Case Summary
| Citation | Madras Bar Association Vs Union of India & Anr.Writ Petition (C) No. 1072 Of 2013 |
| Keywords | |
| Facts | The petition was filed by the petitioner alleging that notwithstanding various directions given 2010 judgement, the new provisions in the Companies Act, 2013 are almost on the same lines as well incorporated in the Companies Act, 1956 and therefore, there provisions suffer from the vice of unconstitutionally. |
| Issues | Whether the constitutional of NCLT and NCLAT under the Companies Act are valid? |
| Contentions | Petitioner argued that the very reason and very foundation basis for setting of National Tax Tribunal was invalid and fallacious. |
| Law Points | The Court emphasised the importance of an independent and impartial judiciary to render justice. It held that the reducing standards or qualifications for appointment will result in loss of confidence in the Tribunals. The Court also expressed concern over the erosion of the independence of judiciary and the gradual dilution of the standards and qualifications prescribed for persons to decide cases which were earlier being decided by the High Courts. It is argued that in for as technical members of NCLT/NCLAT are concerned, the provision is almost the same which was inserted by way of an amendment in the Companies Act, 1956 and challenge to those provision was upheld in 2010 judgement. The Court held that only persons with a judicial background, that is, those who have been are Judge of High Court and lawyers with prescribed experience, who are eligible for appointment as High Court Judges, can be considered for appointment of Judicial magistrate. |
| Judgement | SC held upheld the constitutional of NCLT and NCLAT. |
| Ratio Decidendi & Case Authority |
Full Case Details
A.K. SIKRI, J.
This writ petition filed by the petitioner, namely, the Madras Bar Association, is
sequel to the earlier proceedings which culminated in the judgment rendered by the
Constitution Bench of this Court in Union of India v. R. Gandhi, President, Madras Bar
Association (hereinafter referred to as the ‘2010 judgment’). In the earlier round of litigation,
the petitioner had challenged the constitutional validity of creation of National Company Law
Tribunal (‘NCLT’ for short) and National Company Law Appellate Tribunal (‘NCLAT’ for
short), along with certain other provisions pertaining thereto which were incorporated by the
Legislature in Parts 1B and 1C of the Companies Act, 1956 (hereinafter referred to as the
‘Act, 1956’) by Companies (Second Amendment) Act, 2002.
2) Writ petition, in this behalf, was filed by the petitioner in the High Court of Madras which
culminated into the judgment dated 30.03.2004. The High Court held that creation of NCLT
and vesting the powers hitherto exercised by the High Court and the Company Law Board
(‘CLB’ for short) in the said Tribunal was not unconstitutional. However, at the same time, the
High Court pointed out certain defects in various provisions of Part 1B and Part 1C of the
Act, 1956 and, in particular, in Sections 10FD(3)(f)(g)(h), 10FE, 10FF, 10FL(2), 10FR(3),
10FT. Declaring that those provisions as existed offended the basic Constitutional scheme of
separation of powers, it was held that unless these provisions are appropriately amended by
removing the defects which were also specifically spelled out, it would be unconstitutional to
constitute NCLT and NCLAT to exercise the jurisdiction which is being exercised by the
High Court or the CLB. The petitioner felt aggrieved by that parts of the judgment vide which
establishments of NCLT and NCLAT was held to be Constitutional. On the other hand, Union
of India felt dissatisfied with the other part of the judgment whereby aforesaid provisions
contained in Parts 1B and 1C of the Act, 1956 were perceived as suffering from various legal
and Constitutional infirmities. Thus, both Union of India as well as the petitioner filed appeals
against that judgment of the Madras High Court. Those appeals were decided by the
Constitution Bench, as mentioned above.
3) The Constitution Bench vide the said judgment put its stamp of approval insofar as
Constitutional validity of NCLT and NCLAT is concerned. It also undertook the exercise of
going through the aforesaid provisions contained in Parts 1B and 1C of the Act, 1956 and in
substantial measure agreed with the Madras High Court finding various defects in these
provisions. These defects were listed by the Court in para 120 of the judgment which reads as
under:
“120. We may tabulate the corrections required to set right the defects in Parts I-
B and I C of the Act:
(i) Only Judges and advocates can be considered for appointment as judicial
members of the Tribunal. Only High Court Judges, or Judges who have served
in the rank of a District Judge for at least five years or a person who has
practiced as a Lawyer for ten years can be considered for appointment as a
Judicial Member. Persons who have held a
Group A or equivalent post under the Central or State Government with
experience in the Indian Company Law Service (Legal Branch) and Indian Legal
Service (Grade-1) cannot be considered for appointment as judicial members as
provided in sub-section 2(c) and (d) of Section 10FD. The expertise in Company
Law service or Indian Legal service will at best enable them to be considered for
appointment as technical members.
(ii) As the NCLT takes over the functions of High Court, the members should as
nearly as possible have the same position and status as High Court Judges. This
can be achieved, not by giving the salary and perks of a High Court Judge to the
members, but by ensuring that persons who are as nearly equal in rank,
experience or competence to High Court Judges are appointed as members.
Therefore, only officers who are holding the ranks of Secretaries or Additional
Secretaries alone can be considered for appointment as Technical members of
the National Company Law Tribunal. Clauses (c) and (d) of sub-section (2) and
Clauses (a) and (b) of sub-section (3) of section 10FD which provide for persons
with 15 years experience in Group A post or persons holding the post of Joint
Secretary or equivalent post in Central or State Government, being qualified for
appointment as Members of Tribunal is invalid.
