National Company Law Tribunal and National Company Law Appellate Tribunal – 3rd Edition

Powers of NCLT: At a Glance

Contents at a glance NCLT & NCLAT – Information at fingertips ................................................................. iii Powers of NCLT: At a Glance ........................................................................................ ix Acknowledgement ......................................................................................................... xix About the Author .......................................................................................................... xxi Foreword to the second edition .................................................................................. xxiii Foreword to the first edition ........................................................................................xxv Preface to the third edition........................................................................................ xxvii Detailed table of contents ........................................................................................... xxxi Table of cases ............................................................................................................... lxv Key to reading the book ............................................................................................ lxxiii Abbreviations ............................................................................................................. lxxv Chapter 1

Introduction............................................................................................. 1

Chapter 2

Constitution of NCLT and NCLAT .....................................................17

Chapter 3

Transition to NCLT: Impact on Existing Cases ..................................25

Chapter 4

General Powers of NCLT and NCLAT................................................43

Chapter 5

De-registration of Companies ...............................................................55

Chapter 6

Variation of Shareholders’ Rights ........................................................65

Chapter 7

Transfer and Transmission of Securities .............................................99

Chapter 8

Reduction of Capital ...........................................................................149

Chapter 9

Deposits: Delays and Defaults ............................................................175

Chapter 10 Tribunal Convened General Meetings ...............................................203 Chapter 11 Reopening of Accounts and Revision of Financial Statements ............................................................................................211 Chapter 12 Tribunal directed investigations ........................................................225 Chapter 13 Compromises and Arrangements .......................................................275 Chapter 14 Oppression and Mismanagement ......................................................393 Chapter 15 Class Actions ........................................................................................451 xxix

NCLT 3E_PRINT.indd 29

2/18/2017 6:08:44 PM

NCLT and NCLAT Law Practice and Procedure, 3e

Chapter 16 Revival and Rehabilitation of Sick Companies ................................ 477 Chapter 17 Winding up .......................................................................................... 479 Chapter 18 Compounding of Offence ................................................................... 545 Chapter 19 Miscellaneous Powers of Tribunal ..................................................... 593 Chapter 20 Powers of Tribunal under other Acts ................................................ 623 Chapter 21 Appeals, Reviews and Writs .............................................................. 633 Chapter 22 General Practice and Procedure ........................................................ 671 Chapter 23 Jurisdiction and Limitation ................................................................ 699 Chapter 24 The Insolvency and Bankruptcy Code, 2016 .................................... 721 Annexure 1

National Company Law Tribunal Rules, 2016 ...................................... 799

Annexure 2

National Company Law Appellate Tribunal Rules, 2016 ...................... 879

Annexure 3

Companies (Compromises, Arrangements and Amalgamations) Rules, 2016................................................................. 913

Bibliography .............................................................................................................. 945 Contents of attached CD

xxx

NCLT 3E_PRINT.indd 30

2/18/2017 6:08:44 PM

Detailed table of contents NCLT & NCLAT – Information at fingertips ................................................................. iii Powers of NCLT: At a Glance ........................................................................................ ix Acknowledgement ......................................................................................................... xix About the Author .......................................................................................................... xxi Foreword to the second edition .................................................................................. xxiii Foreword to the first edition ........................................................................................xxv Preface to the third edition........................................................................................ xxvii Contents at a glance ................................................................................................... xxix Table of cases ............................................................................................................... lxv Key to reading the book ............................................................................................ lxxiii Abbreviations ............................................................................................................. lxxv

Chapter 1 Introduction 1.1.

Introduction ........................................................................................................... 1

1.2.

Meaning of NCLT and NCLAT ............................................................................ 2 1.2.1. New enforcement mechanism—place of tribunals ..................................... 3 1.2.2. Difference between NCLT and NCLAT .................................................... 3 1.2.3. Court v Tribunal ......................................................................................... 3

1.3.

Introduction of Concept of NCLT in India – Eradi Committee ............................ 4

1.4.

2002 Amendment Challenged ............................................................................... 5

1.5.

JJ Irani Committee ................................................................................................ 6

1.6.

Introduction of Tribunal in Companies Act, 2013 ............................................... 6 1.6.1. Nature of Challenge under 2013 Act .......................................................... 7 1.6.2. Reasons for establishing tribunals .............................................................. 8

1.7.

Further Reading .................................................................................................... 9

Annexure I—Constitution of NCLT and NCLAT ......................................................... 10 Annexure II—Notification of sections of Companies Act, 2013 and notification of constitution of benches of NCLT .................................................................... 11

xxxi

NCLT 3E_PRINT.indd 31

2/18/2017 6:08:45 PM

NCLT and NCLAT Law Practice and Procedure, 3e

Chapter 2 Constitution of NCLT and NCLAT 2.1

Introduction .........................................................................................................17

2.2

Constitution of NCLT .........................................................................................18 2.2.1 Qualification .............................................................................................18 2.2.2 Number of members .................................................................................19 2.2.3 Seat of NCLT ............................................................................................19

2.3

Appellate Tribunal (NCLAT) ..............................................................................20 2.3.1 Constitution ..............................................................................................20 2.3.2 Number of members .................................................................................20 2.3.3 Qualification .............................................................................................20

2.4

Selection Process .................................................................................................21 2.4.1 Manner of selection ..................................................................................21 2.4.2 Composition of Selection Committee .......................................................21

2.5

Term of NCLT and NCLAT ...............................................................................21

2.6

Staff .....................................................................................................................22

2.7

Further Reading ...................................................................................................22

Annexure I—Members of various benches ....................................................................23

Chapter 3 Transition to NCLT: Impact on Existing Cases 3.1

Introduction .........................................................................................................26

3.2

Transfer of Pending Proceedings.........................................................................28 3.2.1 Date for transfer of proceedings ...............................................................28 3.2.2 Continuance of proceedings before existing forums .................................28

3.3

Pending High Court Proceedings ........................................................................29 3.3.1 Corporate restructuring cases....................................................................31 3.3.1.1 Compromise and arrangements ..............................................31 3.3.1.2 Reduction of capital cases ......................................................34 3.3.2 Pending winding up proceedings ..............................................................34 3.3.2.1 What will be the status of pending cases? ...............................35 3.3.2.2 Appeals against orders passed by the high court .....................35

3.4

Pending Company Law Board Proceedings ........................................................36 3.4.1 Challenge against orders of CLB ..............................................................38 3.4.2 Status of existing interim orders ...............................................................38

3.5

Pending BIFR/AAIFR proceedings .....................................................................38

3.6

Pending Investigation Proceedings......................................................................40

xxxii

NCLT 3E_PRINT.indd 32

2/18/2017 6:08:45 PM

Detailed table of contents

3.7

Existing Interim Orders ....................................................................................... 40

3.8

Further Reading .................................................................................................. 41

Chapter 4 General Powers of NCLT and NCLAT 4.1

Introduction ......................................................................................................... 44

4.2

General Powers Under the ACT ......................................................................... 44 4.2.1 Power to determine procedure (Section 424) ........................................... 44 4.2.2 Power to punish for contempt (Section 425) ............................................ 45 4.2.3 Powers of civil court (Section 424) .......................................................... 45 4.2.4 Powers of courts (Section 424)................................................................. 46 4.2.5 Execution of orders (Section 424) ............................................................ 46 4.2.6 Assistance of courts/authorities (Section 429) ......................................... 46 4.2.7 Delegation of powers (Section 426) ......................................................... 46

4.3

General Powers Under the Rules ........................................................................ 47 4.3.1 Adjournment of hearing ........................................................................... 47 4.3.2 General power to amend (Rule 155 of NCLT Rules) ............................... 47 4.3.3 Tribunal to be deemed to be a court ......................................................... 48 4.3.4 Power to dispense with the requirements of the rules .............................. 48 4.3.5. Saving of inherent powers of the Tribunal (Rule 11 of the NCLT Rules) ................................................................................................. 48 4.3.6 Enlargement of time (Rule 15 and 153 of the NCLT Rules) .................... 50 4.3.7 Rectification of Order (Rule 154 of the NCLT Rules) ............................. 51 4.3.8 Power to impose costs (Rule 149 of NCLT Rules) .................................. 51 4.3.9 Amicus Curiae .......................................................................................... 51 4.3.10

4.4

Assesors and valuers (Rules 54 of NCLT Rules) .................................. 51

General Provisions for Exercise of Powers ......................................................... 51 4.4.1 Production of documents .......................................................................... 51 4.4.2 Nature of exercise of powers .................................................................... 52

4.5

Comparison between Powers of Different Tribunals .......................................... 52

Chapter 5 De-registration of Companies 5.1

Introduction ......................................................................................................... 56

5.2

Nature of the remedy of De-registration ............................................................. 56 5.2.1 Background for insertion of this remedy .................................................. 56 5.2.2 Benefits..................................................................................................... 56 5.2.3 Scope of the remedy ................................................................................. 56 xxxiii

NCLT 3E_PRINT.indd 33

2/18/2017 6:08:45 PM

NCLT and NCLAT Law Practice and Procedure, 3e

5.2.4 Difference between provision of striking off and deregistration ..............57 5.2.5 Difference between winding up and deregistration? .................................57 5.3

The Remedy Of De-Registration .........................................................................57 5.3.1 Who can apply? ........................................................................................59 5.3.2 When can one apply? ................................................................................60 5.3.3 Under what circumstances? ......................................................................60 5.3.4 Against which companies? .......................................................................61 5.3.4.1 Can registration of any company under the Companies Act, 2013 be challenged? .....................................61 5.3.4.2 Can registration of companies under the Companies Act, 1956 be questioned? .....................................61 5.3.5 Nature of reliefs sought.............................................................................61

5.4

Procedure for Deregistration ...............................................................................62

Chapter 6 Variation of Shareholders’ Rights 6.1

Introduction .........................................................................................................66

6.2

Overview of Changes ..........................................................................................67 6.2.1 Additional approvals .................................................................................67 6.2.2 Wider scope of applicants .........................................................................67

6.3

What are shareholders’ rights? ............................................................................68 6.3.1 Statutory rights..........................................................................................69 6.3.1.1 Can statutory rights be waived/varied? ...................................69 6.3.2 Contractual rights......................................................................................70

6.4

What constitutes class rights? ..............................................................................70

6.5

Nature and Scope of Variation ............................................................................72 6.5.1 What constitutes variation? .......................................................................73 6.5.2 Applicability of these decisions to section 48 ...........................................74 6.5.3 Prohibition in contract – is variation possible? .........................................74

6.6

When does section 48 become applicable? .........................................................75

6.7

Conditions for Varying Shareholder’s Rights .....................................................75 6.7.1 Approval for seeking permission to vary ..................................................76 6.7.1.1 Approval from the concerned class whose rights are varied.......................................................................................76 6.7.2 Approval of other affected class of shareholders ......................................76 6.7.2.1 Deciphering the term “Affect” ................................................77 6.7.2.2 Manner of approval from affected classes...............................78

6.8

Variation by Other Provisions of the Act ............................................................79

xxxiv

NCLT 3E_PRINT.indd 34

2/18/2017 6:08:45 PM

Detailed table of contents

6.8.1 Variation v Merger ................................................................................... 79 6.8.2 Variation v Reduction............................................................................... 80 6.9

Objection to Variation ......................................................................................... 80 6.9.1 In which circumstances can one apply under section 48(2)? .................... 81 6.9.2 Who can apply? ........................................................................................ 81 6.9.2.1 When to object? ...................................................................... 82 6.9.2.2 Joint application ...................................................................... 82 6.9.3 What is the time limit? ............................................................................. 82 6.9.4 Condonation of delay ............................................................................... 84 6.9.5 Powers of Tribunal and nature of reliefs .................................................. 84 6.9.6 Time limit for completion of proceedings ............................................... 85

6.10

Procedure for Objecting to the Variation of Shareholders’ Right ....................... 85

6.11

Comparison Chart - Variation of Shareholder's Right ........................................ 88 6.11.1 Comparison of New Act with Old Act ..................................................... 88 6.11.2 Comparison of Old Act with New Act ..................................................... 89 6.11.3 Comparison of New Rules with Old Rules............................................... 89 6.11.4 Comparison of Old Rules with New Rules............................................... 90 6.11.5 Corresponding Forms under New Act & Old Act .................................... 90

6.12

Schedule I............................................................................................................ 91 6.12.1 Appendix A: Corporate Transactions Requiring Special Resolution ....... 92 6.12.2 Appendix B: Corporate Transactions Requiring Ordinary Resolution .......................................................................................... 93 6.12.3 Appendix C: 10% Shareholding ............................................................... 95 6.12.4 Appendix D: Rights of Every Member ..................................................... 96

6.13

Further Reading .................................................................................................. 98

Chapter 7 Transfer and Transmission of Securities 7.1

Introduction ....................................................................................................... 101

7.2

Overview of Changes ........................................................................................ 101 7.2.1 Scope and applicability of section 58 and section 59 have changed ...... 101 7.2.2 Changes in time lines.............................................................................. 102 7.2.3 Contract or arrangement ......................................................................... 102

7.3

Appeal against Refusal to Transfer/Transmit .................................................... 102 7.3.1 Distinction between remedy under section 58 and section 59 ............... 103 7.3.2 Securities of a private company (Section 58(1)) .................................... 104 7.3.2.1 Restrictions on transfer/transmission of shares ..................... 104 xxxv

NCLT 3E_PRINT.indd 35

2/18/2017 6:08:45 PM

NCLT and NCLAT Law Practice and Procedure, 3e

7.3.2.2 7.3.2.3 7.3.2.4 7.3.2.5

Restrictions on other securities .............................................104 Interest of member: a grey area .............................................105 Who can challenge? ..............................................................105 Time limits ............................................................................106

7.3.3 Securities of a public company ...............................................................107 7.3.3.1 Reasons for refusal ................................................................108 7.3.3.2 Time lines ..............................................................................109 7.3.4 Reliefs .....................................................................................................109 7.3.5 Interim reliefs..........................................................................................109 7.3.5.1 Can interim reliefs other than those specified in rules be granted? .................................................................................109 7.3.6 Penalty ....................................................................................................110 7.4

Rectification of register of members .................................................................110 7.4.1 Rectification of register of members under section 59(1) .......................111 7.4.1.1 Which registers can be rectified? ..........................................111 7.4.1.2 Under what circumstances? ...................................................112 7.4.1.3 Who can file an appeal for rectification? ..............................112 7.4.1.4 To whom does the appeal lie? ...............................................113 7.4.1.5 Nature of reliefs.....................................................................113 7.4.1.6 Interim reliefs ........................................................................113 7.4.2 Rectification where transfers are in violation of law under section 59(4) .................................................................................................113 7.4.2.1 Which register? .....................................................................113 7.4.2.2 Under what circumstances? ...................................................114 7.4.2.3 Who can make an application?..............................................114 7.4.2.4 Relief .....................................................................................114 7.4.3 Difference between rectification sought under section 59(1) and section 59(4) .....................................................................................115 7.4.4 Time limit for filing application for rectification ....................................115 7.4.5 Penalty ....................................................................................................115

7.5

Case Laws and their Applicability ....................................................................115 7.5.1 Part I: Case laws related to nature and scope of sections 111 and 111A .................................................................................................115 7.5.1.1 Case 1 ....................................................................................115 7.5.1.2 Case 2 ....................................................................................116 7.5.1.3 Case 3: Jurisdiction is exclusive............................................117 7.5.1.4 Case 4: Composite Petition ...................................................118 7.5.1.5 Case 5: Complicated Question ..............................................118

xxxvi

NCLT 3E_PRINT.indd 36

2/18/2017 6:08:45 PM

Detailed table of contents

7.5.1.6 7.5.1.7

Case 6.................................................................................... 119 Case 7.................................................................................... 119

7.5.2 Part II: Case laws related to refusal to transfer and transmission of securities .......................................................................................... 120 7.5.2.1 Where refusal to transfer and transmission is valid: ............. 120 7.5.2.2 Where refusal to transfer and transmission is invalid ........... 121 7.6

Procedure for Refusal to Transfer or Transmit Securities ................................. 125 7.6.1 Company Law Board (CLB) .................................................................. 125 7.6.2 National company law tribunal (NCLT)................................................. 126

7.7

Free Transferability of Share of Public Company............................................. 127

7.8

Comparison Chart — Refusal to Transfer or Transmit Securities .................... 141 7.8.1 Comparison of New Act with Old Act ................................................... 141 7.8.2 Comparison of Old Act with New Act ................................................... 144

7.9

Further Reading ................................................................................................ 148

Chapter 8 Reduction of Capital 8.1

Introduction ....................................................................................................... 151

8.2

Overview of Changes ........................................................................................ 151 8.2.1 Single procedure ..................................................................................... 151 8.2.2 Representation of authorities .................................................................. 151 8.2.3 Certificate not a conclusive proof ........................................................... 151 8.2.4 Restrictions on reduction ........................................................................ 152 8.2.5 Removal of the words "and reduced" ..................................................... 152 8.2.6 Articles irrelevant ................................................................................... 152

8.3

Meaning and Scope of Reduction of Capital..................................................... 152 8.3.1 Meaning of reduction ............................................................................. 154 8.3.2 Applicability/non applicability of section 66 ......................................... 155 8.3.2.1 Only share capital ................................................................. 155 8.3.2.2 No application in mergers ..................................................... 155 8.3.2.3 Redemption ........................................................................... 155 8.3.2.4 Court directed purchase in oppression and mismanagement .................................................................... 155 8.3.2.5 Securities premium account .................................................. 155 8.3.2.6 Cancellation of unissued shares ............................................ 155 8.3.3 Companies who can reduce capital ........................................................ 155 8.3.4 Manner of reduction ............................................................................... 156

xxxvii

NCLT 3E_PRINT.indd 37

2/18/2017 6:08:46 PM

NCLT and NCLAT Law Practice and Procedure, 3e

8.3.4.1 8.3.4.2 8.3.4.3 8.3.4.4 8.4

Whether we will be able to reduce the share capital in the same manner, as we were able to reduce it earlier? .........156 Are there any new ways of reducing capital contemplated in the Act? .......................................................156 Can we take benefit of the decisions under the old Act?.......156 Types of reduction.................................................................157

