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SUBJECT: Corporate law – II

Project topic: POWERS OF NATIONAL COMPANY LAW


TRIBUNAL

Submitted By
ABHIJYOT SAHAY
Roll no. 1103
4 Year , 8 Semester, B.A.LL.B(Hons.)
th

Submitted to
MrS. nandita jha
Faculty of corporate Law- II

Chanakya national Law University, Patna


APRIL, 2018
CERTIFICATE

THIS IS TO CERTIFY THAT ABHIJYOT SAHAY, ROLL NO.1103, 4th


YEAR, SESSION 2014-2019 WAS DEPUTED TO MAKE THIS PROJECT
ON POWERSOF NCLT. HE HAS DONE THIS WORK UNDER MY
SUPERVISION AND GUIDANCE. HIS WORK IS GOOD AS HE
WORKED WITH FULL DEVOTION.

SO, I HEREBY RECOMMENED THIS PROJECT TO BE ACCCEPTED


AND EVALUATED.

DATE:

Teacher’s name

Mrs. NANDITA JHA

FACULTY OF

CORPORATE LAW-II

C.N.L.U
ACKNOWLEDGEMENT

Writing a project is one of the most significant academic challenges i have


ever faced. Though this project has been presented by us but there are many
people who remained in veil, who gave their all support and helped us to
complete this project.
First of all we are very grateful to our subject teacher
Mrs. NANDITA JHA without the kind support of whom and help the
completion of the project was a herculean task for us. She donated her
valuable time from her busy schedule to help me to complete this project and
suggested us from where and how to collect data.
We are very thankful to the librarian who provided us several books on this
topic which proved beneficial in completing this project.
We acknowledge our friends who gave their valuable and meticulous advice
which was very useful and could not be ignored in writing the project.

ABHIJYOT SAHAY

3|Page
TABLE OF CONTENT

• AIMS AND OBJECTIVES


• HYPOTHESIS
• RESEARCH METHODOLOGY

CHAPTERISATION
PAGE

1) INTRODUCTION: BACKGROUND AND COMPOSITION


OF NCLT 06- 09

2) POWERS OF NCLT IN COMPANIES ACT, 2013 FOR


OPPERESSION AND MISMANAGEMENT. 10- 19

3) OTHER POWERS OF NCLT IN COMPANIES ACT, 2013. 20- 22

4) POWERS OF NCLT IN IBC CODE, 2016. 23-28

5) CONCLUSION AND SUGGESTIONS 29- 30

- BIBLIOGRAPHY 31

4|Page
Aims and Objectives

The objectives behind this project are:


a) To study the formation, need and structure of NCLT.
b) To know the powers NCLT have under Companies law act, 2013 and Insolvency and
Bankruptcy code 2016.
c) To know how to appeal in NCLT and leading corporate issues handled by it.

Hypothesis
The Researcher hypothesis are:
a) NCLT is the sole body to appeal in for mismanagement and oppression and other reliefs under
Companies law act 2013.
b) Under the Insolvency and Bankruptcy code, 2016 it is one of the bodies that can hear appeals
for companies going under liquidation.
c) The decision of NCLT is final and binding on the parties no appeals can be made also the
tribunal can relax the minimum number to apply for a cause on its discretion and can award wide
range of order as it deems fit for public interest and shareholders interest.

Research Methodology
The researcher aims to research with ‘Doctrinal Method’ by referring to books, journals, articles,
Bare acts, documentary, cases prevalent and the online sources as Research Paper.

5|Page
CHAPTER- I
INTRODUCTION
BACKGROUND AND COMPOSITION OF NCLT
The National Company Law Tribunal and National Company Law Appellate Tribunal were finally
constituted by the Central Government. The National Company Law Tribunal (NCAT) and
National Company Law Tribunal are quasi-judicial body in India, which adjudicates issues relating
to the Companies in India. The NCLT and NCLAT were established under the Companies Act
2013 and were constituted on 1st June 20161.

The constitution of the aforesaid Tribunals is in exercise of the powers conferred by Sections 408
and 410 respectively of the new Companies Act, 2013.

408. Constitution of National Company Law Tribunal— The Central Government shall, by
notification, constitute, with effect from such date as may be specified therein, a Tribunal to be
known as the National Company Law Tribunal consisting of a President and such number of
Judicial and Technical members, as the Central Government may deem necessary, to be appointed
by it by notification, to exercise and discharge such powers and functions as are, or may be,
conferred on it by or under this Act or any other law for the time being in force2.

The Ministry of Corporate Affairs ('MCA') on 1st June 2016 notified the constitution of National
Company Law Tribunal ('NCLT') and National Company Law Appellate Tribunal ('NCLAT') in
exercise of powers conferred under Section 408 and Section 410 of the Companies Act 2013
('Companies Act'). This notification has been in abeyance for almost 14 years, since it was first
introduced by the Companies (Second Amendment) Act 2002 based on the recommendations of
Eradi committee. However, in recent times the Government of India has been emphasizing on
easing the process of carrying out business in India. Thus, in recent times, various legal reforms
have been carried out and the constitution of the NCLT and the NCALT is one most important
step in this direction3.

