I.

Abstract
A dispute resolution mechanism is an organized process that addresses disputes or grievances
that arise between two or more parties involved in business, legal, or societal relationships.
Under the Companies Act 1956, there were a number of dispute resolution forums/bodies to
provide judicial settlement in a wide range of business issues and the Indian Companies were
required to approach these multiple forums for resolving their disputes based on the subject
matter in dispute. This resulted in a backlog of number cases, protracted litigation time,
which was considered as major impediments to ease of doing business in India.

II. Introduction
The scope of this article pertains to reviewing and critically examining the key changes in the
regulatory framework governing dispute resolution by undertaking a comparative analysis of
the Companies Act 1956 with the 2013 Act. Brief reference shall be made to the rules,
notifications, circulars and orders issued by the ministry of corporate affairs (‘MCA’)
pursuant to the 2013 Act. In this regard the article seeks to answer the following main
research questions:
1. What are the key differences in the positions under the 1956 and 2013 Acts with
regard to dispute resolution?
2. How far the dispute resolution mechanism changed under the 2013 Act?
3. Has the regime under the 2013 Act fulfilled its objective of providing an effective
dispute resolution mechanism under the companies Act?
The various dispute resolution mechanisms/forums under the Companies Act, 2013 are:
a. NCLT and NCLAT (National Company Law Tribunal and Appellate Tribunal)
b. SIFO (Serious Fraud Investigation Office )
c. Mediation and conciliation panel
d. Special courts
e. Compounding of offence

III. National Company Law Tribunal and Appellate Tribunal

(Sections 407-434)
 The setting up national company law tribunal (NCLT) and National Company Law
Appellate Tribunal (NCLAT) is a paradigm shift with the objective of establishing a
single forum to adjudicate all disputes relating to companies India.
 The idea of setting up a single forum dealing with all the matters under the
Companies Act 1956 was not new and was introduced earlier by the Companies
(Second Amendment) Act, 2002 which provided the legislative framework for the
Constitution of NCLT. However, the constitutional validity of the NCLT and NCLAT
was challenged in Thiru R. Gandhi, President Madras Bar Association V. Union of
India, wherein the Madras High court held that certain characteristics of the tribunal
violated the constitutional principles of separation of powers and independent of the
 judiciary by vesting essential judicial functions in a non-judicial body consisting of
non-judicial members. However, the Supreme Court of India on 11th May 2010 gave a
ruling that the provisions of Companies (Second Amendment) Act, 2002 pertaining to
transfer of several judicial and quasi- judicial powers under the Act to NCLT are
constitutionally valid while holding that the qualifications of technical members and
the Composition of selection committee of such members as prescribed in the statute
had defects and required correction.
 In one more judgement in Madras Bar Association vs Union of India the Hon’ble
Supreme Court found that defects as found in Companies (Second Amendment) Act,
2002 also existed in the provisions of the Companies Act, 2013.
After Much debate the government on June 1, 2016,issued notifications, bringing into effect
several sections of the Companies Act 2013, and setting up NCLT and NCLAT. The NCLT
will have 11 benches initially, two at New Delhi and one each at Ahmedabad, Allahabad,
Bengaluru, Chandigarh, Chennai, Guwahati, Hyderabad, Kolkata and Mumbai. The NCLT
will comprise a president and judicial and technical members, as necessary.
 The new tribunal would prove an effective and efficient alternative forum to the wide
variety of forums/bodies entrusted with enforcement of the company law. NCLT will
replace the Company Law Board (‘CLB’), The Board for Industrial and Financial
Reconstruction (‘BIFR’), Appellate authority for industrial and financial corporation
(‘AAIFR’) and High Court. The Company Law Board (‘CLB’) is mainly concerned
with the shareholder actions relating to oppression and management and
miscellaneous aspects such as a change in registered offices, approving share issuance
at discount to face value, and investigation of the affairs of the company by an
inspector. The Board for Industrial and Financial Reconstruction (‘BIFR’) was
established under the purview of the Sick Industrial and Companies (Special
Provisions) Act, 1985, for revival and rehabilitation of potentially sick industrial
undertakings and for liquidation or closure of non-viable and sick industrial
companies.
 The high court deals with Specific matters under the Act of 1956, mainly,
compromise, amalgamation, merger, reduction of share capital, winding up of a
company, statutory appeals from the CLB and constitutional writ petitions against
orders of BIFR and Appellate authority for industrial and financial corporation
(‘AAIFR’).

