1. Editorial: NCLT, NCLAT get going

Editorial: NCLT, NCLAT get going

Ease of doing business in India should improve

By: | Updated: May 19, 2015 1:47 AM

In a move that will help ease doing business in India considerably, a constitution bench of the Supreme Court (SC) led by Chief Justice HL Dattu upheld the constitutional validity for setting up the National Company Law Tribunal (NCLT) and the National Company Law Appellate Tribunal (NCLAT). That’s a huge step forward as the SC had late last year struck down the National Tax Tribunal (NTT) Act, on grounds that it encroached upon the powers of the judiciary. The petitioner in both cases was the Madras Bar Association. The NCLT will not just replace the Company Law Board (CLB), but will also take care of cases that are with the high courts, the Board for Industrial and Financial Reconstruction (BIFR) and the Appellate Authority for Industrial and Financial Reconstruction (AAIFR). While doing so, the SC has ensured that the judiciary has a greater role to play than the executive. First, it quashed provisions of the companies law and stated that non-judicial members should be of a rank equivalent to an additional secretary in the government of India, as opposed to a joint secretary earlier. It also reduced the number of members on the selection committee to four—chief justice, senior judge, secretary in the finance ministry and law secretary—from five (two judges and three bureaucrats) earlier, with the caveat that the chief justice will have a casting vote.

That’s an important step forward for the government. After all, there are over 64,000 cases pending in the SC alone as of December 2014, with another 3 crore cases in the high courts and lower courts. Once these bodies are set up, as corporate cases move to the NCLT, quite a bit of the pressure will be released from the country’s stressed legal system, which will in turn help unlock the value of distressed corporate assets. That could be a huge plus for industry that is looking to make the most in an otherwise sober market. While this one move brings in a lot of credibility to handling disputes under the Companies Act, 2013, it will finally depend on how quickly the government moves ahead and adopts the provisions stated by the SC. That will be critical to its success. Considering the time and energy the Modi government is investing on its Make-in-India initiative, that should, hopefully, not take too long. In turn, that would lead to more investment coming in over the next few months, provided the global situation remains normal.

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