Upload
others
View
6
Download
0
Embed Size (px)
Citation preview
Copyright © Universal Multidisciplinary Research Institute Pvt Ltd
122 South -Asian Journal of Multidisciplinary Studies (SAJMS) ISSN:2349-7858:SJIF:2.246:Volume 3 Issue 3
PARADIGM SHIFT IN DISPUTE RESOLUTION MECHANISM IN COMPANIES ACT 2013
Shrayansh Niranjan1 Abstract A dispute resolution mechanism is a structured procedure2that tackles disputes or grievances that arise
amid two or more parties engaged in business, legal, or societal relationships. Dispute mechanisms are
used in dispute resolution, and may encompass conciliation, conflict resolution, mediation, and
negotiation.
Dispute means disparity in belief or opinion. In a greatly competitive market place occurrence of dispute is
highly probable. Sustained dispute resolution is not only costly but also corrodes status of the company,
which resembles a critical constituent in competition-driven integrated market.3Under the Companies Act
1956, corporate law matters were dealt by numerous judicial/ quasi-judicial forums like District Court,
High Court, BIFR and Company Law Board. This results in time-consuming litigation. With a view to
streamline the process and also put in place a single forum with subject matter experts, it is now proposed
under the Companies Act 2013, that all corporate law matters would be administered through NCLT and
NCALT, which shall be granted requisite powers for speedy and efficient decisionmaking.Time taken to
settle litigation in India has always been a key concern.
Keywords: company, conciliation, conflict resolution, dispute, mediation, negotiation.
1 Symbiosis Law School, Noida 2 “ACCESS Facility database of non-judicial grievance mechanisms", Retrieved 2013-12-13. 3 Ghosh, S.N. “Concept paper on Companies Bill 2012”, March 30th 2013, p. 06.
123
I: Introduction
The new act also introduces Mediation, as an Alternative Dispute Resolution Mechanism in the
Companies Law Disputes, which is relatively inexpensive while seeing a case through trial is an expensive
proposition.Mediation does not run by a clogged court schedule and sessions can be easily scheduled any
time at the mutual convenience of the parties and the mediator, and can take place in a variety of locations.
Above all Mediation provides for a Win-Win conflict settlement.The Act for the firsttime gives a
legislative mandate to Central Government to maintain apanel of experts to be called Mediation and
Conciliation Panel formediation between disputing parties. Plea Bargaining has been afforded
parliamentary endorsement. Special Courts for speedy trials will considerably improve corporate peace
and harmony.
‘The provisions of the Companies Act, 2013 relating to offences, penalties and prosecution are refreshingly
different from the existing provisions. The Act testifies the fact that it is a re-codification in the real sense of
the term and aims to serve the corporates with greater freedom but with severe consequences for non-
compliance. Public interest is sought to be protected adequately.’
In August 2000 the Justice Eradi committee was the first to recommend the creation of a National
Company Law Tribunal or NCLT & Appellate Tribunal NCLAT that would subsume the company law
board, BIFR and winding up cases in high courts. The rationale - to avoid long, drawn court proceedings.
The Paper will also discuss on the contentions put forth by the Madras Bar Association, which
thought this tribunalisation to be outside the legislative competence of parliament and ‘violative of the
doctrine of separation of powers and independence of the judiciary’4.
4 Union of India v. R. Gandhi, President, Madras Bar Association, 2010 (5) SCALE 514, (¶ 18).
Dispute Resolution Mechanism
under Companies Act, 2013
(Paradigm Shift)
Mediation & Conciliation Panel
Plea Bargaining
National Company Law Tribunal (NCLT)/
National Company Law Appellate
Tribunal(NCLAT)u/s. 442 of Companies
Act,2013
Special Courts
124II: DISPUTE RESOLUTION u/ COMPANIES ACT 1956- The dispute resolution mechanism under the provisions of Companies Act, 1956- A dispute in a company
can be like:
(a) A dispute between a Company and an outsider.
(b) A dispute between a Company and any of its members.
(c) A dispute between majority and minority in a Company.
Disputes as referred to above and its adjuratory mechanism:
(a) A dispute between a Company and an outsider:
A1-There can be disputes between a company and an outsider like creditors. There can be a business
agreement between the Company and an agency or another company.
