IINNTTRROODDUUCCTTIIOONNefore the Companies (SecondAmendment) Act, 2002, Corporateswere required to apply to High Courtsfor proceedings such as merger/amalga-mation, reduction of capital and winding

up of companies. But the High Courts being over bur-dened with other matters, used to take very long time todispose off these matters, and as a result of which thesociety was not able to derive the intended benefits outof such decision. Even the Winding Up petitions beforethe various High Courts have been pending for a verylong time. Similarly various matters before the CompanyLaw Board (CLB), Board for Industrial and FinancialReconstruction (BIFR) and Appellate Authority forIndustrial and Financial Reconstruction (AAIFR) havebeen pending for a very long period. The detailed datagiven in tabular form (Appendix A) will give an indica-tion that many of the Companies which were referred toBIFR had their natural death for want of timely help andassistance from BIFR and as such, resulted into wastage

of scarce national resources.Therefore, it was desired that, in place of various bod-

ies presently looking into different matters likemerger/amalgamation, acquisition and reconstruction,revival and rehabilitation and winding up of Companies, abody should be constituted to handle all these matters andto dispose of all pending matters as well as fast disposal ofnew matters which might be referred to it in the future.

Hence the Government constituted a Committeeunder the Chairmanship of Justice V. Balakrishna Eradi,a retired Supreme Court Judge, to review the law relatingto insolvency and Winding Up of Companies and otherlaws like The Sick Industrial Companies (SpecialProvisions) Act, 1985 (SICA) etc. The Committee madevarious recommendations with the main objective ofexpediting the revival/ rehabilitation of a sick Companyand protection of workers interest, which were incor-porated in the Companies (Amendment) Bill, 2001. Thesaid Bill was subsequently passed by both the Houses ofthe Parliament and finally got the assent of the Presidentof India on 13th January, 2002 and became theCompanies (Amendment) Act, 2002.

Consistent with the underlying objectives, as aforesaid,and in the backdrop of the experience of administration ofSICA and winding up process, the Companies (SecondAmendment) Act, 2002 provides for setting up of theNational Company Law Tribunal (NCLT) and on setting

Due to the delay in decisions regard-ing procedures of merger/amalgama-tions, reduction of capital and wind-ing up of companies, the High Courthas been dispensed with the casesrelating to these matters. The govern-ment constituted a Committee underthe chairmanship of Justice V.Balakrishna Eradi, which made cer-tain recommendations with the objec-

tive of expenditing the revival/rehabil-itation of sick companies. Consistentwith the above underlined objectivethe Companies (Second Amendment)Act, 2002 provides for setting up of theNational Company Law Tribunalwhich shall deal with all matters relat-ing to Companies which were earlierhanded by various High courts, CLB,BIFR and AAIFR.

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The author is member of the Institute. The views expressed hereinare the personal views of the author and do not necessarily representthe views of the Institute.

National Company LawTribunal and Appellate TribunalGopal Pd. Dokania

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up of NCLT, all the matters relating to companies whichwere earlier handled by various High Courts, CLB, BIFRand AAIFR will now be handled by the NCLT. Pendingmatters with the High Courts and CLB will be transferredto NCLT. As the SICA has not yet been repealed, the sickCompanies will continue to be under BIFR. Only sick ancil-lary undertakings will come under the jurisdiction ofNCLT, as the newly inserted definition of IndustrialUndertaking, seems to be faulty. Further, the definition ofIndustrial Undertaking is explicitly exempting the SmallScale Industries (SSI) from its ambit and therefore, SSI willremain out of the purview of the BIFR and the NCLT both.

CCOONNSSTTIITTUUTTIIOONN OOFF NNCCLLTTThe Central Government shall constitute NCLT on

the basis of recommendations of The SelectionCommittee, which will be consisting of the Chief Justiceof India or his nominee as Chairman of the Committeeand Secretaries of the Ministry of Finance and CompanyAffairs, Labour Law & Justice as members of theCommittee. The NCLT will be headed by its Presidentwho has been a Judge of the High Court or is eligible to beappointed as a Judge of a High Court and such number ofjudicial and technical members but not exceeding 62.

