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National Company Law Tribunal: Quasi-Judiciary Body for Companies in India

The National Company Law Tribunal (NCLT) is a quasi-judiciary body established in India in 2016 to make formal judgments on disputed matters related to companies. It has jurisdiction over various company law matters, including winding up petitions, revival of sick companies, and compounding of offenses.

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National Company Law Tribunal: Quasi-Judiciary Body for Companies in India

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  1. Prepared by: Vandana Pareek

  2. National Company Law Tribunal The National Company Law Tribunal was established by the Central Government in 2016 under Section 408 of the Companies Act of 2013, and it was constituted on June 1, 2016. NCLT is a quasi-judiciary body established in India, that makes a formal judgment on a disputed matter, relating to the companies issues in India. Set up to govern the companies registered in India. The government has appointed 11 benches for NCLT.

  3. Jurisdiction under the Companies Act, 1956 Agencies Dealing with Company Law Matters State High Court(s) CLB BIFR/ AAIFR Presidency Magistrate or a Magistrate of the first class Winding up petitions, Compromise & Arrangements, reduction of capital, restoration of name & appeal from CLB Rectification of registers, transfer/transmission of shares, oppression mismanagement, compounding of offences etc. Revival and rehabilitation of Sick Companies Offences under the Old Act 3

  4. The creation of a single forum (NCLT) which is dedicated to corporate matters is a welcome move, and removes the problem of multiple regulators. NCLT = CLB + BIFR + HIGH COURT (Winding Up & Mergers)

  5. National Company Law Tribunal Powers NCLT Powers in terms of the LLP Act, 2008 Winding Up Pursuant to the New Act coming into force in entirety, NCLT inter-alia shall have the following power. Compromise and Arrangements Oppression and Mismanagement Complaints relating to refusal to transfer/ of transmission of shares Revival and Rehabilitation of Sick Companies Class Action Suits Rectification of Register(s) Investigation and compounding 5

  6. Powers • Class Action - Section 245 - If 100 shareholders (in case of company with share capital), or 10% of the holding interest, or depositors find that the company’s affairs are not being managed in its best interests, after this notification, they can collectively approach the NCLT for redressing the situation. • Oppression and Mismanagement - The affairs of the company are being conducted in a manner that is oppressive and biased towards the minority shareholders or any member or members of the company. • Winding up - Process of selling all the assets, paying off creditors, distributing the remaining assets, if any and thereafterdissolving the business.

  7. Refusal to Transfer shares:The power to hear grievance of refusal of companies to transfer securities and rectification of register of members under Section 58 and 59 of the new Act. Compromise and Arrangement - Arrangement includes a reorganization of the company’s share capitalby the consolidation of shares of different classes or by the division of shares into shares of differentclasses, or by both the methods. The Act enunciates two possibilities of scheme of arrangement.They are (a) between a company and itscreditorsand (b) between a company and its members.

  8. Insolvency, Bankruptcy & Liquidation

  9. Corporate insolvency resolution process • Application on default – Any financial or operational creditor(s) can apply for insolvency on default of debt or interest payment. • Appointment of IP – IP to be appointed by the regulator and approved by the creditor committee. IP will take over the running of the Company. • From date of appointment of IP, power of Board of directors to be suspended and vested in the IP. IP shall have immunity from criminal prosecution and any other liability for anything done in good faith. • Moratorium period – Adjudication authority will declare moratorium period during which no action can be taken against the company or the assets of the company. Key focus will be on running the Company on going concern basis. A Resolution plan would have to be prepared and approved by the Committee of creditors.

  10. Credit committee - A credit committee of creditors will be constituted. Related party to be excluded from committee. Each creditor shall vote in accordance to voting share assigned if 75% of creditor approve the resolution plan same needs to be implemented. Liquidation process • Initiation – Failure to approve resolution plan within specified days will cause initiation of Liquidation. Debtor can also opt for voluntary liquidation by a special resolution in a General Meeting. • Liquidator – The IP may act as the liquidator, and exercise all powers of the BoD. The liquidator shall form an estate of the assets, and consolidate, verify, admit and determine value of creditors' claims.

  11. Some Cases Electrosteel Steels Ltd (ESL) - Vedanta Star's Vedanta to deposit Rs 5,320 crore to own ElectrosteelSteels. Of this infusion, Rs3,515cr would be in the form of an intercorporate loan and Rs1,805cr would be equity. Bhushan Steel - Tata Steel Tata Steel had acquired Bhushan Steel under the Corporate Insolvency Resolution Process in April this year for Rs 35,200 crore.

  12. Sources • https://nclt.gov.in/ • http://www.mondaq.com • NCLT – Constitution, Transitional Provisions and Powers of NCLT / NCLAT - CS Satwinder Singh • www.indiainfoline.com • economictimes.indiatimes.com • http://lawstreetindia.com

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