Restrictions/Conditions for Reduction ..............................................................160 8.4.1 Default in payment of deposits ...............................................................160 8.4.2 Notice to authorities (Section 66(2)).......................................................161 8.4.3 Auditors certificate .................................................................................161

8.5

Approvals for Reduction ...................................................................................161 8.5.1 Approval from shareholder .....................................................................162 8.5.2 Approval from Tribunal ..........................................................................162

8.6

Liability of Members .........................................................................................162 8.6.1 Unpaid creditors-liability of members ....................................................162

8.7

Fraud on creditors..............................................................................................163

8.8

Procedure for Reduction of Share Capital .........................................................163

8.9

Additional important details ..............................................................................166 8.9.1 Role of Tribunal ......................................................................................166 8.9.2 What does the list of creditor contain? ...................................................167 8.9.3 Contents of petition.................................................................................167 8.9.4 Contents of minutes ................................................................................168

8.10

Comparison Chart oN Reduction of Share Capital............................................169 8.10.1 Comparison of New Act (Companies Act, 2013) with Old Act (Companies Act, 1956) .....................................................................169 8.10.2 Comparison of Old Act with New Act ...................................................170 8.10.3 Comparison of New Rules with Old Rules .............................................173 8.10.4 Comparison of Old Rules with New Rules .............................................173 8.10.5 Corresponding forms as per New Act .....................................................173

8.11

Further Reading .................................................................................................174

Chapter 9 Deposits: Delays and Defaults 9.1

INTRODUCTION .............................................................................................176

9.2

Overview of Changes ........................................................................................177 9.2.1 Bar on acceptance of deposits .................................................................177 9.2.2 Provisions discontinued ..........................................................................177

xxxviii

NCLT 3E_PRINT.indd 38

2/18/2017 6:08:46 PM

Detailed table of contents

9.2.3 Acceptance from members ..................................................................... 177 9.2.4 Default in payment ................................................................................. 177 9.2.5 Fraud....................................................................................................... 177 9.2.6 Class action............................................................................................. 178 9.3 9.4

Overview of Law on Deposits........................................................................... 178 Definition of Deposits ....................................................................................... 180 9.4.1 Definition under section 2(31)................................................................ 180 9.4.2 Items excluded from deposits ................................................................. 180 9.4.3 Definition of deposits for purpose of section 74..................................... 184

9.5

Applicability ..................................................................................................... 187 9.5.1 Non Applicability ................................................................................... 187

9.6

Permissibility to Accept/Invite/Retain Deposits ............................................... 188 9.6.1 Who can accept/invite deposits and from whom? .................................. 188 9.6.2 Retaining deposits under the Companies Act, 1956 ............................... 188 9.6.2.1 Deposits which are not matured ............................................ 188 9.6.2.2 Deposits remaining unpaid at the time of commencement ..................................................................... 189

9.7

Remedies for Depositors ................................................................................... 190

9.8

Restrictions on Defaulting Companies .............................................................. 191

9.9

Application to Tribunal ..................................................................................... 192 9.9.1 Application in case of non- repayment of new deposits ......................... 192 9.9.1.1 Who can apply? .................................................................... 193 9.9.1.2 Depositor of which company? .............................................. 193 9.9.1.3 Under what circumstances? .................................................. 193 9.9.1.4 What reliefs? ......................................................................... 193 9.9.1.5 Applicability ......................................................................... 194 9.9.2 Application for extension of time for company ...................................... 194 9.9.2.1 Which companies can apply? ................................................ 194 9.9.2.2 Which forum will the application lie? ................................... 194 9.9.2.3 Under what circumstances? .................................................. 195

9.10

Case Laws ......................................................................................................... 195 9.10.1 Case laws under section 73 and 74 of the Companies Act, 2013 ........... 195 9.10.2 Some Case Laws on deposits under the Companies Act, 1956 .............. 198

9.11

Procedure Under Chapter V .............................................................................. 199 9.11.1 Procedure under NCLT .......................................................................... 199 9.11.2 Procedure under CLB ............................................................................. 200

xxxix

NCLT 3E_PRINT.indd 39

2/18/2017 6:08:46 PM

NCLT and NCLAT Law Practice and Procedure, 3e

9.11.2.1 9.11.2.2 9.12

Application for extension of time ..........................................201 Application by depositor when company fails to pay ...........201

Further Reading .................................................................................................202

Chapter 10

Tribunal Convened General Meetings

10.1

Introduction .......................................................................................................203

10.2

Tribunal Convened AGM ..................................................................................204 10.2.1 Highlights of section 97 ..........................................................................204

10.3

Tribunal convened EOGM ................................................................................205 10.3.1 Highlights of section 98 ..........................................................................205

10.4

Applicability of old case laws ...........................................................................205 10.4.1 Analysis of case laws ..............................................................................206

10.5

Procedure for tribunal convened general meetings ...........................................208

10.6

Comparison Chart - Holding of Annual and General Meeting of Members .....210 10.6.1 Comparison of New Act (Companies Act, 2013) with Old Act (Companies Act, 1956) .....................................................................210 10.6.2 Comparison of Old Act with New Act ...................................................210 10.6.3 Comparison of New Rules with Old Rules .............................................210

10.7

Further Reading .................................................................................................210

Chapter 11 Statements

Reopening of Accounts and Revision of Financial

11.1

Introduction .......................................................................................................212

11.2

Historical Triggers.............................................................................................213 11.2.1 Satyam case ............................................................................................213 11.2.2 Reebok ....................................................................................................213

11.3

Reopening of Accounts by Court’s or Tribunal’s Orders ..................................213 11.3.1 Similar provisions under the UK law......................................................214 11.3.2 Bar on reopening.....................................................................................214 11.3.2.1 Applicability to books maintained under the Companies Act, 1956 ...............................................................................214 11.3.3 Application by authorities or any person concerned ...............................214 11.3.3.1 Meaning of ‘person concerned’................................................215 11.3.4 Court/Tribunal ........................................................................................215 11.3.5 Circumstances .........................................................................................215 11.3.5.1 Account prepared in fraudulent manner ................................216 11.3.5.2 Mismanagement of affairs .....................................................218

xl

NCLT 3E_PRINT.indd 40

2/18/2017 6:08:46 PM

Detailed table of contents

11.3.6 In which event can one apply for reopening? ......................................... 218 11.3.7 At what point of time? ............................................................................ 218 11.3.8 Notice to whom? .................................................................................... 218 11.3.9 Implication of order reopening/recasting................................................ 218 11.3.10 Who should be heard? ......................................................................... 219 11.3.11 Pros and Cons ..................................................................................... 219 11.4

Voluntary revision of financial statements or Board’s report. .......................... 219 11.4.1 Comparison with UK Law...................................................................... 220 11.4.2 Exception ................................................................................................ 220 11.4.3 Which documents? ................................................................................. 220 11.4.4 Which event? .......................................................................................... 221 11.4.5 For which period is the revision permissible? ........................................ 221 11.4.6 Prior approval of tribunal ....................................................................... 221 11.4.7 Right to be heard .................................................................................... 221 11.4.8 Finality ................................................................................................... 221 11.4.9 Reporting ................................................................................................ 222 11.4.10 Impact of this provision ...................................................................... 222

11.5

Procedure for Reopening of Books of Accounts ............................................... 222

11.6

Procedure for Voluntary Revision of Financial Statements or Board’s Report................................................................................................................ 223

11.7

Further Reading ................................................................................................ 224

Chapter 12

Tribunal directed investigations

12.1

Introduction ....................................................................................................... 228

12.2

Overview of Changes ........................................................................................ 228 12.2.1 Dilution of eligibility criteria .................................................................. 228 12.2.2 Power to freeze assets ............................................................................. 228 12.2.3 Restriction of securities .......................................................................... 228 12.2.4 Constitution of SFIO .............................................................................. 228 12.2.5 Application for investigation .................................................................. 229 12.2.6 Scope of investigation ............................................................................ 229 12.2.7 Penalties ................................................................................................. 229

12.3

Power of the Tribunal ....................................................................................... 229 12.3.1 Investigation by the tribunal ................................................................... 229 12.3.1.1 Who can apply? .................................................................... 229 12.3.1.2 Who will be notified?............................................................ 231 xli

NCLT 3E_PRINT.indd 41

2/18/2017 6:08:46 PM

NCLT and NCLAT Law Practice and Procedure, 3e

12.3.1.3 12.3.1.4

Order of investigation (Section 213) .....................................232 Security for costs (Section 214) ............................................232

12.3.2 Investigation into ownership of a company ............................................232 12.3.3 Freezing of assets of company on inquiry and investigation (Section 221) ....................................................................................233 12.3.3.1 Who can apply? .....................................................................233 12.3.3.2 Under what circumstances? ...................................................234 12.3.3.3 Nature of order ......................................................................234 12.3.3.4 Penalty for contravening the order of the Tribunal ...............234 12.3.4 Imposition of restrictions upon securities (Section 222).........................234 12.3.4.1 Who can impose restriction? .................................................234 12.3.4.2 Who can apply? .....................................................................234 12.3.4.3 Under what circumstances? ...................................................235 12.3.4.4 Nature of order ......................................................................235 12.3.4.5 Penalty...................................................................................235 12.4

Inspectors ..........................................................................................................235 12.4.1 Who can be an inspector? .......................................................................235 12.4.2 Powers of inspectors ...............................................................................236 12.4.2.1 Calling for information and documents from officers, employees and agents ............................................................236 12.4.2.2 Seeking information and documents from others ..................237 12.4.2.3 Custody of books and papers ................................................237 12.4.2.4 Examination ..........................................................................237 12.4.2.5 Powers of the civil court........................................................238 12.4.2.6 Penalty...................................................................................238 12.4.2.7 Assistance from other authorities ..........................................239 12.4.2.8 Assistance from foreign governments ...................................239 12.4.2.9 Assistance from foreign courts ..............................................239 12.4.2.10 Investigation into the affairs of related entities .....................239 12.4.2.11 Seizure of documents by inspector (Section 220) .................240 12.4.3 Report by inspector (Section 223) ..........................................................240 12.4.4 Actions on the basis of report .................................................................240 12.4.4.1 Action by Central Government/Tribunal...............................241 12.4.4.2 Prosecution ............................................................................241 12.4.4.3 Winding up ............................................................................241 12.4.4.4 Application for disgorgement................................................242 12.4.4.5 Actions by the Tribunal .........................................................242 12.4.4.6 Actions by members ..............................................................242

xlii

NCLT 3E_PRINT.indd 42

2/18/2017 6:08:47 PM

Detailed table of contents

12.4.4.7 12.4.4.8 12.5

Actions by others .................................................................. 243 Prosecution for fraud............................................................. 243

Other Provisions................................................................................................ 243 12.5.1 Protection to employees (Section 218) ................................................... 243 12.5.1.1 To whom is it available? ....................................................... 243 12.5.1.2 During what period? ............................................................. 243 12.5.1.3 Against what? ....................................................................... 243 12.5.1.4 Under what circumstances can action be taken? ................... 244 12.5.2 Protection for whistleblowers ................................................................. 244 12.5.3 Investigation during the pendency of other proceedings (Section 226) .................................................................................... 244 12.5.4 Investigation of foreign companies (Section 228) .................................. 245 12.5.5 Expenses for investigation (Section 225) ............................................... 245

12.6

Serious Fraud Investigation Authority .............................................................. 245 12.6.1 Organization structure ............................................................................ 246 12.6.1.1 Director ................................................................................. 246 12.6.1.2 Experts .................................................................................. 246 12.6.2 Exclusive jurisdiction to investigate ....................................................... 247 12.6.3 What cases can be investigated by SFIO? .............................................. 247 12.6.3.1 Report ................................................................................... 247 12.6.3.2 Special resolution .................................................................. 247 12.6.3.3 Public interest ....................................................................... 247 12.6.3.4 Request ................................................................................. 247 12.6.4 Can an investor complain to SFIO? ........................................................ 247 12.6.5 Can SFIO investigate only companies? .................................................. 247 12.6.6 Powers of SFIO ...................................................................................... 248 12.6.6.1 Power of arrest ...................................................................... 248 12.6.6.2 Power to prosecute ................................................................ 248 12.6.6.3 Powers of investigator........................................................... 248 12.6.7 Coordination ........................................................................................... 248 12.6.8 Police report ........................................................................................... 248 12.6.9 Obligation of company ........................................................................... 249 12.6.10 Problem areas ...................................................................................... 249

12.7

Procedure .......................................................................................................... 249

12.8

Comparison Chart Inspection, Inquiry and Investigation.................................. 249 12.8.1 Comparison of the Companies Act, 2013 (New Act) with the Companies Act, 1956 (Old Act) ....................................................... 249 xliii

NCLT 3E_PRINT.indd 43

2/18/2017 6:08:47 PM

NCLT and NCLAT Law Practice and Procedure, 3e

12.8.2 Comparison of Old Act with New Act ...................................................264 12.9

Further Reading .................................................................................................274

Chapter 13

Compromises and Arrangements

13.1

Introduction .......................................................................................................279

13.2

Overview of Changes ........................................................................................280 13.2.1 Contractual mergers ................................................................................280 13.2.2 Deemed approval ....................................................................................280 13.2.3 Cross border mergers ..............................................................................280 13.2.4 Scope of powers ......................................................................................280 13.2.5 Intimation to authorities ..........................................................................280 13.2.6 Valuation of shares .................................................................................281 13.2.7 Squeeze out rights ...................................................................................281 13.2.8 Merger of a listed company with an unlisted company ..........................281 13.2.9 Disclosure requirements .........................................................................281 13.2.10 Dispensation of creditors meeting .......................................................281 13.2.11 Definition of “company” .....................................................................281

13.3

Overview of Chapter .........................................................................................281

Part I: Tribunal Approved Mergers .........................................................................282 13.4

Chapter XV: A Complete Code.........................................................................282 13.4.1 Whether the chapter on compromise and arrangement provides a complete code? .................................................................................282 13.4.1.1 Law under Companies Act, 1956 ..........................................282 13.4.1.2 Analysis of the position in the Companies Act, 2013 ...........283 13.4.2 Scope of sections 230 and 232 ................................................................284

13.5

Compromise and Arrangement (Section 230) ...................................................284 13.5.1.1 Meaning of “compromise” ....................................................288 13.5.1.2 Meaning of the term “arrangement” ......................................288 13.5.1.3 Meaning of the term “company” ...........................................290 13.5.1.4 Class of shareholders or creditors .........................................290 13.5.1.5 Who can enter into a compromise or arrangement? ..............291 13.5.1.6 Eligibility to apply.................................................................291 13.5.1.7 What are the disclosures in application? ...............................291 13.5.1.8 Analysis of the extent of disclosures .....................................292 13.5.1.9 Meeting of members and creditors ........................................293 13.5.1.10 Notice to statutory authorities ...............................................295 13.5.1.11 Publication ............................................................................298

xliv

NCLT 3E_PRINT.indd 44

2/18/2017 6:08:47 PM

Detailed table of contents

13.5.1.12 Inspection and photocopying documents (2nd Proviso to sec 230) ................................................................................. 298 13.5.1.13 Sanction of scheme ............................................................... 299 13.6

Special Provisions for Mergers/Demergers (Section 232) ................................ 305 13.6.1 Which arrangements are included under section 232? ........................... 309 13.6.1.1 Mergers and amalgamations ................................................. 309 13.6.1.2 Demergers (Section 232 read with Explanation) .................. 309 13.6.2 Distinction between section 232 of the Companies Act, 2013 and section 394 of the Companies Act, 1956 .......................................... 309 13.6.3 Applicability of section 230 to schemes under mergers and demergers under section 232 ............................................................ 310 13.6.4 The scheme of mergers or demergers ..................................................... 310 13.6.4.1 Appointed date in scheme [Section 232(6) with Section 232(5)] .................................................................................. 310 13.6.4.2 Filing draft scheme [Section 232(2)(b)]................................ 311 13.6.4.3 Sanction of the scheme ......................................................... 311 13.6.4.4 Powers of Tribunal while sanctioning the scheme ................ 311 13.6.4.5 Restrictions on scheme: treasury stocks ................................ 312 13.6.4.6 Effect of sanctioning of the scheme ...................................... 312 13.6.5 Approvals ............................................................................................... 312 13.6.5.1 Notices calling meeting (Section 232(2)) ............................. 313 13.6.5.2 Post sanction compliances .................................................... 313 13.6.5.3 Mergers and compromise and arrangement .......................... 314 13.6.5.4 Penalty [Section 232(8)] ....................................................... 315

13.7

Buying Minority Shareholding Holding ........................................................... 315 13.7.1 Purchase of minority interest .................................................................. 316 13.7.2 Power to acquire shares of dissenting shareholders [Section 235] ......... 317 13.7.3 Mandatory purchase of minority shareholding [Section 236] ................ 318 13.7.4 Applicability ........................................................................................... 320

Part II: Contractual Mergers/Fast Track Mergers (Section 233) .......................... 322 13.8

