect to constitutional validity of
establishment of NCLT which went for 10 years, it was notified under Companies
Act of 2013.
Both the NCLT and NCLAT were formed based on Article 245 of Indian
Constitution. To reduce the burden of various forums and to take up all matters
relating to company law and other corporate laws, Supreme Court upheld and
allowed the constitution of both under Companies Act, 2013. NCLT provides a
single roof for disputes to be litigated and settled which was not the case
earlier. The paper proposes an overview of the establishment of NCLT, discusses
the constitutional validity of NCLT and its role in dispute resolution.
The concept of tribunals and appellant tribunals for dealing with matters
related to company law was introduced in Companies (Second Amendment) Act, 2002.
Under the Companies Act of 2013 (The Act), the National Company Law Tribunal (NCLT)
and the National Company Law Appellate Tribunal (NCLAT) was created in 2016.
Both are quasi-judicial entities in India that entertain cases involving
companies and corporations of India. The aforementioned Tribunals were
established under the authority granted by Sections 408 and 410 of the new
Companies Act, 2013.
The objective of this research paper includes critically examining
constitutional validity of the establishment of NCLT. Further, the purpose is to
study the role NCLT has in resolution of disputes related to companies, keeping
in mind the law of the land. The primary aim of the researcher is to acquire
abovementioned objectives through empirical study on the topic.
NCLT: An Introduction
There is no statute that defines tribunals. Through various decisions, courts
have stated that tribunals are not courts. The genesis of setting up
specialized tribunals can be traced from judgment of Sampath Kumar vs Union of
 where Supreme Court (SC) held that adoption of theory of alternative
institution mechanism would lead to speedy disposal of cases thereby reducing
the burden on High Court and the creation of these tribunals are within the
legislative competence of Parliament and state legislatures, as stated in
Article 245 of the constitution read with provisions under List I of the
The idea of setting up NCLT was proposed for the first time to examine the laws
relating to ‘Insolvency’ and ‘Winding up of Companies’. Justice Eradi
Committee inter alia identified multiplicity of court proceedings which was
the main reason for delay in company-related matters. Given that there already
exists several different fora dealing with different company matters, it was
recommended the constitution of NCLT was solution to this problem. Pursuant to
the recommendations, the Company (Second Amendment) Act, 2002 was enacted to
introduce parts 1B (contained provisions related to NCLT [sec10FB to
10FP]) and 1C, providing for the establishment of NCLT.
NCLT, that is a quasi-judicial body is established to handle all company-related
disputes, with the exception of criminal prosecutions for violations of the
Companies Act. It led to dissolution of Company Law Board (CLB) and further
ousted jurisdiction of civil courts and all the pending cases before them
would be transferred to NCLT. The Tribunal is not bound by the stringent norms
of evidence and procedure that govern the courts. It can make decisions based on
natural justice principles. It was also held that matters in which power has
been conferred on NCLT, the jurisdiction of civil court is completely
Constitutional Validity of the establishment of NCLT:
The validity of NCLT was one of the most debatable topics in company law since
the adoption of Companies (Second Amendment) Act, 2002. The Constitutional
validity of NCLT has been challenged number of times in the higher judiciary.
In Thiru R. Gandhi vs Union of India
, R. Gandhi, President, Madras Bar
Association (MBA), submitted the first writ petition challenging its
constitutional validity before the Madras High Court under Article 226 of
the constitution. Madras High Court decided that the formation of NCLT/NCLAT and
vesting in them functions previously exercised by High Courts and CLB was not
Nonetheless, the Madras High Court concluded that various
provisions of Parts 1B and 1C (Sections. 10FD, 10FE, 10FF,10FL (2),
10FO, 10FR (3) 10FT and 10FX) are flawed and unconstitutional, being in breach
of basic principles of Separation of Powers, Rule of Law, and Independence of
the Judiciary and which had to be sufficiently amended to establish NCLT.
The petitioner felt aggrieved by the judgement vide which establishments of
NCLT was held to be constitutional. The Union of India, on the other hand, was
displeased with portion of the ruling in which provisions in Parts 1B and
1C were deemed to have numerous legal and constitutional flaws. As a result,
both the Union of India and the petitioner filed appeals to the Supreme Court
against the Madras High Court’s decision.
The appeals were decided by SC in Union of India v. R. Gandhi, President, Madras
Bar Association. The Constitution Bench stamped its approval on the
constitutional validity of the NCLT and vesting in them, the powers and
jurisdiction exercised by High Court in regard to company law matters, was not
It also reviewed through provisions in Parts 1B and 1C, and in
large part agreed with the Madras High Court in identifying significant flaws in
these sections and has proposed corrections to remove defects in these
provisions and make them valid, which is clearly mentioned in para120 of the
Following the enactment of the Companies Act, 2013, a writ petition was filed
with the SC under Article 32 of the Constitution. It was MBA again which
filed the writ petition. Because the petitioners were aware of the principle of
res judicata, they merely asked that NCLT be declared unconstitutional because
the 2010 ruling was not particular about it.
