NCLT: Changing Dimensions

The concept of establishing a separate judicial body dealing with various activities of companies in India was first introduced in the year 2002, by an amendment in the then Companies Act, 1956 following the suggestions of the Eradi Committee. Due to some shortcomings, in the amendment, JJ Irani Committee was formed for suggesting reforms in the previous Act and for the enactment of a new Company Law and consequently, National Company Law Tribunal (NCLT) and National Company Law Appellate Tribunal (NCLAT) were created under the Companies Act, 2013 to handle all the corporate civil disputes arising under the Act.

The constitution of NCLT and NCLAT is a paradigm shift with the intention of establishing a specialized forum to adjudicate all disputes/issues pertaining to companies in an efficient and expeditious manner.

The recommending committee found that different agencies dealing with different areas relating to companies – Board of Industrial and Financial Reconstruction (BIFR) and Appellate Authority for Industrial and Financial Reconstruction (AAIFR) dealt with reference relating to rehabilitation and revival of companies. High courts dealt with winding-up of companies and Company Law Board (CLB) dealt with matters relating to prevention of oppression and mismanagement etc. Therefore, constitution of NCLT was recommended to reduce the pendency of cases, reduce the period of winding-up process, avoid multiplicity of litigation, streamline the appeal system (an appeal against the order of the NCLT lies in appellate Tribunal NCLAT with a further appeal to the Supreme Court only on points of law) and to release the burden of HCs.

Setting up of NCLT and NCLAT will combine the powers of the CLB under the Companies Act, 1956, BIFR and AAIFR under the Sick Industrial Companies (Special Provisions) Act, 1985, and the jurisdiction and powers relating to winding up previously vested with the High Courts, into one separate and distinct forum.

Under the Companies Act 2013, the powers granted to NCLT and NCLAT are wider than that of CLB, BIFR and AAIFR. As per the latest notification of MCA issued on 30 November 2016, the adjudicating authority for corporate insolvency and liquidation i.e., companies and LLPs, is the NCLT. Apart from this, it will have the power to regulate its own procedure, power to punish for contempt, power to entertain class action suits and powers as are vested in a civil court under CPC.

The most significant reason of constituting NCLT and NCLAT by dissolving other adjudicating forums of corporate activities is to provide speedy, fair and efficient resolution of corporate disputes by fixing a recommendatory timeline for the tribunal to dispose-off cases within three months from the date of presentation of the application.

Recently, Cyrus Mistry, the spurned executive has demanded a reason for his dismissal from Tata Sons Ltd., the holding company of India’s $103 billion salt-to-software conglomerate, by filing a petition in the National Company Law Tribunal (NCLT) Mumbai to protect his interests against mismanagement and oppression of minority shareholders at Tata Sons. Mistry has also been removed from the post of chairman of software giant Tata Consultancy Services (TCS) by Tata Sons.

Earlier, oppression and mismanagement cases in corporate world were adjudicated by the CLB pursuant to Section 241 to 243 of the Companies Act 2013, but after the constitution of the NCLT, they stood transferred to the tribunal.

Mistry has made allegations; inter alia, of fraudulent transactions, unethical practices and conflict of interest. In the leaked letter dated 25 October 2016, Mistry wrote an email to members of the Tata Sons board and to trustees of the Tata Trusts alleging ‘total lack of corporate governance’ in the conglomerate where he says he was reduced to a ‘lame duck chairman’. He has questioned the investment decisions during Ratan Tata’s tenure in several group companies. He has called them ‘legacy hotspots’ and has also warned the board and trustees of a potential $18-billion write-down.

Tata Sons ltd., in its lightning quick rebuttal, alleged that Mistry betrayed trust and wanted control of the main operating firms of the group. By reflecting its concern towards the shareholders, the directors of Tata stated that the dividends from 40 other group companies had steadily declined from Rs 1000 crores in 2012-13 to Rs 780 crore in 2015-16 in Mr. Mistry’s tenure. It also said that while Mr. Mistry had shared some plans for growth and management structure when he was selected to be the group’s chairman, he did not implement those in his four years at the helm.

Meanwhile, Nusli Wadia has also been removed as a director from Tata Motors Ltd following an extraordinary general meeting (EGM), wherein, 71.2% of total votes supported a resolution of his removal. Wadia has filed a criminal defamation suit of Rs.3,000 Crore against Ratan tata and the board of Tata sons for posing the allegation of working in concert with Mistry.

When Cyrus Investments and Sterling Investments filed a petition citing oppression to minority shareholders, dismissal on mala fide grounds, mismanagement of Tata Sons, corporate governance violations, possibility of breach of insider trading regulations, probity in certain business decision and asked the tribunal to grant inter-relief by scrapping the board of Tata Sons, NCLT refused. It asked the petitioners to prove the allegations against Tata Sons.

Now it is only a matter of time to see if the NCLT finds any merit in any of the claims and if the Mistry companies (the minority shareholders) really have had to deal with oppression and mismanagement or not. If the tribunal finds so, it could pass an order, which includes regulation of the conduct of the affairs of the company in future, removal of the managing directors, manager or any of the directors of the company, restriction on transfer of its shares and purchase of shares of any member of the company by other members.