When it is a dispute between a Company and an outsider, the outsider can approach the traditional
civil courts seeking for enforcement of his/their rights or damages and simultaneously, they can
approach the High Court seeking to wind-up the Company on the ground that the Company is not in
a position to pay its debts or there exists a reasonable ground to wind-up the Company.
A2-There are many principles and procedures governing the issue of winding-up. The High Court
may not automatically wind-up the Petition on presentment in view of the interests of other
shareholders and stake holders who may not raise their voice before the Court or who may not even
have the knowledge of winding up proceedings. Thus the High Court will take care of the interests of
the other shareholders or stake holders when, a petition is filed by an outsider like creditor seeking
winding-up. Yes, it is true that the realization of money or claims after the company is liquidated is
complicated exercise and it is a big subject to deal with and the proposed new companies act may
deal with it also.
A3-When it comes to the issue of dispute between the Company and an outsider before a traditional
civil court, the proceedings before a civil court may not affect the company as an entity in most cases
and it is like determination of rights and liabilities of the parties before it. Thus, there may not be any
problem when there is a dispute between the Company and an outsider.
(b) A dispute between a Company and any of its members:
There can be disputes between the Company and any of its members who may not qualify to present
an application for winding-up before the High Court and qualify to file an application under section
397/398 of the Companies Act, 1956. In such a case, the option available to the member is to
approach the traditional civil court or to complaint to the Registrar of Companies or Central
Government or the Company Law Board as the case may be.
125
(c) A dispute between majority and minority in a Company:
C1-When there are disputes between majority and minority in a Company, it becomes very
complicated. These differences between the majority and minority may lead to presentment of an
application under section 397/298 of the Companies Act, 1956 alleging some oppression and
mismanagement, or presentment of an application under section 234 of the Act seeking an
investigation into the affairs of the Company or presentment of a winding-up petition before the
High Court.
C2-We will see the disputes between majority and minority very frequently in family companies,
private companies or even in closely held public companies. Stakes in any company will be very
high and any delay in preventing the illegality in a Company will cost more to a minority. The
majority may be selling all the properties of the Company undervaluing the same, the majority may
dilute the shareholding pattern and the majority may completely run the company as if it is a
proprietorship concern and anything can happen.
C3-The provisions of the Companies Act, 1956 confers rights on every shareholder and special
protection is given to the minority group in a company. If the minority can not effectively agitate
their grievance or not able to get the remedy even if their case is established, then, it is certainly a
bad thing and against the theme of company law.
C4-There are many issues to discuss in this connection. A minority shareholder may not have
simultaneously knock both the Company Law Board and also Civil Court at times as there are
precedents that disputed facts can not be gone into by the Company Law Board which follows a
summary procedure. For example, there is some sale transaction between a majority in a company
and outsider wherein the company sells the substantial portion of its assets. If such a sale
transaction is challenged, it is very difficult to get the preventive orders or getting the sale set-aside
speedily on the precedent as referred to.
C5-Apart from this, there are precedents like Company Law Board has no jurisdiction to punish
the contemnors and only the High Court can punish the persons who have committed
contempt of the orders of the Company Law Board and it all definitely delays the adjudication
process. There is need to make the dispute resolution between the majority and minority more
effective than present and we may need many new principles and also practice.
126
III. PERIOD BETWEEN 1956’s ACT and 2013’s ACT and slow inclusion of
multifarious techniques limiting the Conventional Court-Based Litigation-
#3.1- The Company Law Board (CLB), created in 1988, began functioning in May 1991. It was patterned
on the ITAT (Income Tax Appellate Tribunal)and marked a major departure in the creation of tribunals.
Till then, all tribunals outside the judiciary dealt with disputes between the citizen and government
departments.
For the first time private disputes between two shareholders or between the shareholders and the
company were shifted to a quasi-judicial body.
The functions discharged by the High Court for almost 80 years were now shifted to four benches of the
Company Law Board. Strangely, for the last two decades, the government has been unable to recruit even
nine members for this tribunal and, over the years, cases which were heard by two members are now being
heard by a single member.
