Powers of NCLT – National Company Law Tribunal

National Company Law Tribunal

The National Company Law Tribunal was setup by the Central Government in 2016 under Section 408 of the Companies Act, 2013. The National Company Law Tribunal has been setup as a quasi-judicial body to govern the companies registered in India and is a successor to the Company Law Board. In this article, we look at the National Company Law Tribunal, its functions and powers in detail.

Scope of National Company Law Tribunal

The National Company Law Tribunal (NCLT) consolidates the corporate jurisdiction of the Company Law Board, Board for Industrial and Financial Reconstruction (BIFR), The Appellate Authority for Industrial and Financial Reconstruction (AAIFR) and the powers relating to winding up or restructuring and other provisions, vested in High Courts. Hence, the National Company Law Tribunal will consolidate all powers to govern the companies registered in India. With the establishment of the NCLT and NCLAT, the Company Law Board under the Companies Act, 1956 has now been dissolved.

Powers vested in NCLT

Some of the important powers that are presently vested with NCLT are as follows:

1. Class Action:

Protection of the interest of various stakeholders, especially non-promoter shareholders and depositors, has always been the concern of company law. There were several frauds and improprieties that were noticed where the key losers were the shareholders and depositors. The shareholders who invested in listed companies saw their investments and savings drying up when the companies that they invested in cheated the investors.

The Companies Act, 2013 has provided a very good combination of remedies where the offender will be punished and the people who are involved (whether it is the company or directors or auditor or experts or consultants) will be liable even for a civil action (namely class action), wherein they have to compensate the shareholders and depositors for the losses caused to them on account of the fraudulent practices or improprieties.

A class action is a procedural device that permits one or more plaintiffs to file and prosecute a lawsuit on behalf of a larger group, or “class”. It is in the nature of a representative suit where the interest of a class is represented by a few of them. A huge number of geographically dispersed shareholders/depositors are affected by the wrongdoings. It is a useful tool where a few may sue for the benefit of the whole or where the parties form a part of a voluntary association for public or private purposes, and may be fairly supposed to represent the rights and interests of the whole.

Section 245 has been introduced in the new company law to provide relief to the investors against a large set of wrongful actions committed by the company management or other consultants and advisors who are associated with the company.

Class action can be filed against any type of companies, whether in the public sector or in the private. It can be filed against any company which is incorporated under the Companies Act, 2013 or any previous Companies Act. The Act provides only one exemption i.e. banking companies.

2. Deregistration of Companies: 

The procedural errors at the time of registration can now be questioned at any time. The Tribunal is empowered to take several steps, including cancellation of registration and dissolving the company. The Tribunal can even declare the liability of members unlimited. Sec 7(7) provides this new way for de- registration of companies in certain circumstances when there is registration of companies is obtained in an illegal or wrongful manner. Deregistration is a remedy that is distinct from winding up and striking off.

3. Oppression and Mismanagement:

The remedy of oppression and mismanagement is retained in 2013 Act. The nature of this remedy has however changed to certain extent and it needs to be seen in light of the changes made to the Companies Act, 2013. The 2013 Act has reset the bar for oppression to a little lower level but has set the bar of mismanagement a little higher by applying the test “winding up on just and equitable grounds” even to mismanagement matters. The Act permits dilution of the eligibility criteria with the permission of Tribunal, where a member below the eligibility criteria can apply in deserving cases.

4. Refusal to Transfer shares:

The power to hear grievance of refusal of companies to transfer securities and rectification of register of members under Section 58 and 59 of the new Act were already notified and were being taken up by CLB. Now. The same are transferred to NCLT. The remedy for refusal to transfer or transmission were restricted only to shares and debentures under 1956 Act. The provisions for refusal to transfer and transmit under Companies Act, 2013 Act extends to all securities. These sections gives express recognition to contracts or arrangements for transfer of securities entered into between two or more persons with respect to shares of a public company and thus clears any doubts about the enforceability of these contracts.

5. Deposits:

Chapter V dealing with deposits was notified in phases in 2014 and powers to deal with the cases under it were assigned in CLB. Now the said powers will be vested in NCLT. The law on deposits is quite distinct under the Companies Act, 2013 as compared to the Companies Act, 1956. The provision for deposits under 2013 Act were already notified. Aggrieved depositors also have the remedy of class actions for seeking redressal for the acts/omissions of the company which hurt their rights as depositors.

