Paving the way for company law tribunals

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Published: May 22, 2015 12:19:28 AM

The Supreme Court’s directions must be implemented by the govt promptly, leaving the larger questions of tribunal design pragmatically for another day

Contrary to its earlier judgments, the Court did not direct, or suggest, that the independence of tribunals required that its supervision be brought under law ministry, rather than being spread across ministries, as is the status quo.Contrary to its earlier judgments, the Court did not direct, or suggest, that the independence of tribunals required that its supervision be brought under law ministry, rather than being spread across ministries, as is the status quo.

The Supreme Court’s recent judgment in Madras Bar Association vs Union of India (May 14, 2015) has given the green light to the National Company Law Tribunal (NCLT) and the National Company Law Appellate Tribunal (NCLAT). These tribunals, proposed in 2002, have yet to see the light of day, owing to several rounds of litigation.

This judgment, disposing of issues holding up operationalisation of these tribunals, paves the way for the Companies Act 2013 and several connected reform proposals held up as a consequence, to be finally implemented. It signals a detente in the hitherto interminable turf war between the executive and the judiciary over control and supervision of tribunals.

While confirming the constitutional validity of the NCLT and NCLAT, the Supreme Court directed that certain sections of the Companies Act 2013 relating to the manner of appointments and qualifications for ‘Technical Members’ to the NCLT and NCLAT be amended. Reaffirming its earlier judgment in 2010 in the same matter, the Supreme Court held that the independence of the tribunal demanded that only officers of the rank of additional secretary and above be eligible as technical members. Further, to select the most competent persons for the job, the selection committee should comprise two members of the executive and two representatives from the judiciary, with the CJI, the chairperson, or his nominee, having the casting vote.

More than what the Supreme Court ordered, it is equally significant to understand what the Court did not order in this case. Contrary to its earlier judgments, it did not direct, or even suggest, that the independence of tribunals required that its supervision be brought under the ministry of law & justice, rather than being spread across various ministries, as is the status quo. Equally crucially, it distinguished its earlier judgment in the National Tax Tribunal case (NTT judgment) on the ground that the NTT was set up to solely hear questions of law, as opposed to the multifarious questions of law and fact that would arise before the NCLT and NCLAT. As far as the decision in the NTT judgment that any executive participation in selecting tribunal members is concerned, the Court made no direct observation, impliedly repudiating such an over-expansive proposition.

In 2010, when handed down a similar judgment by the Supreme Court on the NCLT, the government chose to be recalcitrant, making piecemeal amendments that complied partially with Court’s directions. There were good reasons for such recalcitrance—why additional secretary appointments are sufficient to ensure an independent tribunal whereas joint secretary appointments are not, is an inexplicable distinction not supported by any defensible judicial reasoning. Similarly, the exact composition of a selection committee is a legislative function that is beyond the legitimacy of the courts to lay down.

However, the time for recalcitrance is now over. Too much time has been expended in courts quibbling over the fine-print of the NCLT, at the cost of growth and reform. Bankruptcy reform, a key item on the government’s reform agenda and a cornerstone for a vibrant environment for doing business, cannot be operationalised without a functioning dispute settlement mechanism. The Bankruptcy Law Reform Committee set up by the ministry of finance recommended changes to the Companies Act 2013 exactly along the lines of what has now been suggested by the Supreme Court. The Prime Minister’s Office had asked the ministry of corporate affairs to “resolve issues” pertaining to the NCLT and operationalise it. The ministry must now defer to the consensus of opinion, both within the government and outside it, and follow the directions of the Supreme Court.

Doing so will not in any way impact the larger question on how an efficient, independent and well-functioning tribunal should be designed. That question has been left open by the Supreme Court in this case. Contrary to the NTT judgment whose majority opinion laid down some extremely poorly-reasoned and wide-ranging principles compelling any self-respecting government to take a confrontationist stand, the latest verdict is far more circumspect, limiting its observations to the NCLT and NCLAT. By refusing to preach from the pulpit on this issue in this judgment, the Supreme Court has left it to the government to engage in this quest in a bona fide manner for all future tribunals that it might consider. This work must be taken up by the government in right earnest.

But such an exercise must clearly be delinked from the operationalising of the NCLT and NCLAT. Whether palatable or not, the Supreme Court’s directions are law, that too on a matter that is so crucial to the Indian economy that it is hardly the appropriate flashpoint for a confrontation. It must be implemented by the government post-haste, leaving the larger questions of tribunal design pragmatically for another day, as the Supreme Court has done.

The author is research director of Vidhi Centre for Legal Policy, a New Delhi-based think tank

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