1
http://www.mca.gov.in/MinistryV2
2
The Companies Act, 2013 Bare ACT LEXIS NEXIS PUB.
3
https://nclt.gov.in

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The genesis of setting up of specialized tribunals can be traced in the Supreme Court judgment in
Sampath Kumar case4. In this case while adopting the theory of alternative institutional
mechanism, the Supreme Court refers to the fact that since independence, the population explosion
and the increase in litigation had greatly increased the burden of pendency in the High Courts,
therefore, to reduce the burden of High Courts and to fulfil the growing need for empowering the
Company Law Board, they felt the need to constitute a high power Tribunal, which could take up
all matters relating to Company Law and other Corporate Laws at one Forum.
The setting up of the NCLT and NCLAT are part of the efforts to move to a regime of faster
resolution of corporate disputes, thus improving the ease of doing business in India5.
409. Qualification of President and Members of Tribunal— (1) The President shall be a person
who is or has been a Judge of a High Court for five years.
(2) A person shall not be qualified for appointment as a Judicial Member unless he—
(a) is, or has been, a judge of a High Court; or
(b) is, or has been, a District Judge for at least five years; or
(c) has, for at least ten years been an advocate of a court.
Explanation.—For the purposes of clause (c), in computing the period during which a person has
been an advocate of a court, there shall be included any period during which the person has held
judicial office or the office of a member of a tribunal or any post, under the Union or a State,
requiring special knowledge of law after he become an advocate.
(3) A person shall not be qualified for appointment as a Technical Member unless he—
(a) has, for at least fifteen years been a member of the Indian Corporate Law Service or Indian
Legal Service out of which at least three years shall be in the pay scale of Joint Secretary to the
Government of India or equivalent or above in that service; or
(b) is, or has been, in practice as a chartered accountant for at least fifteen years; or
(c) is, or has been, in practice as a cost accountant for at least fifteen years; or
(d) is, or has been, in practice as a company secretary for at least fifteen years; or
(e) is a person of proven ability, integrity and standing having special knowledge and experience,
of not less than fifteen years, in law, industrial finance, industrial management or administration,

4
(1987) 1 SCC 124 : AIR (1987) SC 386
5
www.manupatra.com

7|Page
industrial reconstruction, investment, accountancy, labour matters, or such other disciplines related
to management, conduct of affairs, revival, rehabilitation and winding up of companies; or
(f) is, or has been, for at least five years, a presiding officer of a Labour Court, Tribunal or
National Tribunal constituted under the Industrial Disputes Act, 1947 (14 of 1947)6.

PROCEDURE TO MAKE APPLICATION WITH NCLT:


Following are the requisite points for consideration before filing petition, appeal or application
before NCLT as per NCLT Rules7:
i. Every application, petition, documents to be filed before NCLT shall be in English and if in any
other language, it shall be accompanied with copy of Translation in English.
ii. It shall be type written, printed in double space, on one side of legal paper, with margins: Top
4 c.m., Right-2.5 c.m. and left-5c.m. and it shall be duly paginated, indexed and stitched together
in paper book form.
iii. The cause title shall state “Before the National Company Law Tribunal” and shall specify the
Bench to which it is presented and also set out the proceedings or order of the authority against
which it is preferred.
iv. Appeal or petition or application or counter or objections shall be divided into paragraphs and
shall be numbered consecutively and each paragraph shall contain as nearly as may be, a separate
fact or allegation or point.
v. Every petition, application, appeal or document shall be filed in Triplicate shall be accompanied
by an index in triplicate containing their details and the amount of fee paid thereon.
vi. Copy of petition, application or appeal shall also be filed to the opposite party and copy of
Resolution for authorisation to sign, verify and institute on behalf of the company shall also be
enclosed.
vii. On scrutiny, the appeal or petition or application or document is found to be defective, such
document shall, after notice to the party, be returned for compliance and if there is a failure to
comply within seven days from the date of return, the same shall be placed before the Registrar
who may pass appropriate orders8.