Under what circumstances can the Section 233 route be used? ........................ 326 13.8.1 Nature of companies ............................................................................... 326 13.8.2 Applicability to listed companies ........................................................... 326 13.8.3 Types of schemes ................................................................................... 326 13.8.4 Registered office..................................................................................... 327 13.8.5 Financial position ................................................................................... 327 13.8.6 Returns ................................................................................................... 327

xlv

NCLT 3E_PRINT.indd 45

2/18/2017 6:08:47 PM

NCLT and NCLAT Law Practice and Procedure, 3e

13.9

Can companies opt out of Section 233? ............................................................328

13.10 What are the conditions to be fulfilled for using Section 233 route? ................328 13.10.1 Notice to ROC/OL ..............................................................................329 13.10.2 Person affected ....................................................................................329 13.10.3 Consideration of objections .................................................................329 13.10.4 Approval ..............................................................................................329 13.10.5 Declaration of solvency .......................................................................330 13.10.6 Creditors� approval .............................................................................331 13.10.7 Approvals and sanctions ......................................................................331 13.11 Application to Tribunal .....................................................................................332 13.11.1 Who can apply? ...................................................................................332 13.11.2 Discretion of Tribunal .........................................................................333 13.11.3 Order to be registered ..........................................................................333 13.12 Scheme under Section 233 ................................................................................333 13.12.1 Nature and scope of schemes ..............................................................333 13.12.2 Effect of registration of scheme ..........................................................333 13.13 Distinction between Sections 230 to 232 with Section 233...............................334 13.13.1 Sanction ...............................................................................................334 13.13.2 Approvals ............................................................................................334 13.13.3 Type of schemes ..................................................................................334 13.13.4 Authorities ...........................................................................................334 13.13.5 Time limit ............................................................................................334 13.13.6 Disclosures ..........................................................................................334 13.13.7 Procedures ...........................................................................................335 Part III: Cross Border Mergers (Section 234) .........................................................335 13.14 Meaning of Company in Section 234 ................................................................336 13.15 Meaning of Foreign Company ..........................................................................336 13.15.1 Which type of scheme? .......................................................................337 13.15.2 Applicability of Chapter XV ...............................................................338 Part IV: central government Approved Merger ...........................................................338 13.16 Scope of Section 237 .........................................................................................340 13.17 Challenges to constitutionality of Section 396 of 1956 Act ..............................341 13.18 Scheme under Section 237 ................................................................................341 13.18.1 Impact on property and liabilities ........................................................341 13.18.2 Legal proceedings ...............................................................................341 xlvi

NCLT 3E_PRINT.indd 46

2/18/2017 6:08:47 PM

Detailed table of contents

13.18.3 Compensation ..................................................................................... 342 13.18.3.1 Challenge in Tribunal ............................................................ 342 13.18.4 Consideration before finalization of order .......................................... 342 13.19 Procedures Under Chapter XV.......................................................................... 343 13.20 Procedure for Compromise and Arrangement (Section 230) ............................ 343 13.21 Procedure Under Merger and Demerger Section 232 ....................................... 354 13.22 Procedure for Fast Track Mergers Under Section 233 ...................................... 362 13.23 Procedure under section 237 of amalgamation of companies by central government in public interest under section 237............................................... 366 13.24 Comparison Chart Compromise, Arrangement and Amalgamation ................. 367 13.24.1 Comparison of New Act with Old Act ................................................ 367 13.24.2 Comparison of Old Act with New Act ................................................ 372 13.24.3 Comparison of New Rules with Old Rules ......................................... 376 13.24.4 Comparison of Old Rules with New Rules ......................................... 381 13.25 Annexure A – JVA Trading Pvt. Ltd. and C&S Electric ltd. ............................ 386 13.26 Further Reading ................................................................................................ 392

Chapter 14

Oppression and Mismanagement

14.1

Introduction ....................................................................................................... 395

14.2

Overview of Changes ........................................................................................ 396 14.2.1 Reducing the bar set for oppression........................................................ 396 14.2.2 Increasing the bar for mismanagement ................................................... 396 14.2.3 Composite petition ................................................................................. 396 14.2.4 Dilution of eligibility criteria .................................................................. 396

14.3

The Remedy Under Section 241 ....................................................................... 397

14.4

Oppression ........................................................................................................ 398 14.4.1 Meaning of oppression and scope of the remedy ................................... 398 14.4.1.1 Dictionary meaning ............................................................... 398 14.4.1.2 Meaning as analysed by case laws ........................................ 399 14.4.2 Is there any change in the meaning and scope of Oppression?............... 407 14.4.2.1 Past and concluded acts ........................................................ 407 14.4.2.2 Prejudicial to members ......................................................... 408 14.4.2.3 Old case laws analysed in new light ..................................... 409 14.4.2.4 Applicability of case laws under the Companies Act, 1956 ...................................................................................... 411

14.5

Mismanagement ................................................................................................ 411

xlvii

NCLT 3E_PRINT.indd 47

2/18/2017 6:08:48 PM

NCLT and NCLAT Law Practice and Procedure, 3e

14.5.1 Meaning and scope of mismanagement under the Companies Act, 1956 ..................................................................................................411 14.5.1.1 Dictionary meaning ...............................................................412 14.5.1.2 Meaning as analysed by case laws ........................................412 14.5.2 Change in nature and scope of mismanagement .....................................413 14.5.2.1 Analysis of changes...............................................................414 14.6

Impact of Changes in Other Provisions .............................................................415 14.6.1 Overview of Changes .............................................................................415 14.6.1.1 Additional powers .................................................................416 14.6.1.2 Disclosures ............................................................................416 14.6.1.3 Effective participation ...........................................................416 14.6.1.4 Additional rights....................................................................417 14.6.1.5 Additional remedies ..............................................................417 14.6.1.6 Strong corporate governance framework ..............................417 14.6.1.7 Additional norms ...................................................................417 14.6.2 Exploring plural remedies .......................................................................418 14.6.3 Impact and interplay of other remedies ..................................................418 14.6.3.1 De-registration and oppression and mismanagement(O&M) ........................................................419 14.6.3.2 Class action and O&M ..........................................................419 14.6.3.3 Investigation and O&M .........................................................419 14.6.3.4 Reopening and oppression and mismanagement ...................419 14.6.3.5 Compensation from auditor and O&M .................................419 14.6.3.6 Refusal to transfer and transmit and O&M ...........................419 14.6.3.7 Exit route and O&M..............................................................419

14.7

Eligibility to apply for Prevention of Oppression and Mismanagement ...........420 14.7.1 Eligibility of members to apply ..............................................................420 14.7.1.1 Who can apply? .....................................................................420 14.7.1.2 What is the eligibility criteria? ..............................................420 14.7.1.3 Can the Tribunal waive the conditions? ................................421 14.7.1.4 Comparison with section 399 of 1956 Act ............................421 14.7.1.5 Analysis of important case laws under section 399 and their applicability to section 244 ...........................................421 14.7.2 Power of central government to apply ....................................................422

14.8

Nature and Scope of Powers of Tribunal...........................................................423 14.8.1 Wide power to make order......................................................................426 14.8.2 Tests for granting reliefs .........................................................................426 14.8.3 Principles laid down under the companies act, 1956 ..............................427

xlviii

NCLT 3E_PRINT.indd 48

2/18/2017 6:08:48 PM

Detailed table of contents

14.8.3.1

Examples: two examples are given here to elucidate this aspect .............................................................. 428

14.8.4 Power specified under section 242(2)..................................................... 428 14.8.4.1 Existing powers..................................................................... 428 14.8.4.2 New/modified powers ........................................................... 429 14.8.5 Power to grant stay/injunction [section 242(4)] ..................................... 429 14.9

Application of certain provisions to proceedings under section 241................. 431

14.10 Removal of Certain Provisions ......................................................................... 431 14.11 Limitation of this Remedy - A Case for Class Action ...................................... 432 14.12 Procedure for seeking relief against oppression and mismanagement .............. 433 14.13 Comparison Chart Oppression and Mismanagement ........................................ 436 14.13.1 Comparison of New Act with Old Act ................................................ 436 14.13.2 Comparison of Old Act with New Act ................................................ 437 14.14 Appendix A : Extracts of Bennett Coleman Case ............................................. 440 14.15 Further Reading ................................................................................................ 450

Chapter 15 15.1

Class Actions

Introduction ....................................................................................................... 452

15.2

The new-age of investor protection................................................................... 452

15.3

Class Action - Meaning, Concept & Scope....................................................... 453 15.3.1 Advantages of class action ..................................................................... 454 15.3.2 Nature of class action ............................................................................. 455 15.3.3 Class actions worldwide ......................................................................... 455 15.3.4 Class action in India ............................................................................... 456 15.3.5 What is the importance of class action suits in the Indian context? ....... 456 15.3.6 Class action under the new Act .............................................................. 456 15.3.7 Applicability to companies ..................................................................... 460 15.3.8 Who can file a class action suit? ............................................................. 460 15.3.8.1 Eligibility criteria for members ............................................. 460 15.3.8.2 Eligibility criteria for depositors ........................................... 461 15.3.9 Representative person or association ...................................................... 462 15.3.10 Guidelines for considering applications under section 245 ................. 463

15.4

Public notice...................................................................................................... 466

15.5

Bar on future class action .................................................................................. 466

15.6

When can the Class action be filed?.................................................................. 468

15.7

Nature of Orders and their impact ..................................................................... 469 xlix

NCLT 3E_PRINT.indd 49

2/18/2017 6:08:48 PM

NCLT and NCLAT Law Practice and Procedure, 3e

15.7.1 Non-compliance with orders [Section 245(7) read with section 425] ......................................................................................470 15.7.2 Vexatious application .............................................................................470 15.7.3 Reimbursement of expenses in class action ............................................470 15.7.4 Plural remedies .......................................................................................471 15.7.5 Application of certain provisions to proceedings (Section 245) .............471 15.8

Challenges in class action..................................................................................471

15.9

Future of class action.........................................................................................472

15.10 Institutional Shareholder ...................................................................................472 15.11 Procedure for Class Action................................................................................474

Chapter 16

Revival and Rehabilitation of Sick Companies

Chapter 17

Winding up

Chapter XIX – Section 253 to 269 of Companies Act, 2013 has been deleted by the Insolvency and Bankruptcy Code, 2016. Companies in financial distress can take recourse to the provisions of Insolvency and Bankruptcy Code for resolving the insolvency. For academic purpose, Chapter 16 is retained in the CD.

17.1

Introduction .......................................................................................................483

17.2

Overview of Changes ........................................................................................484 17.2.1 Change in grounds for winding up..........................................................484 17.2.2 Concept of private liquidator ..................................................................484 17.2.3 Summary involuntary winding up procedure..........................................484 17.2.4 Custody of property ................................................................................484 17.2.5 Statement of affairs .................................................................................484 17.2.6 Overview of Changes brought about by Insolvency and Bankruptcy Code, 2016 (IBC) .............................................................................485 17.2.6.1 Change in Grounds for Winding up ......................................485 17.2.6.2 Provisions for Voluntary winding up omitted .......................485 17.2.6.3 Qualification of Company Liquidators..................................485 17.2.6.4 No Stay on winding up for exploring revival ........................486 17.2.6.5 Priority of Payouts.................................................................486 17.2.6.6 Insolvency Rules inapplicable ...............................................486

17.3

Types of Winding Up ........................................................................................486

17.4

Winding up and Dissolution ..............................................................................487

17.5

Winding up by Tribunal ....................................................................................488

17.6

Grounds for winding up ....................................................................................488

l

NCLT 3E_PRINT.indd 50

2/18/2017 6:08:48 PM

Detailed table of contents

17.6.1 Analysis of the grounds .......................................................................... 488 17.6.2 Applicability of principles under Companies Act, 2013 ........................ 489 17.6.3 What will be the status of pending cases? .............................................. 490 17.6.4 Who can file a winding up petition? ....................................................... 490 17.7

Order in Winding Up Proceedings .................................................................... 490 17.7.1 Decision of tribunal ................................................................................ 490 17.7.2 Timeline ................................................................................................. 491

17.8

Effect of Order .................................................................................................. 491 17.8.1 Impact on creditors and shareholders [Section 278] ............................... 491 17.8.2 Impact on litigation [Section 279] .......................................................... 491 17.8.3 Impact on officers [Section 277(3)]........................................................ 491 17.8.4 Impact on company property [Section 283(2)] ....................................... 491

17.9

Important Aspects in Winding up ..................................................................... 492 17.9.1 Provisional liquidator ............................................................................. 492 17.9.1.1 Who can be a provisional liquidator?.................................... 492 17.9.1.2 Can an official liquidator be a provisional liquidator? .......... 492 17.9.1.3 When is a provisional liquidator appointed? ......................... 492 17.9.1.4 Right of a company to oppose appointment .......................... 492 17.9.1.5 When does a provisional liquidator cease to hold his position? ................................................................................ 493 17.9.1.6 What are the powers of provisional liquidator? .................... 493 17.9.1.7 How a provisional liquidator is remunerated? ...................... 493 17.9.1.8 Who pays for his remuneration? ........................................... 493

17.10 Company Liquidator ......................................................................................... 493 17.10.1 Who can be a company liquidator? ..................................................... 493 17.10.2 Can an official liquidator be a company liquidator? ........................... 493 17.10.3 Can company liquidator/provisional liquidator be removed/replaced? ........................................................................... 493 17.10.4 Remuneration of company liquidator.................................................. 494 17.10.5 Powers of company liquidator ............................................................ 494 17.10.6 Appeal against the decision of company liquidator [Section 292(4)] ............................................................................... 496 17.10.7 Other provisions .................................................................................. 496 17.11 Official liquidator.............................................................................................. 496 17.11.1 Appointment of official liquidator [Section 359] ................................ 496 17.11.2 Power and functions ............................................................................ 496 17.12 Procedure of Winding up by Tribunal............................................................... 497 li

NCLT 3E_PRINT.indd 51

2/18/2017 6:08:48 PM

NCLT and NCLAT Law Practice and Procedure, 3e

17.12.1 Procedure of winding up by tribunal ...................................................497 17.12.1.1 Application to vacate stay on other proceedings ...................505 17.12.2 Role of advisory committee ................................................................506 17.12.3 Procedure to be followed at the meetings of advisory committee .......506 17.12.4 Rights of creditor and contributories ...................................................506 17.12.5 Meeting of members ............................................................................507 17.12.6 Meeting of creditors ............................................................................508 17.12.6.1 Limitation on voting rights of creditors ................................509 17.13 Provisions Applicable To Involuntary Winding Up ..........................................510 17.13.1 Section 324: Debts of all descriptions to be admitted to proof............510 17.13.2 Section 325: Application of insolvency rules in winding up of insolvent companies .........................................................................510 17.13.3 Section 326: Overriding preferential payments ...................................510 17.13.4 Section 327: Preferential payments .....................................................513 17.13.5 Section 328: Fraudulent preference .....................................................516 17.13.6 Section 329: Transfers not in good faith to be void.............................516 17.13.7 Section 330: Certain transfers to be void.............................................517 17.13.8 Section 331: Liabilities and rights of certain persons fraudulently preferred ...........................................................................................517 17.13.9 Section 332: Effect of floating charge .................................................518 17.13.10 Section 333: Disclaimer of onerous property ...................................518 17.13.11 Section 334: Transfers, etc after commencement of winding up to be void ..........................................................................................521 17.13.12 Section 335: Certain attachments, executions, etc in winding up

by Tribunal to be void ......................................................................521 17.13.13 Section 336: Offences by officers of companies in liquidation ........521 17.13.14 Section 337: Penalty for frauds by officers ......................................524 17.13.15 Section 338: Liability where proper accounts not kept ....................524 17.13.16 Section 339: Liability for fraudulent conduct of business ................525 17.13.17 Section 340: Power of Tribunal to assess damages against delinquent directors, etc....................................................................527 17.13.18 Section 341: Liability under sections 339 and 340 to extend to partners or directors in firms or companies ......................................527 17.13.19 Section 342: Prosecution of delinquent officers and members of company .......................................................................................528 17.13.20 Section 343: Company liquidator to exercise certain powers subject to sanction ............................................................................529

lii

NCLT 3E_PRINT.indd 52

2/18/2017 6:08:49 PM

Detailed table of contents

17.13.21 Section 344: Statement that company is in liquidation .................... 530 17.13.22 Section 345: Books and papers of company to be evidence............. 531 17.13.23 Section 346: Inspection of books and papers by creditors and contributories ................................................................................... 531 17.13.24 Section 347: Disposal of books and papers of company .................. 532 17.13.25 Section 348: Information as to pending liquidations ........................ 533 17.13.26 Section 349: Official liquidator to make payments into public account of India ................................................................................ 534 17.13.27 Section 350: Company liquidator to deposit monies into scheduled bank ................................................................................. 534 17.13.28 Section 351: Liquidator not to deposit monies into private banking account ............................................................................... 535 17.13.29 Section 352: Company Liquidation Dividend and Undistributed Assets Account ................................................................................. 535 17.13.30 Section 353: Liquidator to make returns, etc ................................... 537 17.13.31 Section 354: Meetings to ascertain wishes of creditors or contributories ................................................................................... 538 17.13.32 Section 355: Court, tribunal or person, etc., before whom affidavit may be sworn ..................................................................... 538 17.13.33 Section 356: Powers of Tribunal to declare dissolution of company void ................................................................................... 539 17.13.34 Section 357: Commencement of winding up by Tribunal ................ 540 17.13.35 Section 358: Exclusion of certain time in computing period of limitation .......................................................................................... 540 17.14 Official Liquidators ........................................................................................... 540 17.14.1 Section 359: Appointment of official liquidator ................................. 540 17.14.2 Section 360: Powers and functions of official liquidator .................... 541 17.14.3 Section 361: Summary procedure for liquidation ............................... 541 17.14.4 Section 362: Sale of assets and recovery of debts due to company .... 542 17.14.5 Section 363: Settlement of claims of creditors by official liquidator .......................................................................................... 543 17.14.6 Section 364: Appeal by creditor .......................................................... 543 17.14.7 Section 365: Order of dissolution of company .................................... 544 17.15 Further Reading ................................................................................................ 544

