This article has been written by Mr. Rahul Kumar, a 3rd year 5th semester student of Faculty of Law, Banaras Hindu University.

ABSTRACT

This legal essay explores the relationship between the National Company Law Tribunal (NCLT) and the Companies Act of 2013. With the goal of improving corporate governance and investor protection, the corporations Act 2013 is a historic piece of legislation that controls how corporations operate and are regulated in India. On the other hand, the Companies Act of 2013 created the NCLT, a quasi-judicial entity tasked with resolving business disputes and guaranteeing the efficient operation of insolvency and restructuring procedures.

The main points of the Companies Act 2013 will be discussed in this essay, with special attention to how they affect corporate governance, compliance, and regulatory frameworks. It will also examine the creation, authority, and operation of the NCLT, emphasising its significance in settling business conflicts, assisting with bankruptcy cases, and promoting corporate reorganisation.

INTRODUCTION

The Company Law Board and the Board for Industrial and Financial Corporation handled the companies’ rights and responsibilities prior to the creation of the National Company Law Tribunal and National Company Law Appellate Tribunal. In accordance with Companies Act of 2013, Section 408 of the Central government established NCLT. It was established based on the Justice Eradi Committee’s recommendations, and it went into effect on June 1, 2016.

NCLT: What is it?

The National Company Law Tribunal (NCLT) was established as a quasi-judicial authority to settle disagreements pertaining to Indian companies. It is the Company Law Board’s replacement. The Central Government has formulated the regulations that regulate it. Cases pertaining to civil court have been excluded from the jurisdiction of NCLT, a special court.

Authority and Purpose of NCLT

 Class Action 

Provision 245 of the Companies Act of 2013

The following grounds may be included in an application submitted to the tribunal by the company’s members, depositors, or representatives of the members, asserting that the company’s interests have been harmed by the way matters have been handled:

The business can face limitations:  from violating any of the terms of the MOA and AOA, from carrying out any actions that are outside their purview,  prohibited its directors from acting on such resolutions, taking any action that is either against this act or any other act that is temporarily in effect, or announcing any resolution that, if passed, amends the MOA and AOA and renders it void.

To demand any other appropriate action, or to seek damages or compensation.

Corporation or its directors for any illegal, dishonest, or improper act or omission that they may have performed. auditor or audit firm of the business for false or deceptive claims might ask the tribunal for any additional remedy.

The audit firm and each and every partner involved in producing the false or deceptive statement will be held liable in the event that depositors seek damages, compensation, or take legal action against the firm.

The following requirements must be met in order to file an application with the tribunal: either one hundred members or members who hold at least ten percent of the company’s total voting power (if the business has share capital); alternatively, one-fifth of the individuals listed on the company’s membership register (if the business does not have share capital).

The minimum number of depositors must be one hundred, or the equivalent of that percentage of all depositors. The tribunal will determine whether or not the depositors and members behaved honourably during the course of the application for the order.

If a similar application is made from another jurisdiction, the tribunal will consolidate it and consider it as one application, allowing the class members or depositors to select the lead applicant. Two class-action applications filed for the same cause of application will not be permitted. The tribunal will issue a public notice upon the application made by the members or depositors, which must be served on all of the members and depositors. The members, depositors, auditors (including audit firms), advisors, experts, consultants, and any other individuals connected to the corporation will be bound by the tribunal’s orders.

In the event that the company disregards the tribunal’s ruling, it will be fined INR 5 lakhs, with the possibility of it going up to INR 25 lakhs. Each defaulting officer will also face a fine of INR 25,000, with the possibility of it going up to INR 1 lakh, as well as three years in prison. Should the tribunal determine that the submitted application is frivolous or vexatious, it will reject the application, document the reasons in writing, and direct the opposing party to reimburse any costs up to INR 1 lakh.

Removal from the Register

According to Section 7(7) of the Companies Act of 2013, the tribunal may make any of the following orders if it learns that the company provided false or incorrect information at the time of incorporation or by hiding any material facts, information, or declarations that the company filed:

• Give any orders it deems appropriate.
• Give directives to wind up the business.
• Members’ direct obligation will have no limits.

Mismanagement and oppression

According to Section 241 of the Companies Act of 2013, any employee of the firm who is entitled to make a complaint with a tribunal under Section 244 of the Act of 2013 must do so by saying the following: The way the business conducts its affairs may be detrimental to the public interest, oppressive to him or any other member, or detrimental to the business itself. A substantial shift in the firm’s management or control has been implemented by the company, going against the interests of the company’s shareholders, debenture holders, and creditors. This transformation has occurred in: alteration in the board of directors, alteration of managers, alteration of the member, or any other reason. For such reasons, the members of

the company perceive that affairs of the company have been conducted in the manner which is prejudicial to its interest When a tribunal determines that a company’s operations have been oppressive or detrimental to the public interest, and the Central Government believes that any of the following scenarios apply: a company member has engaged in fraud, misfeasance, persistent negligence, breach of trust, or default in fulfilling legal obligations and functions; the management of the company has not been conducted in accordance with sound principles or prudent commercial practices; or when a business is operating in a way that seriously harms trade business or industry. A firm must file an application with the tribunal to request a remedy when its management is solely focused on defrauding its members or creditors, or when its actions are illegal or fraudulent and go against the interests of the public.