The petitioner highlighted those provisions of Sections
409,411,412,415,418,424,426,431 and 434 of the Act are ultra vires the
requirements of Article 14 of the Constitution and, as a result, should be
struck down as unconstitutional. However, in the case of Madras Bas Association
vs Union of India, the Court affirmed the constitutional legitimacy of NCLT
while declaring the regulations governing its formation to be unconstitutional
since they did not follow the preceding judgement.
NCLT came into force:
After a decade of legal disputes, the Ministry of Corporate Affairs (MCA)
eventually announced the provisions relating to formation and constitution of
NCLT, as well as other relevant parts, with effect from June 2016, resulting in
elimination of CLB with immediate effect. Furthermore, provision pertaining to
the formation of Special Courts for the purpose of rapid trial of offences
committed under the Act, has been announced by the federal government.
Role of NCLT in dispute resolution
One of the most important features of the Act is that it creates a single
forum for most company law disputes. Delays in dispute settlement not only
restrict new investment, but they also devalue assent, increasing business and
market inefficiencies. The Act combines jurisdictions of CLB, the High
Court/District Court, and the BIFR, into a single Tribunal, the NCLT. Section
407 to 434 of the Act deals with NCLT & NCLAT to dissolve the dispute
arising out of corporate. Aggrieved investors can now file class action lawsuits
against corporate for misdoings and even seek compensation from auditors
concerned, following the establishment NCLT.
The significant benefits of NCLT are accelerated dispute resolution process and
uniformity of decision. NCLT was established to adjudicate and/or regulate the
following types of disputes and/or activities:
- The Tribunal decides on all proceedings under the Companies Act,
including arbitration, compromise, reconstruction, and winding up
- It is in charge of matters involving corporate mismanagement and
oppression. A case can also be filed by a former employee of a company.
- Dispute of conversion of a public company to a private company must be
done only when the NCLT has given its approval.
- It also deals with companies that commit frauds and malfeasance with
their depositors and stockholders by drying away their wages. These
investors/depositors are compensated by the tribunal.
- It has the authority to investigate and deregister a business that has
been registered unlawfully or fraudulently
- A transferee can file a complaint with the NCLT if dispute arises and
the firm refuses to register a transfer of its securities.
- NCLT resolves disputes relating to request that the company’s auditors
be replaced if that auditor has been involved in any fraudulent activity - the
NCLT can even order such a change Suo moto.
- The NCLT resolves disputes by approving a scheme for the resurrection
and rehabilitation of a company based on an application made by any shareholder
or the firm itself.
- For a corporation to reduce its share capital, NCLT permission is
Apart from abovementioned points, there are multiple other disputes that are
resolved by NCLT. Had it not been the case, burden on Indian Courts would have
been immense. It helps in speedy process in dispute resolution, provides a
simple window, avoiding unnecessary multiplicity of proceedings before various
fora and reduces work load of High Court/District Court. Setting up of NCLT is
directed towards faster resolution of corporate disputes, thus improving the
ease of conducting business related activities.
The establishment and constitution of NCLT as exclusive tribunal for
administration of all matters arising under the Companies Act will undoubtedly
reduce, if not eliminate, the catastrophic delay in company law proceedings,
avoid multiple litigation before different forums, streamline the appeals
process, and reduce burden on High Courts/District Courts.
NCLT and NCLAT
should be judicial tribunals par excellence, as the Supreme Court has correctly
stated, which is only achievable if members of NCLT/NCLAT are suitably qualified
and conform to the prescribed standards.
- Durga Shankar Mehta vs Thakur Raghuraj Singh, SC 1954 AIR 520.
- 1987 SCR (3) 233.
- The Constitution of India, 1950, art. 245.
- The Constitution of India, 1950, Schedule VII, List I.
- PSA, ‘National Company Law Tribunal: Will it live up to its promise?’
(29 September 2021) https://psalegal.com/wp-content/uploads/2017/01/ENewslineJuly2016.pdf
- Shri Justice V. Balakrishna Eradi, Report of High-level Committee on Law
Relating to Insolvency and Winding up of Companies, 2000, p.47.
- The Company (Second Amendment) Act, 2002.
- The Company (Second Amendment) Act, 2002, § 10FB.
- The Company (Second Amendment) Act, 2002, § 10FP.
- The Company (Second Amendment) Act, 2002.
- specifically mentioned under The Companies Act, 2013, § 430.
- Shashi Prakash Khemka vs NEPC Micon & Others, CA 1965-66/2014.
- 2004 SCC Online Mad 294: (2004) 2 CTC 561.
- The Constitution of India, 1950, art. 226.
- The Companies Act, 1956, Part 1B.
- The Companies Act, 1956, Part 1C.
- Supra note 15.
- Supra note 16.
- Union of India vs R. Gandhi, President, Madras Bar Association, (2010) 11
- The Constitution of India, 1950, art. 32.
- The Companies Act, 2013.
- The Constitution of India, 1950, art. 14.
- Madras Bas Association vs Union of India, 2015 SCC Online SC 1094.
- SAMISTI Legal, ‘NCLT & NCLAT – The legal battle & the constitutional
validity’ (29 September 2021) <
- The Companies Act, 2013.
- The Companies Act, 2013, § 407.
- The Companies Act, 2013, § 434.
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