#3.2-Following the establishment of the CLB, the Debt Recovery Tribunals (DRT) were set up. The
rationale was that there weretoo many cases pending before the civil courts and banks had to wait for
several years to recover their money. It never occurred to anyone that instead of creating two or three
Debt Recovery Tribunals in Tamil Nadu or other states, it would have been easier (and cheaper) to dedicate
three civil courts to deal exclusively with bank cases.
#3.3-Flush with this success, the National Company Law Tribunal (NCLT)/ National Company Law
Appellate Tribunal (NCLAT) were created in 2002; In a span of two years, the jurisdiction of the High
Courts in company law were simply taken away. The primary reason for creating tribunals is often attributed
to the huge backlog of cases and the need for specialization.
IV- (A) CASE LAW- Union of India v. R. Gandhi, President, Madras Bar
Association, 2010 (5) SCALE 514, (¶ 18).
The constitutional validity of NCLT and NCLAT was challenged in Thiru R. Gandhi President,
Madras Bar Association vs. Union of India, Department of Company Affairs (2004) (Mad).-
Thiru R. Gandhi President, Madras Bar Association vs. Union of India, Ministry of Corporate
Affairs-
Earlier, the amendment to the Companies Act, 1956 to set up the NCLT was rendered unconstitutional
by Madras High Court for several reasons; few of amongst those were as under:
127"The issue is not whether judicial functions can be transferred from courts to Tribunals. Rather the
issue is whether judicial functions can be transferred to Tribunals governed by persons who are not suitable
or qualified or competent to discharge such judicial powers or whose independence is suspect"
"A lifetime of experience in administration may make a member of the civil services a good and able
administrator, but not a necessarily good, able and impartial adjudicator"
APPEAL TO SUPREME COURT- Union of India v. R. Gandhi, President, Madras Bar Association-
The Supreme Court of India on 11th May, 2010 gave a ruling validating the provisions of Companies
(Second Amendment) Act, 2002 pertaining to transfer of several judiciary and quasi-judiciary powers
under the act to an independent tribunal, called NCLT. The creation of a new substitute judicial forum
which is to carry out the work which is now being carried out by different High Courts in the country for
over nine decades, is to be done with great care so that the new Tribunal will be efficient and effective
alternate institutional forum to the High Courts and the Company Law Board. Once the tribunal is
established, all company-related matters pending with the Company Law Board (CLB), Board for Industrial
and Financial Reconstruction (BIFR), Appellate Authority for Industrial and Financial Reconstruction
(AAIFR) and different High Courts across the country will be transferred to the NCLT.
(B) CASE LAW- MADRAS BAR ASSOCIATION v. UOI- [2013 WRIT PETITION]
(Status-Unreported)
The Madras Bar Association recently filed a writ petition before the apex court challenging the
provisions of the new company law as regards NCLT. This is the second time Madras Bar Association
had challenged the provisions of NCLT.Even as the apex court's decision is awaited, the Corporate Affairs
Ministry has now moved forward and finalized the norms for the salaries and allowances to be paid to the
NCLT President and members.However, these norms are yet to be notified. After more than a decade of
legal challenge, NCLT finally made it to the statute book in 2013.
NCLT now forms part of the Companies Act 2013. This was made possible by a Supreme Court order in
2010 affirming Parliament's power to create a tribunal for administration of justice. Prior to this apex court
order, the legislative competence for creation of a tribunal was being questioned.In its May 2010 order, the
Supreme Court had ruled that the formation of NCLT and National Company Law Appellate Tribunal
(NCLAT) is constitutional. But some necessary amendments are required in the composition of NCLT and
NCLAT before they are set up, the apex court had ruled.However, the NCLT provision in the new company
is in variance with the apex court order, say company law experts.
128The new Companies Act, 2013 does not contain the provisions as were laid by the Supreme Court in its
order of May 2010. Two months after inviting applications for the posts of judicial members in the National
Company Law Tribunal, the government has put the process on hold pending a writ petition filed by the
Madras Bar Association in the Supreme Court.The corporate affairs ministry has told the Supreme Court
that the process of recruiting judicial and technical members will be deferred till the time the matter is
resolved. This would mean further delay in setting up of NCLT, which found its way into the Companies
Act, 2013 after almost a decade of legal tussle.