IV. Various types of matters proposed to be dealt by NCLT,

1. Class Action suit
2. Determine matter related to incorporation of a company
3. Re-opening and revise of Books of account
4. Removal of auditor
5. Merger of small companies, holding and subsidiary companies.
6. Additional power in case of non-payment of deposits
V. Consequences of the introduction of NCLT
1. Establishment of NCLT has led the consolidation of all the company related matters
pending before the various forums such as such as CLB, BIFR and different high
courts across the country under one roof and the powers hereto undertaken by these
forums will be now carried out by the NCLT. Thus NCLT provides one stop solution
for adjudication of company matters
2. In pursuant of Section 422 of Companies Act, 2013, the NCLT and NCALT are
mandated to dispose-off applications filed before it within a period of 3 months from
the date of filing. However, an extension of 90 days may be granted by the President
of NCLT or Chairperson of NCLALT for the disposal of the matter.
3. Presently, the high courts are burdened with matters including winding up of
proceedings. Transfer of such proceeding to NCLT is expected to reduce the burden.
Furthermore, as the appeal from an order of NCLT will lie before the NCLAT, there
will further reduction in the burden of high courts, considering that earlier appeal
from the CLB was filed before high Court.
4. With the notification of the provisions of Bankruptcy Code, NCLT would form a
forum which offers a completely novel and improved process for the liquidation of
Companies in India.
However, not all the provisions related to NCLT and NCLAT have been notified and the
Government also appears to have taken a phase-wise approach towards enforcing this
framework by transmitting certain matters under NCLT jurisdiction for the time being.

VI. Special Courts (Sections 435 – 438)

 The Central government has been empowered to establish ‘Special Courts’ for the
speedy disposal of certain offences punishable under the Companies Act, 2013, with
imprisonment of two years or more, by notification to establish or directly designate
to set up Special Courts. The objective behind setting up these courts is to let
magistrate courts attempt try minor violations, and that grave offences ought to be
managed by Special Courts. To achieve this objective the MCA has notified the
provisions dealing with ‘Special Courts’ vide its notification dated 18th May 2016.
 Further, by another notification dated 18th May 2016, MCA after obtaining the
concurrence of the respective Chief justices of the High Court, has designated eight
courts as “Special Courts”. As per the notifications, these courts have been designated
for the purposes of the trial of offences punishable with imprisonment of two years or
more in terms of Sec 435 of the Companies Act 2013.

VII. Constitution of Special Court

A Special Court Shall consists of a Judge who shall be appointed by the Central Government
of India in consensus with the Chief Justice of High Court within whose jurisdiction the
Judge to be appointed is working. A person being appointed as Special Court Judge must be
holding the office Session Judge or an Additional Session Judge immediately before such
appointment.
All offence under the Companies Act shall be triable by the Special Court having jurisdiction
over the area of the registered office of the company in relation to which the offence is
committed. The provisions of the CRPC, 1973 shall apply to the proceedings before a Special
Court. The Special Court shall be deemed to be a Court of Session and the person conducting
a prosecution before a Special Court be deemed to be a Public Prosecutor.

VIII. Mediation and Conciliation Panel (Section 442)

 In general parlance, mediation means an intervention of some neutral third party in a
dispute with an intention to resolve the dispute.
 The Constitution of Mediation and Conciliation panel was the new provision which
was inserted in the Companies Act, 2013. Sec 442 of Companies Act 2013 authorises
the Central Government to maintain a panel of experts to be called as mediation panel
for the purpose of effectuating mediation between parties during any proceedings
pending before Central Government or NCLT or NCLAT.
 This provision has come into force with effect from 1st April 2014 vide its notification
dated 26thMarch 2014 by MCA. On 9th September 2016, MCA notified the
Companies (Mediation and Conciliation) Rules, 2016 which provides rules and
guidelines for empanelment as Mediators or Conciliators. The Rules ensure that the
Panel acts in good faith, by specifying certain ethics that should be followed by every
member of the Panel, these include, upholding principles of natural justice towards
the parties, especially by keeping in view of the relationship of faith that should be
maintained throughout the proceedings.
 According to this provision, the parties to the dispute may voluntarily apply to the
relevant authority i.e., Central Government, NCLT or NCLAT (as the case may be) to
refer the matter to the Mediation Panel. Alternatively, the Central Government, NCLT
and the NCLAT before which any proceedings are pending may, on its own, refer any
matter pertaining to such proceedings to the Mediation Panel. The Mediation Panel
shall dispose of the matter within three months from the date of reference. However,
disputes relating to investigations initiated under Chapter XIV of the 2013 Act i.e.
those involving serious and specific allegations of fraud, or misfeasance and
malfeasance of the officers of the company, or cases involving prosecution for
criminal and non-compoundable offences cannot be referred to mediation conciliation
panel
 The goal of all mediation is to facilitate the parties to arrive at an amicable settlement
and at the same time it ensures the protection of confidentiality of information of the
parties to the dispute and prohibits the use of such of the information in any other
proceedings. Also, the mediation process is cost effective and less time consuming
when compared adjudication before Courts, Tribunals or even arbitral tribunal.
 If the mediation is successful, it may result in a settlement agreement with the consent
of all parties and the same shall be submitted by the panel to the relevant authority
and the aggrieved parties can file its objections before relevant authorities. If the
 settlement does not arrive between the parties to the dispute then panel may refer the
matter back to the relevant authority for adjudication of the matter.