(iii) A “technical member” presupposes an experience in the field to which the
Tribunal relates. A member of the Indian Company Law Service who has
worked with Accounts Branch or officers in other departments who might have
incidentally dealt with some aspect of company law cannot be considered as
“experts” qualified to be appointed as technical members. Therefore clauses (a)
and (b) of sub-section (3) are not valid.”
(iv) A Technical Member' presupposes an experience in the field to which the Tribunal relates. A member of Indian Company Law Service who has worked with Accounts Branch or officers in other departments who might have incidentally dealt with some aspect of Company Law cannot be considered as experts’ qualified to be appointed as Technical Members. Therefore Clauses (a)
and (b) of sub-section (3) are not valid. (v) The first part of clause (f) of subsection (3) providing that any person having special knowledge or professional
experience of 15 years in science, technology, economics, banking, industry
could be considered to be persons with expertise in company law, for being
appointed as Technical Members in Company Law Tribunal, is invalid.
(v) Persons having ability, integrity, standing and special knowledge and
professional experience of not less than fifteen years in industrial finance,
industrial management, industrial reconstruction, investment and accountancy,
may however be considered as persons having expertise in rehabilitation/revival
of companies and therefore, eligible for being considered for appointment as
technical members.
(vi) In regard to category of persons referred in clause (g) of sub-section (3) at
least five years experience should be specified.
(vii) Only clauses (c), (d), (e), (g), (h), and latter part of clause (f) in sub-section
(3) of section 10-FD and officers of civil services of the rank of the Secretary or
Additional Secretary in Indian Company Law Service and Indian Legal Service
can be considered for purposes of appointment as technical members of the
Tribunal.
(viii) Instead of a five-member Selection Committee with Chief Justice of India
(or his nominee) as Chairperson and two Secretaries from the Ministry of
Finance and Company Affairs and the Secretary in the Ministry of Labour and
Secretary in the Ministry of Law and Justice as members mentioned in section
10FX, the Selection
Committee should broadly be on the following lines:
(a) Chief Justice of India or his nominee – Chairperson (with a casting vote);
(b) A senior Judge of the Supreme Court or Chief Justice of High Court –
Member;
(c) Secretary in the Ministry of Finance and Company Affairs – Member; and
(d) Secretary in the Ministry of Law and Justice – Member.
(ix) The term of office of three years shall be changed to a term of seven or five
years subject to eligibility for appointment for one more term. This is because
considerable time is required to achieve expertise in the concerned field. A term
of three years is very short and by the time the members achieve the required
knowledge, expertise and efficiency, one term will be over. Further the said term
of three years with the retirement age of 65 years is perceived as having been
tailor-made for persons who have retired or shortly to retire and encourages
these Tribunals to be treated as post-retirement havens. If these Tribunals are to
function effectively and efficiently they should be able to attract younger
members who will have a reasonable period of service.
(x) The second proviso to Section 10FE enabling the President and members to
retain lien with their parent cadre/ministry/department while holding office as
President or Members will not be conducive for the independence of members.
Any person appointed as members should be prepared to totally disassociate
himself from the Executive. The lien cannot therefore exceed a period of one
year.
(xi) To maintain independence and security in service, sub-section (3) of section
10FJ and Section 10FV should provide that suspension of the
President/Chairman or member of a Tribunal can be only with the concurrence
of the Chief Justice of India.
(xii) The administrative support for all Tribunals should be from the Ministry of
Law & Justice. Neither the Tribunals nor its members shall seek or be provided
with facilities from the respective sponsoring or parent Ministries or concerned
Department.
(xiii) Two-Member Benches of the Tribunal should always have a judicial
member. Whenever any larger or special benches are constituted, the number of
Technical Members shall not exceed the Judicial Members.”
4) On the basis of the aforesaid, partly allowing the appeals, the same were disposed of in the
following terms:
“57. We therefore dispose of these appeals, partly allowing them, as follows:
(i) We uphold the decision of the High Court that the creation of National
Company Law Tribunal and National Company Law Appellate Tribunal and
vesting in them, the powers and jurisdiction exercised by the High Court in regard
to company law matters, are not unconstitutional.
(ii) We declare that Parts 1B and 1C of the Act as presently structured, are
unconstitutional for the reasons stated in the preceding para. However, Parts IB
and IC of the Act, may be made operational by making suitable amendments, as
indicated above, in addition to what the Union Government has already agreed in
pursuance of the impugned order of the High Court.”
5) Though the verdict came in the year 2010, upholding the creation of NCLT and NCLAT,
these two bodies could not be created and made functional immediately thereafter and the
matter got stuck in imbroglio of one kind or the other. It is not necessary to trace out those
factors as some of those are the subject matter of Writ Petition No.267/2012 which writ
petition is also filed by this very petitioner and is pending consideration. Said writ petition
was listed before this Bench along with the present writ petition and arguments to some extent
were heard in petition as well. However, since the issues raised in the said petition necessitate
further response from the Union of India, with the consent of the parties, it was deemed
proper to defer the hearing in that petition, awaiting the response. Insofar as the present writ
petition is concerned, though somewhat connected with writ petition No.267/2012, prayers
made in this writ petition are entirely different and there was no handicap or obstruction in
proceeding with the hearing of the instant writ petition.