The setting up of NCLT was made possible by a Supreme Court order in May 2010 which affirmed
Parliament’s power to create such a tribunal which would subsume the company law board (CLB), BIFR
and winding up cases in high courts.The apex court had ruled that the formation of the NCLT and National
Company Law Appellate Tribunal (NCLAT) was constitutional but certain amendments were required in the
composition before they were set up.
V. PARADIGM SHIFT- DISPUTE RESOLUTION u/ COMPANIES ACT, 2013- (A) National Company Law Tribunal (NCLT)/ National Company Law Appellate Tribunal
(NCLAT)-
An important, yet under-reported, aspect in the new Companies Act 2013 is the introduction of mediation as
an alternative dispute resolution mechanism. Under Section 442 of the Act, the National Company Law
Tribunal (NCLT), its appellate body — the National Company Law Appellate Tribunal (NCLAT) — and
the Centre can refer cases for settlement through mediation.
129
UNDER COMPANIES ACT 2013
CLB under the Companies Act, 1956
primarily oppression and mismanagement
BIFR & AAIFR under the Sick Industrial Companies (Special
Provisions) Act, 1985
High Courts primarily in relation to winding-up,
amalgamation, restructuring and appeals from CLB
NCLT & NCLATwill have jurisdiction & powers
vested in
130
•Important change in the Companies Act, 2013 (Act, 2013) for administration of the law –introduction of
National Company Law Tribunal (NCLT) and National Company Law Appellate Tribunal (NCLAT)
•NCLT -a single window for corporate justice
A‒remove the hurdles of multiple court jurisdictions
B‒speed up the adjudication of corporate disputes
•Transfer of pending proceedings
1‒All matters, proceedings or cases pending before CLB will stand transferred to NCLT;
2‒All proceedings under 1956 Act, including proceedings relating to arbitration, compromise, arrangements
and reconstruction and winding up of companies, pending before any District Court or High Court, will
stand transferred to NCLT. NCLT may proceed to deal with such proceedings from the stage before their
transfer;
3‒All appeal pending before Appellate Authority for Industrial and Financial Reconstruction (AAIFR) and
Board for Industrial and Financial Reconstruction (BIFR) shall stand abated. In such a case, the Company
may make a reference to NCLT within 180 days from the commencement of Act.
131
•Illustrative list of provisions of the 2013 Act where approval of NCLT is required:
i. Seeking exemption for having FY of a company which ends on a day other than 31 March
ii. Issue of further redeemable preference shares in lieu of arrears of dividend or failure to redeem
existing preference shares as per the terms of issue
iii. Preparation of revised financial statement or board report for past 3 FYs, where BOD believes
that they do not comply with the relevant provisions
iv. Conversion of a public limited company into a private limited company
v. Capital reduction
vi. Filing Class action suits
vii. Scheme of compromise, arrangements and reconstruction
viii. Winding up of companies
ix. To declare a company as a sick company etc.
#A BROADER DOMAIN-
I. Compared to the jurisdiction exercised by the Company Law Board (CLB) under the 1956
Companies Act, the jurisdiction of the NCLT is considerably wider. In addition to the jurisdiction
of the CLB, the NCLT will hear all company cases that are currently under the jurisdiction of the
high courts and the Board for Industrial and Financial Reconstruction (BIFR), including cases
relating to winding up of companies, mergers, revival of sick companies, oppression, minority and
class action proceedings.
132
II. The Centre will exercise powers under the new Companies Act in certain disputes –
For example-
Disputes such as those relating to the adoption of the name of a company, claims in summary
proceedings for winding up, where the Government determines the rights of parties. Mediation
will play an important role in all such proceedings.
III. Further, referral to mediation can also take place at the appellate stage by the NCLAT, which
hears appeals from orders from the NCLT. The accommodation of mediation in the Act as a way of
resolving cases involving companies is significant as a policy measure.
IV. While resolution through settlement has always been an option for parties, the neutral mediator
plays an important role in bringing them to the negotiating table. Mediation can form the basis
for a continuing commercial relationship.
#Merits-
•Streamlining: Amalgamating the administration of justice under the company law within one Tribunal.
