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National Company Law Tribunal - a comment


Durga Rao 
posted on 01 April 2009



 

National Company Law Tribunal–comment:
 
            With the companies’ law amendments, 2002, by which the National Company Law Tribunal was constituted, puts a specific bar on the Civil Court’s Jurisdiction. The constitution of National Company Law Tribunal has been challenged before the Madras High Court and the writ was disposed of with certain suggestions for making further amendments. The lis is now pending before the Supreme Court. Many interesting submissions were made in the matters which are all on record. Even though, section 10 of the Act is meant to say the territorial jurisdiction with respect to company matters and the extent of delegation to the District Courts, the section led to much controversy as the Civil Courts used to entertain company matters simultaneously. The issue of Civil Courts’ jurisdiction over the company matters was discussed before the Constitutional Courts and the Courts supported the jurisdiction of the Civil Court on the ground that there is no bar under section 10 of the Companies Act on Civil Courts’ jurisdiction. Where there is no bar on Civil Courts’ jurisdiction, the court held that the bar on Civil Court can not be assumed merely because there are Company Courts and Company Law Boards prior to establishment of National Company Law Tribunal. Even after constitution of National Company Law Tribunal and even after incorporating a clause on Civil Courts jurisdiction, the issue of Civil Courts jurisdiction and even thinking of availability of putting a bar on Civil Courts jurisdiction will be ever ending controversial aspect unless many gross root concepts or practices are changed. The interesting section 10GB of the Act on which many judgments will come in future inevitability, is extracted below:
“Civil Court not to have jurisdiction.
10GB. No civil court have jurisdiction to entertain any suit or proceeding in respect of any matter which the Tribunal the Appellate Tribunal is empowered to determine by or under this Act or any other law for the time being in force and no injunction shall be granted by any court or other authority in respect of any action taken or to be taken in pursuance of any power conferred by or under this Act or any other law for the time being in force.”
            The reading of section 10GB, especially, the usage of the words that no civil court is empowered to grant any injunction, obviously found on the basis of past experience. Earlier, before the commencement of Companies (Second Amendment) Act, 2002, Civil Courts used to entertain suits with regard to company matters. For example, a declaratory suit can be filed to declare the resolution passed by the company is null and void. A declaratory suit may be passed declaring the appointment of a particular director as null and void. A suit seeking permanent injunction injuncting the director or managing director functioning as such can be filed as a consequential to the declaratory prayer. Thus, the practice of approaching Civil Courts in respect of company matters was and is at rampant even though the alternative remedy is available under the Companies Act, not in the description/form of ‘declaration’, but, in another way. The danger of allowing the civil courts to entertain certain company matters is very simple. Once a suit is pending before a civil court, the same can hit an adjudication by the Company Court or Company Law Board in an application filed under section 234 to 237, 391 to 394, 397 to 407 etc. But, again the courts held that the simultaneous proceedings of such nature can go on and it all depends upon the remedy sought for. This apart. Even in an application under section 397/398 of the companies act to the Company Law Board or in an application filed under section 433 of the Act to the Company Court, since the Board and the Company Court used to follow the summary procedure, if the party succeeds in convincing the Board or Company Court that complicated fact/s are involved, then inevitably, the issue is to be decided by the Civil Court after full trial. Thus, it is common phenomena to refer the matter to the Civil Court once it is established that the complicated facts are involved. And, again, under Contracts Law, an agreement can be express or implied. In such a case, a party can make a bald allegation alleging some existence of agreement between him and the company and even can adduce oral evidence to that effect. If such is the case, obviously the trial is needed and Civil Court will be the proper forum. To conclude, until the Companies (Second Amendment) Act, 2002, pursuant to which National Company Law Tribunal is constituted or established and a clause barring the jurisdiction of the civil court is incorporated, the civil courts jurisdiction is not barred and civil courts and other special forums like Company Court and Company Law board allowed to proceed with the same matter pending before the Civil Court simultaneously.
            Now, after the constitution of National Company Law Tribunal, after the ousting of Civil Courts jurisdiction by incorporating clause in the Act, the broad and complicated questions for consideration are:
 
1. Whether the National Company Law Tribunal can discharge the functions entrusted without the assistance of the civil court?
2. Whether it is possible to oust the jurisdiction of civil court with the existing set-up?
3. What are the steps to be taken to really make the special tribunals like National Company Law Tribunal self-reliant or purposeful?
 
Whether the National Company Law Tribunal can discharge the functions entrusted under the Act without the assistance of the civil court?
 
