Ozg Sarfaesi / DRT Lawyer
Ahmedabad | Pune |
Kolkata | Bangalore | Delhi | Mumbai
VoIP Text / Phone
# 09811415837-61-72-84-92-94
Website: http://sarfaesi.ozg.in
Email: debt@liaisoning.com
We all know about the dispute resolution
mechanism under the provisions of Companies Act, 1956. Till 2002 amendments to
the Companies Act, 1956, significantly, the dispute resolution mechanism was
vested with the Company Court and the Company Law Board. Company Court is
nothing but High Court having jurisdiction to entertain certain company matters
like winding-up and amalgamation petitions etc. Again, a Company Law Board is a
dispute resolution mechanism constituted under section 10E of the Companies
Act, 1956 and it is regulated by Company Law Board Regulations, 1991.
With the object of establishing a
specialized dispute resolution mechanism at one place and without running to
various forums for various issues, a National Company Law Tribunal was proposed
to be constituted under section 10FB of the Companies Act, 1956. Part-1B and
Part-1C of Preliminary Chapter are sought to be incorporated in the Companies
Act, 1956 and the parts specifically deals with the issue of incorporation of
National Company Law Tribunal, National Company Law Appellate Tribunal and
other connected issues.
There are very interesting and
complicated issues in the process of corporate adjudication in India. First,
let us look at the powers of the Company Law Board and the powers of the
proposed National Company Law Tribunal and National Company Law Appellate
Tribunal. The Company Law Board Regulations, 1991 regulates the business of
Company Law Board and deal with the issue like filing procedures, powers,
rights etc. The important regulations in the Company Law Board Regulations,
1991, are as follows:
“Reg.11. Petitions etc. to be in
writing.
Reg.12. Application, reference or
petition to be divided into paragraphs.
Reg.13. General heading to be in
Form No.1 in Annexure II.
Reg.14. Procedure for filing
petition.
Reg.15. Presentation and scrutiny
of the Petition.
Reg.16. Contents of the Petition.
Reg.17. Contents of Interlocutory
application.
Reg.18. Documents to accompany
the Petition.
Reg.19. Right of a Party to
appear before the Bench.
Reg.20. Plural Remedies.
Reg.21. Service of notice and
process issued by the Bench.
Reg.22. Filing of reply and other
documents by the Respondents.
Reg.23. Filing of the Counter
reply by the Petitioner.
Reg.24. Power of Bench to call
for further information/evidence.
Reg.25. Hearing the Petition.
Reg.26. Procedure to be followed
where any party does not appear.”
The regulations referred to above
summarizes the procedure to be followed before the Company Law Board. Among the
regulations referred to above, two regulations deserve specific reading.
Regulations 24 and 25 of Company Law Board Regulations, 1991 are extracted
hereunder.
“Reg.24. Power of Bench to call
for further information/evidence. – The Bench may, before passing orders on the
petition, require the parties or any one or more of them, to produce such
further documentary or other evidence as the Bench may consider necessary –
(a)for the purpose of satisfying
itself as to the truth of the allegations made in the petition; or
(b)for ascertaining any information
which, in the opinion of the Bench, is necessary for the purpose of enabling it
to pass orders on the Petition.”
Reg.25. Hearing of Petition. –
The Bench may, if sufficient cause is shown at any stage of the proceeding,
grant time to the parties or any of them and adjourn the hearing of the
petition or the application. The Bench may make such order as it thinks fit
with respect to the costs occasioned by such adjournments.”
If we look at the two regulations
extracted above, it is very clear that there is no specific reference for oral
evidence before the Board though one can assume that the Company Law Board is
conferred with extraordinary powers under Regulation 24 itself.
Company Law Board might have been
facing difficulties in the process of adjudication as it will not normally
conduct any trial for deciding disputed facts and with the presence of assumed
legal principle that the disputed facts can not be decided with a summary
procedure. Again, there was no specific bar before the 2002 amendments on the
Civil Court’s Jurisdiction in respect of company matters and we used to see
many simultaneous proceedings. I used to think that we need lot more clarity
and reforms in company dispute resolution mechanism in India.
Now, let us look at the powers and
procedure before the proposed National Company Law Tribunal. Sections 10E and
10FZA of the Companies Act, 1956 specifically deal with the powers of the
proposed National Company Law Tribunal and those are extracted hereunder.
“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.”
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 of 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 we compare the powers of the
Company Law Board and the proposed National Company Law Tribunal, we can find
lot of difference and the provisions conferring powers on the National Company
Law Tribunal are detailed and specific. On the issue of Civil Court’s
jurisdiction, section 10GB deals with the issue and the same is extracted
hereunder.
“10GB. No civil court shall have
jurisdiction to entertain any suit or proceeding in respect of any matter which
the Tribunal or 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.”
Thus, the issue of simultaneous
proceedings is sought to be addressed in the 2002 amendments to the Companies
Act, 1956 and an honest effort has been made to give clarity on company dispute
adjudication forums under the provisions of Companies Act, 1956.
If we ask a legal expert as to
what is the difference between a Tribunal and the Court, we can hear lot of
explanation with specific reference to Code of Civil Procedure. We were of the
settled opinion that the Code of Civil Procedure is the cause for delay before
the Traditional Courts. But, logically, there can not be any difference between
Courts or the Tribunal and we can consider Tribunal as a Special Court. The
issue is summarized by Hon’ble Justice Gajendragatkar in Associated Cement
Companies Ltd. V. P.B.Sharma, AIR 1965 SC 1595 and the relevant paragraph is
extracted hereunder.