•Depth: A good mix of senior judicial and technical members. The members of NCLT are intended to have
greater expertise and experience to adjudicate disputes more efficiently and expeditiously.
•Speed: Every proceeding before the Tribunal to be dealt with and disposed of as expeditiously as possible.
Tribunal to endeavor to dispose the proceedings within 3 months from the date of commencement of the
proceeding before it. In case appeal against the order of the Tribunal is not filed within the period of 45
days, then the Tribunal on being satisfied for the reason of delay, can allow the appeal to be filed after the
expiry of aforesaid period, only if the said appeal is filed within additional period of 45 days after the expiry
of the prescribed period and not any indefinite period as available under the 1956 Act.
133
(B) Establishment of Special Court (Sections 435 to 440):
B1-The offences under Companies Act 2013 are tri-able by the Special Court for the area in which the
registered office of the company is situated and in relation to which the offence is committed. Where there is
more than one Special court for such area, the High Court shall specify one of them for the purpose of trial.
B2-The Central Govt.may, by notification, establish or designate as many Special Courts as may be
necessary. Such a court shall consist of single judge appointed by the Central Govt. with the concurrence of
the Chief Justice of the High Court within whose jurisdiction the Judge to be appointed is working.
B3- A person is not qualified to be appointed as aforesaid, unless he is, immediately before such
appointment, holding office of aSession Judge or Additional Sessions Judge, as such judges alone can
impose punishment by way of imprisonment authorized by law, as per section 28 of the Cr. P.C.
(C) Compounding of Offences (Section 441) & Plea Bargaining:
C1-This section is a re-enactment of section 621A of the Companies Act, 1956 and provides for
composition of certain offences involving imposition of fine as punishment. This is a beneficial
measure and provides a silver lining for settlement of offences out of court and takes away the need
for prosecution by the Central Govt.
C2-Any offence punishable with fine only is compoundable in accordance with the procedure laid
down in the new Act, either before or after institution of any prosecution. An offence is
compoundable by the Tribunal where the maximum amount of fine, which may be imposed, does not
exceed Rs 5 lakh.
C3-The authority to do so is either the Regional Director or any officer authorized by the Central
Govt.as may be specified. However, the specified sum should not exceed the maximum amount of
fine, which may be imposed for the offence. Any additional fee already paid is deductible from the
sum payable under compounding facility.
134
(D) Prevention of oppression and mismanagement: D1- Class action suits enabled- One or more members or class thereof or one or more creditors / class
thereof can apply to NCLT for orders to prevent the affairs of the company being conducted in a manner
prejudicial to interests of the company. They may also claim damages / compensation for fraudulent /
unlawful / wrongful acts from or against the company / directors / auditors / experts / advisors etc.
• To prevent possible misuse, Class action applications can be made by prescribed number of members /
creditors. Banking companies to be out of the purview of Class action.
D2- Inspection, inquiry and investigation-
• KMP, auditors and practicing CS also subject to search and seizure of documents by ROC and the
Inspector appointed by CG.
• CG to establish SFIO for investigation of frauds relating to a company. Till the time SFIO is not
established, SFIO already set up by CG in terms of directions of GOI to be used.
• CG may under the specified situations including in public interest refer affairs of a company to be
investigated by SFIO.
• Where pursuant to an investigation or a compliant, NCLT is of the opinion that there is good reason to find
relevant facts about any securities and such facts cannot be found out unless certain restrictions are imposed,
NCLT may provide restrictions on securities for a period not exceeding 3 years.
• Where it appears to NCLT in specified circumstances that there are reasonable grounds to believe that the
removal, transfer or disposal of funds, assets, properties of the company is likely to take place in a manner
that is prejudicial to the interests of the company or its shareholders or creditors or in public interest, NCLT
may direct such transfer, assets, properties, etc. of the company shall not take place during a period not
exceeding 3 years.
• Notwithstanding anything contained in the Code of Criminal Procedure, 1973,
1- Special Court may try in a summary way any offence under 2013 Act which is punishable with
imprisonment for a term not exceeding 3 years.