IX. Compounding of certain offences (Section 441)

 Compounding of an offence is a settlement mechanism, by which, the offender
(Company or an officer thereof) is given an option to pay money as a replacement for
of his prosecution, thereby avoiding a prolonged litigation (Bradford Investments Plc.
(No.2), Re, 1991 BCLC 688). It is a short cut method to circumvent litigation and to
bring an end to a default.
 The MCA vide its notification dated 1st June 1, 2016, notified Section 441 of
Companies Act, 2013, dealing with “Compounding of Certain offences”. The concept
of compounding of offence is not new, Section 441 of 2013, Act is a re-enactment of
Section 621A of the Companies Act, 1956.It provides for compounding of certain
offences involving the imposition of fine as punishment and it provides a silver lining
for settlement of offences out of court within a short time frame.

THREE MAJOR DEVELOPMENTS/CHANGES BROUGHT BY

SECTION 441
1. Offences punishable with (a) imprisonment or fine; or (b) imprisonment or fine or
both; shall now be compounded with permission of Special Court.
2. Presently, any offence punishable with fine only, cannot be compounded, if the
inquiry against such company has been initiated or is pending under 2013, Act

X. Compoundable offences and authorities authorised to

Compound the offence
Any offence punishable with fine only and where the maximum amount of fine which may be
imposed for such offence does not exceed five lakh rupees may be compounded by the
Regional Director. Any offence punishable under this Act with fine only and where the
maximum amount of fine which may be imposed for such offence exceeds five lakh rupees
may be compounded by the NCLT. The offences which are punishable by fine or
Imprisonment; fine or Imprisonment or with both may be compoundable with the permission
of Special Court.

XI. Non-Compoundable offences

Compounding of offences is not possible in the following circumstances:
1. If either the investigation against the company or officer thereof has been initiated or
is pending [Third Proviso to Section 441(1)].
 2. Where similar offence committed has been compounded and period of three years has
not expired [Section 441(2)].
3. Any offence which is punishable under this Act with imprisonment only OR with
imprisonment and also with the fine; cannot be compounded [Section 441(2)]

XII. Serious Fraud Investigation Office (Sections 211 and 212)

Serious Fraud Investigation Office (SFIO) is a multi-disciplinary fraud investigation agency
established under Ministry of Corporate Affairs. It consists of experts in the field of the
capital market, accountancy, information technology, forensic audit, law, investigation,
company law, and taxation for detecting and prosecuting or recommending for prosecution
white-collar crimes/frauds. SIFO was constituted by the Government of India on 9 January
2003, since then it continues as a non-statutory body of the Ministry of Corporate Affairs.

The Companies Act 2013, gave a statutory recognition to SFIO by establishing the SIFO and
empowering it to act as a nodal agency for investigating of frauds in the affairs of the
company under Sections 221 and 212, respectively, which were notified by MCA 26th March
2014[ii]. In 1956, Act there was no specific provision for SIFO and the investigation by SIFO
was done only on the request by MCA. SFIO is conferred with the powers of a magistrate and
issue orders for the arrest of a person. The terms and conditions of service of Director,
experts and other officers of SIFO are specified in Companies (Inspection, Investigation and
Inquiry Rules), 2014.

XIII. Conclusion
From the above data is clear that Government of India has taken various measures to amend
the legislation and introduced the new provisions in the Companies Act, 2013 and address
public concern over corporate accountability and responsibility. This establishment of NCLT
and NCLAT will reduce, a multiplicity of litigations, ensure speedy and efficient resolution
of company related disputes in India. Further, the new provision in the 2013 Act with regard
to the compounding of offences, Special court, and the establishment of mediation panel,
provision of statutory status to SIFO is a boon and all concerned companies hope for speedy
settlement of disputes. This new provisions under the Companies Act, 2013, would help India
to improve its global ranking, in World Bank report as the country for ease of doing business.

XIV. References
The Companies Act, 1956.
1. The Companies (Amendment) Act, 1996.
2. The Companies (Amendment) Act, 1999.
3. The Companies (Amendment) Act, 2000.
4. The Companies (Amendment) Act, 2002.
 5. The Companies (Second Amendment) Act, 2002.
6. The Companies (Amendment) Bill, 2003.
7. Modernising Company Law – White Paper presented by the Secretary of State for Trade and
Industry (July 2002).

8. Report of the R D Joshi Committee on the Companies Bill, 1997 (2002).

9. International Company and Commercial Law Review, A Sweet & Maxwell Publication.
10. Dr. S D Israni & K Sethuraman, "The Companies (Amendment) Act, 2000—A Critical
Analysis" Chartered Secretary, Dec. 2000.
11. Dr. S P Narang — Highlights of the Companies (Amendment) Bill, 2001, Companies (Second
Amendment) Bill, 2001 and Sick Industrial Companies (Special Provisions) Repeal Bill, 2001,
Chartered Secretary, Sept. 2001.