The Jurisdiction and Functions of The National Company Law Tribunal
The Jurisdiction and Functions of the National Company Law Tribunal
The National Company Law Tribunal (NCLT) plays a pivotal role in the Indian corporate landscape, serving as a specialized quasi-judicial body entrusted with adjudicating a broad spectrum of matters related to Indian companies and company registration. Established on June 1, 2016, under Section 408 of the Companies Act 2013, the NCLT emerged as a comprehensive forum consolidating various legal facets previously dispersed across different platforms. This article delves into the jurisdiction and functions of the National Company Law Tribunal.
National Company Law Tribunal
NCLT, or the National Company Law Tribunal, is a quasi-judicial body established to handle disputes within Indian companies. Before its inception, the powers and functions related to companies were managed by the Company Law Board and the Board for Industrial and Financial Corporation. Constituted by the Central government under Section 408 of the Companies Act, 2013, NCLT officially started its operations on June 1, 2016, following the recommendations of the Justice Eradi Committee.
NCLT serves as a specialized court, succeeding the Company Law Board, with exclusive jurisdiction over cases related to civil courts. Governed by rules framed by the Central Government, it plays a crucial role in resolving disputes and maintaining legal order within the Indian corporate landscape.
Objective of National Company Law Tribunal
As mentioned above, before the establishment of the National Company Law Tribunal (NCLT), various matters related to companies were handled by different forums for adjudication.
Under the Companies Act of 1956, the Company Law Board had jurisdiction over issues concerning companies, while the Board for Industrial and Financial Reconstruction dealt with matters related to sick and distressed industries, along with the adjudication of the problems regarding debts in those industries.
The NCLT was instituted on June 1, 2016, with the following objectives:
- Consolidating all matters related to companies under one unified platform.
- It addressed issues related to sick and distressed industries, taking over this responsibility from the Board for Industrial and Financial Reconstruction, which had not achieved its objectives.
In addition to handling company matters under the Companies Act of 2013, the NCLT also has jurisdiction over insolvency proceedings for companies and limited liability partnerships (LLPs) under the Insolvency and Bankruptcy Code of 2016 (IBC 2016).
Major Functions of National Company Law Tribunal
The National Company Law Tribunal serves various critical functions outlined in the Companies Act 2013. These functions encompass:
Registration of Companies & Deregistration
Under the Companies Act 2013, the NCLT has the authority to question the legitimacy of companies due to procedural errors during incorporation and registration. It can take actions ranging from cancelling a company’s registration to dissolving it. Additionally, the NCLT can render the liability or charge of members unlimited in certain situations, allowing it to de-register a company obtained through wrongful or illegal means (Section 7(7) of the Companies Act, 2013).
Class Action- Section 245 of the Companies Act
Under Section 245 of the Companies Act 2013, individuals, including members and depositors of a company, can apply with the tribunal if they believe that the company’s affairs have been conducted in a manner detrimental to its interests. The application can be made on various grounds:
Restraining the Corporation
It prohibits the company from engaging in activities beyond the scope of its Memorandum of Association (MOA) and Articles of Association (AOA).
- They prevent violations of the MOA and AOA terms, with directors barred from acting on such resolutions.
- They are restricting actions contrary to the Companies Act or other prevailing legislation.
- Declaring void any resolution that modifies the MOA and AOA if such modification is approved.
Seeking Damages or Compensation
Members, depositors, or their representatives can seek damages, compensation, or any other appropriate action.
Liability:
- Hold the corporation or its directors accountable for illegal, fraudulent, or wrongful acts or omissions.
- Holds the company’s auditor or audit firm responsible for providing incorrect or misleading information.
Procedure to File a Complaint with the Tribunal
The tribunal may be approached for any other suitable remedy.
- The application can be submitted by not fewer than one hundred members or members controlling more than one-tenth of the entire voting power (for firms with share capital).
- The application requires not less than one-fifth of the persons on the company’s membership list in companies without share capital.