For this reason, the arguments were finally heard in this case
6) Adverting to the present writ petition, it so happened that the Parliament has passed new
company law in the form of Indian Companies Act, 2013 (hereinafter referred to as the ‘Act,
2013′) which replaces the earlier Act, 1956. In this Act, again substantive provisions have
been made with regard to the establishment of NCLT and NCLAT. It is obvious that with the
constitution of NCLT and NCLAT, the provisions relating to the structure and constitution of
NCLT and NCLAT, the provisions relating to qualifications for appointment of
President/Chairperson and Members (judicial as well as technical) of both NCLT and
NCLAT, and also provisions relating to the constitution of the Selection Committee for
selection of the said Members have also been incorporated in the Act, 2013. These are
analogous to Section 10FD, 10FE, 10FF, 10FL, 10FR and 10FT which were introduced in the
Act, 1956 by Companies (Amendment) Act, 2002. The cause for filing the present petition by
the petitioner is the allegation of the petitioner that notwithstanding various directions given
in 2010 judgment, the new provisions in the Act, 2013 are almost on the same lines as were
incorporated in the Act, 1956 and, therefore, these provisions suffer from the vice of
unconstitutionality as well on the application of the ratio in 2010 judgment. It is, thus,
emphasized by the petitioner that these provisions which are contained in Sections 408, 409,
411(3), 412, 413, 425, 431 and 434 of the Act, 2013 are ultra vires the provisions of Article
14 of the Constitution and, therefore, warrant to be struck down as unconstitutional. The
precise prayer contained in the writ petition reads as under:
“(i) a WRIT, ORDER OR DIRECTION more particularly in the nature of WRIT OF
DECLARATION declaring that the provisions of Chapter XXVII of the Companies
Act, 2013, more particularly Sections 408, 409, 411(3), 412, 413, 425, 431 and 434 of
the Act as ultra vires the provisions of Article 14 of the Constitution and accordingly
striking down the said provisions as unconstitutional;
(ii) Pass any order or such further order or orders as may be deemed fit and proper in
the facts and circumstances of the present case.”
7) Before we proceed further, we would like to set down the aforesaid provisions of the Act,
2013 along with Section 2(4), Section 2(90) and Section 407 which contained certain
definitions that are relevant in the context of controversy raised in the present petition:
“2(4) “Appellate Tribunal” means the National Company Law Appellate Tribunal
constituted under section 410;
“2(90) “Tribunal” means the National Company Law Tribunal constituted under
section 408;
- In this Chapter, unless the context otherwise requires,—
(a) “Chairperson” means the Chairperson of the Appellate Tribunal;
(b) “Judicial Member” means a member of the Tribunal or the Appellate Tribunal
appointed as such and includes the President or the Chairperson, as the case may be;
(c) “Member” means a member, whether Judicial or
Technical of the Tribunal or the Appellate Tribunal and includes the President or the
Chairperson, as the case may be;
(d) “President” means the President of the Tribunal;
(e) “Technical Member” means a member of the Tribunal or the Appellate Tribunal
appointed as such.
- Constitution of National Company Law Tribunal
- Qualification of President and Members of Tribunal
- Constitution of Appellate Tribunal
- Qualifications of chairperson and Members of Appellate Tribunal
- Selection of Members of Tribunal and Appellate Tribunal
- Term of office of President, chairperson and other Members
- Salary, allowances and other terms and conditions of service of Members
- Power to punish for contempt
8) In the prayer clause, constitutional validity of Sections 415, 418, 424, 426, 431 and 434
have also been questioned. At the time of hearing, no arguments were addressed by Mr.
Datar, learned senior counsel for the petitioner on the aforesaid provisions. Therefore, in
respect of these provisions, we are eschewing our discussion.
9) On the reading of the aforesaid provisions and having regard to the arguments advanced at
the Bar, we can conveniently categorise the challenge in three compartments, as under:
(i) Challenge to the validity of the constitution of NCT and NCLAT;
(ii) Challenge to the prescription of qualifications including term of their office and
salary allowances etc. of President and Members of the NCLT and as well as Chairman
and Members of the NCLAT;
(iii) Challenge to the structure of the Selection Committee for appointment of
President/Members of the NCLT and Chairperson/ Members of the NCLAT.
Incidental issues pertaining to the power given to these bodies to punish for contempt
as mentioned in Section 425 and giving power to Central Government to constitute the
Benches are also raised by the petitioner.
As would be discussed hereinafter, all these issues stand covered by Madras Bar Association
(supra) and answer to these questions is available therein. In fact, after detailed discussion on
each issue, the Court pronounced the verdict. Therefore, while doing a diagnostic of sorts of
the issues raised, we shall be administering the treatment that is prescribed in that judgment.
ISSUE NO.1
Re .: Constitutional validity of NCT and NCLAT
Section 408 of the Act, 2013 deals with the constitution of NCLT.
By virtue of this Section, Central Government is empowered to issue notification for
constituting a Tribunal to be known as ‘National Company Law Tribunal’. This Tribunal
would consist of President and such number of Judicial and Technical members, as the
Central Government may deem necessary, to be appointed by it. By Notification dated
12.09.2013, the Central Government has constituted the NCLT. Likewise, Section 410 of the
Act, 2013 arms the Central Government with power to constitute NCLAT by notification.
This NCLAT is also to consist of a Chairman and such number of Judicial and Technical
Members, not exceeding eleven, as the Central Government may deem fit, to be appointed by
it by notification. By the aforesaid Notification dated 12.09.2013, NCLAT has also been
constituted by the Central Government.
