On Tuesday, a five-member SC constitution bench, in a unanimous verdict, cleared the decks for setting up the National Company Law Tribunal (NCLT), which will exclusively deal with corporate cases. The decision came six years after the court admitted the appeal. NCLT was envisioned to take over the functions performed by the Board for Industrial and Financial Reconstruction (BIFR), the Appellate Authority for Industrial and Financial Reconstruction, the Company Law Board (CLB) and various high courts. However, it got caught in a legal squabble, amidst fears that the proposed structure breached the constitutional separation of powers by vesting essential functions in the quasi-judicial body.
At present, disputes are first raised at the CLB and then the high courts. Similarly, winding up of companies is referred to the BIFR, followed by an appellate body and then the high courts. With the establishment of the NCLT, several intermediate steps will be eliminated and all the references, except the judicial review power, will come directly to the NCLT followed by the appellate tribunal and then to the SC. This will help expedite the approval process for M&As and liquidation of companies, besides reducing the burden of the high courts. According to the latest data available, India has 53,000 cases pending with the SC, 40 lakh with the high courts and 2.7 crore with the lower courts. The CLB Web site shows 2,870 pending cases for 2008-09. The data from the World Bank shows that it takes about 12 years to liquidate a company in India and fetches the investor just 16 cents against a dollar invested, whereas the average return is 65-70 cents in Japan and 35-40 cents in most European countries.
The SC?s decision will help the exchequer reduce the avoidable drain due to the delayed rehabilitation or winding up process of sick PSEs. It will also reduce the burden on banks by speeding up the release of funds stuck in commercially unviable units. But the efficiency of the new tribunal will largely depend on the technical expertise of its staff. The government should ascertain that all the provisions are implemented and objectives met in the right earnest.
jaya.jumrani@expressindia.com