6
The Companies Act, 2013 Bare ACT LEXIS NEXIS PUB.
7
National Company Law Tribunal (NCLT) Rules, 2016
8
Ibid

8|Page
viii. The Registrar may for sufficient cause return the said document for rectification or amendment
to the party filing the same, and for this purpose may allow to the party concerned such reasonable
time as he may consider necessary or extend the time for compliance.
ix. On admission of appeal or petition or caveat or application, the same shall be numbered and
registered in the appropriate register maintained in this behalf and its number shall be entered
therein.
x. On the admission of appeal or petition or application the Registrar shall, if so directed by the
Tribunal, call for the records relating to the proceedings from any adjudicating authority and
retransmit the same9.
xi. The Tribunal shall notify to the parties the date and place of hearing of the petition or
application in such manner as the President or a Member may, by general or special order, direct.
xii. Where at any stage prior to the hearing of the petition or application, the applicant desires to
withdraw his petition or application, he shall make an application to that effect to the Tribunal,
and the Tribunal on hearing the applicant and if necessary, such other party arrayed as opposite
parties in the petition or the application or otherwise, may permit such withdrawal upon imposing
such costs as it may deem fit and proper for the Tribunal in the interests of the justice.
xiii. Every party may appear before a Tribunal in person or through an authorised representative,
duly authorised in writing in this behalf.
xiv. The Registry shall send a certified copy of final order passed to the parties concerned free of
cost and the certified copies may be made available with cost as per Schedule of fees, in all other
cases.
xv. The certified copy of the order of NCLT shall be filed with ROC in Form NO.
INC-28 within the time prescribed by the Act10.

9
Project report on nclt & nclat-opportunities & challenges; provisions under nclt the institute of company
secretaries of india, 2016.
10
Ibid

9|Page
CHAPTER II

POWERS OF NCLT IN COMPANIES ACT, 2013 FOR OPPERESSION


AND MISMANAGEMENT.

Transition from CLB to NCLT

The Act has set out in detail the procedure to deal with cases which are pending in various forums
in Section 434. The Government has notified 1st June 2016 for transfer of matters from CLB to
NCLT. On that date, all the pending proceedings before CLB will be transferred to NCLT and
Tribunal will dispose of such matters in accordance with the provisions of law. Tribunal has
discretion to take up the pending CLB proceeding from any stage. At its discretion, it can take up
the matter at stage where it was left by CLB or start the proceedings afresh or from any stage it
deems fit11.

Powers vested in NCLT

Some of the important powers that are presently vested with NCLT are as follows:

1. Class Action:

What are class action suits under company law?

A class action is a procedural device that permits one or more plaintiffs to file and prosecute a
lawsuit on behalf of a larger group, or “class”. It is in the nature of a representative suit where
the interest of a class is represented by a few of them. A huge number of geographically
dispersed shareholders/depositors are affected by the wrongdoings. It is a useful tool where a few
may sue for the benefit of the whole or where the parties form a part of a voluntary association
for public or private purposes, and may be fairly supposed to represent the rights and interests of

Section 245 has been introduced in the new company law to provide relief to the investors
against a large set of wrongful actions committed by the company management or other
consultants and advisors who are associated with the company12.

11
Project report on nclt & nclat-opportunities & challenges; provisions under nclt the institute of company
secretaries of india, 2016.
12
https://www.livemint.com/

10 | P a g e
Class action can be filed against any type of companies, whether in the public sector or in the
private. It can be filed against any company which is incorporated under the Companies Act,
2013 or any previous Companies Act. The Act provides only one exemption i.e. banking
companies.

3. Oppression and Mismanagement:

The remedy of oppression and mismanagement is retained in 2013 Act. The nature of this remedy
has however changed to certain extent and it needs to be seen in light of the changes made to the
Companies Act, 2013. The 2013 Act has reset the bar for oppression to a little lower level but has
set the bar of mismanagement a little higher by applying the test “winding up on just and equitable
grounds” even to mismanagement matters. The Act permits dilution of the eligibility criteria with
the permission of Tribunal, where a member below the eligibility criteria can apply in deserving
cases13.

WHO CAN APPLY WITH TRIBUNAL:

Any member of a company who complains that14;

Activity Interest of Applied by

1. the affairs of the A. Interest of public


company have been or B. Oppressive to him MEMBERS
are being conducted in C. The interests of the
a manner prejudice to company.
2. the material changes
by or in the interests of,
any creditors,
including debenture interests of
holders or any class of members or any
shareholders of the class of members
company has taken

13
www.indialawjournal.org/archives/volume6/issue-2/article5.html
14
Section 241 Companies Act, 2013.

11 | P a g e
place in the
management or control MEMBERS
of the company,
whether by an
alteration in the Board
of Directors, or
manager, or in the
ownership of the
company’s shares, or if
it has no share capital,
in its membership, or
in any other manner
whatsoever, which
Prejudicial to;
3. The affairs of the
company are being prejudicial to public interest The Central Government
Conducted.

STRENGTH FOR MEMBER TO APPLY TRIBUNAL:

The following members of a company shall have the right to apply with Tribunal15-

Type of Company Strength of member


1. Company having A) not less than 100
share capital members of the
Company.
B) not less than 1/10th of
the total number of its
members.

15
Section 244 Companies Act, 2013

12 | P a g e
C) any member or Whichever is less
members holding not
less than 1/10th of the
issued share capital of
the company, subject to
2. Not having a share the condition that the
capital applicant(s) has or have
paid all calls and other
sums due on his or their
shares.

Not less than 1/5th of


the total number of its
members

NCLT can on its discretion can reduce the minimum number required to apply.