TTHHEE QQUUAALLIIFFIICCAATTIIOONN FFOORR TTHHEE JJUUDDIICCIIAALLMMEEMMBBEERR OOFF NNCCLLTT IISS OONNEE WWHHOO:: has held judicial office for atleast 15 years in an

Indian territory, or has 10 years experience of practising as an Advocate

of The High Court or one who has held partly thejudicial office and partly practised in High Court, thentaking together both should be 15 years experience or

15 years service with the Central/ State Governmenton Group A post [including atleast 3 years of serviceas a member of The Indian Company Law Service(Legal Branch) in a senior administrative grade],

has held for atleast fifteen years a Group A post oran equivalent post under the Central Government[including atleast 3 years of service as a member ofthe Indian Legal Service in grade I of that service].

TTHHEE QQUUAALLIIFFIICCAATTIIOONN FFOORR TTHHEE TTEECCHHNNIICCAALLMMEEMMBBEERR OOFF NNCCLLTT IISS OONNEE WWHHOO:: has held for atleast 15 years Group A post or an

equivalent post under the Central/ State

Government [including 3 years service as a memberof The Company Law Service (Accounts Branch) ina senior administrative grade], or

is or has been a Joint Secretary to the Governmentof India which under the Central Staffing Scheme orheld any other post under the Central/ StateGovernment carrying a scale of pay which is not lessthan that of a Joint Secretary to the Government ofIndia, for atleast 5 years and has adequate knowledgeand experience in dealing with the problems relatingto the Company Law, or

is or has been for atleast 15 years in practice as a CharteredAccountant/ Cost Accountant / Company Secretaryunder the relevant Act i.e. CA, ICWA and CS Act, or

is a person of ability, integrity and standing having spe-cial knowledge of and professional experience of notless than 20 years in science, technology, economics,banking, industry, law, matters relating to industrialfinance, industrial management, industrial reconstruc-tion, administration, investment, accountancy, market-ing, or any other matter with the special knowledge orprofessional experience, which would be in the opinionof the Central Government useful to the Tribunal, or

is or has been a Presiding Officer of a Labour Court,Tribunal or National Tribunal constituted under theIndustrial Disputes Act, 1947, or

is a person having a special knowledge of and expe-rience of not less than 15 years in the matters relat-ing to labour.The qualification requirement for the Judicial

Member focuses on their judicial capacity or as anAdvocate of the High Court. One of the criteria namely15 years of service with the Central/ State Governmenton Group A post (with atleast 3 years of service as a mem-ber of The Indian Company Law Service) does notappear to be appropriate. Putting at par such an experi-ence with that of 15 years in a judicial capacity or 10 yearsas a practising High Court Advocate does not appear tobe reasonable. Similarly, the eligibility criteria for aTechnical Member includes within its realm in a residualcategory Central/ State Government Official with a spec-ified number of years of experience which justify inclu-sion of everybody and anybody in addition to the profes-sional who deserves more to be a Technical Member.

The tenure of the President and of the Members ofthe Tribunal is 3 years, subject to reappointment, orremoval, before the completion of the term. The retiringage of the President and members of the Tribunal is 67years and 65 years respectively. By reading together, thisshould imply that those who have retired would only

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inspire for a position in the Tribunal. Any other personthough otherwise, highly qualified, could not tie hiscareer with a position that has a limited tenure of 3 years.

The President and any Judicial/Technical Member mayresign from his Office by notice addressed to the CentralGovernment and on submission of such resignation, theCentral Government may allow the Applicant to do so, or hehas to wait for a period of 3 months from the date of suchnotice, or the date of appointment of the successor,whichever is earlier. In case of any vacancy in the office of theNCLTs President it will be filled up by the senior mostMember of the Tribunal. The Central Government may inconsultation, not with the approval, of the Chief Justice ofIndia may remove the President or any member of theTribunal but no such removal will be done without giving areasonable opportunity of being heard. One peculiar criteriafor not removing the President Member of the Tribunal isthat, although one has been convicted of an offence by theCourts of Law but the Central Government finds that suchoffence does not involve moral turpitude.