- Depositors must number at least one hundred or a specific proportion of all depositors.
The tribunal ensures that members and depositors have acted in good faith during the application process.
Criteria for a Member to file a Complaint
Sufficiency and Mismanagement Section 241 of the Companies Act 2013 outlines the criteria for a member to file a complaint with the tribunal under Section 244. The complaint must state the following:
- The company’s affairs are conducted in a manner detrimental to the public interest, oppressive to the complainant or any member, or harmful to the company.
- A significant change has occurred that harms the interests of creditors, debenture holders, and shareholders, resulting in a significant shift in management or control, including changes in the board of directors, replacement of managers, member modification, or other reasons. The members believe that this change is detrimental to the company’s interests.
If the Central Government believes that the company’s affairs are managed in ways harmful to the public interest or oppressive, it can apply to the tribunal seeking remedy when:
- A corporate member is guilty of fraud, misfeasance, chronic negligence, breach of trust, or default in legal responsibilities.
- The company’s management deviates from sound principles or sensible business procedures.
- Business activities cause severe harm to trade, business, or industry.
The company is run to defraud creditors or members or for fraudulent or criminal objectives against the public interest.
Investigative Authority
According to Section 213 of the Companies Act of 2013:
- A company with a share capital can apply to the tribunal if at least one hundred members or members holding at least one-tenth of the total voting power support it.
- A company with no share capital requires support from not less than one-fifth of the people on the company’s membership list.
- Someone other than a company member can apply to the tribunal, citing circumstances such as fraudulent conduct, oppressive behaviour, or illegal activities.
The tribunal may order an investigation if members fail to provide necessary information about the company’s affairs. If the investigation reveals fraud, illegal activities, oppressive conduct, or misconduct, the responsible individuals, including officers and those involved in company formation, will be punished for fraud.
Consolidation of Applications
- Similar applications from different jurisdictions can be consolidated into a single application.
- Class members or depositors can choose a lead applicant, and duplicate class-action applications for the exact cause are prohibited.
Binding Rulings
The tribunal’s rulings have a binding effect on members, depositors, auditors (including audit firms), advisers, experts, consultants, and any other individuals associated with the corporation.
Penalties for Non-Compliance
- Failure to comply with the tribunal’s ruling can result in fines and imprisonment for corporate officers.
- The tribunal can impose fines on the corporate body, ranging from INR 5 lakhs to INR 25 lakhs, and penalties on each officer in default, ranging from INR 25 thousand to INR 1 lakh.
Frivolous or Vexatious Applications
- The tribunal has the authority to reject applications deemed frivolous or vexatious.
- The party filing such applications may be compelled to pay costs not exceeding INR 1 lakh to the other party.
Transfer of Shares
The NCLT is empowered to address grievances about rejecting share and securities transfers (Sections 58-59 of the Act). Once under the Company Law Board, this authority now covers all securities issued by any company, expanding from the limited scope under the Companies Act of 1956.
Deposits
Chapter V of the Companies Act 2013, dealing with deposits, was initially overseen by the Company Law Board but now falls under the purview of the NCLT. This chapter provides a remedy for depositors through class action suits for company omissions and acts affecting their rights.
Power to Investigate
The Companies Act of 2013 grants the NCLT the power to order investigations into a company’s affairs. While 200 members were previously required to apply to an inquiry, the threshold has been reduced to 100 members. The NCLT can also order an investigation based on the request of a person unrelated to the company, and the investigation may extend beyond India with provisions for international cooperation.
Freezing Assets
The NCLT holds the authority to freeze a company’s assets for future use during an investigation and to order an investigation upon request under specific conditions.
Conversion of Company Type: Public Company to Private Limited Company
Sections 13-18 of the Companies Act 2013, along with rules, govern the conversion of a public limited company to a private limited company. Such conversions require confirmation from the NCLT, which can impose conditions or restrictions and grant approvals subject to these conditions (Section 459 of the Act).