Chapter 18

Compounding of Offence

18.1

Introduction ....................................................................................................... 547

18.2

Overview of Changes ........................................................................................ 547 liii

NCLT 3E_PRINT.indd 53

2/18/2017 6:08:49 PM

NCLT and NCLAT Law Practice and Procedure, 3e

18.2.1 Officer who is in default .........................................................................547 18.2.2 Penalties ..................................................................................................547 18.2.3 Adjudication mechanism ........................................................................547 18.2.4 Trial of offence .......................................................................................547 18.2.5 Compounding procedure.........................................................................547 18.2.6 Grace period ...........................................................................................547 18.3

Corporate Criminal Liability .............................................................................548

18.4

What is an offence? ...........................................................................................548 18.4.1 Who is responsible for the offence?........................................................548 18.4.1.1 Analysis of the definition ......................................................549

18.5

What is the penalty? ..........................................................................................550 18.5.1 Penalty levels ..........................................................................................551 18.5.2 Penalties tied to damages ........................................................................551 18.5.3 Enhanced imprisonment .........................................................................551 18.5.4 New imprisonment..................................................................................551 18.5.5 Non-executive director ...........................................................................551 18.5.6 Statutory limits........................................................................................552 18.5.7 Distinct penalty for companies ...............................................................552 18.5.8 Frauds .....................................................................................................552 18.5.9 Provisions for reducing delays ................................................................552 18.5.10 Technical defaults ...............................................................................552 18.5.11 Disclosures of offences .......................................................................552 18.5.12 Compulsory filing ...............................................................................552 18.5.13 Adjudication of penalty .......................................................................553 18.5.14 Protection to whistle blowers ..............................................................553 18.5.15 Trial of offenses ..................................................................................553

18.6

Can offences be compounded? ..........................................................................553 18.6.1 What all offences can be compounded?..................................................553 18.6.2 What all offences cannot be compounded?.............................................553 18.6.3 Who is authorised to compound an offence? ..........................................554 18.6.4 When can they be compounded? ............................................................554 18.6.5 Quantum of fees ......................................................................................554 18.6.6 Procedure for compounding....................................................................554 18.6.7 Bar on compounding...............................................................................554 18.6.8 Effects of compounding ..........................................................................555

liv

NCLT 3E_PRINT.indd 54

2/18/2017 6:08:49 PM

Detailed table of contents

18.6.9 Penalty .................................................................................................... 555 18.7

Cognizable and Non-Cognizable Offences ....................................................... 555 18.7.1 What are cognizable offences? ............................................................... 555 18.7.2 What are non-cognizable offences? ........................................................ 556

18.8

Appendix A: Penalties Under the Old and New Provisions .............................. 556

18.9

Appendix B: Imprisonment Increased (Illustrative sample provisions where the quantum of imprisonment has increased) ......................................... 580

18.10 Appendix C: New Imprisonment Provisions .................................................... 584 18.11 Procedure for Compounding of Offence ........................................................... 589 18.12 Comparison Chart Compounding of Offence ................................................... 590 18.12.1 Comparison of New Act with Old Act ................................................ 590 18.12.2 Comparison of Old Act with New Act ................................................ 591

Chapter 19

Miscellaneous Powers of Tribunal

19.1

Introduction ....................................................................................................... 595

19.2

Change in Financial Year .................................................................................. 595 19.2.1 Application to Tribunal .......................................................................... 595 19.2.2 Who can apply? ...................................................................................... 596 19.2.3 Period of financial year .......................................................................... 596 19.2.4 Procedure for making application under section 2(41) ........................... 596

19.3

Tribunal Approved Company Conversion ........................................................ 597 19.3.1 Conversion of companies ....................................................................... 597 19.3.1.1 Permissibility of conversion ................................................. 597 19.3.1.2 General process of conversion .............................................. 597 19.3.2 Conversion of public company into private company ............................ 598 19.3.2.1 Conditions for conversion ..................................................... 598 19.3.2.2 Consequential changes .......................................................... 599 19.3.2.3 Impact on debts and contracts ............................................... 600 19.3.2.4 Effective date of conversion ................................................. 600 19.3.2.5 Listed companies .................................................................. 601 19.3.2.6 Procedure for conversion of public into private company ................................................................................ 601

19.4

Extension of Time for Redemption of Preference Shares ................................. 604 19.4.1 Who can approach? ................................................................................ 606 19.4.2 Approval ................................................................................................. 607 19.4.3 Inability to redeem.................................................................................. 607

lv

NCLT 3E_PRINT.indd 55

2/18/2017 6:08:49 PM

NCLT and NCLAT Law Practice and Procedure, 3e

19.4.4 Nature of order........................................................................................609 19.4.5 Applicability of previous judgments .......................................................609 19.4.6 Usefulness of section 55(3).....................................................................609 19.4.7 Procedure for seeking extension of time for redemption of preference shares ..............................................................................609 19.5

Consolidation of Shares.....................................................................................610 19.5.1 In what all cases is approval necessary? .................................................612 19.5.2 Procedure for consolidation of shares under the Act ..............................612

19.6

Rights of Debentures Holders to Seek Reliefs ..................................................615 19.6.1 Application under section 71(9) for interim reliefs.................................616 19.6.1.1 Who can apply? .....................................................................616 19.6.1.2 In which case? .......................................................................616 19.6.1.3 Who will be given opportunity of being heard? ....................617 19.6.1.4 Nature of reliefs? ...................................................................617 19.6.2 Application to Tribunal for seeking repayment ......................................617 19.6.3 Penalty ....................................................................................................617 19.6.4 Procedure for Application Under Section 71(9) Seeking Interim Reliefs by Debenture Trustee ...........................................................617 19.6.5 Procedure for Filing Application under Section 71(10) for Failure to Redeem Debentures [NCLT r 73] ................................................618

19.7

Inspection of Minutes ........................................................................................619 19.7.1 Procedure for making application for inspection ....................................620

19.8

Injunction on Representations by Outgoing Directors ......................................620 19.8.1 Scope of the application..........................................................................621 19.8.2 Who can apply? ......................................................................................621 19.8.3 Under which instances? ..........................................................................622 19.8.4 What relief? ............................................................................................622 19.8.5 Procedure for making application under section 169 ..............................622

Chapter 20

Powers of Tribunal under other Acts

20.1

Introduction .......................................................................................................623

20.2

Power under RBI Act ........................................................................................623

20.3

Power under Limited Liability Partnership Act, 2008.......................................624 20.3.1 Power to reduce/waive penalty ...............................................................625 20.3.2 Power to Enforce Filing ..........................................................................625 20.3.3 Investigations ..........................................................................................626

lvi

NCLT 3E_PRINT.indd 56

2/18/2017 6:08:49 PM

Detailed table of contents

20.3.4 Merger and Amalgamations ................................................................... 627 20.3.5 Winding up of LLP ................................................................................. 630

Chapter 21

Appeals, Reviews and Writs

21.1

Introduction ....................................................................................................... 634

21.2

Appeal from order of NCLT ............................................................................. 634 21.2.1 Section 421 of the Companies Act, 2013 ............................................... 635 21.2.2 Section 10F of the Companies Act, 1956 ............................................... 635 21.2.3 Section 25 of SICA................................................................................. 635 21.2.4 Distinction between section 10F of Companies Act, 1956 and section 421 of the Companies Act, 2013 .......................................... 636 21.2.5 Similarities/distinction under SICA and Companies Act, 2013 ............ 636 21.2.6 Applicability of case laws under Companies Act, 1956? ....................... 636 21.2.7 What orders can be appealed against? .................................................... 638 21.2.7.1 Dictionary meaning............................................................... 638 21.2.7.2 Case laws on meaning of the term ‘order’ ............................ 638 21.2.8 Who can appeal? .................................................................................... 640 21.2.8.1 Dictionary meaning of “person aggrieved”........................... 640 21.2.8.2 Case laws on “person aggrieved”.......................................... 640 21.2.8.3 Analysis of the term “person aggrieved” under Companies Act, 2013 ............................................................ 644 21.2.9 Time period for filing an appeal ............................................................. 645 21.2.10 Sufficient cause ................................................................................... 645 21.2.10.1 Test laid down to determine sufficient cause ......................... 645 21.2.11 Consent orders .................................................................................... 651 21.2.12 Grounds of appeal ............................................................................... 652

21.3

Appeal to the Supreme Court ............................................................................ 653 21.3.1 Similar provisions in other Acts ............................................................. 653 21.3.1.1 The Electricity Act, 2003 ...................................................... 653 21.3.1.2 The National Green Tribunal Act, 2010 ............................... 654 21.3.1.3 The Telecom Regulatory Authority of India Act, 1997 ........ 654 21.3.1.4 The Securities and Exchange Board of India Act, 1992 ....... 654 21.3.1.5 Companies Act, 1956 ............................................................ 655 21.3.2 Terms used in the section ....................................................................... 655 21.3.3 Period of filing the appeal ...................................................................... 655 21.3.4 Scope of appeal ...................................................................................... 655

lvii

NCLT 3E_PRINT.indd 57

2/18/2017 6:08:50 PM

NCLT and NCLAT Law Practice and Procedure, 3e

21.3.4.1

Difference between a “questions of law” and “questions of fact ....................................................................................656

21.4

Power to Review ...............................................................................................658

21.5

Writ Jurisdiction ................................................................................................658

21.6

Further Reading .................................................................................................669

Chapter 22

General Practice and Procedure

22.1

Introduction .......................................................................................................673

22.2

General Procedure & Practice ...........................................................................673 22.2.1 Territorial Jurisdiction ............................................................................673 22.2.2 Filing of Petition/Application .................................................................673 22.2.2.1 Who can file ..........................................................................673 22.2.2.2 Modes of filing ......................................................................674 22.2.2.3 How to file an application/petition ........................................674 22.2.3 Documents to Accompany the petition or Application ...........................674 22.2.4 Scrutiny of Application/Petition .............................................................675 22.2.5 Advertisement [Rule 35].........................................................................675 22.2.6 Notice to Opposite Party [Rule 37].........................................................676 22.2.7 Filing of Affidavit of Service/Advertisement .........................................676 22.2.8 Service of notice and Processes Issued by the Tribunal [Rule 38] .........677 22.2.9 Filing of Reply and other Documents by the Respondents [Rule 41] .....677 22.2.10 Filing of Rejoinder [Rule 42] ..............................................................677 22.2.11 Additional Pleadings ...........................................................................677 22.2.12 Framing of Issues ................................................................................678 22.2.13 Admission and denial of documents/discover and production of documents.........................................................................................678 22.2.14 Filing of Affidavit of Evidence [Rule 39] ...........................................679 22.2.15 Cross Examination of any Deponent [Rule 39] ...................................679 22.2.16 Summoning the Witness and Method of Recording Evidence [Rule 52] ...........................................................................................679 22.2.17 Oath to witness [Rule 47] ....................................................................681 22.2.18 Hearing of petition or application [Rule 44] .......................................681 22.2.19 Action on Application for Applicants Default [Rule 48] ....................681 22.2.20 Ex-parte hearing and disposal of petition or application [Rule 49] .....682 22.2.21 Decision of the Tribunal ......................................................................682 22.2.22 Order to be Passed and Signed [Rule 149 & 150] ...............................682

lviii

NCLT 3E_PRINT.indd 58

2/18/2017 6:08:50 PM

Detailed table of contents

22.2.23 Filing of order of the Tribunal ............................................................ 683 22.2.24 Application for Execution ................................................................... 683 22.2.25 Effect of Non-compliance(Rule 58) .................................................... 683 22.2.26 Procedure for Imposition of Penalty Under the Act (Rule 59) ........... 683 22.2.27 Preservation of Record [Rule 103] ...................................................... 684 22.2.28 Fees ..................................................................................................... 684 22.3

Representation before NCLT/NCLAT .............................................................. 685 22.3.1 Authorised representative ....................................................................... 685 22.3.1.1 Right to legal representation. ................................................ 685 22.3.1.2 Special authorized representatives ........................................ 686 22.3.1.3 Amicus curiae ....................................................................... 686 22.3.1.4 Dress for the authorised representatives ............................... 687 22.3.2 Dress for and for the parties in person .................................................... 687 22.3.2.1 Memorandum of appearance ................................................. 687 22.3.2.2 Clerk of authorised interns .................................................... 688

22.4

Schedule A: schedule of fees ............................................................................ 688

Annexure I- Checklist NCLT ....................................................................................... 691 Annexure II- Naming of old matters ............................................................................ 695

Chapter 23 23.1

Jurisdiction and Limitation

Introduction ....................................................................................................... 700 23.1.1 What is jurisdiction? ............................................................................... 700 23.1.2 Why is it relevant? .................................................................................. 700 23.1.3 What are the types of jurisdiction? ......................................................... 701 23.1.3.1 Jurisdiction over the subject-matter ...................................... 701 23.1.3.2 Territorial jurisdiction ........................................................... 701 23.1.3.3 Pecuniary jurisdiction ........................................................... 701 23.1.3.4 Original or appellate jurisdiction .......................................... 702 23.1.3.5 Division bench & single bench ............................................. 702 23.1.4 Bar on civil court jurisdiction ................................................................. 702 23.1.4.1 Case laws and their applicability .......................................... 703

23.2

Limitation Period .............................................................................................. 708 23.2.1 Applicability of Limitation Act .............................................................. 708 23.2.1.1 Scope of applicability ........................................................... 708 23.2.1.2 Interpretation of the term “as far as may be� ........................ 711 23.2.1.3 Calculation of limitation period ............................................ 711 23.2.2 General principles of limitation .............................................................. 711 lix

NCLT 3E_PRINT.indd 59

2/18/2017 6:08:50 PM

NCLT and NCLAT Law Practice and Procedure, 3e

23.2.2.1 23.2.2.2 23.2.2.3 23.2.2.4 23.2.2.5 23.2.2.6 23.2.2.7 23.2.2.8 23.2.2.9 23.2.2.10 23.2.2.11

Dismissal of petition/application ...........................................711 Extension of period ...............................................................711 Expansion of time on showing sufficient cause ....................712 Exclusions on account minority etc.......................................712 Continuous running of time...................................................712 Other exclusions ....................................................................712 Manner of computation of time limit ....................................712 Ownership by prescription ....................................................714 Miscellaneous provisions ......................................................714 Schedule I: Limitation Period ...............................................714 Enlargement of time by Tribunal (NCLT Rule 153) .............714

Annexure I—Subject-wise jurisdiction of NCLT .........................................................715 Annexure II—State-wise jurisdiction of NCLT ...........................................................716 Annexure III—Pecuniary jurisdiction of NCLT ...........................................................718 Annexure IV—Divisional and Single Member bench ..................................................719

Chapter 24

The Insolvency and Bankruptcy Code, 2016

24.1

Background .......................................................................................................725

24.2

Structure of the Code.........................................................................................726

24.3

Meaning of Insolvency and Bankruptcy............................................................728

24.4

Applicability ......................................................................................................728

24.5

Insolvency Framework ......................................................................................729 24.5.1 Insolvency professionals .........................................................................730 24.5.2 Insolvency professional agencies ............................................................733 24.5.3 Information Utilities ...............................................................................733 24.5.4 Insolvency Regulator/the Board .............................................................734 24.5.5 Adjudicatory Authorities ........................................................................737

24.6

Insolvency Resolution Process (IRP) of Corporate Persons .............................737

24.7

Key highlights of the insolvency resolution process under IBC (Chapter II Part II) ...............................................................................................................739 24.7.1 To whom is the process applicable? .......................................................739 24.7.2 When can it be initiated? ........................................................................740 24.7.3 Quantum of default .................................................................................740 24.7.4 Who can initiate? ....................................................................................741 24.7.4.1 Financial Creditor..................................................................741 24.7.4.2 Operational Creditor..............................................................744 24.7.4.3 Corporate Applicant ..............................................................747

lx

NCLT 3E_PRINT.indd 60

2/18/2017 6:08:50 PM

Detailed table of contents

24.7.4.4 24.7.4.5 24.7.4.6 24.7.4.7

Member of company ............................................................. 748 Person managing operations ................................................. 748 Person in control and supervisor of the company ................. 748 When can corporate applicant apply(Section 10)? ................ 748

24.7.5 Process of Insolvency Resolution(Sec 12) ............................................. 751 24.7.6 Application for Insolvency Resolution ................................................... 752 24.7.7 Impact of Admission of Application (sec 13 of IBC) ............................. 752 24.7.8 Insolvency Commencement Date ........................................................... 752 24.7.9 Moratorium (sec 14 of IBC) ................................................................... 752 24.8

Public Announcement (Section 15) .................................................................. 756

24.9

Appointment Of Interim Resolution Professional (Section 16) ........................ 756