The Tribunal will be functioning through its variousBenches all over the country comprising of 2 MembersBench of a Single Member Bench as may be warrantedand deemed fit by the President of the Tribunal. Such a setup will enable constituting Benches on geographical orany other appropriate criteria which would expedite thedisposal of the cases and at the same time make availablethe mechanism at the door step of the Companies reduc-ing the cost and efforts involved. The Tribunal will rectifyany mistake, within a period of 2 years, from the date ofpassing of the order and may review its own orders.

PPOOWWEERR TTOO SSEEEEKK AASSSSIISSTTAANNCCEE OOFF CCHHIIEEFF MMEETTRROO--PPOOLLIITTAANN MMAAGGIISSTTRRAATTEE OORR TTHHEE DDIISSTTRRIICCTT MMAAGGIISSTTRRAATTEE

The Tribunal may seek the help of The ChiefMetropolitan Magistrate or The District Magistrate totake possession of any property, books of account or anyother document of any sick industrial Company. TheChief Magistrate or the District Magistrate on taking thepossession of such property, books of account or otherdocuments, entrust them to the Tribunal or any operat-ing agency duly appointed by the Tribunal. No act of theChief Metropolitan Magistrate or the District Magistrateshall be called to question in any Court of Law.

NNAATTIIOONNAALL CCOOMMPPAANNYY LLAAWW AAPPPPEELLLLAATTEE TTRRIIBBUUNNAALLThe Central Government shall by a Notification in

the Official Gazette, constitute an Appellate Tribunal

which will be called as The National Company LawAppellate Tribunal (NCLAT). The NCLAT will consistof a Chairperson and not more than two Members. TheChairperson shall be a person who has been a Judge ofthe Supreme Court or Chief Justice of a High Court.

A member of the NCLAT shall be a person of abil-ity, integrity and standing having special knowledge ofand professional experience of not less than 25 years inscience, technology, economics, banking, industry, law,matters relating to labour, industrial finance, industrialmanagement, industrial reconstruction, administration,investment, accountancy, marketing, or any other mat-ter, the special knowledge of, or professional experiencewhich, would be in the opinion of the CentralGovernment useful to the Appellate Tribunal.

Interestingly, no specific qualification has been pre-scribed to become a Member of the Appellate Tribunal as incase of a Judicial as well as Technical Member of the NCLTalthough a Member of the NCLAT will be superior to themember of NCLT to review the orders passed by NCLT.

The procedure for resignation/ removal and fillingup of a casual vacancy are more or less the same as in thecase of the President/ Members of the NCLT.

Any person aggrieved by an order of the NCLT mayprefer an appeal before the NCLAT within a period of 45days from the date of receiving the order or within suchextended time as may be allowed by the NCLAT.

AAPPPPEEAALL TTOO SSUUPPRREEMMEE CCOOUURRTTAny person aggrieved by any decision or order of the

Appellate Tribunal may file an Appeal to the SupremeCourt within 60 days from the date of communication ofthe order of the Appellate Tribunal to him, only on anyquestion of law arising out of such decision or order. TheSupreme Court may grant an extension of time for filingan Appeal if it is satisfied that the Appellant was pre-vented by sufficient cause from filing the Appeal withinthe said period, but the extension period has been limitedto a further period of 60 days.