10) It is pertinent to point out that in the prayer clause, though challenge is laid to the vires of
Section 408, it conspicuously omits Section 410 and, thus, in essence, there is no challenge to
the constitution of NCLAT insofar as relief claimed is concerned. Moreover, as pointed out
above, the entire writ petition takes umbrage under the Constitution Bench judgment in 2010
judgment. However, at the time of arguments, Mr. Datar primarily challenged the
Constitutional validity of NCLAT without making any serious efforts to challenge the
constitution of NCLT. As far as NCLT is concerned, he almost conceded that validity thereof
stands upheld in 2010 judgment and there is not much to argue. In respect of NCLAT, though
he conceded that validity thereof is also upheld in the aforesaid judgment, his endeavour was
to demonstrate that there is no discussion in the entire judgment insofar as NCLAT is
concerned and, therefore, conclusion which is mentioned in the said judgment at the end,
should not be treated as binding or to be taken as having decided this issue. His submission
was that in view of the subsequent Constitution Bench judgment of this Court in Madras Bar
Association v. Union of India, wherein establishment of National Tax Tribunal has been held
to be unconstitutional, Section 410 should also be meted out the same treatment for the
reasons recorded in the said judgment pertaining to National Tax Tribunal. It is difficult to
digest this argument for various reasons, which we record in the discussion hereafter.
11) First of all the creation of Constitution of NCLAT has been specifically upheld in 2010
judgment. It cannot be denied that this very petitioner had specifically questioned the
Constitutional validity of NCLAT in the earlier writ petition and even advanced the
arguments on this very issue. This fact is specifically noted in the said judgment. The
provision pertaining to the constitution of the Appellate Tribunal i.e. Section 10FR of the
Companies Act, 1956 was duly taken note of. Challenge was laid to the establishments of
NCLT as well as NCLAT on the ground that the Parliament had resorted to tribunalisation by
taking away the powers from the normal courts which was essentially a judicial function and
this move of the Legislature impinged upon the impartiality, fairness and reasonableness of
the decision making which was the hallmark of judiciary and essentially a judicial function.
Argument went to the extent that it amounted to negating the Rule of Law and trampling of
the Doctrine of Separation of Powers which was the basic feature of the Constitution of India.
What we are emphasising is that the petitions spearheaded the attack on the constitutional
validity of both NCLT as well as NCLAT on these common grounds. The Court specifically
went into the gamut of all those arguments raised and emphatically repelled the same.
12) The Court specifically rejected the contention that transferring judicial function,
traditionally performed by the Courts, to the Tribunals offended the basic structure of the
Constitution and summarised the position in this behalf as under:
“We may summarize the position as follows:
(a) A legislature can enact a law transferring the jurisdiction exercised by
courts in regard to any specified subject (other than those which are vested
in courts by express provisions of the Constitution) to any tribunal.
(b) All courts are tribunals. Any tribunal to which any existing jurisdiction
of courts is transferred should also be a Judicial Tribunal. This means that
such Tribunal should have as members, persons of a rank, capacity and
status as nearly as possible equal to the rank, status and capacity of the
court which was till then dealing with such matters and the members of the
Tribunal should have the independence and security of tenure associated
with Judicial Tribunals.
(c) Whenever there is need for `Tribunals’, there is no presumption that
there should be technical members in the Tribunals. When any jurisdiction
is shifted from courts to Tribunals, on the ground of pendency and delay in
courts, and the jurisdiction so transferred does not involve any technical
aspects requiring the assistance of experts, the Tribunals should normally
have only judicial members. Only where the exercise of jurisdiction
involves inquiry and decisions into technical or special aspects, where
presence of technical members will be useful and necessary, Tribunals
should have technical members. Indiscriminate appointment of technical
members in all Tribunals will dilute and adversely affect the independence
of the Judiciary.
(d) The Legislature can re-organize the jurisdictions of Judicial Tribunals.
For example, it can provide that a specified category of cases tried by a
higher court can be tried by a lower court or vice versa (A standard
example is the variation of pecuniary limits of courts). Similarly while
constituting Tribunals, the Legislature can prescribe the qualifications/
eligibility criteria. The same is however subject to Judicial Review. If the
court in exercise of judicial review is of the view that such tribunalisation
would adversely affect the independence of judiciary or the standards of
judiciary, the court may interfere to preserve the independence and
standards of judiciary. Such an exercise will be part of the checks and
balances measures to maintain the separation of powers and to prevent any
encroachment, intentional or unintentional, by either the legislature or by
the executive.”
13) Thereafter, the Constitution Bench categorically dealt with the Constitutional validity of
NCLT and NCLAT under the caption “Whether the constitution of NCLT and NCLAT under
Parts 1B & 1C of Companies Act are valid”, and embarked upon the detailed discussion on
this topic. It becomes manifest from the above that the question of validity of NCLAT was
directly and squarely in issue. Various facets of the challenge laid to the validity of these two
fora were thoroughly thrashed out. No doubt, most of the discussion contained in paras 107 to
119 refers to NCLT. However, on an insight into the said discussion contained in these
paragraphs, would eloquently bear it out that it is inclusive of NCLAT as well. In para 121 of
the judgment, which is already extracted above, the Court specifically affirmed the decision
of the High Court which held that creation of NCLT and NCLAT was not unconstitutional. In
view of this, it is not open to the petitioner even to argue this issue as it clearly operate as res
judicata.
14) Frankly, Mr. Datar was conscious of the aforesaid limitation. He still ventured to attack
the setting up of NCLAT on the ground that insofar as this appellate forum is concerned, there
are no reasons given in the said judgment and thereafter this aspect has been dealt with in
more details in the NTT judgment wherein formation of National Tax Tribunal has been held
to be unconstitutional. This adventurism on the part of the petitioner is totally unfounded. In
the first instance, as mentioned above, insofar as NCLAT is concerned, its validity has
already been upheld and this issue cannot be reopened. Judgment in the case of 2010
judgment is of a Constitution Bench and that judgment of a co-ordinate Bench binds this
Bench as well.