2- every offence under 2013 Act except certain offences shall be deemed to be non-cognizable within the
meaning of the said Code. Offences under 2013 Act which are cognizable within the meaning of the said
Code include:
3- Providing misleading or false information on incorporation;
4- Misstatement in prospectus;
5- Fraudulently inducing person to invest money;
6- Personation for acquisition of securities;
7- Concealment of name of creditor entitled to object reduction in capital;
8- Destruction of documents
135(E) MEDIATION AND CONCILIATION PANEL-
The new law constitutes a Mediation and Conciliation Panel (‘Panel’) consisting of suchnumber of experts,
and having such qualifications as may be prescribed for carrying outmediation between the parties during
any proceedings pending before the centralgovernment, the NCLT or the Appellate NCLT.
The new law provides that parties to a dispute may voluntarily apply to the centralgovernment, NCLT or the
Appellate NCLT (as the case may be) to refer the matter to the Panel. Alternatively, the central government,
NCLT and the Appellate NCLT before whichany proceedings are pending may, on its own, refer any matter
pertaining to suchproceedings to the Panel.
The time period provided for disposal of the matter by Panel is 3 months from thedate of reference.
136
CONCLUSION-
Companies Act has proved to be very dynamic piece of legislation and has beenbeen amended to adjust to
the changing corporate atmosphere. The Companies Act attempts to equalize two competing factors of
management autonomy and investor protection. The economy of India has been seeing continuous changes;
it is going through consistent growth and expansion. In this background of continuous change and growth of
economy, the Central Government after due deliberations decided to repeal the Companies Act, 1956 with
the introduction of new enactment in the form of legislation to provide for new provisions to meet the
continuous changing dynamics of national and international economic environment. These new changes in
the newborn legislation are directed towards further acceleration of growth and diversification of the
economy in the corporate scenario. It addresses the public concern over corporate accountability and
responsibility.
"Evolution" is directly proportional to change, so it can be concluded that Progression in the various
dimensions of corporate environment ignited the necessity for change in age-old legislation controlling the
governing of such corporates. There has been tremendous corporate growth in the recent past like with the
introduction of technological advancement in the form of e-governance, the management, functioning and
governance of the companies have become very easy and effective. The tremendous growth of the corporate
requires a sound mechanism, to handle any disputes that may arise from its working and complications.
Therefore, going by the dynamism of the new Companies Act, merits of the constitution of the NCLT and
NCLAT can't be denied, provided it functions well in the eyes of law intended by the legislature. This is so
because establishment of NCLT and NCLAT will unquestionably reduce many delays in the corporate law
proceedings as well as multiplicity of litigations involved in such proceedings. Problem arises at the level
of implementation and execution front because of the fact that the inefficient structured corporate
framework has many pitfalls arising out of bureaucracy and corruption and less initiative by the
corporate.
137 References-
I. Bare Provision- The Companies Act, 2013- Universal Law Publishing, New Delhi, pp. 258-274.
II. Web Resources-
1. Web Article- Narayan, Chitra. “Let’s sort it out”, The Hindu Business Line.
a. Link- http://www.thehindubusinessline.com/opinion/lets-sort-it-out-across-the-table/article5414876.ece-retrieved on August 18th, 2014. This source talks about the new alternative dispute resolution techniques employed by the new Companies Act, 2013 and gives an insight into the Mediation process included by the said act.
2. Research Article-
Ghosh, S.N. “Concept paper on Companies Bill 2012”, March 30th 2013, p. 06.
This source talks about the under construction act when the Companies Act 2013 was still at the Bill Stage- The Companies Bill, 2012 and in brief it discusses the novel and salient provisions of the New Companies Act.
Irani, Jamshed.J. “Report on Company Law”, 31st May, 2005, pp.100-105.
This source talks about the shortcomings and loopholes in the 1956 Act and also suggests reforms and since it came after the arrival of tribunal concept in company dispute resolution, it gave an opinion on the challenges to the NCLT also.
Amerjee, Ali. “BIFR & NCLT: An Analysis of Tribunalization in India”, Vol.4 (October, 2013) of the Company Law Journal, pp.1-22 This source talks about the NCLT and NCLAT in detail, its working and also talks about what makes tribunals better than conventional litigation.
III. Cases Referred-
>Union of India v. R. Gandhi, President, Madras Bar Association, 2010 (5) SCALE 514, (¶ 18).