SSOOMMEE DDIISSTTIINNCCTTIIVVEE FFEEAATTUURREESS OOFF NNCCLLTT IINNCCOOMMPPAARRIISSOONN TTOO BBIIFFRR UUNNDDEERR SSIICCAA1. SICA provided for a moratorium period of five years

for a newly setup Company and as such no referencewas required to be made to BIFR in the first five yearsof the registration of the Company. This moratoriumhas been withdrawn by the Amendment Act andnow the Company may become sick even in the sec-

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ond or the third year of its registration itself.2. Section 22(1) of SICA provided for suspension of all

legal proceedings when a Company filed its case inBIFR and the enquiry was pending or the schemewas under preparation or implementation with theBIFR or an appeal was pending with the AAIFR andas such the Sick Industrial Company was protectedagainst any suit for recovery of money, executionagainst property of the Company or Winding Upproceedings but this provision of SICA was greatlymisused by many of the Companies.This protection has not been provided in The

Companies (Second Amendment) Act, 2002 and there-fore, pending the proceedings for Revival andRehabilitation of a Sick Industrial Company before theNCLT the Creditors of the Sick Industrial Company mayfile a suit for recovery of debts. This provision will createhardship to Companies genuinely interested in revival,because, before the scheme is approved by the NCLTand grant is received if a creditor files a suit against theCompany and takes away the property/ assets of theCompany, what is left to be revived. However, WindingUp proceedings by any Creditor have been kept pendingas the jurisdiction over the same is of that of the NCLT.3. As per Section 32(1) of SICA the provisions of SICA

prevailed over all other laws except FEMA andUrban Land Ceiling Act. In the absence of suchoverriding powers even if the scheme of revival isapproved by the NCLT formalities and proceduresas required under the Companies Act and other lawswill be required to be completed.

4. The definition of an Industrial Company seems tobe faulty because by strict interpretation it coversonly an ancillary undertaking, which indeed cannotbe the correct intention of the lawmakers.

5. The Definition of a Sick Industrial Company hasbeen tightened. A Company having accumulatedlosses in any financial year equal to 50% or more ofits average net worth during four years immediatelypreceding such financial year and which has failed topay its creditors for 3 consecutive quarters will be aSick Industrial Company. The Net worth has nowbeen defined to mean the sum total of the paid upcapital and free reserves, after deducting the provi-sions or expenses as may be prescribed.Previously, The Companies Act did not define the net

worth and as per Section 3(1)(ga) of SICA which definedthe net worth the words after deducting provisions andexpenses as may be prescribed, were not there, and as such,companies were not deducting preliminary expenses or

development expenses while calculating its net worth.6. Now the burden of preparing the scheme for revival

of a sick company is on the Company itself, whichwas earlier on the BIFR.

7. The Application for reference to the NCLT by acompany should be accompanied with a Certificateby the Auditor from the approved panel as to thereasons for erosion in the net worth of the Companyor default in repayment of debt by the company.

8. Previously no cess was payable. Now all companieshave to pay cess @ 0.005% to 0.1% of its grossreceipts or turnover to the Central Governmenttowards the rehabilitation and revival fund to be usedfor rehabilitation and revival of sick companies. Thismay be termed as robbing Paul to pay Peter.

9. The quantum of dues unpaid has been increasedfrom Rs.500 to Rs.1 Lakh in the case of a winding up.

CCIIRRCCUUMMSSTTAANNCCEESS IINN WWHHIICCHH CCOOMMPPAANNYY MMAAYY BBEEWWOOUUNNDD UUPP BBYY TTRRIIBBUUNNAALL

A company may be wound up by the Tribunal in thefollowing cases:1. if the Company has, by special resolution, resolved

that the Company be wound up by the Tribunal;2. if default is made in delivering the Statutory Report

to the Registrar or in holding the Statutory Meeting;3. if the Company does not commence its business

within a year from its incorporation, or suspends itsbusiness for a whole year;

4. if the number of members is reduced, in the case ofa Public Company, below seven, and in the case of aPrivate Company, below two;

5. if the Company is unable to pay its debts. Presently,a creditor can file a Winding Up petition if theCompany is indebted in a sum exceeding Rs.500.This limit has been increased to Rs.1 lakh.