6. Reopening of Accounts & Revision of Financial Statements:

Several instances of falsification of books of accounts were noticed under the Companies Act, 1956. To counter this menace, several measures have been provided in the Companies Act, 2013. One such measure is the insertion of Section 130 and 131 read with sec 447, 448 in the new Act. Section 130 read with sec 131 are newly inserted provisions that prohibit the company from suo motu opening its accounts or revising its financial statements. This can be done only in the manner provided in the Act. Section 130 and 131 provides the instances where financial statements can be revised/reopened. Section 130 is mandatory, where the Tribunal or Court may direct the company to reopen its accounts when certain circumstances are shown. Section 131 allows company to revise its financial statement but do not permit reopening of accounts. The company can itself approach the Tribunal under sec 131, through its director for revision of its financial statement.

7. Tribunal Ordered Investigations:

Chapter XIV provides several powers to the Tribunal in connection with investigations. The most important powers that are conferred to the Tribunal are:

a) power to order investigation: Under the Companies Act, 2013, only 100 members (as against 200 members required under the Companies Act, 1956) are required to apply for an investigation into the affairs of a company. Further, the power to apply for an investigation is given to any person who is able to convince the Tribunal that circumstances exist for initiating investigation proceedings. An investigation can be conducted even abroad. Provisions are made to take as well as provide assistance to investigation agencies and courts of other countries with respect to investigation proceedings.

b) power to investigate into the ownership of the company

c) power to impose restriction on securities: The restriction earlier could be imposed only on shares. Now, the Tribunal can impose restrictions on any security of the company.

d) power to freeze assets of the company: The Tribunal is given the power to freeze assets of the company which can not only be used when the company is under investigation, but can also be initiated at the insistence of a wide variety of persons in certain situations.

8. Conversion of public company into private company

Sections 13, 14, 15 and 18 of the Companies Act, 2013 read with rules regulate the conversion of public limited company into private limited company. It requires approval from the NCLT. Approval of the Tribunal is required for such conversion. The Tribunal may at its discretion impose certain conditions subject to which approvals may be granted (sec 459).

9. Tribunal Convened AGM:

General meetings are required to assess the opinion of shareholders from time to time. The Act mandatorily requires one meeting to be called, which is termed as the “annual general meeting” or ‘AGM’. Any other general meeting is termed as “extra ordinary general meeting” or ‘EOGM’. If the AGM or EOGM cannot be held, called or convened in the manner provided under the Act or the Rules by the Board or the Member due to certain extraordinary circumstances, then the Tribunal is empowered under Section 97 and 98 of 2013 Act to convene general meetings under the Companies Act, 2013. The provisions for convening an annual general meeting and extra ordinary general meeting in the Companies Act, 2013 are almost similar to the provision provided in the Companies Act, 1956. However, the draft rules have inserted an additional provisions that require intimation of such cases to be given to ROC.

10. Compounding of Offence:

Provisions of compounding under the 2013 Act were notified before the constitution of NCLT and were assigned to CLB. This power will now be vested with NCLT, and all compounding matters which are above the prescribed monetary limit will be approved by NCLT. 

11. Change in Financial Year:

Section 2 (41) also has been already notified on 1 April 2014. The Act requires that every company or body corporate, new or existing, must have a uniform financial year ending on 31 March. It provides an exception where certain companies can apply to the Tribunal to have a different financial year. A company or a body corporate can make an application to the Tribunal. As the Tribunal was not notified at the time when this section was notified, the power to alter the financial year on application was granted to the CLB. The regulation provides the manner for making the application to CLB. The same has notified on the site of CLB vide order dated 28 January 2015. All the application that are not disposed of at the time when NCLT provisions are notified, will also be transferred to the Tribunal. 

National Company Law Appellate Tribunal (NCLAT)

Appeal from order of Tribunal can be raised to the National Company Law Appellate Tribunal (NCLAT). Appeals can be made by any person aggrieved by an order or decision of the NCLT, within a period of 45 days from the date on which a copy of the order or decision of the Tribunal.

On the receipt of an appeal from an aggrieved person, the Appellate Tribunal would pass such orders, after giving an opportunity of being heard, as it considers fit, confirming, changing or setting aside the order that is appealed against.The Appellate Tribunal is required to dispose the appeal within a period of six months from the date of the receipt of the appeal.


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