MISMANAGEMENT UNDER COMPANIES ACT, 2013:

The term “Mismanagement” means 'conducting the affairs of the company in a manner prejudicial
to public interest or in a manner prejudicial to the interests of the company or there has been a
material change in the management and control of the company, and by reason of such change it
is likely that affairs of the company will be conducted in a manner prejudicial to public interest or
interest of the company16.

The following procedures are applicable for mismanagement;

1. The following class of member(s) or depositor(s), if they are of the opinion that the
management or conduct of the affairs of the company are being conducted in a manner
prejudicial to the interests of the company or its members or depositors, file an application

16
A.K. Majumdaar and Dr. G.K. Kapoor, ― Taxmann‘s company law and Practice, 17th Edition,

13 | P a g e
before the Tribunal on behalf of the members or depositors for seeking all or any of the
following orders17:

Type of Company Strength of member,


depositors
a) not less than one
hundred members of
1. Company having share the company.
capital b) not less than such
percentage of the
total number of its
members
c) any member or
members holding not Whichever is less
less than such
percentage of the
issued share capital
of the company as
may be prescribed,
subject to the
condition that the
applicant or
applicants has or
have paid all calls
and other sums due
on his or their shares.

2. Not having a share Not less than 1/5th of


capital. the total number of its
members

17
Section 245 Companies Act, 2013

14 | P a g e
A) shall not be less
3. In case of depositor than one hundred
depositors.
B) Whichever not
less than such
percentage of the
total number of is Whichever is less
less depositors as
may be
prescribed
C) any depositor or
depositors to
whom the
company
owes such
percentage of total
deposits of the
company as may be
prescribed.

POWER OF TRIBUNAL UNDER OPPRESSION & MISMANAGEMENT:

The NCLT has following powers under Oppression & mismanagement:

A. On any application made by the member’s or Central Government, the Tribunal is of the
opinion18;

i. that the company‘s affairs have been or are being conducted in a manner prejudicial or oppressive
to any member or members or prejudicial to public interest or in a manner prejudicial to the
interests of the company; and

18
Section 242 Companies Act, 2013

15 | P a g e
ii. that to wind up the company would unfairly prejudice such member or members, but that
otherwise the facts would justify the making of a winding-up order on the ground that it was just
and equitable that the company should be wound up.

B. Without prejudice to the generality of the power mentioned above, an order under that sub-
section may provide for it19.

The regulation of conduct of affairs of the company in future;

ii. The purchase of shares or interests of any members of the company by other members thereof
or by the company;

iii. In the case of a purchase of its shares by the company as aforesaid, the consequent reduction
of its share capital;

iv. Restrictions on the transfer or allotment of the shares of the company;

v. The termination, setting aside or modification, of any agreement, howsoever arrived at, between
the company and the managing director, any other director or manager, upon such terms and
conditions as may, in the opinion of the Tribunal, be just and equitable in the circumstances of the
case;

vi. The termination, setting aside or modification of any agreement between the company.

vii. The setting aside of any transfer, delivery of goods, payment, execution or other act relating
to property made or done by or against the company within three months before the date of the
application under this section, which would, if made or done by or against an individual, be deemed
in his insolvency to be a fraudulent preference;

viii. Removal of the managing director, manager or any of the directors of the company;

ix. Recovery of undue gains made by any managing director, manager or director during the period
of his appointment as such and the manner of utilisation of the recovery including transfer to
Investor Education and Protection Fund or repayment to identifiable victims20;

19
Ibid
20
ibid

16 | P a g e
x. The manner in which the managing director or manager of the company may be appointed
subsequent to an order removing the existing managing director or manager of the company made
under clause (h);

xi. Appointment of such number of persons as directors, who may be required by the Tribunal to
report to the Tribunal on such matters as the Tribunal may direct;

xii. Imposition of costs as may be deemed fit by the Tribunal;

xiii. Any other matter for which, in the opinion of the Tribunal, it is just and equitable that
provision should be made21.

DECISIONS & ONGOING PROCEEDINGS UNDER NCLT PERTAINING TO


OPPRESSION & MISMANAGEMENT:

a. Cyrus Investments & Anr. (“Petitioners”) v. Tata Sons & Ors. (“Respondents”)22

The National Company Law Tribunal (“NCLT”) in the recent case of Cyrus

Investments & Anr. (“Petitioners”) v. Tata Sons & Ors. (“Respondents”), dismissed both the
waiver plea and the company petition alleging oppression and mismanagement against Tata Sons.
The Petitioners sought waiver from the requirement of holding at least one- tenth of 'issued share
capital' of the company or representing at least one-tenth of the company's minority shareholders
under Section 244(2) of the Companies Act, 2013.

The Petitioners failed to establish any cause of action under Section 241(3) of the Companies Act,
2013 (“Act”). The Petitioners have appealed against this decision and the matter is currently
pending before the National Company Law Appellate Tribunal (“NCLAT”) for adjudication.

Appellate tribunal allows ousted Tata Sons chairman to file appeal in NCLT

In a breather to ousted Tata Sons Chairman Cyrus Mistry, the National Company Law Appellate
Tribunal (NCLAT) has agreed to waive the condition that requires a minimum 10 per cent
shareholding to file a petition before the NCLAT23.

