Supreme Court gives green signal for setting up National Company Law Tribunal [Read Judgment]

The Supreme Court today held that non-judicial/technical members of National Company Law Tribunal (NCLT) and National Company Law Appellate Tribunal (NCLAT) should be persons above the rank of Additional Secretary in the service of Government of India..It, however, upheld the Constitutionality of NCLT and NCLAT on the ground that the same has already been upheld in the case of Union of India v. R Gandhi. This would mean that the Court has given Central government the green signal to set up and operationalise the tribunals..The decision was given by a Constitution Bench of Chief Justice HL Dattu and Justices AK Sirki, Arun Mishra, Rohinton Fali Nariman and Amitava Roy in a petition filed by Madras Bar Association (Petitioner) challenging the provisions of Chapter XXVII of the Companies Act, 2013..The matter was initially being heard by a three judge Bench which had referred the case to a Constitution Bench earlier this year. The Constitution Bench had heard the matter in a day and reserved its judgment. Senior Advocate Arvind Datar had represented the Petitioner while Additional Solicitor General PS Patwalia had appeared for the Central government. .The Petitioner had assailed Chapter XXVII of the Companies Act, 2013 “more particularly Sections 408, 409, 411(3), 412, 413, 425, 431 and 434” as ultra vires Article 14 of the Constitution. The Petitioner had also challenged the decision of the Legislature to bring the NCLT and NCLAT under the Ministry of Corporate Affairs as opposed to the Ministry of Law and Justice which was the direction in R Gandhi’s case. Contending that there is no other country wherein company law disputes are decided by Tribunals, the Petitioner had also alleged that the object of the provisions is to strip the judiciary of its powers and vest it with the executive and make the judiciary subservient to the executive..With regard to the Constitutionality of NCLT and NCLAT, the Court held that the 2010 judgment in R Gandhi’s case operates as res judicata against agitating this issue. It held that,.“….the Constitution Bench categorically dealt with the Constitutional validity of NCLT and NCLAT under the caption “Whether the constitution of NCLT and NCLAT under Parts 1B & 1C of Companies Act are valid”, and embarked upon the detailed discussion on this topic. It becomes manifest from the above that the question of validity of NCLAT was directly and squarely in issue. Various facets of the challenge laid to the validity of these two fora were thoroughly thrashed out….. In view of this, it is not open to the petitioner even to argue this issue as it clearly operate as res judicata.”.Regarding the appointment of technical members, the Court, however, took the Petitioner’s side and held that the criterion laid down by the statute permitting officers above the rank of joint secretary to be appointed to the tribunals is violative of R Gandhi’s judgment. It, therefore, proceeded to strike down Section 409(3)(a) and (c) and Section 411 (3) as invalid..“We hold that Section 409(3)(a) and (c) are invalid as these provisions suffer from same vice. Likewise, Section 411(3) as worded, providing for qualifications of technical Members, is also held to be invalid. For appointment of technical Members to the NCLT, directions contained in sub-para (ii), (iii), (iv), (v) of para 120 of 2010 judgment will have to be scrupulously followed and these corrections are required to be made in Section 409(3) to set right the defects contained therein.”.Regarding the composition of the Selection Committee for selecting the President, Chairperson and members of the NCLT and NCLAT, the Court ruled that the current provision [Section 412(2) of the Act] envisages a tilt in favour of the administrative branch/ bureaucracy as against judiciary in the ratio of 3:2. This, the court held, is violative of the directions in R Gandhi’s case which had laid down that the Committee should be composed of 4 members with a casting vote for the Chief Justice of India..The Court also expressed hope that the Centre shall take measures to ensure that NCLT and NCLAT start functioning at the earliest. .A Constitution Bench of the Supreme Court had struck down the Constitutional validity of National Tax Tribunal Act, 2005 in September last year in a petition filed by the same petitioner..Two other petitions regarding control over tribunals are also being heard by the Supreme Court. One of this is an appeal from the Punjab & Haryana High Court by the Ministry of Defence (MoD) which wants to retain control over the Armed Forces Tribunal (AFT). The High Court had divested the MoD of control over the AFT and given it to the Ministry of Law and Justice. Similarly, another petition pertains to whether the Debt Recovery Tribunal should be brought under the control of the Ministry of Law and Justice. .Read the full text of the judgment below.