15) Secondly, reading of the Constitution Bench judgment in the matter of National Tax
Tribunal would manifest that not only 2010 judgment was taken note of but followed as well.
The Court spelled out the distinguishing features between NCLT/NCLAT on the one hand
and NTT on the other hand in arriving at a different conclusion.
16) Thirdly, the NTT was a matter where power of judicial review hitherto exercised by the
High Court in deciding the pure substantial question of law was sought to be taken away to be
vested in NTT which was held to be impermissible. In the instant case, there is no such
situation. On the contrary, NCLT is the first forum in the hierarchy of quasi-judicial fora set
up in the Act, 2013. The NCLT, thus, would not only deal with question of law in a given
case coming before it but would be called upon to thrash out the factual disputes/aspects as
well. In this scenario, NCLAT which is the first appellate forum provided under the Act, 2013
to examine the validity of the orders passed by NCLT, will have to revisit the factual as well
as legal issues. Therefore, situation is not akin to NTT. Jurisdiction of the Appellate Tribunal
is mentioned in Section 410 itself which stipulates that NCLAT shall be constituted ‘for
hearing appeals against the orders of the Tribunal’. This jurisdiction is not circumscribed by
any limitations of any nature whatsoever and the implication thereof is that appeal would lie
both on the questions of facts as well as questions of law. Likewise, under sub-section (4) of
Section 421, which provision deals with ‘appeal from orders of Tribunal’, it is provided that
the NCLAT, after giving reasonable opportunity of being heard, ‘pass such orders thereon as
it thinks fit, forming, modifying or set aside the order appealed against’. It is thereafter further
appeal is provided from the order of the NCLAT to the Supreme Court under Section 423 of
the Act, 2013. Here, the scope of the appeal to the Supreme Court is restricted only ‘to
question of law arising out of such order’.
17) Fourthly, it is not unknown rather a common feature/practice to provide one appellate
forum wherever an enactment is a complete Code for providing judicial remedies. Providing
one right to appeal before an appellate forum is a well accepted norm which is perceived as a
healthy tradition.
18) For all these reasons, we hold that there is no merit in this issue.
ISSUE NO.2
19) Qualifications of President and Members of NCLT are mentioned in Section 409 of the
Act, 2013 and that of Chairperson and Members of NCLAT are stipulated in Section 411 of
the Act, 2013. The petitioner has no quarrel about the qualifications mentioned for the
President and Judicial Members of the Tribunal as well as Chairperson and Judicial Members
of the Appellate Tribunal. However, it is argued that insofar as technical Members of
NCLT/NCLAT are concerned, the provision is almost the same which was inserted by way of
an amendment in the Act,1956 and challenge to those provisions was specifically upheld
finding fault therewith.
20) It was pointed out that in the 2010 judgment, the Constitution Bench took the view that
since the NCLT would now be undertaking the work which is being performed, inter alia, by
High Court, the technical Members of the NCLT/NCLAT should be selected from amongst
only those officers who hold rank of Secretaries or Additional Secretaries and have technical
expertise. These aspects are discussed by the Court in the following paragraphs:
“108. The legislature is presumed not to legislate contrary to the rule of law and
therefore know that where disputes are to be adjudicated by a Judicial Body
other than Courts, its standards should approximately be the same as to what is
expected of main stream Judiciary. Rule of law can be meaningful only if there
is an independent and impartial judiciary to render justice. An independent
judiciary can exist only when persons with competence, ability and
independence with impeccable character man the judicial institutions. When the
legislature proposes to substitute a Tribunal in place of the High Court to
exercise the jurisdiction which the High Court is exercising, it goes without
saying that the standards expected from the Judicial Members of the Tribunal
and standards applied for appointing such members, should be as nearly as
possible as applicable to High Court Judges, which are apart from a basic degree
in law, rich experience in the practice of law, independent outlook, integrity,
character and good reputation. It is also implied that only men of standing who
have special expertise in the field to which the Tribunal relates, will be eligible
for appointment as Technical members. Therefore, only persons with a judicial
background, that is, those who have been or are Judges of the High Court and
lawyers with the prescribed experience, who are eligible for appointment as
High Court Judges, can be considered for appointment of Judicial Members.
- A lifetime of experience in administration may make a member of the civil
services a good and able administrator, but not a necessarily good, able and
impartial adjudicator with a judicial temperament capable of rendering decisions
which have to
(i) inform the parties about the reasons for the decision;
(ii) demonstrate fairness and correctness of the
decision and absence of arbitrariness; and
(iii) ensure that justice is not only done, but also seem to be done.
xx xx xx
- As far as the technical members are concerned, the officer should be of at
least Secretary Level officer with known competence and integrity. Reducing
the standards, or qualifications for appointment will result in loss of confidence
in the Tribunals. We hasten to add that our intention is not to say that the
persons of Joint Secretary level are not competent. Even persons of Under
Secretary level may be competent to discharge the functions. There may be
brilliant and competent people even working as Section Officers or Upper
Division Clerks but that does not mean that they can be appointed as Members.