21
ibid
22
nclat.gov.in/final orders/Principal_Bench/2017/
23
ibid

17 | P a g e
It also directed the NCLT to hear the petition and pass an order in three months.

The Mistry camp had sought a waiver on the condition in the Companies Act that a firm or person
should hold a minimum of 10 per cent of the shares of the company concerned to file a petition
before the NCLT.

The waiver was sought after Tata Sons alleged that the Mistry camp had no locus standi to move
the NCLT, as the Shapoorji Pallonji group owns only 2.17 per cent of Tata Sons’ share capital.

In April, the NCLT had refused to give a waiver to Mistry following which an appeal was filed
with the tribunal24.

JUDGMENT & ANALYSIS:

NCLT considered the following factors to consider the issue of waiver:-

a. What is the interest of Petitioner in Company-is it significant or substantial?

b. What are the issues raised and whether Section 241 is the most appropriate jurisdiction to deal
with same?

c. Is this cause raised up substantial importance to Petitioner or to any class of member or to the
company itself or public interest?

The NCLT concluded that no cause of action was established in any of the allegations raised by
the Petitioners. Further, there is no rule that the Bench cannot get into merits at the time when
waiver application is decided. The Bench does have the discretion to find out whether cause of
action exists to file the case and three tests are required to be applied:-

i. Cause of action test;

ii. Prima facie case test;

iii. Merits (proof) test

24
https://www.thehindubusinessline.com/companies/cyrus-mistry-scores-a-small-win-in-corporate-war-with-
tatas/article9867067.ece

18 | P a g e
NCLT rejected the waiver application as Petitioners did not have the requisite qualification to
maintain the application. Consequently, NCLT also dismissed the main petition itself25. However,
the NCLT did not merely reject the petition on the ground of non-maintainability but appears to
have rejected the allegations of the Petitioners on the ground that they failed to disclose cause of
action or satisfy the NCLT on merits test.

The NCLT held that Petitioners failed to establish any cause of action in all the allegations,
therefore the petition should be rejected at the threshold itself.

Further, the Petitioners even failed to establish how acts complained of caused harm or injury to
their economic interest as substantial interest is not sufficient and cannot claim that all actions are
thrust on minority as fait accompli26.

25
nclat.nic.in/final_orders/Principal_Bench/2017/
26
https://www.taxmanagementindia.com/.../tmi_blog_details.asp?...Cyrus-Investments

19 | P a g e
CHAPTER III
OTHER POWERS OF NCLT IN COMPANIES ACT, 2013
1. Deregistration of Companies:

The procedural errors at the time of registration can now be questioned at any time. The Tribunal
is empowered to take several steps, including cancellation of registration and dissolving the
company. The Tribunal can even declare the liability of members unlimited. Sec 7(7) provides this
new way for de- registration of companies in certain circumstances when there is registration of
companies is obtained in an illegal or wrongful manner. Deregistration is a remedy that is distinct
from winding up and striking off27.

2. Refusal to Transfer shares:

The power to hear grievance of refusal of companies to transfer securities and rectification of
register of members under Section 58 and 59 of the new Act were already notified and were being
taken up by CLB. Now. The same are transferred to NCLT. The remedy for refusal to transfer or
transmission were restricted only to shares and debentures under 1956 Act. The provisions for
refusal to transfer and transmit under Companies Act, 2013 Act extends to all securities. These
sections gives express recognition to contracts or arrangements for transfer of securities entered
into between two or more persons with respect to shares of a public company and thus clears any
doubts about the enforceability of these contracts28.

3. Reopening of Accounts & Revision of Financial Statements:

Several instances of falsification of books of accounts were noticed under the Companies Act,
1956. To counter this menace, several measures have been provided in the Companies Act, 2013.
One such measure is the insertion of Section 130 and 131 read with sec 447, 448 in the new Act.
Section 130 read with sec 131 are newly inserted provisions that prohibit the company from suo
motu opening its accounts or revising its financial statements. This can be done only in the manner
provided in the Act29. Section 130 and 131 provides the instances where financial statements can

27
https://www.livemint.com/
28
ibid
29
corporate litigation landscape of india overhauled, dispute resolution hotline june 06, 2016- – vyapak desai &
ashish kabra.

20 | P a g e
be revised/reopened. Section 130 is mandatory, where the Tribunal or Court may direct the
company to reopen its accounts when certain circumstances are shown30. Section 131 allows
company to revise its financial statement but do not permit reopening of accounts. The company
can itself approach the Tribunal under sec 131, through its director for revision of its financial
statement.