Accounts can be Reopened.
As per Section 130 of the Companies Act of 2013, a company is prohibited from opening its accounts or reworking its financial statements unless ordered by the central government, income tax authorities, SEBI, a statutory body, a court of competent jurisdiction, or a tribunal. The company is allowed to reopen its accounts or revise its financial statements only under the following circumstances:
- Previously, fraudulent accounts were prepared.
- The company’s affairs were mismanaged, raising concerns about the accuracy of its financial statements.
- Before issuing such orders, the tribunal is required to notify the relevant authorities.
Annual General Meeting
As per Sections 97 and 98 of the Companies Act of 2013, if the members of a company neglect to conduct the annual general meeting within the stipulated timeframe, any company member is entitled to approach the tribunal for the convening of such a meeting. The tribunal possesses the authority to call these meetings if necessary.
Winding up of Company
According to Section 242 of the Companies Act 2013, the tribunal has the authority to wind up a company if it determines that its affairs have been conducted in a manner specified in the section and that such conduct is prejudicial to the public interest or has been oppressive.
Additional Capabilities
Under Section 221 of the Companies Act of 2013, the National Company Law Tribunal is empowered to freeze a company’s assets. Additionally, according to Section 2(41) of the Companies Act of 2013, a registered company can change its financial years.
Jurisdiction of the National Company Law Tribunal (NCLT)
The jurisdiction of the National Company Law Tribunal (NCLT) under the Companies Act 2013, as outlined in Section 280, covers various matters related to companies. These include:
- Suits or Proceedings: Any suit or proceeding initiated by or against the company falls under the jurisdiction of the NCLT.
- Claims: Claims made against or by the company, including its branches across India, are within the tribunal’s jurisdiction.
- Applications under Section 233: Any application made under Section 233 of the Companies Act 2013 is under the purview of the NCLT.
- Scheme Matters: Matters related to schemes submitted under Section 262 (Note: Omitted by Section 255 of IBC 2016, Clause 14 of the Eleventh Schedule) are within the tribunal’s jurisdiction.
- Winding up of the Company: Matters related to assets, business, actions, rights, entitlements, privileges, benefits, duties, responsibilities, obligations, or any matter arising out of or about the winding up of the company fall under the NCLT’s jurisdiction.
Additionally, the NCLT has various other powers to adjudicate matters under the Companies Act 2013, which include:
- Change in Financial Year: The NCLT can approve a company’s financial year change if it is a holding or subsidiary company incorporated outside India.
- Conversion of the Company: Approval for the conversion of a company from public to private or vice versa is at the discretion of the NCLT.
- Variation of Shareholder’s Rights: The tribunal can address issues arising from changes in the rights attached to different variants (classes) of shares.
- Refusal to Register and Rectification of Shares: The NCLT has the power to adjudicate matters related to the refusal to register and rectify shares.
- Rectification of Registration of a Member: If there are issues with a member’s registration, the tribunal can order rectification of the register.
- Reduction of Share Capital: Approval for the reduction of share capital requires the prior approval of the NCLT.
- Restriction on Incurring Liabilities: The Debenture Trustee can seek restrictions on a company incurring further liabilities if the assets are insufficient.
- Reopening of Accounts: The NCLT can order the reopening of a company’s accounts if fraudulent practices or mismanagement are suspected.
- Compromise or Arrangement with Creditors: Compromise and arrangement between the company and its creditors fall under the tribunal’s jurisdiction.
- Oppression and Mismanagement: The NCLT can adjudicate matters related to oppression and mismanagement as per Sections 241 and 242 of the Companies Act, 2013.
- Winding up of a Company: The tribunal can wind up a company in specific cases outlined in Section 271.
- Winding up of Foreign Companies: The NCLT can wind up foreign companies operating in India that cease their business activities there.
- These powers empower the NCLT to address various issues and disputes concerning companies under the Companies Act 2013.
