NCLT : An Overview

Posted on 30 June, 2023 by Pranjal Srivastava

INTRODUCTION

The Central Government constituted National Company Law Tribunal (NCLT) under section 408 of the Companies Act, 2013 w.e.f. 01st June 2016. It was constituted to consolidate and replace the Company Law Board (CLB), Appellate Authority for Industrial and Financial Reconstruction (AAIFR) and the Board for Industrial and Financial Reconstruction (BIFR), which were the respective forums for company law and corporate restructuring matters under the earlier laws.

Acts covered under NCLT-

The NCLT primarily deals with matters related to corporate law, including:

Companies Act, 2013: The NCLT has jurisdiction over various matters under the Companies Act, such as mergers and amalgamations, corporate restructuring, oppression and mismanagement cases, winding up of companies, and class action suits.

Insolvency and Bankruptcy Code, 2016 (IBC): The NCLT is responsible for the adjudication of insolvency and bankruptcy cases filed under the IBC. It deals with matters related to the resolution, liquidation, and insolvency of companies and individuals.

Other Acts: The NCLT also has jurisdiction over cases arising from other legislations concerning company law, such as the Competition Act, 2002, the Securities and Exchange Board of India (SEBI) Act, 1992, and the Indian Partnership Act, 1932, among others.

JURISDICTION OF NCLT UNDER THE COMPANIES ACT, 2013

Change in the financial of the company

Conversion of the company

Variation of shareholder’s rights

Refusal to register and rectification of share

Rectification of registration of a member

Reduction of share capital

Restriction on incurring liabilities

Reopening of the accounts of the company

Compromise or arrangement between the company and its creditors

Oppression and mismanagement

Winding up of a company

Winding up of foreign companies

Class Action

HOW IS INSOLVENCY AND BANKRUPTCY CODE (IBC) RELATED TO NCLT:

It is pertinent to note that, the Insolvency and Bankruptcy Code, 2016 have recognised the National Company Law Tribunal (hereinafter referred as NCLT) which is constituted under Section 408 of the Companies Act, 2013 as the Adjudicating authority for the purpose of insolvency resolution as well as the liquidation of corporate persons.

The Supreme Court has held that if the existence of a financial debt and its default on the part of Corporate Debtor has been proved, then the National Company Law Tribunal (“NCLT”) is left with no option apart from admitting the petition under Section 7 of the IBC 2016.

Main IBC Sections under which the cases has been filed- (reviewed 15 latest Cases)

S.7 Initiation of corporate insolvency resolution process by financial creditor.

S.9 Application for initiation of corporate insolvency resolution process by operational creditor.

S.12 Time-limit for completion of insolvency resolution process.

S.14 Moratorium.

S.60(5) Adjudicating Authority for corporate persons.

S.59(7) Voluntary liquidation of corporate persons.

Most of the cases were of non-payment of debts leading to initiation of the corporate insolvency resolution process (CIRP).

Liability of director at the time of insolvency resolution-

The directors are not mandated to commence insolvency proceedings and there are no specific provisions in the IBC penalizing directors or officers for carrying on business while insolvent. However, there are wrongful trading provisions in the IBC that make directors liable to contribute to assets of the debtor if, before insolvency commencement, the director knew or ought to have known that there was no reasonable prospect of avoiding the commencement of the debtor’s resolution process and the director failed to exercise due diligence in minimizing the potential loss to the creditors of the debtor. Hence, under this wrongful trading provision, a director could be made liable for carrying on business while insolvent if he or she knew (or ought to have known) about the insolvency and failed to exercise due diligence during this period in minimizing the potential loss to the creditors.

Matters related to NCLT-

Regulation and compliance of the Ministry of Corporate Affairs (MCA) that were dealt with under the National Company Law Tribunal (NCLT)

Fund Misappropriation

Debt Recovery.

Intellectual Property.

Restoration of Companies.

In a discussion with Adv V.K. Singh of Singh's Law Office further key functions of NCLT can be noted as follows:

Company Law Matters: The NCLT has jurisdiction over a wide range of company law matters, including mergers, amalgamations, and demergers. It also handles cases related to oppression and mismanagement, class action suits, winding up of companies, and reduction of share capital.

Insolvency and Bankruptcy: The NCLT plays a crucial role in the resolution of insolvency and bankruptcy cases. It oversees the corporate insolvency resolution process, approves or rejects resolution plans, and adjudicates on matters related to liquidation and debt recovery.

Rehabilitation of Sick Companies: The NCLT is responsible for the rehabilitation of sick or financially distressed companies. It has the power to revive and restructure such companies, ensuring their continued operation and protecting the interests of stakeholders.

Mediation and Alternate Dispute Resolution: In addition to adjudication, the NCLT promotes mediation and alternative dispute resolution methods. It encourages parties to explore amicable settlements and resolves disputes through mediation, conciliation, or negotiation, thereby reducing the burden on the judicial system.

Appeals and Appellate Jurisdiction: The NCLT serves as the first level of appeal for various orders passed by the Registrar of Companies and the Regional Director. Its decisions can be further appealed to the National Company Law Appellate Tribunal (NCLAT).

Conclusion:

The National Company Law Tribunal (NCLT) is a vital institution in India's corporate governance and dispute resolution framework. With its specialized jurisdiction and dedicated benches, the NCLT has significantly expedited the resolution of company law matters, insolvency cases, and the rehabilitation of distressed companies. By providing an efficient and effective platform for adjudication and promoting alternative dispute resolution methods, the NCLT plays a pivotal role in upholding corporate justice and ensuring the smooth functioning of India's corporate sector.

As the NCLT continues to evolve and adapt to emerging challenges, it holds the potential to enhance transparency, accountability, and investor confidence. By fostering a fair and predictable corporate environment, the NCLT contributes to the growth and development of India's economy, making it an essential pillar of the country's legal infrastructure.