Supreme Court gives green signal for setting up National Company Law Tribunal and Appellate Tribunal


The Supreme Court today held that non-judicial/technical members of National Company Law Tribunal (NCLT) and National Company Law Appellate Tribunal (NCLAT) should be persons above the rank of Additional Secretary in the service of Government of India.

It, however, upheld the Constitutionality of NCLT and NCLAT on the ground that the same has already been upheld in the case of Union of India v. R Gandhi. This would mean that the Court has given Central government the green signal to set up and operationalise the tribunals.

The decision was given by a Constitution Bench of Chief Justice HL Dattu and Justices AK Sirki, Arun Mishra, Rohinton Fali Nariman and Amitava Roy in a petition filed by Madras Bar Association (Petitioner) challenging the provisions of Chapter XXVII of the Companies Act, 2013.

The matter was initially being heard by a three judge Bench that had referred the case to a Constitution Bench earlier this year. The Constitution Bench had heard the matter in a day and reserved its judgment. Senior Advocate Arvind Datar had represented the Petitioner while Additional Solicitor General PS Patwalia had appeared for the Central government.  

The Petitioner had assailed Chapter XXVII of the Companies Act, 2013 “more particularly Sections 408, 409, 411(3), 412, 413, 425, 431 and 434” as ultra vires the provisions of Article 14 of the Constitution on, inter alia, the following grounds:

“[The Sections] are directly in contravention of the judgment of this Hon’ble Court in Union of India vs R. Gandhi, wherein this Hon’ble Court laid down specific guidelines to be complied with by the Parliament when the NCLT and NCLAT are constituted.

Chapter XXVII of the Companies Act, 2013, which envisages the setting up of the NCLT and NCLAT makes room for persons within the Executive branch to secure appointment as Members and after their appointment, will continue to retain lien on their substantive post. A Tribunal constituting of such persons cannot be regarded as one which is independent and impartial, and which can discharge State's inherent judicial powers in the manner in which it should be discharged.

That in the present provisions, the qualifications prescribed for members of the proposed Tribunal will easily permit members of the general civil service to become members of the NCLT despite the contrary observation by the Supreme Court  that a Technical Member shall be an expert in the field of the Tribunal.”

The petitioner had also challenged the decision of the Legislature to bring the NCLT and NCLAT under the Ministry of Corporate Affairs as opposed to the Ministry of Law and Justice which was the direction in R Gandhi’s case. Contending that there is no other country wherein company law disputes are decided by Tribunals, the Petitioner had also alleged that the object of the provisions is to strip the judiciary of its powers and vest it with the executive and make the judiciary subservient to the executive.

A Constitution Bench of the Supreme Court had struck down the Constitutional validity of National Tax Tribunal Act, 2005 in September last year in a petition filed by the same petitioner.

Two other petitions regarding control over tribunals are also being heard by the Supreme Court. One of this is an appeal from the Punjab & Haryana High Court by the Ministry of Defence (MOD) which wants to retain control over the Armed Forces Tribunal (AFT). The High Court had divested the MoD of control over the AFT and given it to the Ministry of Law and Justice. Similarly, another petition pertains to whether the Debt Recovery Tribunal should be brought under the control of the Ministry of Law and Justice. 

Read the full text of the judgment below:-

Madras Bar Association v. Union of India


Source: Bar & Bench