24.10 Powers and Duties of the Interim Resolution Professional ............................... 757 24.10.1 Management of the affairs of the corporate debtor by the interim resolution professional (Section 17) ................................................. 757 24.10.2 Duties of the interim resolution professional (Section 18) ................. 760 24.10.2.1 Collection of information ...................................................... 760 24.10.2.2 Collation of all claims against the corporate debtor ............. 760 24.10.2.3 Constitution of the committee of creditors............................ 762 24.10.2.4 Monitor assets, manage operations, and file information in relation to the coroporate debtor ....................................... 762 24.10.2.5 Take control and custody of assets of the corporate debtor .................................................................................... 762 24.10.3 Personnel of corporate debtor to extend cooperation to the interim resolution professional in managing the affairs of the corporate debtor (Section 19) ........................................................... 763 24.10.3.1 Management of operations of the corporate debtor (Section 20) ........................................................................... 763 24.10.4 Committee of creditors (Section 21) ................................................... 764 24.10.4.1 Financial creditors................................................................. 764 2.11.5.2 Operational creditors............................................................. 765 24.11 Appointment of Insolvency Resolution Professional (Section 22) ................... 766 24.12 Resolution Professional to Conduct Corporate Insolvency Resolution Process (Section 23) .......................................................................................... 767 24.13 Meeting of the Committee of Creditors (Section 24) ........................................ 767 24.13.1 Notice of meeting and participation .................................................... 767 24.13.2 Voting share ........................................................................................ 768 24.14 Duties of the Resolution Professional (Section 25)........................................... 769

lxi

NCLT 3E_PRINT.indd 61

2/18/2017 6:08:50 PM

NCLT and NCLAT Law Practice and Procedure, 3e

24.15 Avoidence of Transactions not to affect Corporate Insolvency Resolution Process (Section 26) ..........................................................................................770 24.16 Right to Replace Resolution Professional (Section 27) .....................................771 24.17 Resolution Professional to act with the Approval of the Committee of Creditors (Section 28) .......................................................................................771 24.17.1 Prior approval of the committee of creditors .......................................772 24.17.2 Actions of the resolution professional without approval of the committee of creditors are void ........................................................773 24.18 Preparation of Information Memorandum (Section 29) ....................................773 24.19 Resolution Plan (Section 30) .............................................................................774 24.19.1 What is a resolution plan? ...................................................................774 24.19.2 Who can submit a resolution plan? .....................................................775 24.19.3 Mandatory requirements of every resolution plan ...............................775 24.19.4 Measures for implementation of resolution plan .................................776 24.19.5 Approval of committee of creditors ....................................................776 24.19.6 Resolution applicant may be present at meeting of committee of creditors ............................................................................................777 24.20 Approval of Resolution Plan (Section 31).........................................................777 24.20.1 Conditions for approval .......................................................................777 24.20.2 Approval of the NCLT is binding .......................................................777 24.20.3 Moratorium shall terminate upon approval of resolution plan ............777 24.20.4 Record of proceedings to be filed with the Board ...............................778 24.21 Rejection and Appeal (Section 32) ....................................................................778 24.22 Liquidation ........................................................................................................778 24.22.1 Involuntary Liquidation under Chapter III Part II of the IBC .............779 24.22.1.1 Who can initiate the process of involuntary liquidation? ......779 24.22.1.2 In which circumstance will the NCLT pass an order for Liquidation? ..........................................................................779 24.22.1.3 Suo motu Initiaition of Liquidation by NCLT ......................781 24.22.1.4 Application by Insolvency Resolution Professional ..............782 24.22.1.5 Application by Affected Persons ...........................................782 24.22.2 Nature of Order for liquidation............................................................782 24.22.3 Effect of liquidation order ...................................................................783 24.22.3.1 Stay on initiation of suits & proceedings(sec 33(5) of IBC: .......................................................................................783 24.22.3.2 Discharge of Employees(sec 33(7) of IBC): .........................783 24.22.3.3 Cessation of Powers of Board(sec 34(2) of IBC): .................783

lxii

NCLT 3E_PRINT.indd 62

2/18/2017 6:08:51 PM

Detailed table of contents

24.22.4 Appointment of Liquidator ................................................................. 783 24.22.4.1 Who will be the liquidator?................................................... 783 24.22.5 Powers of Liquidator ........................................................................... 784 24.22.5.1 Power of Management .......................................................... 784 24.22.5.2 Assistance by personnel of corporate debtor ........................ 784 24.22.5.3 Powers & Duties to be execercised subject to direction of NCLT(Sec 35 of IBC) ................................... 784 24.22.6 Fee of Liquidator................................................................................. 786 24.22.7 Liquidation Estate(sec 36(3) of IBC) .................................................. 787 24.22.8 Rights of Creditors .............................................................................. 788 24.22.9 Consolidation of Claims (Sec 38) ....................................................... 788 24.22.10 Verification of Claims ...................................................................... 788 24.22.11 Secured Creditor in Liquidator Proceedings (sec 52 of IBC) ........... 789 24.22.12 Priority of Payment In distribution of Assets (Section 53 of IBC).................................................................................................. 790 24.22.12.1 Prioritiy cannot be modified contracutally ........................... 791 24.22.13 Dissolution of Corporate Debtor(Sec 54 of IBC):............................ 791 24.22.14 Transaction that can be questioned in liquidation ............................ 792 24.22.14.1 Preferential Transactions(Sec 43 of IBC): ........................... 792 24.22.14.2 Transaction not considered preferenrial transaction ............ 792 24.22.14.3 Undervalued Transaction(Sec 45 of IBC):........................... 794 24.22.14.4 Transactions defrauding creditors(Sec 49 of IBC) ............... 796 24.22.14.5 Extortionate Credit Transaction(Sec 50) .............................. 796 24.23 Further Reading ................................................................................................ 797 Annexure 1

National Company Law Tribunal Rules, 2016.......................................799

Annexure 2

National Company Law Appellate Tribunal Rules, 2016 ......................879

Annexure 3

Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 .................................................................913

Bibliography ...............................................................................................................945

lxiii

NCLT 3E_PRINT.indd 63

2/18/2017 6:08:51 PM

Contents of attached CD Commencement notifications under companies Act 2013 1. Sections of CA 2013 wef 12 Sep 2013 2. Sections of CA 2013 wef 1 Apr 2014 3. Sections of CA 2013 wef 1 Apr 2014 4. Sections of CA 2013 wef 18 May 2016 5. Sections of CA 2013 wef 1 Jun 2016 6. Sections of CA 2013 wef 6 Jun 2014 7. Sections of CA 2013 wef 9 Sep 2016 8. Sections of CA 2013 wef 15 Dec 2016 9. Sections of CA 2013 wef 26 Dec 2016 Commencement under IBC 1. Sections of the Code wef 5 Aug 2016 2. Sections of the Code wef 19 Aug 2016 3. Establishment of IBBI on 1 Oct 2016 4. Sections of the Code wef 1 Nov 2016 5. Sections of the Code wef 15 Nov 2016 6. Sections of the Code wef 1 Dec 2016 7. Sections of the Code wef 15 Dec 2016 Insolvency Code, Rules and Regulations 1. BLRC Report 2. Joint Committee Report on Insolvency and Bankruptcy Code 2015 3. The Insolvency and Bankruptcy Code 2016 4. Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016, wef 30 Nov 2016 5. Insolvency Resolution Process for Corporate Persons Regulations, 2016

Notified Rules under Companies Act 1. Acceptance of Deposits Rules wef 1 Apr 2014 2. NCLT Rules wef 22 Jul 2016 3. NCLAT Rules wef 22 Jul 2016 4. Transfer of Pending Proceedings Rules wef 15 Dec 2016 5. The Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 wef 15 Dec 2016 6. Reduction Rules wef 15 Dec 2016 7. NCLT (Amendment) Rules 20 Dec 2016 Old draft rules for reference 1. Draft Inspections, Inquiry and Investigation Rules 2. Draft Rules for Registered Valuers 3. Draft Rules on Compromises, Arrangements and Amalgamations 4. Draft Rules on Prevention of Oppression and Mismanagement 5. Draft NCLT Salary Rules 6. Draft NCLAT Salary Rules 7. Rules on Revival and Rehab of Sick Cos 8. Draft Winding up Rules   

Companies Act 2013 SICA Repeal Act, 2003 Chapter 16 Revival and Rehabilitation of Sick Companies

lxiv

NCLT 3E_PRINT.indd 64

2/18/2017 6:08:51 PM

Table of cases Additional Registrar of Companies v Perfect Benefit Fund Ltd. [(1999) 97 Comp. Case 731 (Madras)] ...................................................................................... 198 Adelaide Electric Co. v Prudential Assurance 1934 A.C. 122 ...................................... 73 Adi Pherozshah Gandhi v. H.M. Seervai, Advocate General of Maharashtra, Bombay [MANU/SC/0044/1970, AIR1971SC385, (1970)2SCC484, [1971]1SCR863 ....................................................................................................... 640 Ajit Singh v. Union of India (Civil Writ 710-D of 1966) ............................................. 340 Alabama New Orleans, Texas & Pacific Junction Railway In re: (1981) 1 Ch 213 at 238, 239 (CA) ...................................................................................................... 299 Ali Jawab Ameerhasan Rizvi v. Indo French Biotech Enterprise Ltd. [(2000) 25 SCL 272 (Bombay)] ................................................................................................ 198 Amchem Prods., Inc. v. Windsor, 521 U.S. 591, 617 (1997)........................................ 454 Ammonia Supplies Corpn. (P) Ltd. v Modern Plastic Containers (P) Ltd. MANU/SC/0585/1998 : 1998 (7) SCC 105 ............................................................. 118 Amrit Lal Seth v Seth Hotels Private Limited (2009) 148 Com Cases 651. ................. 421 Anil.R.Chhabria v Finolex Industries Ltd [2009]99 Comp Cas 168(CLB).................. 123 Ansal Properties and Infrastructure Ltd., [CLB- DEL: CP 25/9/2014] ....................... 197 ARG Auto Components (P.) Ltd. v Atlas Pet Plas Industries Ltd. MANU/CL/0001/2015 : [2015]126CLA12(CLB) : [2015]130SCL77(CLB).......... 119 Arunachalam Muthu v. Nafan BV [MANU/MH/1954/2012 : 2013 (2) ALLMR 127 : 2013 (7) Bom CR 407 : [2013] 115 CLA 252 (Bom) : [2013] 179 CompCas 249 (Bom) : [2013] 119 SCL 434 (Bom)], .............................................. 638 Bachan Singh v Dhian Das, AIR 1974 SC 708 ............................................................ 657 Bagree Cereals (P.) Ltd. and Ors. v Hanuman Prasad Bagri and Ors. [MANU/WB/0256/2000 : [2001]105CompCas465(Cal) : (2001)2CompLJ397(Cal) : 105CWN729] ............................................................... 412 Bajaj Auto Limited v N.K.Firodia [1971] 41 Comp Cas 1(SC) ................................... 121 Bajaj Auto Ltd. v N.K. Firodia MANU/SC/0036/1970 : 1970 (2) SCC 550, 557 ........ 118 Bajaj Auto Ltd. v Western Maharashtra Development Corporation Ltd MANU/MH/0820/2015 : 2015(4)ARBLR470(Bom) : 2015(4)Bom CR499 ...................................................................................................................... 127 Bangalore Turf Club Ltd. v. Union of India [MANU/KA/3515/2014 : 2015 (2) AKR 82 : (2015) 277 CTR (Kar) 221 : ILR 2015 KARNATAKA 1825 : [2015] 228 TAXMAN 234 (Kar)] ........................................................................... 659

lxv

NCLT 3E_PRINT.indd 65

2/18/2017 6:08:51 PM

NCLT and NCLAT Law Practice and Procedure, 3e

Basawaraj & Anor v. Spl. Land Acquisition officer AIR 2014 SC 746 : (2013) 14 SCC 81, Civil Appeal No.6974 of 2013...................................................................650 Bede Steamship Company Limited [1970] 1 Ch 123 (CA) ...........................................122 Bennet Coleman & Co. v Union of India 1997 (MANU/MH/0054/1977 : 47 Comp.Cases 92 Paras 116 onwards) ........................................................................426 Bharamgouda Adgouda Patil and Ors. v Sanjay Founders Pvt. Ltd. and Ors. MANU/MH/1866/2015, CP 17 of 2007...................................................................119 Billcare Ltd [CLB-Delhi: CP NO. 76 (MB) 2015] .......................................................195 Birla Cotsyn India Ltd., [CLB-Mum: CA 5 of 2015] ...................................................198 Brijesh Kumar v State of Haryana & Ors., MANU/SC/0217/2014 : AIR 2014 SC 1612....................................................................................................................650 British and American Trustee and Financial Corporation Limited v Couper [(1894) A.C. 399 (HL)] ............................................................................................159 Budhia Swain v Gopinath Deb - (1999) 4 Supreme Court Cases 396 ............................50 Bushell v Faith [1970] AC 1099 ....................................................................................71 Cannanore Whole Body C.T. Scan and Research Centre Pvt.Ltd. and Ors. v Mrs. Saibunnisa S.V. [C.A. No. 129/167/SRB of 1997; MANU/CL/0024/1998] ............208 Chand Mall Pincha v. Hathi Mall Pincha (1999) 35 Com Cases 368 .........................656 Chander Krishan Gupta v Pannalal Girdhari lal (P.) ltd. 1984 55 CompCas 702 Delhi : 1982 (3) DRJ 295 .........................................................................................432 Chander Krishan Gupta v Pannalal Girdhari Lal Pvt. Ltd. and Ors. [MANU/DE/0242/1981 : [1984]55CompCas702(Delhi) : 1982(3)DRJ295] ...................................................................................... 410, 413, 432 Cine & Supply Corpn. (P.) Ltd., In re [2002] 35 SCL 683 ...........................................433 CIT v. Scindia Steam Navigation Co. Ltd. AIR 1961 SC 1633 : MANU/SC/0194/1961 : [1961]42 ITR 589 (SC) .....................................................657 Cumbrian Newspapers Group Ltd v Cumberland & Westmorland Herald Newspaper & Printing Co Ltd [1986] BCLC 286 .......................................................70 Dadu Dayal Mahasabha v Sukhdev Arya - (1990) 1 Supreme Court Cases 189............50 Deccan Cements Ltd v Geekay Exim (India) Ltd. [2002]112 Comp cas 616(CLB) .....123 Dinesh Gandhi v Bayer Diagnostics India Limited [2002] 111 Comp Cas 547 (CLB) .......................................................................................................................120 Dinesh Vrajlal Lakhani v Parke Davis (India) Ltd. (2003) 47 SCL 80 (Bom): (2005) 124 Comp Cas 728 (Bom) ............................................................................299 EITA India Ltd. AIR 1997 Cal 208 ...........................................................................343 Elder Pharmaceutical Limited [CLB- MUM :CA – 50/2014] .....................................196 Elder's Case, AIR 1952 SC 49 ........................................................................................410

lxvi

NCLT 3E_PRINT.indd 66

2/18/2017 6:08:51 PM

Table of cases

Eley v Positive Government Security Life Assurance Co Ltd, 1 Ex D 88 ............................ 71 Esha Bhattacharjee v. Managing Committee of Raghunathpur Nafar Academy & Ors., [MANU/SC/0932/2013, 2013 AIR SCW 6158] ............................................. 646 Essar Steel Ltd. v Unknown [2006]130CompCas123(Guj) : (2006)5CompLJ83(Guj) : [2005]59SCL457(Guj) : MANU/GJ/0085/2005) ............. 73 Exports Pvt. Ltd. v T.V. Chandran [MANU/KE/0078/1993] ........................................... 410 Eye Foundation Ltd. v Lasik Centre (India) P. Ltd.[MANU/TN/2220/2012 : (2013) 176 Com. Cases 345 (Mad))] ....................................................................... 283 Foss v Harbottle (1843) 67 ER 189 : (1843) 2 Hare 461 ............................................. 395 Futura Polyesters Ltd. [CLB-MUM: CP – 53/2014] ................................................... 196 Ganga Bai v Vijay Kumar and Ors. [MANU/SC/0020/1974: (1974) 2 SCC 393] ............ 707 Gaurishankar Neeklanth Kalyani and Ors. v Sulochana Neeklanth Kalyani and Ors. MANU/CL/0020/2015, CLB-Mum ................................................................. 116 Girdharlal Nathubhai Dalal v K.C. Agro Pvt. Ltd. and Ors. [MANU/CL/0038/2015 ...... 426 Girish Kumar Kharia v Industrial Forge and Engineering Co. Ltd. and Ors. (1999(3)BLJR1755 : [2001]103CompCas150(Patna) : MANU/BH/0057/1999) ............................................................................................. 73 Greenhalgh v Arderne Cinemas [1946] 1 All. E.R 512 CA ........................................... 73 Gulabrai Kalidas Naik And Ors. v Laxmidas Lailubhai Patel MANU/GJ/0001/1978 : 1978 48 Comp Cas 438 Guj .............................................. 422 Hansberry v Lee, 311 U.S. 32, 41, 61 S.Ct. 115, 118 (1940) ....................................... 453 Hindustan Lever Employees Union v Hindustan Lever Ltd., and Miheer H. Mafatlal Industries Ltd. ......................................................................................... 301 Hindustan Lever Employees’ Union v Hindustan Lever Ltd. (1994) 14 CLA 397 (Bom) ....................................................................................................................... 299 Hindusthan Commercial Bank Ltd. v Hindusthan General Electrical Corporation Ltd (AIR1960Cal637: 64CWN458 : 64CWN458 : MANU/WB/0172/1960)......................... 79 Hriday Nath Roy v Ram Chandra, (A.I.R. 1921 Cal. 34) ............................................ 700 Hungerford Divestment Trust Ltd., Re v Turner Morrison & Co. Ltd. [1972 (I) Cal, 286] .................................................................................................................. 703 In Re Brown Ex. p. Debtor v. Official Receiver [1943] Ch. D. D. 177 ....................... 641 In Re Kitson, Ex. p. Sugden (Thomas) and Sons Ltd. [1911] 2 K. B. 109 ................... 641 In Re Lamb Ex., p. Board of Traded [1894] 2 Q. B. D. 805 per Lord Esher ............... 641 In Re Side-hotham Ex. J. Sidebotham (1880) 14 Ch. D. 458 C.A. ......................... 641 In Re Sindhri Iron Foundry (P) Ltd., [l964 (34) C.C.510] ........................................... 703 In Re Woods Ex. P. Ditton [1879] 40 L. T. 297 C.A. 79 ............................................. 641 In re: Hoare and Co. Ltd. and Reduced ((1910) W. N. 87, Nevile J.,) ................................... 80 lxvii

NCLT 3E_PRINT.indd 67

2/18/2017 6:08:52 PM

NCLT and NCLAT Law Practice and Procedure, 3e

In Re: Mangalore Chemicals and Fertilizers Ltd. [MANU/CL/0005/1994 : [1994] 79 CompCas 551 (CLB)] [ CLB(SRB) Company Petition No. 60/80A/SRB/93 dated 08.12.1993] ..........................................................................607 In Re: PMP Auto Industries Limited MANU/MH/0112/1991 : [1994] 80 Comp.

