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Supreme Court upholds constitutional validity of company law tribunals

21 May 2015

The National Company Law Tribunal (NCLT), and National Company Law Appellate Tribunal (NCLAT) were contemplated as specialised tribunals in 2002. Taxand India discusses the constitutional validity to adjudicate matters relating to corporate restructuring, oppression and mismanagement, winding up and sick companies, under the Companies Act, 1956.  Taxand India explores the details.

The underlying intent was to speed up the adjudication process by providing for a specialised forum with an appropriate blend of legal and specific subject matter technical expertise.  The jurisdiction on such matters was hitherto exercised by High Courts, Company Law Board, and Board for Industrial and Financial Reconstruction.

In September 2014, the erstwhile Companies Act, 1956 was replaced by Companies Act, 2013 (new act).  Like its predecessor, the new act also contained provisions relating to constitution of NCLT and NCLAT, their jurisdiction and their operation.  It was expected that the provisions of the new act address the defects pointed out the Supreme Court judgment of 2010.

However, the constitutionality of the provisions of the new act was challenged again in fresh litigation on the issue, with the result that the set-up of these tribunals could not be proceeded with.  

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Taxand's Take

Addressing of the basic constitutional challenge on NCLT and NCLAT is a big step forward, and paves way for set up and operationalisation of these specialised fora.  One would hope that the other legal defects as pointed out by the Apex Court are cured expeditiously through appropriate legislative action.

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