4. Tribunal Ordered Investigations:

Chapter XIV provides several powers to the Tribunal in connection with investigations. The most
important powers that are conferred to the Tribunal are:

a) power to order investigation: Under the Companies Act, 2013, only 100 members (as against
200 members required under the Companies Act, 1956) are required to apply for an investigation
into the affairs of a company. Further, the power to apply for an investigation is given to any person
who is able to convince the Tribunal that circumstances exist for initiating investigation
proceedings. An investigation can be conducted even abroad. Provisions are made to take as well
as provide assistance to investigation agencies and courts of other countries with respect to
investigation proceedings.

b) power to investigate into the ownership of the company

c) power to impose restriction on securities: The restriction earlier could be imposed only on
shares. Now, the Tribunal can impose restrictions on any security of the company.

d) power to freeze assets of the company: The Tribunal is given the power to freeze assets of the
company which can not only be used when the company is under investigation, but can also be
initiated at the insistence of a wide variety of persons in certain situations31.

5. Conversion of public company into private company

Sections 13, 14, 15 and 18 of the Companies Act, 2013 read with rules regulate the conversion of
public limited company into private limited company. It requires approval from the NCLT.

30
NCLT – Powers & Functions under Cos. Act, 2013 June 22,2016- Prachi Manekar-Wazalwar
31
ibid

21 | P a g e
Approval of the Tribunal is required for such conversion. The Tribunal may at its discretion impose
certain conditions subject to which approvals may be granted (sec 459)32.

6. Tribunal Convened AGM:

General meetings are required to assess the opinion of shareholders from time to time. The Act
mandatorily requires one meeting to be called, which is termed as the “annual general meeting” or
‘AGM’. Any other general meeting is termed as “extra ordinary general meeting” or ‘EOGM’. If
the AGM or EOGM cannot be held, called or convened in the manner provided under the Act or
the Rules by the Board or the Member due to certain extraordinary circumstances, then the
Tribunal is empowered under Section 97 and 98 of 2013 Act to convene general meetings under
the Companies Act, 2013. The provisions for convening an annual general meeting and extra
ordinary general meeting in the Companies Act, 2013 are almost similar to the provision provided
in the Companies Act, 1956. However, the draft rules have inserted an additional provisions that
require intimation of such cases to be given to ROC33.

32
ibid
33
https://www.icsi.edu/Portals/70/NCLT%20LG.pdf

22 | P a g e
CHAPTER IV
POWERS OF NCLT IN IBC CODE, 2016
The Code recognizes National Company Law Tribunal (the NCLT) constituted under Section 408
of the Companies Act, 2013 as Adjudicating Authority for the purpose of insolvency resolution
and liquidation for corporate persons34.

The Code also recognizes Debt Recovery Tribunal (the DRT) constituted under subsection (1) of
Section 3 of the Recovery of Debts Due to Banks and Financial Institutions

Act, 1993 as Adjudicating Authority for the purpose of insolvency resolution and bankruptcy of
partnership firms and individuals35.

Jurisdiction of NCLT

Situs of the registered office of the corporate entity is the deciding criteria for insolvency resolution
and liquidation of corporate persons, corporate debtors and personal guarantors thereof.
Application for initiating insolvency resolution process or liquidation of corporate debtor shall be
filed before the NCLT having jurisdiction over the place where registered office of the corporate
entity is situated. Similarly, voluntary liquidation application of corporate person shall be filed
before the NCLT having jurisdiction over the place where registered office of the corporate entity
is situated. Though, DRT is recognized as adjudicating authority for partnership firms and
individuals, but, where an individual is personal guarantor of a corporate debtor and a corporate
insolvency resolution process or liquidation proceedings of such corporate debtor is pending
before a NCLT, an application relating to the insolvency resolution or bankruptcy of personal
guarantor of such corporate debtor shall also be filed before such NCLT36.

In dealing with the application relating to the insolvency resolution or bankruptcy of personal
guarantor of corporate debtor the NCLT shall be vested with the powers of DRT dealing with the
insolvency resolution or bankruptcy of individual37.

34
http://lawstreetindia.com/sites/default/files
35
ibid
36
corporate litigation landscape of india overhauled, dispute resolution hotline june 06, 2016- – vyapak desai &
ashish kabra.
37
ibid

23 | P a g e
Admission of IRP Application

An Insolvency Resolution Process can be initiated by

a) Financial creditor or

b) Operational Creditor or

c) Corporate itself

Under Section 7 - Financial creditor can, either alone or jointly with others, file an application
before NCLT for initiating IRP when default has occurred.

Default includes a default in respect of a financial debt owned not only to the applicant financial
creditor but to any other financial creditor of the corporate debtor38.

Section 5(8) of Code defines “Financial Debt” means a debt along with interest, if any, which is
disbursed against the consideration and include:-

a) Money borrowed against payment of interest;

b) Any amount raised by acceptance under any acceptance credit facility or its de-materialized
equivalent.

c) Any amount raised pursuant to any note purchase facility

d) Issue of bonds, notes, debentures, loan stock or any similar Instruments;

e) the amount of any liability in respect of any lease or hire purchase contract which is deemed as
a finance or capital lease under the Indian Accounting Standards or such other amounting standards
as may be prescribed;

f) receivables sold or discounted other than any receivables sold on non-recourse basis;

g) any derivative transaction entered into in connection with protection against or benefit from
fluctuation in any rate or price and for calculating the value of any derivative transaction, only on
the market value of such transaction shall be taken into account39;

38
The insolvency and bankruptcy code, 2016
39
ibid

24 | P a g e
SECTION 7(4) – SCRUTINY OF DEBT

The NCLT under Section 7(4) shall, within 14 days from the receipt of an application, ascertain
the existence of default from the records of information utility or on the basis ofother evidence
furnished by the financial creditor40.