“…..Special matters and questions
are entrusted to them for their decision and in that sense, they share with the
courts one common characterizing; both the courts and the Tribunals are
‘constituted by the State and are invested with the judicial as distinguished
from purely administrative or executive functions….’ They are both adjudicating
bodies and they deal with and finally determine disputes between parties which
are entrusted to the jurisdiction….As in the case of courts, so in the case of
Tribunals, it is the State’s Inherent judicial power which has been transferred
and by virtue of the said power, it is the State’s inherent judicial function
which they discharge. Judicial functions and judicial powers are one of the
essential attributes of a sovereign State, and on considerations of policy, the
/State transfers its judicial functions and powers mainly to the courts
established by the Constitution; but that does not affect the competence of the
State, by appropriate measures, to transfer a part of its judicial powers and
functions to Tribunals by entrusting to them the task of adjudicating upon
special matters and disputes between parties. It is really not possible or even
expedient to attempt to describe exhaustively the features which are common to
the Tribunals and the courts, and feature which are distinct and separate. The
basis and the fundamental feature which is common to both the courts and the
Tribunals is that they discharge judicial functions and exercise judicial
powers which inherently vest in a sovereign state”.
Now, let us look at the style of
functioning of the Company Court and the Company Law Board. High Court is
conferred with jurisdiction to entertain certain company matters like
winding-up etc. under the provisions of Companies Act, 1956. We know the power
of High Court being a Constitutional Court. High Court enjoys extraordinary
power under Article 226 of Constitution of India. We can see many orders by the
High Court ignoring the technicalities and directing towards effective
adjudication or settlement of the dispute. Many gives so much respect to High
Court and an order of High Court is adhered to in most of the cases and we will
be seeing contempt issues etc. when the order is directed against the
Government or Governmental organs. That is a different issue altogether.
But, if we look at the procedure
before the Board and style of functioning of Company Law Board and the manner
in which the adjudication is being done, we can very clearly see the difference
between the High Court and the Company Law Board barring the issue that the
Company Law Board is a specific forum. The Company Law Board which is conferred
with the powers to entertain applications under section 397/398 excises very
important functions having impact on the corporate world. Winding-up is the
last stage of the Company and represents a bad state of affairs of the Company
though the issue should not be taken lightly. But, regulating the affairs of
the Company or preventing the illegal actions by a group in the Company, are
very vital functions discharged by the Company Law Board and the proposed
National Company Law Tribunal. Companies or the shareholders approaching the
Company Law Board or the proposed National Company Law Tribunal may require
emergent relief even ex-parte in many cases and the Board or the National
Company Law Tribunal should be prepared to passed ex-parte orders and orders
without insisting on technicalities. I strongly feel that the High Court
functions like an Arbitrator where technicalities are ignored and the dispute
resolution is directed towards doing justice. We need a powerful dispute
resolution mechanism to resolve the company matters under the provisions of
Companies Act, 1956.
I am of the strong opinion that
the purpose may not be solved with the constitution of special tribunals like
National Company Law Tribunal and it is very difficult to create an atmosphere
present in the High Court anywhere else. I am sure on that.
We all know that the constitution
of National Company Law Tribunal is stayed by Madras High Court in R.Gandhi Vs.
Union of India. Senior Advocate Shri Aravind P.Datar has appeared for the
Madras Bar which is the Petitioner in the case referred to seeking stay of
constitution of National Company Law Tribunal. The discussion in the case
dealwith by Justice Jyasimha Babu gives a complete idea on constitution of
special tribunals like National Company Law Tribunal.
If we look at the powers
conferred on the proposed National Company Law Tribunal and especially section
10FZA, it is very much similar to section 22 of the Recovery of Debts Due to
Banks and Financial Institutions Act, 1993. Section 22 as referred to is
extracted hereunder.
“Section 22. Procedure and Powers
of the Tribunal and the Appellate Tribunal.-
(1) The Tribunal and the
Appellate Tribunal shall not be bound the procedure laid down by 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,
the Tribunal and the Appellate Tribunal shall have powers to regulate their own
procedure including the places at which they shall have their sittings.
(2) The Tribunal and the
Appellate Tribunal shall have, for the purpose of discharging their 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 matters, 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) issuing commissions for the
examination of witnesses or documents;
(e) reviewing its decisions;
(f) dismissing an application for
default or deciding it ex-parte;
(g) setting aside any order of
dismissal of any publication for default or any order passed by it ex-parte;
(h) any other matter which may be
prescribed.
(3) Any proceeding before the
Tribunal or the Appellate Tribunal shall be deemed to be a judicial proceeding
within the meaning of sections 193 and 228, and for the purpose of section 196,
of the Indian Penal Code (45 of 1860) and the Tribunal or the Appellate
Tribunal shall be deemed to be a civil court for all the purposes of section
195 and Chapter XXVI of the Code of Criminal Procedure, 1973 (2 of 1974)”
Thus, the Debt Recovery Tribunal
can conduct a Trial, but, practice differs and it is very rare to see a Trial
before the Debt Recovery Tribunal.
Section 385 of the Companies
Bill, 2009 deals with the powers of the National Company Law Tribunal and it is
similar to section 10FZA incorporated pursuant to 2002 amendments to the Act.
Ozg Sarfaesi / DRT Lawyer
Ahmedabad | Pune |
Kolkata | Bangalore | Delhi | Mumbai
VoIP Text / Phone
# 09811415837-61-72-84-92-94
Website: http://sarfaesi.ozg.in
Email: debt@liaisoning.com
