The Supreme Court's recent decision upholding the establishment of the National Company Law Tribunals (NCLT) has been hailed as a landmark judgment. In so far as the Court has expressed its candour on the dilution of judicial independence, there can be no other views. However, I have reservations whether there will be speedy and fair resolution of all Company law related cases by creation of dedicated Tribunals. Undoubtedly, the Courts have to be decongested, in order to administer justice, social and ameliorative.
There have several experiments at tribunalisation, and endless efforts by the Law Commissions in trying to identify and recommend areas in which decentralisation would benefit the litigants, and other shareholders. The points for determination in the present context are eventually to be tested on the yardstick whether a tribunal will be more competent than the High Courts to deal with matters of complexity pertaining to Company law.
There are a wide range of items under the Companies Act, 1956 (the "Act") which are currently allocated in an ad hoc manner between the Company Law Board and the High Courts ("Company Courts"), and with the entire gamut of amendments in abeyance, insolvency proceedings are governed by a different statute, the Sick Industries Act, 1985, though destined to be merged in the Companies Act as a part of the same amendments. The Company Court acts as a bankruptcy Court dealing with winding up, discharging the entire administration work under the bankruptcy regime, disposal of statutory and Schemes of mergers and amalgamations: insolvency is under the jurisdiction of the BIFR, the unscrupulous debtor's safe haven, while the Company Law Board handles various administrative matters such as relocation of registered offices, yet determines the high ticket disputes under Sections 397 and 398 of the Act.
One of the main concerns flagged before the Supreme Court was regarding the selection of the members under Chapter 1B, by appointing civil servants at the Joint Secretary level from any service regardless of experience, to adjudicate with matters being dealt with by High Court Judges, and further for being permitted to retain a lien on their cadre, assignments or posts as in a deputation posting. Tribunalisation was actually being used in a power game between the Judiciary and Executive. The Supreme Court deprecated the above provisions, not in casting aspersions but that they could create doubts in the public mind as to the independence of the members. High Court Judges incidentally are prohibited from practising in the same Court once the judicial appointment is confirmed.
The Supreme Court has also taken strong exception to the erosion of independence of the judiciary in adverting to the Eradi Committee Report, which cited only delay for proposing transfer of Company Law jurisdiction from the High Court. However, the Eradi Report refers to such delay in the time by the Company Court in dealing with the Liquidation related administration matters which still vests in the High Court.
Having arrived at this conclusion, on the second limb of the Judgement, with due respect, my opinion is that the entire Act should have been send back to Parliament for reconsideration, and synchronised to be in place when the new Companies Bill is passed. This could have afforded an opportunity for a different perspective, maybe a rethinking why the decongestation cannot be effected differently, with all administrative matters being to the Company Law Board or the NCLTs, and retaining highstake items such as schemes of arrangement and mismanagement and oppression cases with the Company Court.
After all, Parliament has just passed a Bill for setting up a commercial division for high ticket matters in all High Courts. Why not similar dedicated Divisions for Company Law matters as well. It bears a thought – after all the Supreme Court has held that judges are the most qualified persons to handle Company Law matter.
Kumkum Sen is a partner at Rajinder Narain & Co, and can be reached at Email: kumkumsen@rnclegal.co