COMPANY LAW

TOPIC – POWERS, FUCTION & JURISDICTION OF NCLT

SUBMITTED TO – ASST. PROF. PRIYANK JAGAWANSHI

SUBMITTED BY – Aryan Srivastava

BA.LLB 3rd year, 6th semester

Date- 01st June, 2021

 CERTIFICATE

This is to certify that the assignment titled “POWER,FUCTION & JURISDICTION OF NCLT”
submitted to the CHRIST ACADEMY INSTITUTE OF LAW, Bangalore by Aryan Srivastava for the
degree of law, is a bonafide research work carried out by her under my guidance.

Bengaluru Asst.. Prof. PRIYANK JAGAWANSHI

Date- 01-06-2020 CHRIST ACADEMY INSTITUTE OF LAW, Bengaluru

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 DECLARATION

I hereby declare that the assignment titled ‘POWER,FUCTION & JURISDICTION OF NCLT, which
I am submitting CHRIST ACADEMY INSTITUTE OF LAW is the outcome of the research carried under
guidance of Asst. Prof. PRIYANK JAGAWANSHI. The extent of information collected from existing
literature has been cited and fully acknowledged at the appropriate places. I further declare that this
assignment wholly or impart has not been submitted to any other college.

Bengaluru Aryan Srivastava

Date- 01-06-2021

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Table of Contents
INTRODUCTION ............................................................................................................................... 5
Formation of NCLT ............................................................................................................................ 5
Significance of NCLT and NCLAT ...................................................................................................... 6
Distinction among NCLT and NCLAT................................................................................................. 6
Foundation of NCLT ........................................................................................................................... 6
Notice of NCLT ................................................................................................................................... 7
POWER AND FUNCTION OF NCLT ................................................................................................ 7
WINDING UP OF A COMPANY .............................................................................................................. 12
ADDITIONAL POWERS........................................................................................................................... 12
JURISDICTION ............................................................................................................................... 12
CONCLUSION.................................................................................................................................. 13

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INTRODUCTION

The National Company Law Appellate Tribunal and the National Company Law Tribunal were established
by the central government on June 1, 2016. In June, the NCLT began operations in Delhi, and in July, it
expanded to other major cities across the country. The first-class activity suit has been documented in
Mumbai, and NCLT operations have begun. The authors aim to test the thought, nature, and extent of forces
of the National Company Law Tribunal using the methodologies for this Document study. The Hon'ble
Supreme Court of India introduced the request for a specific tribunal in the judgment of S.P. Sampath
Kumar v. Union of India 1987 SCR (3) 233, 1987 SCC Supl. 734, where the Hon'ble court accepted the
option institutional component hypothesis and held that since independence, the number of inhabitants in
the country has been steadily increasing, and as a result, debate under the constant gaze of t Furthermore,
the Shah Committee's report on the establishment of a specialized tribunal stated that, in view of the
overabundance of cases under the constant scrutiny of the courts, there is a crucial need to amend the
legislation relating to the establishment of an autonomous tribunal.
The Law Commission of India's 124th Report, published in 1988, expressed its viewpoint that as time
passes, different fields of law are being created, resulting in various types of debate, which is the primary
driver of excesses of cases. As a result, there is a need to establish an autonomous tribunal on a serious
basis. In this vein, the council has deemed it necessary to establish a special tribunal, as a result of which
the National Green Tribunal for environmental cases and the Central Administrative Tribunal for
administrative problems have been established. Furthermore, the parliament has established a special
tribunal to deal with business matters by passing the Companies Amendment Act, 2015.

Formation of NCLT

The Ministry of Corporate Affairs (MCA) issued a notification on June 1, 2016, regarding the establishment
of the National Company Law Tribunal (NCLT) and National Company Law Appellate Tribunal (NCLAT),
both of which would take effect on June 1, 2016. The formation of the aforementioned Tribunals is based
on the powers conferred by Sections 408 and 410 of the new Companies Act, 2013, respectively. The
establishment of the NCLT as a specialized institution for corporate justice is based on the
recommendations of the Justice Eradi Committee, which was established to examine existing law relating
to company winding up proceedings in order to re-model it in line with the latest developments and
innovations in corporate law and governance, as well as to suggest reforms in the procedure at various
levels.

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WHAT IS NCLT?

The National Company Law Tribunal (NCLT) is a quasi-judicial organisation that was established to
resolve disputes in Indian corporations. It is the Company Law Board's successor. The Central Government
establishes the rules that govern it. The NCLT is a special court that has jurisdiction over cases that would
otherwise be heard in a civil court.