            Since the Company Law Board usually refers the matters to the Civil Courts when a complicated questions of fact are involved which requires so-called trial, the procedure and powers of the Company Law Board and, the procedure and powers of the National Company Law Tribunal, are to be compared, for better understanding. The sub-section (4C) of section 10E of the Act which deals with the procedure and powers of the Board and section 10FZA of the Act are extracted below for better appreciation of potential danger.
“10E. (4C) Every Bench referred to in sub-section (4B) shall have powers which are vested in a Court under the Code of Civil Procedure, 1908 (5 of 1908), while trying a suit, in respect of the following matters, namely:-
(a)    discovery and inspection of documents or to other material objects producible as evidence;
(b)    enforcing the attendance of witnesses and requiring the deposit of their expenses;
(c) compelling the production of documents or other material objects producible as evidence and impounding the same;
(d) examining witnesses on oath;
(e)   granting adjournments;
(f)   reception of evidence on affidavits.”
“Procedure and powers of Tribunal and Appellate Tribunal.
10FZA. (1) The Tribunal and the Appellate Tribunals shall not be bound by the procedure laid down in the Code of Civil Procedure, 1908 (5 of 1908), but shall be guided by the principles of natural justice and, subject to other provisions of this Act and of any rules made by the Central Government, the Tribunal and the Appellate Tribunals hall have power to regulate their own procedure.
(2) The Tribunal and the Appellate Tribunal shall have, for he purposes of discharging its functions under this Act, the same powers as are vested in a civil court under the Code of Civil Procedure, 1908 (5 of 1908) while trying a suit in respect of the following mattes, namely:-
(a) summoning and enforcing the attendance of any person and examining him on oath;
(b) requiring the discovery and production of documents;
(c) receiving evidence on affidavits;
(d) subject to the provisions of sections 123 and 124 f the Indian Evidence Act, 1872 (1 of 1872), requisitioning any public record or documents or copy of such record or document from any office;
(e) issuing commissions of reexamination of witness or documents;
(f) reviewing its decisions;
(g) dismissing a representation for default or deciding it ex parte;
(h) setting aside any order of dismissal of any representation of default or any order passed by it ex parte; and
(f) any other matter which maybe prescribed by the Central Government.
(3) Any order made by the Tribunal or the Appellate Tribunal maybe enforced by that Tribunal in the same manner as if it were a decree made by a court in a suit pending therein, and it shall be lawful for the Tribunal or the Appellate Tribunal to send in case of its inability to execute such order, to the court within the local limits of whose jurisdiction, -
            (a) in the case of an order against a company, the registered office of the company is situate; or
            (b) in the case of an order against any other persons, the person concerned voluntarily resides or carries on business or personally works for gain.
(4) All proceedings before the Tribunal or the Appellate Tribunal shall be deemed to be judicial proceedings within the meaning of sections 193 and 228, and for the purpose of the section 196, of the Indian Penal Code (45 of 1860) and the Tribunal and the Appellate Tribunals hall be deemed to be a civil court for the purpose of section 195 and Chapter XXVI of the Code of Criminal Procedure, 1973 (2 of 1974).”
            If both the provisions mentioned above wherein one deals with the powers of the Company Law Board and the other National Company Law Tribunal respectively considered, there may not be much difference. The same powers enjoyed by the Company Law Board are conferred on the National Company Law Board in dealing with the matters filed before it. What is to be inferred is, the procedure followed by the Company Law Board has been regarded as summary procedure and if so, the procedure followed by the National Company Law Tribunal or Appellate Tribunal will also be summary. And, complicated questions can not be decided in a summary procedure as settled. Hence, even if the jurisdiction is conferred on the National Company Law Tribunal, if the party before it convinces the Tribunal that there exist complicated facts, then, inevitably the matter to be referred to the Civil Court for decision after trial. Hence, it can be concluded that the National Company Law Tribunal can not discharge the functions entrusted to it without the assistance of the Civil Court unless the issues referred to above are addressed in its proper perspective.
 
Whether it is possible to oust the jurisdiction of civil court with the existing set-up?
 
            This is very controversial and thinkable aspect. We have an Indian Contracts Act which says that the agreement can be either express or implied. If so, people can merely level an allegation that he lent some 100 crores to other person. There may not be any documentary evidence also. Further, even if the party produces some witness who orally deposes before the Court that the plaintiff lent 100 crores to the defendant, the court still says that the witness is not trustworthy and entire deposition is unbelievable. What is to be noted here is that if a question is raised before the Company Law Board with regard to validity of an agreement, assuming oral agreement, since the National Company Law Tribunal follows summary procedure and if the National Company Law Tribunal conducts trial, it will be more worsened than courts inevitably in view of lack of specialization in conducting trials and the oral allegation can not be set aside simply in view of the substantial rights of the parties that an agreement can be oral also. Thus, unless the procedural change in the form of alternative way of receiving proof affidavits and counter proof affidavits which follows by the arguments is not practiced and incorporated, the complications accompanying jurisdictions especially civil courts jurisdiction can not be avoided. Interestingly, the Debt Recovery Tribunals, with the similar powers as conferred on Company Law Board and National Company Law Tribunal now, never refers any matter to a Civil Court. Still, the Debt Recovery Tribunals very effectively discharges its functions. Thus, unless the traditional procedure which definitely fails to answer the logics and which does not suit to the changing society is changed, problems of delay etc. can not be avoided with the constitution of special Tribunals like National Company Law Tribunal.
 
What are the steps to be taken to really make the special tribunals like National Company Law Tribunal self reliant?
 
            The traditional procedure like ‘trials’, to be questioned on the basis of logic. Will the bank be allowed to contend that there is an oral loan agreement between it and borrower. The answer will be certainly ‘No’. Hence, if the transaction extends a certain value, there should be a mandatory provision that such agreements or contracts must be written. The vague allegations of fraud, coercion etc. should not be entertained so loosely and can not be allowed as a subject for trial. All these pose many logical questions. Obviously, when it comes to trial even a good case may not stand before Court if the witness is not trained in deposing evidence. If the witness is trained, even though, not much qualified, can depose well and say even a false case as if it is true. As the conclusion of the case depends upon the depositions of the witness, inevitably, there are chances to false case being proved and the genuine case is being dismissed. This is the area we must concentrate and develop. The Trial system may not hold well now a day.
 
            These are very few interesting issues to discuss with regard to the Constitution of National Company Law Tribunal. The challenges as referred to above and the complicated issues remain same even after the new Companies Act comes into force.
 

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