Competence is different from experience, maturity and status required for the
post. As, for example, for the post of a Judge of the High Court, 10 years’
practice as an Advocate is prescribed. There may be Advocates who even with 4
or 5 years’ experience may be more brilliant than Advocates with 10 years’
standing. Still, it is not competence alone but various other factors which make a
person suitable. Therefore, when the legislature substitutes the Judges of the
High Court with Members of the Tribunal, the standards applicable should be as
nearly as equal in the case of High Court Judges. That means only Secretary
Level officers (that is those who were Secretaries or Additional Secretaries) with
specialized knowledge and skills can be appointed as Technical Members of the
tribunal.
xx xx xx
118.Parts IC and ID of the Companies Act proposes to shift the company
matters from the courts to Tribunals, where aJudicial Member' and aTechnical Member’ will decide the disputes. If the members are selected as
contemplated in section 10FD, there is every likelihood of most of the members,
including the so called `Judicial Members’ not having any judicial experience or
company law experience and such members being required to deal with and
decide complex issues of fact and law. Whether the Tribunals should have only
judicial members or a combination of judicial and technical members is for the
Legislature to decide. But if there should be technical members, they should be
persons with expertise in company law or allied subjects and mere experience in
civil service cannot be treated as Technical Expertise in company law. The
candidates falling under sub-section 2(c) and (d) and sub-sections 3(a) and (b) of
section 10FD have no experience or expertise in deciding company matters.
119.There is an erroneous assumption that company law matters require certain
specialized skills which are lacking in Judges. There is also an equally erroneous
assumption that members of the civil services, (either a Group-A officer or Joint
Secretary level civil servant who had never handled any company disputes) will
have the judicial experience or expertise in company law to be appointed either
as Judicial Member or Technical Member. Nor can persons having experience of
fifteen years in science, technology, medicines, banking, industry can be termed
as experts in Company Law for being appointed as Technical Members. The
practice of having experts as Technical Members is suited to areas which require
the assistance of professional experts, qualified in medicine, engineering, and
architecture etc. Lastly, we may refer to the lack of security of tenure. The short
term of three years, the provision for routine suspension pending enquiry and the
lack of any kind of immunity, are aspects which require to be considered and
remedied.”
21) On the basis of the aforesaid discussions, parts 1C and 1D of the Act, 1956 as they existed
were treated as invalid and in order to bring these provisions within the realm of
Constitutionality, the Court pointed out the corrections which were required to be made to
remove those anamolies. Para 120 of the judgment is most relevant to answer the issue at
hand
and, therefore, we reproduce the said para in its entirety:
“120. We may tabulate the corrections required to set right the defects in Parts IB and
IC of the Act :
(i) Only Judges and Advocates can be considered for appointment as Judicial
Members of the Tribunal. Only the High Court Judges, or Judges who have
served in the rank of a District Judge for at least five years or a person who has
practiced as a Lawyer for ten years can be considered for appointment as a
Judicial Member. Persons who have held a Group A or equivalent post under
the Central or State Government with experience in the Indian Company Law
Service (Legal Branch) and Indian Legal Service (Grade-1) cannot be
considered for appointment as judicial members as provided inm sub-section
2(c) and (d) of Section 10FD. The expertise in Company Law service or Indian
Legal service will at best enable them to be considered for appointment as
technical members.
(ii) As NCLT takes over the functions of High Court, the members should as
nearly as possible have the same position and status as High Court Judges.
This can be achieved, not by giving the salary and perks of a High Court Judge
to the members, but by ensuring that persons who are as nearly equal in rank,
experience or competence to High Court Judges are appointed as members.
Therefore, only officers who are holding the ranks of Secretaries or Additional
Secretaries alone can be considered for appointment as Technical members of
the National Company Law Tribunal. Clauses (c) and (d) of sub-section (2)
and Clauses (a) and (b) of sub-section (3) of section 10FD which provide for
persons with 15 years experience in Group A post or persons holding the post
of Joint Secretary or equivalent post in Central or State Government, being
qualified for appointment as Members of Tribunal is invalid.
(iii) A `Technical Member’ presupposes an experience in the field to which the
Tribunal relates. A member of Indian Company Law Service who has worked
with Accounts Branch or officers in other departments who might have
incidentally dealt with some aspect of Company Law cannot be considered as
`experts’ qualified to be appointed as Technical Members. Therefore Clauses
(a) and (b) of sub-section (3) are not valid.
(iv) The first part of clause (f) of sub-section (3) providing that any person
having special knowledge or professional experience of 20 years in science,
technology, economics, banking, industry could be considered to be persons
with expertise in company law, for being appointed as Technical Members in
Company Law Tribunal, is invalid.
(v) Persons having ability, integrity, standing and special knowledge and
professional experience of not less than fifteen years in industrial finance,
industrial management, industrial reconstruction, investment and accountancy,
may however be considered as persons having expertise in rehabilitation/
revival of companies and therefore, eligible for being considered for
appointment as Technical Members.
(vi) In regard to category of persons referred in clause (g) of sub-section (3) at
least five years experience should be specified.
(vii) Only Clauses (c), (d), (e), (g), (h), and later part of clause (f) in subsection (3) of section 10FD and officers of civil services of the rank of the
Secretary or Additional Secretary in Indian Company Law Service and Indian
Legal Service can be considered for purposes of appointment as Technical
Members of the Tribunal.
(viii) Instead of a five-member Selection Committee with Chief Justice of
India (or his nominee) as Chairperson and two Secretaries from the Ministry of
Finance and Company Affairs and the Secretary in the Ministry of Labour and
Secretary in the Ministry of Law and Justice as members mentioned in section
10FX, the Selection Committee should broadly be on the following lines:
(a) Chief Justice of India or his nominee – Chairperson (with a casting
vote);
(b) A senior Judge of the Supreme Court or Chief Justice of High
Court – Member;
(c) Secretary in the Ministry of Finance and Company Affairs –
Member; and
(d) Secretary in the Ministry of Law and Justice – Member.