Significance of NCLT and NCLAT

The NCLT is a semi-legal specialist established by the provisions of the Companies Act, 2013 to deal with
corporate issues of a general nature that arise under the Act. Like a formal courtroom, NCLT has forces
and a methodology. NCLT functions similarly to any other court of law in India, and it is required to fairly
decide the facts of the case and choose matters in accordance with common equity norms, as well as to
make rulings based on the choices it has made as necessary. The requests in this format can assist in
resolving a situation, correcting a corporate error, or imposing penalties/costs, as well as adjusting or
improving the rights, obligations, commitments, or advantages of the parties involved. For every
confirmation, the Tribunal is not required to observe rigorous procedural rules and valuation criteria.
The NCLAT is an Appellate Tribunal and a Reappraisal Expert that administers the interests that arise from
the NCLT's decisions. It is designed to maintain the check and adjust component as well as to correct any
errors made by the Tribunal, if any. It is a transitional investigative conversation, similar to that of a High
Court, in which the interests are guided by the NCLT's request or option. The NCLAT's decisions are also
being challenged in India's Supreme Court. The NCLAT conducts a study of NCLT's preferences and
requests and hires experts to keep them up to date.

Distinction among NCLT and NCLAT

The NCLT is responsible for the ground level, whereas the NCLAT is responsible for re-appraising wards
in the same way that a High Court is. NCLT takes into account confirmations and observers in order to
reach a conclusion and make decisions, while NCLAT, in general, audits NCLT's requests and decisions
and evaluates the reasonable purpose of law or truth. The NCLT's primary responsibility is to ascertain the
facts and grant confirmation regarding the suit filed, whereas the NCLAT makes decisions based on the
evidence acquired from witnesses and confirmations.

Foundation of NCLT

NCLT is an offshoot of the Eradi Committee. NCLT was intended to be presented in the Indian legal
framework in 2002 under the Companies Act, 1956, but because the prosecution of NCLT's established
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legality dragged on for almost ten years, it was later advised under the 2013 Act. Nonetheless, the capacities
and powers of NCLT under the Companies Act, the 1956 Act, and the 2013 Act differ. The sacred
legitimacy of NCLT and some associated arrangements were put to the test again in May 2015, and this
problem was picked. Although the Supreme Court upheld the NCLT's holy legitimacy, certain
arrangements were found to be in violation of safeguarded criteria.

Notice of NCLT

On June 1, 2016, the federal government advised on the arrangements for the establishment of the NCLT
and NCLAT. Initially, the Company Law Board's forces were transferred to the NCLT. Assist the Centre
has planned to infuse a second set of warnings via which the NCLT will be on an equal footing with the
High Courts and the BIFR. The NCLT currently has the CLB's forces as well as the newly infused
authorities granted by the Act of 2013.

POWER AND FUNCTION OF NCLT

CLASS ACTION

S.245 OF THE COMPANIES ACT PROVIDES FOR-

An application may be submitted with the tribunal by the company's members, depositors, or on behalf of
the members, alleging that the company's affairs have been conducted in a manner that is harmful to the
company's interests and requesting all or all of the following grounds:

The company may be restrained:

• from doing any act which is outside the scope of MOA and AOA,
• from committing any breach of the provision of MOA and AOA,
• and its directors from acting on such resolutions,
• doing any act which is either contrary to this act or any other act which is in force for time being,
• declaring any resolution which in turn alters the MOA and AOA and it becomes void if such
resolution is passed.
To claim either damages or compensation or to demand any other suitable action.
• company or directors of the company for any unlawful, fraudulent or wrongful act or omission
committed by them.
• auditor or audit firm of the company for improper or misleading statements.
• can seek any other remedy from the tribunal.
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 1. where the members of depositors claim damages or compensation or any other action against the
audit firm the liability shall fall on the firm and each and every partner who was involved in making
the improper or misleading statement.
2. the number of members for filing an application to tribunal shall be:
• Not less than one hundred members or members who are are not holding less than one-tenth shares
of total voting power in the company (in case the company is having a share capital) ; or
• Not less than one-fifth of people on the company’s register of the members (in case the company
does not have share capital).
1. The depositors shall be not less than one hundred depositors or not less than such percentage of total
depositors.
2. The tribunal shall see that the members and depositors have acted in good faith while an application
is made for seeking the order.
3. On the application made by the members or the depositors the tribunal shall issue a public notice to
be served on all of the members and depositors, where similar application is made from jurisdiction,
the tribunal shall consolidate and consider it as one application and the class members or depositors
shall be allowed to choose the lead applicant, and two class-action application filed for the same
cause of application shall not be allowed.
4. The orders which are passed by the tribunal shall be binding on the members, depositors, auditor
which includes audit firm, advisors, expert or consultant and any other person associated with the
company.
5. If the company fails to comply with the order which is passed by the tribunal the company shall be
punished with a fine of INR 5 lakhs which may extend to INR 25 lakhs and every officer of default
shall be punished with fine INR 25 thousand and which may extend to INR 1 lakh and with the
imprisonment of three years.
6. If the tribunal comes to the conclusion that the application filed is found to be frivolous or vexatious
the tribunal shall reject the application and record the reasons in writing and shall order the other
party to pay the cost which does not exceed INR 1 lakh.

