Monday, April 21, 2008

Dispute Resolution under the New Company Law

The establishment of the National Company Law Tribunal (NCLT) has been mired in controversy right from the start. Although the Companies Act was amended as early as 2002 to pave the way for the NCLT, the body is yet to be established (and the relevant provisions of the Amendment Act of 2002 are yet to be notified) as several aspects of its constitution and functioning have been the subject matter of litigation, which is now pending before the Supreme Court of India. The NCLT was expected to take over the role of the High Court (in dealing with company law matters), the Company Law Board (CLB) and the Board of Industrial and Financial Reconstruction (BIFR). However, pending the constitution of the NCLT, all these other dispute resolution bodies continue to perform their roles as originally envisaged.

While that is the present position, the Government seems to be taking steps to introduce some alternate mechanisms in the Companies Bill that is proposed to be introduced in the current session of Parliament. Specifically, the following proposals have been reported in the media:

(a) the jurisdiction of the BIFR will be transferred to the CLB, whereby the CLB will hear matters relating to sick industrial companies (see report in The Hindu Business Line);

(b) the Government will set up special courts to hear cases involving company law breaches and offences relating to the same, so that there is a speedier enforcement mechanism (see report in The Economic Times);

Some of these moves appear to be short-term in nature and pending the judgment of the Supreme Court regarding the validity of NCLT’s establishment. While they may take care of certain immediate needs, it is likely to cause confusion in the long term. What is needed is a comprehensive review and justice delivery system in company law matters through a single legislation (or amendment process), rather than a piecemeal approach. Constant changes in law would cause confusion to companies and investors in structuring their businesses and carrying out their operations.

What is more frustrating is the successful (at least in part) challenges to some of these legislations in the past. For example, the Companies Amendment Act establishing in the NCLT and the Competition Act establishing the Competition Commission, were both passed as early as 2002 and are on the statute books, but are yet incapable of implementation (although the Competition Act has been subsequently amended to address some of the concerns). Such unsuccessful attempts at changing laws and implementing statutory authorities and courts only adds to the confusion. Hence, adequate caution needs to be exercised while introducing any further changes to dispute resolution bodies under company law so as to ensure that such changes will be able to withstand legal and constitutional scrutiny by courts and therefore can be implemented in a time-effective manner without undue delays.

1 comment:

hema said...

The amendment is generally good natured since it was demanded by the professionals and business houses. But, during the drafting stage, a top level ICLS officer made certain critical points to ensure his elevation as Member in NCLT. This malafide/colorable exercise of power created all this confusion