(ix) The term of office of three years shall be changed to a term of seven or
five years subject to eligibility for appointment for one more term. This is
because considerable time is required to achieve expertise in the concerned
field. A term of three years is very short and by the time the members achieve
the required knowledge, expertise and efficiency, one term will be over.
Further the said term of three years with the retirement age of 65 years is
perceived as having been tailor-made for persons who have retired or shortly to
retire and encourages these Tribunals to be treated as post-retirement havens. If
these Tribunals are to function effectively and efficiently they should be able
to attract younger members who will have a reasonable period of service.
(x) The second proviso to Section 10FE enabling the President and members to
retain lien with their parent cadre/ ministry/department while holding office as
President or Members will not be conducive for the independence of members.
Any person appointed, as members should be prepared to totally disassociate
himself from the Executive. The lien cannot therefore exceed a period of one
year.
(xi) To maintain independence and security in service, sub-section (3) of
section 10FJ and Section 10FV should provide that suspension of the
President/Chairman or member of a Tribunal can be only with the concurrence
of the Chief Justice of India.
(xii) The administrative support for all Tribunals should be from the Ministry
of Law & Justice. Neither the Tribunals nor its members shall seek or be
provided with facilities from the respective sponsoring or parent Ministries or
concerned Department.
(xiii) Two-Member Benches of the Tribunal should always have a judicial
member. Whenever any larger or special benches are constituted, the number
of Technical Members shall not exceed the Judicial Members.”
22) What gets revealed from the reading of para 120, particularly, sub-para (ii) thereof that
only officers who are holding the ranks of Secretaries or Additional Secretaries alone are to
be considered for appointment as technical Members of NCLT. Provisions contained in
clauses (c) and (d) of sub-section (2) and Clause (a) and (b) of sub-section (3) of Section
10FD which made Joint Secretaries with certain experience as eligible, were specifically
declared as invalid. Notwithstanding the same, Section 409(3) of the Act, 2013 again makes
Joint Secretary to the Government of India or equivalent officer eligible for appointment, if he
has 15 years experience as member of Indian Corporate Law Service or Indian Legal Service,
out of which at least 3 years experience in the pay scale of Joint Secretary. This is clearly in
the teeth of dicta pronounced in 2010 judgment.
23) In the counter affidavit, the respondents have endeavored to justify this provision by
stating that this variation was made in view of the lack of available officers at Additional
Secretary level in Indian Companies Law Service. It is further mentioned that functionally the
levels of Additional Secretary and Joint Secretary are similar. These officers have knowledge
of specific issues concerning operations and working of companies and their expertise in
company law which is expected to benefit NCLT. Such an explanation is not legally
sustainable, having regard to the clear mandate of 2010 judgment. We would like to point out
that apart from giving other reasons for limiting the consideration for such posts to Secretary
and Additional Secretary, there was one very compelling factor in the mind of the Court viz.
gradual erosion of independence of judiciary, which was perceived as a matter of concern.
This aspect was demonstrated with specific examples in certain enactments depicting gradual
dilution of the standards and qualifications prescribed for persons to decide cases which were
earlier being decided by the High Court. We, thus, deem it apposite to reproduce that
discussion which provides a complete answer to the aforesaid argument taken by the
respondents. The said discussion, contained in para 112, with its sub-paras, reads as under:
“112. What is a matter of concern is the gradual erosion of the independence of
the judiciary, and shrinking of the space occupied by the Judiciary and gradual
increase in the number of persons belonging to the civil service discharging
functions and exercising jurisdiction which was previously exercised by the
High Court. There is also a gradual dilution of the standards and qualification
prescribed for persons to decide cases which were earlier being decided by the
High Courts. Let us take stock.
112.1 To start with, apart from jurisdiction relating to appeals and revisions in
civil, criminal and tax matters (and original civil jurisdiction in some High
Courts). The High Courts were exercising original jurisdiction in two
important areas; one was writ jurisdiction under Articles 226 and 227
(including original jurisdiction in service matters) and the other was in respect
to company matters.
112.2 After constitution of Administrative Tribunals under the Administrative
Tribunals Act, 1985 the jurisdiction in regard to original jurisdiction relating to
service matters was shifted from High Courts to Administrative Tribunals.
Section 6 of the said Act deals with qualifications for appointment as
Chairman, and it is evident therefrom that the Chairman has to be a High Court
Judge either a sitting or a former Judge. For judicial member the qualification
was that he should be a judge of a High Court or is qualified to be a Judge of
the High Court (i.e. an advocate of the High Court with ten years practice or a
holder of a judicial office for ten years) or a person who held the post of
Secretary, Govt. of India in the Department of Legal Affairs or in the
Legislative Department or Member Secretary, Law Commission of India for a
period of two years; or an Additional Secretary to Government of India in the
Department of Legal Affairs or Legislative Department for a period of five
years.
112.3 For being appointed as Administrative Member, the qualification was
that the candidate should have served as Secretary to the Government of India
or any other post of the Central or State Government carrying the scale of pay
which is not less than as of a Secretary of Government of India for atleast two
years, or should have held the post of Additional Secretary to the Government
of India or any other post of Central or State Government carrying the scale of
pay which is not less than that of an Additional Secretary to the Government of
India at least for a period of five years. In other words, matters that were
decided by the High Courts could be decided by a Tribunal whose members
could be two Secretary level officers with two years experience or even two
Additional Secretary level officers with five years experience. This was the
first dilution.