SECTION 7(5) – ADMISSION OF PETITION BY NCLT

Where NCLT is satisfied that default has occurred and application is complete in all respect and
no disciplinary proceedings are pending against the proposed Interim

Resolution Professional -

(a) Invariably the NCLT is also requiring a certificate from IRP saying that he is not attached or
connected to the Petitioner Company. Therefore, a separate certificate may be obtained and
annexed along with the petition.

But, where NCLT is satisfied that no default has occurred or application is incomplete or any
disciplinary proceedings are pending against the resolution professional, it may, by order, reject
the application. NCLT shall before rejecting application give notice to the applicant to rectify the
default in his application within seven days of receipt of such notice from NCLT. It is mandatory
on the part of the Petitioner Company to remove the defects within a period of seven days failing
which, on many occasions, the Company Petition has been dismissed41.

SECTION 13 - DECLARATION OF MORATORIUM

Section 13 says that whenever any petition is filed either by

(i) Financial Creditor; or


(ii) Operational Creditor; or

(iii) Corporate Debtor, the NCLT may, after admission of petition, shall declare a moratorium
for the purpose of Section 14. In other words, it is mandatory for the NCLT to declare moratorium
in terms of Section 1442.

40
ibid
41
ibid
42
ibid

25 | P a g e
SECTION 14 – SCOPE OF MORATORIUM

The NCLT under Section 14, shall prohibit all the following:

The institution of suits or continuation of pending suits or proceedings against the corporate debtor
including execution of any judgment, decree or order in any court of law, tribunal, arbitration panel
or other authority;

Transferring, encumbering, alienating or disposing of by the corporate debtor any of its assets or
any legal right or beneficial interest therein;

Any action to foreclose recover or enforce any security interest created by the corporate debtor in
respect of its property including any action under the

Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act,
2002;

The recovery of any property by an owner or lessor where such property is occupied by or in the
possession of the corporate debtor43.

Power to Extend Time Limit

The Section 12 of the Code has set default maximum time of 180 days for completing insolvency
resolution process in normal case and 90 days in fast tacked insolvency resolution process under
Section 56. The resolution professional if instructed by committee of creditors shall file application
before NCLT for extension of time beyond 180 days, or 90 days, as the case may be.

The NCLT, on being satisfied that subject matter of the case is such that it cannot be completed
within default maximum time, may, by order, grant one time extension beyond prescribed default
maximum time.

One time extension in case of normal process cannot exceed 90 days and in case of fast tracked
process cannot exceed 45 days. The NCLT, in both cases, is empowered to grant extension of time
only once44.

43
ibid
44
ibid

26 | P a g e
Approval of Resolution Plan

When the NCLT is satisfied that resolution plan approved by committee of creditors meets
requirement of the Code, it shall, by order, approve the plan. An approved plan is binding on
debtors and its employees, members, creditors, guarantors and other stakeholders in the resolution
plan. However, where the NCLT is satisfied that resolution plan does not meet requirement of the
Code, it may, by order, reject the plan. On approval of resolution plan, the IRP is closed. When
IRP is closed, the moratorium ceases to have effect, resolution professional is relieved of his duties
and all documents related to IRP are consigned to the Board45.

Power to Initiate Liquidation Process

The NCLT has power to order liquidation if resolution plan has been rejected as it fails to meet the
requirements of the Code; or maximum time allowed for resolution process has expired without
any resolution plan being agreed upon; or during the IRP but before confirmation of resolution
plan committee of creditors through resolution professional intimates adjudicating authority to
about its decision to liquidate the corporate debtor; or when the corporate debtor, or any person
connected with corporate debtor, contravenes the approved resolution plan.

Where IRP fails and liquidation proceedings have started the resolution professional continues to
act as liquidators, but, new liquidator is appointed in case IRP has failed because it did not meet
requirement of law or there is a complaint against resolution professional46.

Dissolution Order

When the business operations of the corporate person have been completely wound up and its
assets have been completely liquidated, the liquidator shall make an application to the NCLT for
dissolution of corporate person. On such application being filed, the NCLT shall order that
corporate person shall be dissolved from the date of the order. The order of NCLT has effect of
dissolving the corporate person from the date of order Order of dissolution is required to be.
Forwarded within seven days (fourteen days in case of voluntary liquidation) from the date of

45
https://www.icsi.edu/portals/2
46
ibid

27 | P a g e
order to the authority with which the corporate debtor (corporate in case of voluntary liquidation)
is registered47.