Cases 289 .................................................................................................................283 In Re: Rallis India Limited [IV (2005) BC 187 : 2005 (3) BomCR 618 : 2005 125 CompCas 268 Bom : (2005) 5 CompLJ 234 Bom : 2005 59 SCL 219 Bom] ........................................................................................................................157 In Re: Rampuria Cotton Mills Ltd. AIR1959Cal253 : 63CWN11 : 63CWN11 : MANU/WB/0063/1959..............................................................................................83 Indian Bank v Satyam Fibres (India) Pvt. Ltd. - (1996) 5 Supreme Court Cases 550 .............................................................................................................................49 Jai Mahal Hotels Pvt. Ltd. v Rajkumar Devraj and Ors. 2015(10)SCALE14 : MANU/SC/1059/2015 .............................................................................................117 Jai Prakash Association Ltd. [CLB – DEL: CA 25/10/2015] ......................................197 Jorhat Tea and Industries (P) Ltd v. State of Meghalaya [(2006) 72 SCL 310 (Gauhati)] .................................................................................................................198 K. Radhakrishnan v Thirumani Asphalts and Felts (P) Ltd., [MANU/TN/0129/1998, 1998(1) CTC 682] .....................................................................................................706 Kailash Singh v. State of U.P. and Ors. [MANU/UP/1196/2015] ...............................643 Killick Nixon Limited v Dhanraj Mills Pvt. Ltd. [1983] 54 Comp Cas 432 (Bom) ......121 Konathala Sriramulu v Board of Revenue (C.T.) - AIR 1965 Andhra Pradesh 395 .......50 Kumar Exporters P. Ltd. v Naini Oxygen and Acetylene Gas Ltd. [1986] 60 Comp Cas 984 (All) .................................................................................................123 Lakshmidhar Misra v. Rangalal MANU/PR/0121/1934...............................................656 Landeros v Flood, 17 Cal. 3d 399, 551 P.2d 389 97 ALR 3d 324 ................................454 Luxmi Tea Co. Limited v Pradip Kumar Sarkar MANU/SC/0290/1989 : 1989 Supp. (2) SCC 656 ...................................................................................................118 M. Sampath v AKMN Cylinders Pvt. Ltd. [(1998) 29 CLA 455 (CLB-SB)] ...................208 M.G. Amirthalingam v Gudiyatham Textiles Private Ltd. [1972] 42 Comp Cas 350 (Mad).................................................................................................................122 M.S.D.C. Radharamanan v M.S.D. Chandrashekhar MANU/SC/1342/2008 : 2008 (143) Comp.Cases 97 (SC) : 2008 (1) UJ SC 0583 (paras 15 and 17) ..........................426 Mace v. Van Ru Credit Corp., 109 F.3d 388, 344 (7th Cir. 1997) ...............................454 Madras Bar Association v Union of India (UOI) and Ors. [2015VII AD (S.C.) 229 : [2015]126CLA111(SC) : (2015)3CompLJ1(SC) : (2015)4MLJ184(SC) : 2015(6)SCALE331 : [2015]131SCL26(SC) : MANU/SC/0610/2015] .................. 7, 9 Mahaamba Investment Limited v IDI Limited (2001) 105 CompCase 16 .....................33

lxviii

NCLT 3E_PRINT.indd 68

2/18/2017 6:08:52 PM

Table of cases

Maharani Lalita Rajya Lakshmi v Indian Motor Company (Hazaribagh) ltd. AIR 1962 Cal 127 : 1962 32 CompCas 207 Cal : 66 CWN 63 ..................................... 432 Manibhai Hathibhai Patel v. C.W.E. Arbuthnot [MANU/MH/0123/1946 : AIR 1947 Bom 413 : 1947(49) BOMLR 454]................................................................. 658 Manohar Lal Chopra v Bahadur Rao Raja Seth Hiralal - MANU/SC/0056/1961 : AIR 1962 SC 527 .................................................................................................... 50 Manoharan v. Sivarajan & Ors. [MANU/SC/1192/2013, (2014) 4 SCC 163] ............ 647 Maruti Udyog Ltd v Pentamedia Graphics Ltd [2002]111Comp Cas 56(CLB) .......... 123 Mathew Michael v TEKOY (India) Ltd. [1990] 69 Comp Cas 145 (Ker)..................... 122 Mayyar Fabrics Ltd., [CLB-MUM-CA 10/2014] ........................................................ 196 Meenakshi Mills Co. Ltd. v. CIT, AIR 1957 SC 49 ...................................................... 656 Mekaster Valves and Engineering Services Private Limited MANU/GJ/0354/2008 : [2009] Comp. Cases 593 ................................................... 283 Meyer's case, AIR 1965 SC 381 ..................................................................................... 410 Miheer H. Mafatlal v Mafatlal Industries Ltd. (1996) 87 Com Cases 792(SC) ................... 72 Mysore Cements Limited MANU/KA/0013/2009 : [2009] 150 Comp. Cases 623...... 283 N.R. Harikumar v WW Apparels (India) Private Limited and Ors. MANU/TN/0894/2015 : 2015-2-LW987 : (2015)5MLJ422.............................. 69, 115 Nafar Chandra Pal v Shukur (1918) 45 IA 183 at 187 ................................................ 657 National Insurance Co. Ltd. [MANU/SC/0314/1998 : [1998] 2 SCR 1199] .................... 707 National Textile Corporation (Uttar Pradesh) Ltd. v Swadeshi Polytex Ltd. and Ors. [Company Petition No. 9/167/97-CLB; MANU/CL/0018/1998]....................... 206 Needle Industries (India) Ltd. v Needle Industries Newey (India) holdings Limited MANU/SC/0050/1981 : AIR 1981 SC 1298 (paras 171 and 172) ............................... 426 Neo Finance Pvt. Ltd. and Ors. v Rakesh Soni and Ors. MANU/CL/0040/2015, C.P. No. 15 of 2014(CLB-MUM)............................................................................ 118 Net 4 India Ltd. [CLB-DEL: CP 10/1/2015] ................................................................ 197 Poole and Ors v National Bank of China Limited [(1907) A.C. 229 (HL)] ................. 159 Pratibha Industries Ltd., [CLB-Mum :CA - 21/2015] ................................................. 196 Purnima Manthena and Ors. v. Renuka Datla and Ors.[ MANU/SC/1121/2015] ....... 637 R. Prakasam v Sree Narayana Dharma Paripalana Yogam [[1980] 50 Comp Cas 611] .......................................................................................................................... 208 R. v London County Keepers of the Peace and Justices [1890] 20 Q. B. D. 357 ......... 641 Rajesh Patil v Moonshine Films Pvt. Ltd. (2008) 141 CompCas 482 CLB : (2006) 6 CompLJ 161 CLB ..................................................................................... 422 Rajmundhry Electrict Corporation v Nageshwar Rao [AIR (1956) SC 213] .............. 421 Ram Chandra Singh v Savitri Devi - 2004-2-L. W. 70 .................................................. 49 lxix

NCLT 3E_PRINT.indd 69

2/18/2017 6:08:52 PM

NCLT and NCLAT Law Practice and Procedure, 3e

Rangpur Tea Associations Limited v Makkanlal Samaddar [1973] 43 Comp Cas 58 (Cal) ....................................................................................................................121 Ravalgaon Sugar Farms Ltd., [CLB Mum:CA - 9/2015] .............................................196 Sandvik Asia Limited v Bharat Kumar Padamsi and Ors. [2009] 92 SCL 272 ............159 Sangramsinh P. Gaekwad and Ors. v Shantadevi P. Gaekwad (Dead) thr. Lrs. and Ors. [MANU/SC/0052/2005 : AIR 2005 SC 809 : [2005] 123 CompCas 566 (SC) : (2005) 3 CompLJ 385 (SC) : JT 2005 (1) SC 581 : 2005 (2) SCALE 46 : (2005) 11 SCC 314 : [2005] 57 SCL 476 (SC) : [2005] 2 SCR 624 : 2005 (1) UJ 284] .............................................................................................400 Sanjay Mukim v United Spirit Limited and Ors. [MANU/CL/0046/2015, C.P. No. 7/2014-CB(Mad)]..............................................................................................112 Sardar Sarovar Narmada Nigam Ltd. [CLB MUM: CA 7/2015] ................................196 Satyanarayana Rathi v Annamalaiar Textiles Private Limited [1999] 95 Comp Cas 386 (CLB) .........................................................................................................122 Scottish Co-Operative Wholesale Society Limited v Meyer [1959] AC 324 ...............399 Secretary of State for India in Council v Rameswaram Devasthanam MANU/PR/0121/1934, (1934) 3 AWR 713, 38CWN533, (1934)ILR 57PR652, 1934-39-LW613, 61M.I.A.163 ...............................................................656 Serum Institute of India v Inderjit Properties Pvt. Ltd. MANU/CL/0105/2004 : 2006 129 Comp Cas 757 CLB : 2005 64 SCL 33 CLB ...........................................422 Shailesh Prabhudas Mehta v Calico Dyeing and Printing Mills Limited [1994] 80 Comp Cas 64(SC) ...............................................................................................120 Shanti Kumar R. Chanji v Home Insurance Co. of New York, MANU/SC/0017/1974MANU/SC/0017/1974: AIR 1974 SC 1719 ........................644 Shanti Prasad Jain v Kalinga Tubes Ltd. [MANU/SC/0368/1965 : AIR1965SC1535 : [1965]35 CompCas351(SC) : (1965)1CompLJ193(SC) : [1965]2SCR720] ...................................................................................... 409, 410, 426 Shapoorji Pallonji Finance Limited v Mideast (India) Ltd. [2002] 110 Comp Cas 868 (CLB) ................................................................................................................121 Shaw Wallace and Co. Ltd. v Union of India (UOI) [MANU/WB/0376/1998 : 2CWN11 : (1999)ILR 2Cal429] ................................................................ 49, 109, 332 Sheikh Rahim Bux v. Sheikh Muhammad Jamshed Ali [MANU/WB/0382/1953, (1955) ILR 1Cal25]..................................................................................................651 Shobha Kirloskar & ors v M/s Ghatge Patil Industries Ltd, CP 106/2014 : CLB(MUM), order dated 25 November 2014 ........................................................422 Shri V.S. Krishnan and Ors. v Respondent: Westfort Hi-tech Hospital Ltd. and Ors. [2(2008)CLT823 : [2008]142CompCas235(SC) : (2008)2CompLJ1(SC) : ILR2008(2)Kerala253 : 2008-4-LW356, (2008)2MLJ1192(SC) : 2008(3)SCALE184 : (2008)3SCC363 : [2008]83SCL44(SC)]............................ 399, 411

lxx

NCLT 3E_PRINT.indd 70

2/18/2017 6:08:52 PM

Table of cases

Shyama Prasad Mudrarka v. Calcutta Stock Exchange Association Ltd. [2002] 108 Comp Cas 703 (CLB) ....................................................................................... 124 Sivakumar Spinning Mills Pvt., Ltd. v. Shanmughavelayutham and Ors. [MANU/TN/3760/2009 : 2009 (6) CTC 847].......................................................... 655 Smt. Gangabai v Ratankumar - AIR 1983 Bombay 291 ................................................ 49 Smt. Pushpa Katoch v Manu Maharani Hotels Ltd. - (2001) 34 SCL 298 ..................... 49 Sovereign Life Assurance Company v Dodd [(1892) 2 QB 573(CA)] ......................... 290 Spindel Fabrik Suessen v Suessen Textile Bearing Limited (1989) 2 CORPT. LA. 202 (BOMBAY), ....................................................................................................... 73 Sri Ramdas Motor Transport Ltd. v Karedla Suryanarayana and others MANU/AP/0922/2001 : (2002) 110 Comp.Cases 193 (Paragraph 116 onwards)......... 426 Standard Chartered Bank v Andhra Bank Financial Services Ltd. MANU/SC/2534/2006 : 2006 (6) SCC 94 ............................................................... 118 State of Karnataka v Mysore Coffee Curing Works Ltd. [19841 55 Comp Cas 70 .............. 81 State of Rajasthan & Ors. v Union of India & Ors., MANU/SC/0370/1977MANU/SC/0370/1977 : AIR 1977 SC 1361 ....................... 644 Strdiewell Leathers (P) Ltd. v Bhankarpur Simbhaoli Beverages (P) Ltd. [1994 (79) C.C. 139] .......................................................................................................... 705 Sulochana Amma v Narayanan Nair [MANU/SC/0047/1994 : 1994 ECR 195 (SC)] ...... 707 Tarlok Chand Khanna v Raj Kumar Kapoor [1983] 54 Comp Cas 12 (Delhi) ............ 121 Thapar Agro Mills Ltd [(1998) 93 Comp. Case (CLB – NB)] ..................................... 198 The Madras High Court in Nungambakkam Dhanarakshaka Saswaiha Nidhi Limited v Registrar of Companies [[1972] 42 Comp Cas 632].................................. 208 The Securities & Exchange Board of India (SEBI) v Sterlite Industries (India) Ltd MANU/MH/0339/2002 : [2003]113CompCas273(Bom) : [2003]45SCL475(Bom) ........................................................................................... 283 The South India Insurance Co., Ltd. v Lakshmi - AIR 1967 MDS 464 ......................... 49 Thiruvalluvar Velanmai Kazhagam (P) Ltd. v M.K. Seethai Achi [1988 (64) C.C. 304] .......................................................................................................................... 704 Ultrafilter (India) Pvt. Ltd. v Ultrafilter GmbH [2002] 38 SCL 573. .......................... 433 Union of India (UOI) v Sterlite Industries (India) Ltd. ................................................ 283 Union of India v Company Law Board, Mumbai Bench and Others [MANU/MH/2163/2013, 2014(7)BomCR630 : [2013]181CompCas290 (Bom), [2014]123SCL199 (Bom)] ........................................................................................ 426 Union of India v R. Gandhi, President, Madras Bar Association [MANU/SC/0378/2010 : (2010)2CompLJ577(SC) : 2010(3)CTC517 : 2010(261)ELT3(S.C.) : JT2010(5)SC553(1) : (2010)4MLJ734(SC) : 2010(5)SCALE514 : (2010)11SCC1 : [2010]100SCL142(SC) : 2010(6)UJ2945] ....................................................................................................... 6, 9 lxxi

NCLT 3E_PRINT.indd 71

2/18/2017 6:08:53 PM

NCLT and NCLAT Law Practice and Procedure, 3e

Unitech Ltd. [CLB- DEL:CP 10/18/2015]....................................................................197 United Bank of India v United India Credit & Development Co. Ltd. 47 CC 689 ...........................................................................................................................343 United India Insurance Co. Ltd. v Rajendra Singh - AIR 2000 Supreme Court 1165 ...........................................................................................................................50 V. Balachandran v Union of India and another [1993 (76) C.C.67] ............................704 V.B. Rangaraj v V.B. Gopalakrishnan and Ors. MANU/SC/0076/1992, AIR1992 SC453 : [1992]73Comp Cas201(SC) : JT1991(4)SC430 : (1992)IIMLJ11(SC) : 1991(2)SCALE1135 : (1992)1SCC160 : [1991]Supp3SCR1 ................................124 Van Gemert v. Boeing Co., 259 F. Supp. 125 (S.D.N.Y. 1966) ...................................455 Vankamamidi Venkata Subba Rao v Chatlapalli Seetharamaratna Ranganayakamma [MANU/SC/0800/1997: [1997]3SCR530] ....................................705 Vardhman Publishers Limited v Mathrubhumi Printing and Publishing Company Limited [1991] 71 Comp Cas 1(Ker)........................................................................120 Vasant Investment Corporation Limited v Official Liquidator, Colaba Land and Mill Co. Ltd., MANU/MH/0074/1979 : (1981) 51 Comp. Case 20 .........................283 Vikas Jalan v Hyderabad Industries Limited [1997] 88 Comp Cas 551 (CLB) ...........122 Vilasini Jayaprakash v. St. Mary’s Finance Ltd. [(2000) 99 Comp. Case (Kerala)] ...................................................................................................................199 Wali Mohammad v. Mohammad Baksh MANU/PR/0230/1929 : 1930 (32) BOMLR 380 ............................................................................................................656 World Wide Agencies Pvt. Ltd. & Anr. v Mrs. Margarat T. Desor & Ors. MANU/SC/0137/1990 : 1990 1 SCC 536 ................................................................422 Yogendra H. Desai v Spatial Holodynamics (India) (P.) Ltd [Company Application No. 1/167/CLB/WR/2002; MANU/CL/0059/2002 ................................207

lxxii

NCLT 3E_PRINT.indd 72

2/18/2017 6:08:53 PM

Key to reading this book Readers are requested to take a note of some of the important points before reading the book.

Overview of changes Many chapters begin with an overview of changes. This is an executive summary/snapshot of the changes brought in by Companies Act, 2013 and their impact which are discussed in detail thereafter. In winding up chapter, I have also introduced an overview of changes brought about by the Insolvency and Bankruptcy Code.

Decoding the Law “Decoding of Law” provides pertinent question inserted in the form of a box under various topics. They raise issues that are sought to be answered in subsequent paragraphs to better understand and interpret the new law in light of the changes introduced.