Powers for investigations ;

As stated in Section 213 of the Companies Act of 2013, 

When one of the following parties files an application with the tribunal: Company with share capital; Members possessing at least one hundred shares or more of the company’s entire voting power; A business without share capital is one that has at least one-fifth of the individuals listed on its membership roster. When a non-member of the company applies to the tribunal citing one of the following circumstances: the firm’s operations have only been carried out with the intention of defrauding its creditors, members, or any other person. The goal of the business operation is either dishonest or illegal. Members are subjected to oppression in the way that business is being done. A business is solely being founded with the intention of committing fraud or other illegal acts. Individuals involved in the establishment of the company or overseeing its operations were found to have committed fraud, mismanagement, or other wrongdoing against the company or any of its members.

After providing the parties with a reasonable opportunity to respond, the tribunal may determine that the company’s affairs should be looked into. For this reason, the central government will designate an inspector. If members of the company have neglected to provide the company with all the information they are required to provide regarding the company’s affairs, including the information relating to the calculation of commission payable to the managing director, director, or any other manager of the company.

As long as it can be demonstrated following research that: The company’s operations have only been carried out with the intention of defrauding its creditors, members, or any other individual; alternatively, business is being carried out for illegal or fraudulent reasons; Persons involved in the formation of the company or in the management of its affairs were either guilty of fraud, misfeasance, or misconduct towards the company or any of its members. Business is being conducted in a way that is oppressive to its members, or it is being formed solely for unlawful or fraudulent purposes.

Account reopening

The Companies Act of 2013 specifies this under Section 130.

The company will not be permitted to open its accounts or recast its financial statements unless directed to do so by the central government, income tax authorities, SEBI, statutory bodies, or a court of competent jurisdiction. In the following situations, the company may be permitted to do so: Previous accounts were prepared fraudulently. The company’s affairs were improperly handled, raising questions about the accuracy of the financial statements. The tribunal will notify the relevant authorities prior to making any such orders.

Refusal to transfer shares

According to Section 58 of the Companies Act of 2013, a public company or a private company limited by shares that declines to register the transfer of the transferor’s shares must notify the transferor and transferee of the refusal within thirty days of the transfer. In exchange, the transferee must file an appeal with the tribunal within thirty days of receiving the notification; if the transferee does not get a notice from the corporation, they must file an appeal with the tribunal within sixty days after the transfer document. After hearing the orders, the tribunal will either reject the appeal or give the company instructions. within ten days after receiving an order, to transfer the shares. Immediately correct the register and order the aggrieved party’s damages, if any, to be reimbursed. Anyone found to be in violation of the order faces a minimum one-year prison sentence, which can be extended to three years, as well as a fine that can be as much as INR 5 lakh.

Conversion of Public Company into Private Company

According to Sections 13 through 18 of the Companies Act, 2013 and Rule 41 of the Companies (Incorporation) Rule 2014, a business must obtain NCLT tribunal approval before converting from a public to a private entity. The Companies Act of 2013’s section 459 permits the tribunal to impose terms and conditions of this kind.

Annual General Assembly

Under sections 97 and 98 of the Companies Act of 2013, a member of the company may apply to the tribunal for the authority to call a meeting if the members fail to do so within a certain amount of time. The tribunal will then have the authority to call the meeting.

Closing of the business

Companies may be wound up under Section 242 of the Companies Act, 2013 if the tribunal determines that the company has acted oppressively or in a way that is detrimental to the public interest after the company has conducted its business in any of the following ways.

CONCLUSION

What was once the Company Law Board is now NCLT. With the creation of NCLT, conflicts pertaining to corporate law will now have a quick remedy and can be resolved quickly. A party that feels wronged by a judgement or order made by NCLT may file an appeal with NCLAT within 45 days of the party receiving the order or decision. In addition, the NCLAT renders a verdict six months after the appeal is received. When NCLT and NCLAT are empowered to make decisions, no civil court has the authority to do so.

REFRENCES

The Companies Act, 2013, § 408, No. 18, Acts of Parliament, 2013 (India). 

The Companies Act, 2013, § 245, No. 18, Acts of Parliament, 2013 (India).

The Companies Act, 2013, § 7(7), No. 18, Acts of Parliament, 2013 (India)

The Companies Act, 2013, § 241, No. 18, Acts of Parliament, 2013 (India).

The Companies Act, 2013, § 213, No. 18, Acts of Parliament, 2013 (India).

The Companies Act, 2013, § 130, No. 18, Acts of Parliament, 2013 (India).

The Companies Act, 2013, § 58, No. 18, Acts of Parliament, 2013 (India).