22 May 2015

Company Law Tribunal constitutionally valid – SC

Five Judge Bench of the Supreme Court of India has rejected the challenge to the constitutional validity of setting up of the National Company Law Appellate Tribunal (NCLAT). The Court in this regard rejected the contention of the petitioner that the earlier 2010 judgment of the Court dealing with the issue of constitutional validity of the National Company Law Tribunal (NCLT) and the NCLAT (under Companies Act, 1956) did not discuss the issue relating to NCLAT and hence same should not be treated as binding in respect of the Appellate Tribunal. It was noted that the discussion in the earlier judgment included NCLAT and hence it was not open to the petitioner to argue this issue as it clearly operate as res judicata. Reliance on another judgment of the Apex Court relating to National Tax Tribunal (NTT) (wherein the Court had on 14-5-2015 held the same as unconstitutional), was also rejected by Court pointing out the differences between NTT and NCLAT.

However, in respect of appointment of Technical Members, both in NCLT and NCLAT, the Court placed reliance on the earlier judgment and struck down Sections 409(3)(a) and (c) and 411(3) of the Companies Act, 2013. It was held that for appointment of Technical Members to the NCLT, directions contained in sub-para (ii), (iii), (iv), (v) of para 120 of the earlier 2010 judgment will have to be followed and corrections made in Section 409(3) of the new provisions. The Court in this regard noted that provisions (in the Companies Act, 1956) relating to appointment of Joint Secretary with certain experience, as Member Technical in the NCLT, were specifically struck down by the Court in 2010 but, same provisions have now again been made part of Section 409(3) of the Companies Act, 2013.

Similarly, provisions of Section 412(2) of the new Companies Act, relating to Selection Committee for appointment of President/Chairperson and Members, were found to be not valid and direction was issued to remove the defect by bringing the provision in accord with sub-para (viii) of para 120 of 2010 judgment.


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