Applicability Under this section, the author has taken select case laws, analysed them and then tried to test their applicability/relevance to the new provisions in light of the changes introduced. It will help the readers to understand the applicability of old case laws to the new Act. Observation Interpretation of some provisions is tricky and therefore, such provisions have been analysed under “observations” where there is a possibility of multiple interpretations; or interpretation is leading to an absurdity; or constitutionality of a provision is questionable; or its applicability is unclear or the like.

Rules The NCLT and related rules published during 2016 and 2017 have been provided either as annexures to this book or in the form of a CD. Each set of Rules is given an abbreviation in the Act; for instance, rules under compromise and arrangement are referred to as M&A Rules. The abbreviations page provides full forms of these rules.

lxxiii

NCLT 3E_PRINT.indd 73

2/18/2017 6:08:53 PM

NCLT and NCLAT Law Practice and Procedure, 3e

Procedures • •

•

The procedures discussed under each topic in the book are based on the current rules. Only in the winding up chapter are the procedures based on draft rules as these rules are yet to be notified.

Chapter-22 on “General Practice and Procedure” provides for the general procedure which is a default procedure to be followed under NCLT; unless expressly specified otherwise under the NCLT Rules or other rules or unless it is necessarily implied.

Only the procedures under the company law have been discussed in this book. Other related compliances under other laws/regulations like LODR are not provided.

Further Reading This book provides a perspective of how to read the new law and the changes therein. However, the subjects like oppression and mismanagement etc. are very vast and have thousands of relevant cases and material to refer. In such chapters, a list of relevant reference material under the heading “Further Reading” has been provided, so that when a professional reads this book on the new law, the reader would also get a perspective, as to what all other books/material can be referred to.

Reference of Companies Act 2013 Unless expressly or impliedly provided otherwise, all the sections pertain to Companies Act, 2013, with one exception, viz., the chapter on Insolvency and Bankruptcy Code.

Comparison charts In addition to the above, comparison charts under the new and old Act have been extensively used in the book to make the readers understand the relevance and applicability of various sections. Where ever possible, questions and answers have been discussed on crucial topics to analyse the new provisions.

FAQ Wherever possible, questions and answers have been discussed on crucial topics to analyse new provisions.

lxxiv

NCLT 3E_PRINT.indd 74

2/18/2017 6:08:53 PM

Abbreviations 1956 Act...................... Companies Act, 1956 2010 NCLT Case ........ Order passed on 11 May 2010 in Union of India v R Gandhi 2013 Act...................... Companies Act, 2013 2015 NCLT case ......... Madras Bar Association v Union of India (UOI) and Ors. Apex Court .................. Supreme Court Appellate Tribunal ...... NCLAT AAIFR ........................ Appellate Authority Reconstruction

for

Industrial

and

Financial

AGM ........................... Annual General Meeting BIFR............................ Board for Industrial and Financial Reconstruction BoD ............................. Board of Directors Board/IBBI.................. Insolvency and Bankruptcy Board of India CA ............................... Chartered Accountant CCI .............................. Competition Commission of India CDR ............................ Corporate Debt Restructuring CEO ............................ Chief executive officer CESTAT ..................... Customs, Excise and Service Tax Appellate Tribunal CFO ............................. Chief Financial Officer CG ............................... Central Government CLB ............................. Company Law Board CPC ............................. Civil Procedure Code CrPC............................ Criminal Procedure Code CS................................ Company Secretary DRT ............................ Debts Recovery Tribunal DRAT.......................... Debts Recovery Appellate Tribunal EOGM......................... Extra Ordinary General Meeting FEMA ......................... The Foreign Exchange Management Act, 1999 FY ............................... Financial Year HC ............................... High Court lxxv

NCLT 3E_PRINT.indd 75

2/18/2017 6:08:53 PM

NCLT and NCLAT Law Practice and Procedure, 3e

IAS .............................. Indian Accounting Standards IBC .............................. Insolvency and Bankruptcy Code, 2016 ICAI ............................ Institute of Chartered Accountants of India ICSI ............................. Institute of Company Secretaries of India IFRS ............................ International Financial Reporting Standards INV Rules ................... Inspection, Inquiry and Investigation Draft Rules released in 2013 (No separate final rules notified – NCLT Rules apply which are discussed in relevant Chapter) INC Rules.................... Companies (Incorporation) Rules, 2014 IRP .............................. Insolvency Resolution Process ITAT............................ Income Tax Appellate Tribunal KMP ............................ Key Managerial Personnel Limitation Act ............. Limitation Act, 1963 (Act 36 of 1963) LLP ............................. Limited Liability Partnership MCA............................ Ministry of Corporate Affairs MD .............................. Managing Director MoA ............................ Memorandum of Association M&A Rules ................. Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 released on 14th December 2016 and effective on 15th December 2016 NACAS ....................... National Advisory Council on Accounting Standards NBFC .......................... Non Banking Financial Companies NCLAT ....................... National Company Law Appellate Tribunal NCLT .......................... National Company Law Tribunal NCLAT Rules ............. National Company Law Appellate Tribunal Rules notified on 21st July 2016 NCLT Rules ................ National Company Law Tribunal Rules, 2015 notified on 21st July 2016 New Act ...................... Companies Act, 2013 NFRA .......................... National Financial Reporting Authority O & M ......................... Oppression and Mismanagement Old Act ........................ Companies Act, 1956 OL ............................... Official Liquidator O&M Rules ................. Draft Companies (Prevention of Oppression and Mismanagement) Rules, 2016 issued in January 2016 (No lxxvi

NCLT 3E_PRINT.indd 76

2/18/2017 6:08:53 PM

Abbreviations

separate final rules notified – NCLT Rules apply which are discussed in relevant Chapter) OPC............................. One Person Company PAC............................. Person Acting in Concert RBI .............................. Reserve of Bank of India ROC ............................ Registrar of Companies RD ............................... Regional Director RSC Rules ................... National Company Law Tribunal (Procedure for Reduction of Share Capital of Company) Rules, 2016 notified on 15th December 2016.

SC................................ Supreme Court SEBI ............................ Securities and Exchange Board of India Section 8 companies ... Charitable Companies registered under Section 8 of 2013 Act SICA ........................... Sick Industrial Companies (Special Provisions) Act, 1985 SFIO ............................ Serious Fraud Investigation Office SRR Rules ................... Draft Companies (Revival and Rehabilitation of Sick Companies) Rules, 2016 (Chapter XIX is omitted).

WOS............................ Wholly Owned Subsidiary WTD - ......................... Whole Time Director WUP Rules ................. Draft Companies (Winding up) Rules released in 2013 (No rules notified as yet)

lxxvii

NCLT 3E_PRINT.indd 77

2/18/2017 6:08:53 PM

NCLT and NCLAT Law Practice and Procedure, 3e

lxxviii

NCLT 3E_PRINT.indd 78

2/18/2017 6:08:54 PM

Chapter 1

Introduction Synopsis 1.1.

Introduction ................................................................................................... 1

1.2.

Meaning of NCLT and NCLAT ................................................................... 2

1.2.1.

New enforcement mechanism—place of tribunals .................................. 3

1.2.2.

Difference between NCLT and NCLAT .................................................. 3

1.2.3.

Court v Tribunal ....................................................................................... 3

1.3.

Introduction of Concept of NCLT in India – Eradi Committee ...................................................................................................... 4

1.4.

2002 Amendment Challenged ...................................................................... 5

1.5.

JJ Irani Committee ....................................................................................... 6

1.6.

Introduction of Tribunal in Companies Act, 2013 .................................... 6

1.6.1.

Nature of Challenge under 2013 Act........................................................ 7

1.6.2.

Reasons for establishing tribunals ............................................................ 8

1.7.

Further Reading ............................................................................................ 9

Annexure I—Constitution of NCLT and NCLAT ................................................. 10 Annexure II—Notification of sections of Companies Act, 2013 and notification of constitution of benches of NCLT ................................... 11

1.1.

INTRODUCTION

NCLT & NCLAT were constituted on 1st June 2016. On the same day, CLB was dissolved and all the matter that were pending in CLB on that date were transferred to NCLT. In December 2016, the second tranche of provisions were notified. As a result, many of the matters pending in High Court were transferred to NCLT. The cases pending in BIFR stood abated. The notification constituting the Tribunals is annexed as Annexure I to this chapter. The provisions of Companies Act, 2013 that 1

NCLT 3E_PRINT.indd 79

2/18/2017 6:08:54 PM

NCLT and NCLAT Law Practice and Procedure, 3e

Chapter 1

were notified in May, June, Sep. and December 2016 are annexed as Annexure II at the end of this chapter.

This chapter provides a brief background on Tribunals. The Companies Act, 2013 has introduced two tribunals, one is the National Company Law Tribunal (hereinafter referred to as ‘Tribunal’ or ‘NCLT’) and the other one is National Company Law Appellate Tribunal (hereinafter referred to as ‘NCLAT’ or “Appellate Tribunal”). NCLAT is the forum for dealing with appeals arising out of the orders of NCLT. Together the two are referred to as “Tribunals”.

This chapter provides answers to the following questions that may arise in the minds of the readers as well:

Decoding the Law  What is NCLT/Tribunal?  What is NCLAT/Appellate Tribunal?  What is the difference between NCLT and NCLAT?  What is the difference between a tribunal and a court?  Who first brought forth the idea of these Tribunals?  When the Tribunals were first introduced?  Why didn’t the Tribunals get notified under the Companies Act, 1956?  Who challenged the constitutionality of the Tribunals?  What was the challenge all about?  Is the concept of Tribunals under the Companies Act, 1956 (1956 Act) and the Companies Act, 2013 (2013 Act) identical?  Why was the constitution of Tribunals challenged again under the Companies Act, 2013? What were the grounds for challenging it? What exactly had happened?

1.2.

MEANING OF NCLT AND NCLAT

The NCLT or “Tribunal” is a quasi-judicial authority created under the Companies Act, 2013 to handle corporate civil disputes arising under the Act. It is an entity that has powers and procedures like those vested in a court of law or judge. NCLT is obliged to objectively determine facts, decide cases in accordance with the principles of natural justice and draw conclusions from them in the form of orders.

Such orders can remedy a situation, correct a wrong or impose legal penalties/costs and may affect the legal rights, duties or privileges of the specific parties. The Tribunal is not bound by the strict judicial rules of evidence and procedure. It can decide cases by following the principles of natural justice.

NCLAT or “Appellate Tribunal” is an authority provided for dealing with appeals arising out of the decisions of the Tribunal. It is formed for correcting the errors made by the Tribunal. It is an intermediate appellate forum where the appeals lie after order of the Tribunal. The decisions 2

NCLT 3E_PRINT.indd 80

2/18/2017 6:08:54 PM

Chapter 1

Introduction

of Appellate Tribunal can further be challenged in the Supreme Court. Any party dissatisfied by any order of the Tribunal may bring an appeal to contest that decision. The Appellate Tribunal reviews the decisions of the Tribunal and has power to set aside, modify or confirm it.

1.2.1. New enforcement mechanism—place of tribunals The chart below provides a holistic view about the enforcement mechanism contemplated under the Companies Act, 2013 and the place of Tribunals in this machinery.

In the new framework that is created for enforcement of the Act, the authorities like Registrar of Companies (ROC) and Regional Directors (RD) are retained. The powers of Central Government are also revisited. The Companies Act, 2013 provides for specialised judicial mechanism consisting of NCLT & NCLAT to deal with civil matter and Special Courts to deal with corporate criminal cases. Serious Fraud Investigation Office is recognised under the Act to investigate into the cases of serious frauds. For listed companies, powers of Central Government and SEBI are sought to be clearly demarcated.

1.2.2. Difference between NCLT and NCLAT The NCLT has primary jurisdiction whereas NCLAT has appellate jurisdiction.

NCLAT is a higher forum than NCLT. Evidence and witnesses are generally presented before NCLT for taking the decisions and NCLAT generally reviews decisions of NCLT and checks it on a point of law or fact. Fact finding and evidence collection is primarily a task of Tribunal whereas the Appellate Tribunal decide cases based on already collected evidences and witnesses.

1.2.3. Court v Tribunal Civil Courts are judicial institutions that deal with any and every civil disputes that arise in India (provided the jurisdiction of civil courts in not barred). Tribunals are 3

NCLT 3E_PRINT.indd 81

2/18/2017 6:08:54 PM

NCLT and NCLAT Law Practice and Procedure, 3e

Chapter 1

specified quasi-judicial bodies for resolution disputes that arise under the Companies Act and other specified acts (RBI Act, LLP Act etc.).

Like Courts, Tribunals are also independent of the executive and the legislative bodies of governance. They are also open to public that can access them for redressal of their grievances under the Companies Act, 2013 (where the Tribunal is empowered to deal with cases).

Both Courts and Tribunals are transparent, as they need to give reasoned orders.

Orders of both the institutions are subject to appeal.

In Courts, the matters are strictly decided on the basis of rules of evidence and civil procedure code. In Tribunals, the decisions are taken in an informal manner. The strict rule of procedure and evidence do not apply to Tribunals.

Only lawyers can appear in the court whereas in Tribunal, the party can be represented by a wide variety of persons including different professionals.

Courts have the power to adjudicate in a variety of cases whereas Tribunals specialise in a particular area.

In terms of cost, courts are very expensive as compared to Tribunals that provide a cheaper and quicker forum for resolution of disputes.

Tribunal has lesser powers than a Court. For example, Courts are vested with wide powers under CPC whereas the Companies Act, 2013 confers only some of these powers on the Tribunal.

1.3.

INTRODUCTION OF CONCEPT OF NCLT IN INDIA – ERADI COMMITTEE The concept of forming the Tribunal for dealing with various activities of companies was first introduced in the Companies Act, 1956 by the Company (Second Amendment) Act, 2002.

The Tribunal was proposed to be established partly as a result of the recommendations of Eradi Committee. In 2010, the Union of India constituted a High Level Committee on 'Law relating to Insolvency of Companies' under the Chairmanship of Justice V. Balakrishna Eradi, a retired Judge of the Hon’ble Supreme Court. The purpose of the committee was to examine the existing laws relating to winding-up proceedings of the company in order to remodel it in line with the latest developments and innovations in the corporate laws and governance and to suggest reforms to procedures to be followed at various stages during insolvency proceedings of the company to avoid unnecessary delay in tune with international practices in the field.

The said Committee identified the following areas which contributed to inordinate delay in finalisation of winding-up/dissolution of companies: (a) filing statement of affairs; (b) handing over of updated books of accounts; 4

NCLT 3E_PRINT.indd 82

2/18/2017 6:08:54 PM

Chapter 1

Introduction

(c) realization of debts; (d) taking over possession of the assets of the company and sale of assets; (e) non-availability of funds for the Official Liquidator to discharge his duties and functions (f) settlement of the list of creditors; (g) settlement of list of contributories and payment of calls; (h) finalisation of income-tax proceedings; (i) disposal of misfeasance proceedings.

The Committee found that multiplicity of court proceedings is the main reason for the abnormal delay in dissolution of companies. It also found that different agencies dealing with different areas relating to companies - Board for Industrial & Financial Reconstruction (BIFR) and Appellate Authority for Industrial & Financial Reconstruction (AAIFR) dealt with references relating to rehabilitation and revival of companies. High courts dealt with winding-up of companies and Company Law Board (CLB) dealt with matters relating to prevention of oppression and mismanagement etc. Considering the laws on corporate insolvency prevailing in industrially advanced countries, the Committee recommended various amendments to provisions of the Companies Act, 1956 for setting-up a National Company Law Tribunal which will combine the powers of the CLB under the Companies Act, 1956, BIFR and AAIFR under the Sick Industrial Companies (Special Provisions) Act, 1985 and the jurisdiction and powers relating to winding-up presently vested with the High Courts.

1.4.

2002 AMENDMENT CHALLENGED

The Tribunals were never constituted under the Companies Act, 1956 as the constitutionality of the Companies (Second Amendment) Act, 2002 was challenged by the Madras Bar Association in 2003.

The Madras High Court by its order dated 30March 2004 held that creation of the NCLT and vesting the powers hitherto exercised by the High Courts and CLB in the Tribunal was unconstitutional. It referred to and listed the defects in several provisions (mainly sections 10FD(3)(f)(g)(h), 10FE, 10FF, 10FL(2), 10FR(3), 10FT) in Parts IB and IC of the Companies Act,1956. Therefore, it declared that until the provisions of Part IB and IC of the Act, introduced by the Amendment Act which were defective being in violation of the basic constitutional scheme (of separation of judicial power from the Executive and Legislative power and independence of judiciary enabling impartial exercise of judicial power) are duly amended by removing the defects that were pointed out, it will be unconstitutional to constitute a Tribunal and Appellate Tribunal to exercise the jurisdiction now exercised by the High Court or the Company Law Board.

The Union of India accepted certain defects pointed out by the High Court in Parts IB and IC of the Act and agreed to amend the relevant provisions to remove the defects.

5

NCLT 3E_PRINT.indd 83

2/18/2017 6:08:54 PM

NCLT and NCLAT Law Practice and Procedure, 3e

Chapter 1

However, it did not accept certain suggested changes and thus the matter went to the Apex Court. The Supreme Court in its order passed on 11 May 2010 in Union of India v R. Gandhi, President, Madras Bar Association [MANU/SC/0378/2010 : (2010)2CompLJ577(SC) : 2010(3)CTC517 : 2010(261)ELT3(S.C.) : JT2010(5)SC553(1) : (2010)4MLJ734(SC) : 2010(5)SCALE514 : (2010)11SCC1 : [2010]100SCL142(SC) : 2010(6)UJ2945] declared that certain provision of the said sections were unconstitutional and passed judgement. This decision was passed in 2010 by the Supreme Court and is hereinafter referred to as “2010 NCLT Case”.

