In the case of the Madras Bar Association vs Union Of India & Anr on 14 May, 2015, the Supreme Court of India was tasked with examining the constitutional validity of the creation of the National Company Law Tribunal (NCLT) and the National Company Law Appellate Tribunal (NCLAT). The bench comprised H.L. Dattu, A.K. Sikri, Arun Mishra, Rohinton Fali Nariman, and Amitava Roy.
Facts of the Case
The Madras Bar Association filed a writ petition as a sequel to earlier proceedings that culminated in a judgment by the Constitution Bench of the Supreme Court in Union of India v. R. Gandhi, President, Madras Bar Association (referred to as the ‘2010 judgment’). In the earlier round of litigation, the petitioner had challenged the constitutional validity of the creation of the NCLT and NCLAT, along with certain other provisions pertaining thereto, which were incorporated by the Legislature in Parts 1B and 1C of the Companies Act, 1956 by the Companies (Second Amendment) Act, 2002.
The High Court of Madras, in its judgment dated 30.03.2004, held that the creation of the NCLT and vesting the powers hitherto exercised by the High Court and the Company Law Board (CLB) in the said Tribunal was not unconstitutional. However, it pointed out certain defects in various provisions of Part 1B and Part 1C of the Act, 1956, and in particular, in Sections 10FD(3)(f)(g)(h), 10FE, 10FF, 10FL(2), 10FR(3), 10FT.
Issues Raised
The petitioner felt aggrieved by that part of the judgment which held the establishments of NCLT and NCLAT to be Constitutional. On the other hand, the Union of India felt dissatisfied with the other part of the judgment whereby aforesaid provisions contained in Parts 1B and 1C of the Act, 1956 were perceived as suffering from various legal and Constitutional infirmities. Thus, both Union of India as well as the petitioner filed appeals against that judgment of the Madras High Court. Those appeals were decided by the Constitution Bench.
Court’s Observations
The Constitution Bench approved the Constitutional validity of NCLT and NCLAT. It also undertook the exercise of going through the aforesaid provisions contained in Parts 1B and 1C of the Act, 1956 and in substantial measure agreed with the Madras High Court finding various defects in these provisions. These defects were listed by the Court in para 120 of the judgment.
The Court also noted that the Parliament had passed a new company law in the form of the Indian Companies Act, 2013, which replaced the earlier Act, 1956. In this Act, again substantive provisions had been made with regard to the establishment of NCLT and NCLAT. The petitioner alleged that notwithstanding various directions given in the 2010 judgment, the new provisions in the Act, 2013 were almost on the same lines as were incorporated in the Act, 1956 and, therefore, these provisions suffer from the vice of unconstitutionality as well on the application of the ratio in the 2010 judgment.
The Court categorized the challenge into three compartments:
- Challenge to the validity of the constitution of NCT and NCLAT
- Challenge to the prescription of qualifications including term of their office and salary allowances etc. of President and Members of the NCLT and as well as Chairman and Members of the NCLAT
3.
Challenge to the structure of the Selection Committee for appointment of President/Members of the NCLT and Chairperson/ Members of the NCLAT.
Incidental issues pertaining to the power given to these bodies to punish for contempt as mentioned in Section 425 and giving power to Central Government to constitute the Benches were also raised by the petitioner.
Court’s Decision
After a detailed discussion on each issue, the Court pronounced its verdict. The Court upheld the decision of the High Court that the creation of the National Company Law Tribunal and National Company Law Appellate Tribunal and vesting in them, the powers and jurisdiction exercised by the High Court in regard to company law matters, were not unconstitutional. However, it declared that Parts 1B and 1C of the Act as presently structured, were unconstitutional for the reasons stated in the preceding paragraph.
The Court also stated that these parts of the Act may be made operational by making suitable amendments, in addition to what the Union Government has already agreed in pursuance of the impugned order of the High Court. The Court further noted that all the issues raised stand covered by the Madras Bar Association (supra) and the answer to these questions is available therein.
Impact and Significance
This case is significant as it upheld the constitutional validity of the creation of the NCLT and NCLAT, which are crucial bodies for the resolution of corporate disputes in India. The judgment also provided important guidelines for the structure and functioning of these bodies, ensuring that they operate in a manner that is consistent with the principles of natural justice and the Constitution of India. The case also highlighted the importance of the separation of powers, and the need for judicial and technical members of tribunals to have the requisite qualifications and experience.