Avoidance of Preferential Transactions

When liquidator or resolution professional, as the case be, is of the opinion that a corporate debtor
during the period specified under the Code has transferred any property or an interest thereof of
the debtor to specified persons on account of antecedent debt or liability in a manner putting
specified person in a beneficial position than it would have been in the event of a distribution of
assets in liquidation(preferential transaction), he shall apply to NCLT for avoidance of such
transactions.

Avoidance of Undervalued Transactions

When a corporate debtor, except in the course of ordinary business, makes a gift or transfers one
or more assets for insignificant consideration (the undervalued transaction), the resolution
professional or liquidator, as the case may be, shall, or failing them a creditor, member or partner
of corporate debtor, as the case may be, may make an application to NCLT to declare such
transaction void and reverse their effect48.

47
ibid
48
https://taxguru.in/company-law/

28 | P a g e
CHAPTER IV
CONCLUSION AND SUGGESTIONS.
In view of vast opportunities emerging with the establishment of National Company Law Tribunal,
the Practicing Company Secretaries should standardize their competencies with the global
benchmarks to provide value added services in assisting the Tribunal in dispensation of justice and
speedier disposal of matters like merger, amalgamation, restructuring, revival and rehabilitation of
sick companies and winding up of companies.

- in law, industrial finance, industrial management or administration, industrial reconstruction,


investment, accountancy, labour matters, or such other disciplines related to management, conduct
of affairs, revival, rehabilitation and winding up of companies.

- in law, industrial finance, industrial management or administration, industrial reconstruction,


investment, accountancy, labour matters, or such other disciplines related to management, conduct
of affairs, revival, rehabilitation and winding up of companies.

CHALLENGES OF NCLT:

The constitution of NCLT marks another seminal shift in the Indian judicial landscape and clearly
demonstrates that the judicial system is turning for the better. The CLB stands scrapped and the
matters will now be dealt with by the NCLT. Further, the notification of the provisions of
Bankrupcy Code is imminent and it is expected that upon such notification NCLT would take over
the corporate insolvency matter from courts. Thus, a complete overhaul of the system is taking
place. This is further demonstrated by the constitution of the first commercial courts in the country.
Commercial courts have been set up in Gujrat and the High Courts of Delhi, Mumbai and Himachal
Pradesh have also constituted its commercial divisions. However, introduction of any new reforms
brings with it its own set of challenges. The NCLAT may be overburdened with appeals. Further
with statutory second appeal on any question of law to Supreme Court being available under
Section 423 of the Companies Act, 2013, a large number of cases may be delayed on account of
pendency of appeal before the overburdened Supreme Court.

The main reason for the challenge was the constitutionality of the tribunal as it involved the
wholesale transfer of jurisdiction of the High Courts in company matters to a quasi-judicial body.

29 | P a g e
It was argued that such transfer will result in vesting of intrinsic judicial functions in a quasi-
judicial body, which was vulnerable to executive interference.

One size doesn't fit all. Introduction of any new reform comes with its own set of challenges. The
effect of notification is that CLB stands immediately dissolved.

With only 11 benches currently operative, there will be a huge burden on the tribunal to deal with
cases transferred from CLB and other forums. This may serve as an impediment in the transition
process. Further, all provisions with respect to

NCLT have been notified Overall the constitution of NCLT and NCLAT has paved way for a
much needed judicial reform. For now all that can be said is that in the light of increasing
globalization and the need to move in-sync with changing times, a landmark step has been taken
to promote better corporate dispute redressal mechanism.

In view of vast opportunities emerging with the establishment of National Company Law Tribunal,
the Practicing Company Secretaries should standardize their competencies with the global
benchmarks to provide value added services in assisting the Tribunal in dispensation of justice and
speedier disposal of matters like merger, amalgamation, restructuring, revival and rehabilitation of
sick companies and winding up of companies.

30 | P a g e
BIBLIOGRAPHY
BOOKS
1. Corporate law (university edition) G.K Kapoor and A.p Suri, taxman,
2. A.K. Majumdaar and Dr. G.K. Kapoor, ― Taxmann‘s company law and Practice, 17th
Edition,
3. Corporate Law in India, Rashmi Agarwal and Rajinder Kaur, edition 2016, lexis Nexis
pub.
4. Corporate Law, Naveen Kumar Shelar, I.K International pub. EDITION 2016.
WEBSITES
1. www.thehindubusinessline.com
2. www.mca.gov.in
3. www.business-standard.com
4. www.nclt.gov.in
5. www.manupatra.com
6. www.legalserviceindia.com
STATUTES
1. The Companies act, 2013
2. The insolvency and bankruptcy code, 2016
ARTICLES
1. Project report on nclt & nclat-opportunities & challenges; provisions under nclt the institute
of company secretaries of india, 2016.
2. corporate litigation landscape of india overhauled, dispute resolution hotline june 06, 2016-
– vyapak desai & ashish kabra.

31 | P a g e