OPPRESSION AND MISMANAGEMENT

Section 241 of the Companies Act, 2013 stipulates that every company member who has the right to register
a complaint with the tribunal under section 244 of the Act, 2013 must register a complaint with the tribunal
stating the following:

The firm's affairs are conducted in a manner that is harmful to the public interest, oppressive to him or any
other company member, or harmful to the company.

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A material change made by the firm that is detrimental to the firm's creditors, debenture holders, and
shareholders, and that has resulted in a significant change in the firm's management or control, such as:

1. alteration in the board of directors,

2. alteration of managers,
3. alteration of the member, or
4. any other reason.

As a result, the company's members believe that the company's affairs have been conducted in a manner
that is detrimental to the company's interests.

When the Central Government believes that the company's affairs have been conducted in any of the
following ways, and the tribunal finds that it has been harmful to the public interest or oppressive:

1. a member of the company is either guilty of fraud, misfeasance, persistent negligent, breach of trust
or is the default in carrying out the obligations and functions as per law; or
2. management of the company is not been carried out as per the sound principles or prudent
commercial practices; or
3. when a company is being conducted which causes serious injury to trade, business, industry; or
4. when a company is being managed with the sole motive to defraud creditors, members, or being
managed only for fraudulent or unlawful purposes which is against the public interest;
shall file an application to the tribunal for seeking the remedy.

INVESTIGATING POWERS

Section 213 of Companies Act, 2013 states:

• When an application is made to the tribunal by:

1. Company having share capital: Not less than one hundred members or members who are are not
holding less than one-tenth shares of total voting power in the company; or
2. A company having no share capital: Not less than one-fifth of people on the company’s register of
the members.
• When an application is made by any other person other than the member of the company to the
tribunal stating one of the circumstances:
1. affairs of the company have been conducted only with the intent to defraud the creditors or the
members or any of the other persons.

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 2. business is being conducted either for fraudulent or unlawful purposes.
3. business is being conducted in such a way it is oppressive to its members.
4. business is being formed only with sole motive for unlawful or fraudulent purposes.
5. persons who were engaged in the formation of the company or management of its affairs of the
company were either guilty of fraud, misfeasance or misconduct towards the company or any of its
members.
6. When members of the company have failed to give all the information to the company relating to
the affairs of the company which they are expected to give including the information relating to the
calculation of commission payable to managing director, director or any other manager of the
company and the tribunal may after giving the reasonable opportunity to the parties, the tribunal
feel that the affairs of the company should be investigated and for such purpose, the central
government shall appoint an inspector to investigate.
Provided after investigation it is proved that:
• affairs of the company have been conducted only with the intent to defraud the creditors or the
members or any of the other persons, or
• business is being conducted either for fraudulent or unlawful purposes, or
• business is being conducted in such a way it is oppressive to its members, or
• business is being formed only with the sole motive for unlawful or fraudulent purposes,
• persons who were engaged in the formation of the company or management of its affairs of the
company were either guilty of fraud, misfeasance or misconduct towards the company or any of its
members.
Then every officer of the company who is in default and a person who is engaged either in the formation
of the company or managing the affairs of the company shall be punished for fraud.

REOPENING OF ACCOUNTS

Section 130 of Companies Act, 2013 states that.

• Except on the order of central government, income tax authorities, SEBI, statutory body, the
order made by a court of competent jurisdiction or tribunal the company shall not open its
accounts or recast its financial statements and shall be allowed to do so when:

1. Earlier accounts were prepared in a fraudulent manner.

2. affairs of the company were mismanaged and casting a doubt on reliability of financial
statements.