1.5.

JJ IRANI COMMITTEE

JJ Irani Committee was formed for making suggestion for enactment of a new company law. In its report dated 31 May 2005, the Committee noted the importance of establishment of Tribunal and welcomed the move to establish specialised Tribunals under the new company law. It observed that: “Corporate issues will also require a quick resolution. The time taken in the existing framework needs to be reviewed. This is particularly so in the context of rehabilitation, liquidation and winding up. Mergers and amalgamations also need to be facilitated to take place through a speedier process. Through the Companies (Second Amendment) Act, 2002 the Government has envisaged setting up of the National Company Law Tribunal and the National Company Law Appellate Tribunal. We welcome this move. It is time the forum with specialization to deal with corporate issues, bringing together expertise from various disciplines, is established. We are informed that there are certain legal issues to be resolved before these institutions can be set up. We hope that this process is speedily concluded so that a single forum is available for an informed consideration of corporates issues.”

1.6.

INTRODUCTION OF TRIBUNAL IN COMPANIES ACT, 2013 In the Companies Act, 2013, the concept of Tribunals was introduced again. The nomenclature namely “NCLT” and “NCLAT” was retained. However, the powers and scope of the Tribunals were much wider under the new legislation (check table Power of NCLT: At a Glance).

The Companies Act, 2013 introduced the provisions for formation of NCLT and NCLAT. Many of the suggestions set out by the Supreme Court in the 2010 judgement were essentially complied with and the provisions pertaining to the Tribunal and Appellate Tribunal were suitably introduced in the revised format.

However, the Madras Bar Association (MBA) again filed a case challenging the said provision in the Supreme Court in 2013 and the matter was referred to a 5 judge bench of the Supreme Court.

6

NCLT 3E_PRINT.indd 84

2/18/2017 6:08:54 PM

Chapter 1

Introduction

1.6.1. Nature of Challenge under 2013 Act In Madras Bar Association v Union of India (UOI) and Ors. [2015VII AD (S.C.) 229 : [2015]126CLA111(SC) : (2015)3CompLJ1(SC) : (2015)4MLJ184(SC) : 2015(6)SCALE331 : [2015]131SCL26(SC) : MANU/SC/0610/2015 (‘2015 NCLT Case’), Madras Bar Association raised a three-fold challenge which were decided as follows:

Issue No. 1 Challenge to the validity of the constitution of NCLT and NCLAT; Held Constitutional Issue No. 2 Challenge to the prescription of qualifications including term of office and salary allowances etc. of President and Members of the NCLT as well as Chairman and Members of the NCLAT; Held The Supreme Court held that “having regard to the aforesaid clear and categorical dicta in 2010 judgment, tinkering therewith would evidently have the potential of compromising with standards which 2010 judgment sought to achieve, nay, so zealously sought to secure. Thus, we hold that sec 409(3)(a) and (c) are invalid as these provisions suffer from same vice. Likewise, sec 411(3) as worded, providing for qualifications of technical Members, is also held to be invalid. For appointment of technical members to the NCLT, directions contained in sub-para (ii), (iii), (iv), (v) of para 120 of 2010 judgment will have to be scrupulously followed and these corrections are required to be made in sec 409(3) to set right the defects contained therein. We order accordingly, while disposing of issue No. 2”.

Issue No. 3 Challenge to the structure of the Selection Committee for appointment of President/Members of the NCLT and chairperson/members of the NCLAT. Held The Selection process was held unconstitutional. The prime consideration in the mind of the Bench was that it is the Chairperson, viz. Chief Justice of India, or his nominee who is to be given the final say in the matter of selection with right to have a casting vote. The 2010 judgment specifically provided that a casting vote should be provided to the Chairperson of the Selection Committee which was sought to avoided by the Companies Act, 2013. Therefore, the Supreme Court held that provisions of sec 412(2)of the Act was invalid and direction was issued to remove the defect by bringing this provision in accord with sub-para (viii) of para 120 of 2010 judgment.

7

NCLT 3E_PRINT.indd 85

2/18/2017 6:08:54 PM

NCLT and NCLAT Law Practice and Procedure, 3e

Chapter 1

1.6.2. Reasons for establishing tribunals The necessity of establishing tribunals was discussed in the judgment of 2010 and 2015 and a brief overview is provided to understand the need for such an institutional set up under the Companies Act, 2013.

Under regular civil process, to ensure fair play and avoidance of judicial error, the procedural laws provide for appeals, revisions and reviews, and allow parties to file innumerable applications and raise vexatious objections as a result of which the main matters get pushed to the background.

All the litigations in the Courts get inevitably delayed, which leads to frustration and dissatisfaction among litigants. In view of the huge pendency, courts are not able to bestow attention and give priority to cases arising under the special legislations. Therefore, there is a need to transfer some selected areas of litigation dealt with by traditional courts to special Tribunals.

As Tribunals are free from the shackles of procedural laws and Evidence Law, they can provide easy access to speedy justice in a ‘cost- affordable’ and 'user-friendly' manner.

Tribunals can have both Judicial Member and a Technical Member. The Judicial Member will act as a bulwark against apprehensions of bias and will ensure compliance with basic principles of natural justice such as fair hearing and reasoned orders. The Judicial Member would also ensure impartiality, fairness and reasonableness in consideration. The presence of Technical Member ensures the availability of expertise and experience related to the field of adjudication for which the special Tribunal is created, thereby improving the quality of adjudication and decision-making.

In UK, the Committee constituted to undertake the review of delivery of justice through Tribunals chaired by Sir Andrew Leggatt. The Leggatt Committee in 2001 explained the advantages of Tribunals, provided they could function independently and coherently, thus: “Choosing a tribunal to decide disputes should bring two distinctive advantages for users. First, tribunal decisions are often made jointly by a panel of people who pool legal and other expert knowledge, and are the better for that range of skills. Secondly, tribunals' procedures and approach to overseeing the preparation of cases and their hearing can be simpler and more informal than the courts, even after the civil justice reforms. Most users ought therefore to be capable of preparing and presenting their cases to the tribunal themselves, providing they have the right kind of help.

Enabling that kind of direct participation is an important jurisdiction for establishing tribunals at all.”

De Smith's Judicial Review, (6th Edn., Page 50 Para 1.085) sets out the advantages

8

NCLT 3E_PRINT.indd 86

2/18/2017 6:08:55 PM

Chapter 1

Introduction

of Tribunals, thus: “In the design of an administrative justice system, a Tribunal may be preferred to an ordinary court because its members have specialized knowledge of the subject-matter, because it will be more informal in its trappings and procedure, because it may be better at finding facts, applying flexible standards and exercising discretionary powers, and because it may be cheaper, more accessible and more expeditious than the High Court. Many of the decisions given to Tribunals concern the merits of cases with relatively little legal content, and in such cases a Tribunal, usually consisting of a legally qualified Tribunal judge and two lay members, may be preferred to a Court. Indeed dissatisfaction with the over-technical and allegedly unsympathetic approach of the courts towards social welfare legislation led to a transfer of functions to special Tribunals”.

1.7.

FURTHER READING (a) Madras Bar Association v Union of India (UOI) and Ors. [2015VII AD (S.C.) 229 : [2015]126CLA111(SC) : (2015)3CompLJ1(SC) : (2015)4MLJ184(SC) : 2015(6)SCALE331 : [2015]131SCL26(SC) : MANU/SC/0610/2015] (2015 NCLT case); (b) Union of India v R. Gandhi, President, Madras Bar Association [MANU/SC/0378/2010 : (2010)2CompLJ577(SC) : 2010(3)CTC517 : 2010(261)ELT3(S.C.) : JT2010(5)SC553(1) : (2010)4MLJ734(SC) : 2010(5)SCALE514 : (2010)11SCC1 : [2010]100SCL142(SC) : 2010(6)UJ2945] (2010 NCLT case); (c) Report of the High Level Committee on Law Relating to Insolvency And Winding Up of Companies (Committee chaired by Shri Justice V. Balakrishna Eradi and called the “Eradi Committee Report”) , 2000; (d) Interim Report of The Bankruptcy Law Reform Committee ( under the Chairmanship of Mr. T.K. Vishwanathan called the “BLRC Interim Report”) , February 2015; (e) Report on Company Law, Dr. Jamshed J. Irani, Chairman, Expert Committee on Company Law (called the “J.J Irani Report”), 31 May 2005. ♦♦♦♦

9

NCLT 3E_PRINT.indd 87

2/18/2017 6:08:55 PM

NCLT and NCLAT Law Practice and Procedure, 3e

Chapter 1

Annexure I—Constitution of NCLT and NCLAT NOTIFICATION New Delhi, the 1st June, 2016 S.O. 1932(E).—In exercise of the powers conferred by section 408 of the Companies Act, 2013 (18 of 2013), the Central Government hereby constitutes the National Company Law Tribunal to exercise and discharge the powers and functions as are, or may be, conferred on it by or under the said Act with effect from the 1st day of June, 2016.

[F. No. A-45011/14/2016-Ad. IV] PRITAM SINGH, Addl. Secy.

NOTIFICATION New Delhi, the 1st June, 2016 S.O. 1933(E).—In exercise of the powers conferred by section 410 of the Companies Act, 2013 (18 of 2013), the Central Government hereby constitutes the National Company Law Appellate Tribunal for hearing appeals against the orders of the National Company Law Tribunal with effect from the 1st day of June, 2016.

[F. No. A-45011/14/2016-Ad. IV] PRITAM SINGH, Addl. Secy. ♦♦♦♦

NOTIFICATION New Delhi, the 1st June, 2016 S.O. 1936(E).-In exercise of the powers conferred by clause (a) of subsection (1) of section 434 of the Companies Act, 2013 (18 of 2013), the Central Government hereby appoints the 01st day of June, 2016, on which all matters or proceedings or cases pending before the Board of Company Law Administration (Company Law Board) shall stand transferred to the National Company Law Tribunal and it shall dispose of such matters or proceedings or cases in accordance with the provisions of the Companies Act, 2013 or the Companies Act, 1956.

[F. No. 1/30/CLB/2013/CL-V] PRITAM SINGH, Addl. Secy.

10

NCLT 3E_PRINT.indd 88

2/18/2017 6:08:55 PM

Chapter 1

Introduction

Annexure II—Notification of sections of Companies Act, 2013 and notification of constitution of benches of NCLT NOTIFICATION New Delhi, the 18th May, 2016 S.O.1795 (E).-In exercise of the powers conferred by sub-section (3) of section 1 of the Companies Act, 2013 (18 of 2013), the Central Government hereby appoints the 18th day of May, 2016 as the date on which the provisions of clause (iv) of sub-section (29) of section 2, sections 435 to 438 (both sections inclusive) and section 440 of the said Act shall come into force.

[F.No. 01/12/2009-CL-I (Vol.IV)] AMARDEEP SINGH BHATIA, Jt. Secy.

NOTIFICATION New Delhi, the 01st June, 2016 S.O. 1934(E).—In exercise of the powers conferred by sub-section (3) of section 1 of the Companies Act, 20l3 (18 of 20l3), the Central Government hereby appoints the 01st day of June, 2016 as the date on which the following provisions of the said Act shall come into force, namely :— Sl. No.

Section

1.

Sub-section (7) of section 7 [except clause (c) and (d)]

2.

Second proviso to sub-section (1) of section 14

3.

Sub-section (2) of section 14

4.

Sub-section (3) of section 55

5.

Proviso to Clause (b) of sub-section (1) of section 61

6.

Sub-sections (4) to (6) of section 62

7.

Sub-sections (9) to (11) of section 71

8.

Section 75

9.

Section 97

10.

Section 98

11.

Section 99

11

NCLT 3E_PRINT.indd 89

2/18/2017 6:08:55 PM

NCLT and NCLAT Law Practice and Procedure, 3e

Sl. No.

Chapter 1

Section

12.

Sub-section (4) of section 119

13.

Section 130

14.

Section 131

15.

Second proviso to sub-section (4) and sub-section (5) of section 140

16.

Sub-section (4) of section 169

17.

Section 213

18.

Sub-section (2) of Section 216

19.

Section 218

20.

Section 221

21.

Section 222

22.

Sub-sections (5) of section 224

23.

Sections 241, 242 [except clause (b) of sub-section (1), clause (c) & (g) of sub-section (2)], 243, 244, and 245

24.

Reference of word ‘Tribunal’ in sub-section (2) of section 399

25.

Sections 415 to 433 (both inclusive)

26.

Sub-section (1)(a) and (b) of section 434

27.

Sub-section (2) of section 434

28.

Section 441

29.

Section 466

[F. No. A-45011/14/2016-Ad.IV] PRITAM SINGH, Addl. Secy.

NOTIFICATION New Delhi, the 9 th September, 2016 S.O. 2912 (E).- In exercise of the powers conferred by sub-section (3) of section 1 of the Companies Act, 20l3 (18 of 20l3), the Central Government hereby appoints 9th September, 2016 as the date on which the provisions of section 227, clause (b) of sub-section (1) of section 242, clauses (c) and (g) of sub-section (2) of section 242, section 246 and sections 337 to 341 (to the extent of their applicability for section 246), of the said Act shall come into force.

[F. No. A-45011/14/2016-Ad-IV] AMARDEEP SINGH BHATIA, Jt. Secy.

12

NCLT 3E_PRINT.indd 90

2/18/2017 6:08:55 PM

Chapter 1

Introduction

NOTIFICATION New Delhi, the 7th December, 2016 S.O. 3677(E).-In exercise of the powers conferred by sub-section (3) of section 1 of the Companies Act, 2013 (18 of 2013), the Central Government hereby th appoints the 15 day of December, 2016 as the date on which the following provisions of the said Act shall come into force, namely :SL.No.

Section

1.

Clause (23) of section 2

2.

Clause (c) and (d) of sub-section (7) of section 7

3.

Sub-section (9) of section 8

4.

Section 48

5.

Section 66

6.

Sub-section (2) of section 224

7.

Section 226

8.

Section 230 [except sub-section (11) and (12)], and Sections 231 to 233

9.

Sections 235 to 240

10.

Sections 270 to 288

11.

Sections 290 to 303

12.

Section 324

13.

Sections 326 to 365

14.

Proviso to section 370

15.

Sections 372 to 373

16.

Sections 375 to 378

17.

Sub-section (2) of section 391

18.

Clause (c) of sub-section (1) of section 434 [F. No. 2/31/CAA/2013-CL-V-pt] AMARDEEP SINGH BHATIA, Jt. Secy.

13

NCLT 3E_PRINT.indd 91

2/18/2017 6:08:55 PM

NCLT and NCLAT Law Practice and Procedure, 3e

Chapter 1

NOTIFICATION New Delhi, the 1st June, 2016 S.O. 1935(E).—In exercise of the powers conferred by sub-section (1) of section 419 of the Companies Act, 2013 (18 of 2013), the Central Government hereby constitutes the following Benches of the National Company Law Tribunal mentioned in column (2) of the table below, located at the place mentioned in column (3) and to exercise the jurisdiction over the area mentioned in column (4), namely:— TABLE Serial Number

Title of the Bench

Location

Territorial Jurisdiction of the Bench

(1)

(2)

(3)

(4)

1.

(a) National Company Law Tribunal, Principal Bench. (b) National Company Law Tribunal, New Delhi Bench.

2.

National Company Law Tribunal, Ahmedabad Bench.

(1) State of Haryana.

(2) State of Rajasthan.

(3) Union territory of Delhi.

Ahmedabad

(1) State of Gujarat.

(2) State of Madhya Pradesh.

(3) Union territory of Dadra and Nagar Haveli.

(4) Union territory of Daman and Diu.

3.

National Company Law Tribunal, Allahabad Bench.

Allahabad

(1) State of Uttar Pradesh.

(2) State of Uttarakhand.

4.

National Company Law Tribunal, Bengaluru Bench.

Bengaluru

(1) State of Karnataka.

5.

National Company Law Tribunal, Chandigarh Bench.

Chandigarh

(1) State of Himachal Pradesh.

(2) State of Jammu and Kashmir.

(3) State of Punjab.

(4) Union territory of Chandigarh.

14

NCLT 3E_PRINT.indd 92

2/18/2017 6:08:55 PM

Chapter 1

Serial Number

Introduction

Title of the Bench

Location

Territorial Jurisdiction of the Bench

6.

National Company Law Tribunal, Chennai Bench.

Chennai

(1) State of Kerala.

(2) State of Tamil Nadu.

(3) Union territory of Lakshadweep.

(4) Union territory of Puducherry.

7.

National Company Law Tribunal, Guwahati Bench.

Guwahati

(1) State of Arunachal Pradesh.

(2) State of Assam.

(3) State of Manipur.

(4) State of Mizoram.

(5) State of Meghalaya.

(6) State of Nagaland.

(7) State of Sikkim.

(8) State of Tripura.

8.

National Company Law Tribunal, Hyderabad Bench.

Hyderabad

(1) State of Andhra Pradesh.

(2) State of Telangana.

9.

National Company Law Tribunal, Kolkata Bench.

Kolkata

(1) State of Bihar.

(2) State of Jharkhand.

(3) State of Odisha.

(4) State of West Bengal.

(5) Union territory of Andaman and Nicobar Islands.

10.

National Company Law Tribunal, Mumbai Bench.

Mumbai

(1) State of Chhattisgarh.

(2) State of Goa. (3) State of Maharashtra.

15

NCLT 3E_PRINT.indd 93

2/18/2017 6:08:55 PM

NCLT and NCLAT Law Practice and Procedure, 3e

Chapter 1

16

NCLT 3E_PRINT.indd 94

2/18/2017 6:08:56 PM