6. if the Tribunal is of the opinion that it is just andequitable that the Company should be wound up;

7. if the Company has made a default in filing with theRegistrar its Balance Sheet and Profit and LossAccount or Annual Return for any five consecutivefinancial years;

8. if the Company has acted against the interests of thesovereignty and integrity of India, the security of theState, friendly relations with foreign States, publicorder, decency or mortality;

9. if the Tribunal is of the opinion that the Companyshould be wound up under the circumstances spec-ified in section 424G

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The Tribunal shall make an order for winding up ofa Company under clause (h) on an application made bythe Central Government or a State Government.Clauses 7, 8 and 9 have been added by the Companies(Second Amendment) Act, 2002.

SSOOMMEE DDIISSTTIINNCCTTIIVVEE FFEEAATTUURREESS OOFF WWIINNDDIINNGG UUPPPPRROOCCEEDDUURREESS UUNNDDEERR NNCCLLTT AANNDD BBYY HHIIGGHH CCOOUURRTT::1. A new Section 647A has been inserted which

provides that all proceedings pending beforethe commencement of the Companies(Second Amendment) Act 2002, before anyDistrict Court or High Court, under this Act orthe Insurance Act, 1938 or any other law otherthan the Banking Regulation Act, 1949 shall betransferred to the Tribunal from the date to benotified by the Central Government in theOfficial Gazette and the Tribunal may proceedwith the matter either de novo or from thestage it was so transferred. Proviso to thisSection provides that where the winding up ofa company has commenced subject to thesupervision of the District Court or the HighCourt, before the commencement of theCompanies (Second Amendment) Act, 2002,such winding up shall continue to be under thesupervision of the District Court or the HighCourt and the Company shall be wound up inthe same manner and in the same incidents asif the Companies (Second Amendment) Act,2002, had not been passed.

2. Section 439A(2) ordains that the Statement ofAffairs is required to be filed by the Companyat the beginning itself, when opposing anywinding up petition. The said statement is veryelaborate and if any creditor files any frivolouspetition the Company has to incur a lot of time,money and energy.

3. So far only the Government employees canbe appointed as the Official Liquidator.Now professionals like CA, CS & ICWA ora body corporate of professionals can alsobe appointed.

4. Views of the creditors and workmen will betaken into consideration before appointingthe Official Liquidator.

5. Practicing CA, CS & ICWA can appearbefore the Tribunal on behalf of the credi-tor, contributory or Official Liquidator.

6. New rules regarding winding up are yet to be framed bythe Central Government. Till then the existing rulesframed by the Supreme Court will apply, subject to oneexception, as to reference to the High Court will beconstrued as a reference to the NCLT.In sum and substance the effectiveness of the NCLT &

NCLAT would depend in the first place upon the intentionof those in the Government who would be entrusted with theconstitution of the Bench and appointment of its Members.

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Appendix A

Board for Industrial & Financial Reconstruction Year Wise Performance

As on 31.12.2002

Year Total Cases Cases Disposed off during the Year BenchRegistered Cases Cases Winding Dis- Month*During the under Revived upReco- missed

Year Revival mended1 2 3a 3b 3c 3d 41987 311 0 0 0 8 241988 298 0 1 12 29 361989 202 0 1 31 78 421990 151 3 3 43 44 481991 155 4 4 47 28 421992 177 8 7 30 42 361993 152 9 13 64 59 361994 193 10 37 79 48 451995 115 22 25 64 29 481996 97 29 93 85 25 381997 233 13 36 85 22 251998 370 13 21 50 36 111999 413 13 10 65 70 272000 429 10 37 153 158 362001 463 50 47 133 118 362002 559 74 34 143 252 36

3759 258 369 1084 1046 566

Note-1. Format earlier adopted was indicating cases revival in the year of reg-

istration. As a company normally takes 5/7 years to be revived, thenew format indicates companies revived in the year in which NetWorth becomes positive and companies were discharged from thepurview of SICA.

2. Figures of the Companies revived after the successful implemen-tation of the scheme as well as those where Net Worth becomespositive at the inquiry stage itself have been clubbed together,

3. The above figures are according to the English Gregorian Calendar Year.*Bench Months is arrived at on the basis of the number of Benches func-tioning in each year.