• Before passing such orders, the tribunal shall give the notice to concerned authorities.
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REFUSAL TO TRANSFER SHARE

Section 58 of Companies Act, 2013 states:

• A private company which is limited by the shares or the public company which refuses to register
the transfer of shares of the transferor, the company shall within thirty days of transfer shall send
a notice to the transferor and transferee of such refusal.
• The transferee in return shall file the appeal to the tribunal within thirty days from the date of
receipt of the notice and in case no notice is sent by the company to the transferee, the transferee
shall file an appeal to the tribunal within sixty days from the instrument of the transfer.
• The tribunal shall hear the orders and after hearing such order shall either reject the appeal or
order the company.

1. To transfer the shares within ten days of an order.

2. Direct rectification of the register and also direct the damages to be paid if any sustained by the
aggrieved party.

• If any person contravenes with the order shall be punishable with imprisonment for a term which
shall be not less than one year but may extend to three years and with the fine which shall not
be less than INR 1 lakh but may extend to INR 5 lakh.

CONVERSION OF PUBLIC COMPANY INTO PRIVATE COMPANY

Section 13 to 18 of Companies Act, 2013 read with the Rule 41 of Companies(Incorporation) rule
2014 states when a company converts from a public company into private company an approval of NCLT
tribunal is required for such conversion. The tribunal may impose such terms and conditions as in section
459 of Companies Act, 2013.

ANNUAL GENERAL MEETING

As under section 97 and 98 of Companies act, 2013, if the members of the company fail to convene the
meeting within a particular time and the member of the company may give an application to the tribunal to
convene such meeting, the tribunal as such as the power to convene those meetings.

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WINDING UP OF A COMPANY

Section 242 of Companies Act, 2013 a company may be wound by the tribunal when the affairs of the
company have been conducted in any one of below manner, set under section 242 of the companies act,
2013 and by that tribunal comes to the conclusion that the company has been prejudicial to public interest
or in an oppressive manner.

ADDITIONAL POWERS

1. Section 221 of Companies Act, 2013 power of the tribunal to freeze the assets of the company.
2. Section 2(41) of Companies Act, 2013 power to change the financial years of the company
registered.

JURISDICTION

Territorial

The NCLT before which the application under IBC is to be filed depends upon the location of registered
office of the corporate debtor against which the insolvency application has to be filed. Therefore, the
application to initiate the insolvency resolution process shall be filed in the territorial jurisdiction of that
NCLT within whose jurisdiction the registered office of the corporate debtor is situated.

Appeal

Anyone who is aggrieved by the order of NCLT shall approach or file an appeal against the impugned order
before NCLAT. The person has to file the appeal within the time period of 45 days from the date of
receiving the order. Also, the extension period of 45 days is allowed to the aggrieved while filing an appeal
before the NCLAT.

Anyone aggrieved from the orders of NCLAT has to approach the Supreme Court filing an appeal against
the impugned order.

NCLT and IBC

Insolvency applications against the corporate persons who owes a debt to some creditors and defaults in
making the payment to the creditors (financial or operational) shall be filed in the NCLT.

According to section 61 any aggrieved person can file an appeal before the NCLAT with 30 days of
receiving the order.

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CONCLUSION

The purpose of this paper is to evaluate the role of the National Companies Law Tribunal under various
laws. After its implementation, this law provided tremendous assistance to the corporate sector. Now, after
its implementation, certain judges who are experts in this field will judge the cases and provide equity as
quickly as possible. The reshaping of NCLT/NCLAT is a long-overdue change that has been welcomed by
all. The Tribunal will also have the ability to affect its own processes; there will be quick resolution and
things will be disposed of quickly. Currently, the tribunal has the authority to hear class action lawsuits,
which will usher in a new and different type of investor majority rules system in India, similar to that used
in other Western countries. This will assist Indian businesses in implementing more advantageous corporate
governance practices, hence increasing the value to investors. MCA's current challenge is managing the
time it takes to transition from CLB to NCLT, which they should have planned for. This wouldn't have
happened if CLB had been broken down before NCLT was formed, which would have sped up the process.
As a result, it is possible to conclude that the NCLT reduces the number of lawsuits filed in various forums
and courts.

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Reference:

i. corporatelawreporter.com> Companies_act_2013
ii. Company law book (2016) by Avtar Singh
iii. company law book by J. Santhi (2015)
iv. https://economictimes.indiatimes.com/news/economy/policy/nclt-to-set-up-three-more-benches-
in-bhubaneswar-jaipur-and- kochi/articleshow/62620095.cms
v. http://www.livemint.com/Companies/54SAerbrkwSBh2QTglyPmM/NCLT-to-hear-final-
arguments-in-McDonalds-case-on-15- March.html
vi. http://www.mca.gov.NationalCompanyLawTribunalAmdtRules_0 6072017.pdf
vii. http://www.companiesact.in/download/NCLT_and_NCLAT.doc

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