Parliament passed a new company law this year. However, even as the Companies Act, 2013, was legislated, a legal challenge to an important area of the law was foretold.
In May 2010, a constitutional bench of the Supreme Court had ruled on a challenge to the formation of the National Company Law Tribunal, formed under the amendments to the old law made in 2002. By these amendments, the tribunal was to replace high courts for their role under company law. The Supreme Court had ruled that it would indeed be constitutional for Parliament to create tribunals in areas traditionally handled by the courts of law and justice.
However, the apex court struck down as unconstitutional, provisions governing how the tribunal should be manned.
One would have expected the new law to address the concerns of the apex court so that there is no challenge to it. However, the new law contains the very nature of provisions that the Supreme Court had disagreed with only recently. The essence of the court's objections to the law on the tribunal was the provision for appointment of "technical members" who had no judicial background. The amendments under the old law would have resulted in individuals with no judicial experience or company law experience being regarded as a valid substitute to the company courts.
However, Section 409 of the new law provides that the tribunal could have technical members who could be any person who has been in the Indian Corporate Law Service (basically with the Ministry of Company Affairs) or in the Indian Legal Service (Ministry of Law) for at least fifteen years, but has been of a rank of joint secretary or above for at least three years. A chartered accountant, cost accountant or a company secretary for at least fifteen years, or someone who has spent five years as the presiding officer of a labour court or tribunal or any other "person of proven ability, integrity and standing", too, could be a member.
Now, see what the Supreme Court had said in 2010: "As the NCLT takes over the functions of high court, the members should as nearly as possible have the same position and status as high court judges. This can be achieved, not by giving the salary and perks of a high court judge, but by ensuring that persons who are as nearly equal in rank, experience or competence to high court judges are appointed. Only officers who are holding the ranks of secretaries or additional secretaries alone can be considered for appointment as technical members of the National Company Law Tribunal." Quite blatantly, this ruling from a Constitutional Bench of the Supreme Court has been ignored - a joint secretary would be lower in rank as compared with the additional secretaries.
Under the new law, the tenure of office has been fixed at five years subject to a retirement age. These run counter to the Supreme Court's observations: "Term of three years with the retirement age of 65 years is perceived as having been tailor-made for persons who have retired, or shortly to retire encourages these tribunals to be treated as post-retirement havens. If these tribunals are to function effectively and efficiently they should be able to attract younger members who will have a reasonable period of service." However, under Section 413, a very high "minimum age" of 50 years has been stipulated. Under Section 412, the members of the tribunal would be chosen by a committee where judicial persons would be outnumbered by bureaucrats - clearly an element contrary to the Supreme Court's ruling on the constitutional validity.
Therefore, a constitutional challenge was craving to be filed at the very inception. Indeed, the Madras Bar Association is said to have filed a writ petition challenging the new law.
The petitioner has demonstrated its credibility by approaching the apex court directly instead of moving a high court, saving extra rounds of litigation on a matter on which the apex court has ruled only recently.
A quasi-judicial job is a full-time day job that requires a member of the bench to sit on one chair for an entire day, day after day, focusing all energy on the case being argued. For a bureaucrat who has spent a lifetime in an executive job, jumping from one meeting to another and relying immensely on gut feel and intuition to get the job done, a quasi-judicial role could be a recipe for disaster. In all likelihood, the Supreme Court would need to reiterate its position. It may even constitute another Constitutional Bench. One wonders why the government piloted legislation with provisions directly in conflict with the apex court's view.
In May 2010, a constitutional bench of the Supreme Court had ruled on a challenge to the formation of the National Company Law Tribunal, formed under the amendments to the old law made in 2002. By these amendments, the tribunal was to replace high courts for their role under company law. The Supreme Court had ruled that it would indeed be constitutional for Parliament to create tribunals in areas traditionally handled by the courts of law and justice.
However, the apex court struck down as unconstitutional, provisions governing how the tribunal should be manned.
One would have expected the new law to address the concerns of the apex court so that there is no challenge to it. However, the new law contains the very nature of provisions that the Supreme Court had disagreed with only recently. The essence of the court's objections to the law on the tribunal was the provision for appointment of "technical members" who had no judicial background. The amendments under the old law would have resulted in individuals with no judicial experience or company law experience being regarded as a valid substitute to the company courts.
However, Section 409 of the new law provides that the tribunal could have technical members who could be any person who has been in the Indian Corporate Law Service (basically with the Ministry of Company Affairs) or in the Indian Legal Service (Ministry of Law) for at least fifteen years, but has been of a rank of joint secretary or above for at least three years. A chartered accountant, cost accountant or a company secretary for at least fifteen years, or someone who has spent five years as the presiding officer of a labour court or tribunal or any other "person of proven ability, integrity and standing", too, could be a member.
Now, see what the Supreme Court had said in 2010: "As the NCLT takes over the functions of high court, the members should as nearly as possible have the same position and status as high court judges. This can be achieved, not by giving the salary and perks of a high court judge, but by ensuring that persons who are as nearly equal in rank, experience or competence to high court judges are appointed. Only officers who are holding the ranks of secretaries or additional secretaries alone can be considered for appointment as technical members of the National Company Law Tribunal." Quite blatantly, this ruling from a Constitutional Bench of the Supreme Court has been ignored - a joint secretary would be lower in rank as compared with the additional secretaries.
Under the new law, the tenure of office has been fixed at five years subject to a retirement age. These run counter to the Supreme Court's observations: "Term of three years with the retirement age of 65 years is perceived as having been tailor-made for persons who have retired, or shortly to retire encourages these tribunals to be treated as post-retirement havens. If these tribunals are to function effectively and efficiently they should be able to attract younger members who will have a reasonable period of service." However, under Section 413, a very high "minimum age" of 50 years has been stipulated. Under Section 412, the members of the tribunal would be chosen by a committee where judicial persons would be outnumbered by bureaucrats - clearly an element contrary to the Supreme Court's ruling on the constitutional validity.
Therefore, a constitutional challenge was craving to be filed at the very inception. Indeed, the Madras Bar Association is said to have filed a writ petition challenging the new law.
The petitioner has demonstrated its credibility by approaching the apex court directly instead of moving a high court, saving extra rounds of litigation on a matter on which the apex court has ruled only recently.
A quasi-judicial job is a full-time day job that requires a member of the bench to sit on one chair for an entire day, day after day, focusing all energy on the case being argued. For a bureaucrat who has spent a lifetime in an executive job, jumping from one meeting to another and relying immensely on gut feel and intuition to get the job done, a quasi-judicial role could be a recipe for disaster. In all likelihood, the Supreme Court would need to reiterate its position. It may even constitute another Constitutional Bench. One wonders why the government piloted legislation with provisions directly in conflict with the apex court's view.
The author is a partner of JSA, Advocates & Solicitors. The views expressed herein are his own.
somasekhar@jsalaw.com
somasekhar@jsalaw.com