112.4 The members were provided a term of office of five years and could
hold office till 65 years and the salary and other perquisites of these members
were made the same as that of High Court Judges. This itself gave room for a
comment that these posts were virtually created as sinecure for members of the
executive to extend their period of service by five years from 60 to 65 at a
higher pay applicable to High Court Judges. Quite a few members of the
executive thus became members of the “Tribunals exercising judicial
functions”.
112.5 We may next refer to Information Technology Act, 2000 which provided
for establishment of Cyber Appellate Tribunal with a single member. Section
50 of that Act provided that aperson who is, or has been, or is qualified to be, a
Judge of a High Court, or a person who is, or has been, a member of the India
Legal Service and is holding or has held a post in Grade I of that service for at
least three years could be appointed as the Presiding Officer. That is, the
requirement of even a Secretary level officer is gone. Any member of Indian
Legal Service holding a Grade-I Post for three years can be a substitute for a
High Court Judge.
112.6 The next dilution is by insertion of Chapters 1B in the Companies Act,
1956 with effect from 1.4.2003 providing for constitution of a National
Company Law Tribunal with a President and a large number of Judicial and
Technical Members (as many as 62). There is a further dilution in the
qualifications for members of National Company Law Tribunal which is a
substitute for the High Court, for hearing winding up matters and other matters
which were earlier heard by High Court. A member need not even be a
Secretary or Addl. Secretary Level Officer. All Joint Secretary level civil
servants (that are working under Government of India or holding a post under
the Central and State Government carrying a scale of pay which is not less than
that of the Joint Secretary to the Government of India) for a period of five
years are eligible. Further, any person who has held a Group-A post for 15
years (which means anyone belonging to Indian P&T Accounts & Finance
Service, Indian Audit and Accounts Service, Indian Customs & Central Excise
Service, Indian Defence Accounts Service, Indian Revenue Service, Indian
Ordnances Factories Service, Indian Postal Service, Indian Civil Accounts
Service, Indian Railway Traffic Service, Indian Railway Accounts Service,
Indian Railway Personal Service, Indian Defence Estates Service, Indian
Information Service, Indian Trade Services, or other Central or State Service)
with three years’ of service as a member of Indian Company Law Service
(Account) Branch, or who has dealt' with any problems relating to Company Law can become a Member. This means that the cases which were being decided by the Judges of the High Court can be decided by two-members of the civil services - Joint Secretary level officers or officers holding GroupA’
posts or equivalent posts for 15 years, can now discharge the functions of High
Court. This again has given room for comment that qualifications prescribed
are tailor made to provide sinecure for a large number of Joint Secretary level
officers or officers holding Group `A’ posts to serve up to 65 years in Tribunals
exercising judicial functions.
112.7 The dilution of standards may not end here. The proposed Companies
Bill, 2008 contemplates that any member of Indian Legal Service or Indian
Company Law Service (Legal Branch) with only ten years service, out of
which three years should be in the pay scale of Joint Secretary, is qualified to
be appointed as a Judicial Member. The speed at which the qualifications for
appointment as Members is being diluted is, to say the least, a matter of great
concern for the independence of the Judiciary.”
24) Having regard to the aforesaid clear and categorical dicta in 2010 judgment, tinkering
therewith would evidently have the potential of compromising with standards which 2010
judgment sought to achieve, nay, so zealously sought to secure. Thus, we hold that Section
409(3)(a) and (c) are invalid as these provisions suffer from same vice. Likewise, Section
411(3) as worded, providing for qualifications of technical Members, is also held to be
invalid. For appointment of technical Members to the NCLT, directions contained in sub-para
(ii), (iii), (iv), (v) of para 120 of 2010 judgment will have to be scrupulously followed and
these corrections are required to be made in Section 409(3) to set right the defects contained
therein. We order accordingly, while disposing of issue No.2.
ISSUE NO.3
25) This issue pertains to the constitution of Selection Committee for selecting the Members
of NCLT and NCLAT. Provision in this respect is contained in Section 412 of the Act, 2013.
Sub-section (2) thereof provides for the Selection Committee consisting of:
(a) Chief Justice of India or his nominee-Chairperson;
(b) a senior Judge of the Supreme Court or a Chief Justice of High Court— Member;
(c) Secretary in the Ministry of Corporate Affairs—Member;
(d) Secretary in the Ministry of Law and Justice—Member; and (e) Secretary in the
Department of Financial Services in the Ministry of Finance— Member.
Provision in this behalf which was contained in Section 10FX, validity thereof was
questioned in 2010 judgment, was to the following effect:
“10FX. Selection Committee:
(1) The Chairperson and Members of the Appellate Tribunal and
President and Members of the Tribunal shall be appointed by the Central
Government on the recommendations of a Selection Committee consisting of:
(a) Chief Justice of India or his nominee Chairperson;
(b) Secretary in the Ministry of Finance and Member; Company Affairs
(c) Secretary in the Ministry of Labour Member;
(d) Secretary in the Ministry of Law and Justice (Department of Legal Affairs
or Legislative
Department) Member;
(e) Secretary in the Ministry of Finance and Company Affairs (Department of
Company Affairs) Member.
(2) The Joint Secretary in the Ministry or Department of the Central
Government dealing with this Act shall be the Convenor of the Selection
Committee.”
26) The aforesaid structure of the Selection Committee was found fault with by the
Constitution Bench in 2010 judgment. The Court specifically remarked that instead of 5
members Selection Committee, it should be 4 members Selection Committee and even the
composition of such a
Selection Committee was mandated in Direction No.(viii) of para 120 and this sub-para we
reproduce once again hereinbelow:
“(viii) Instead of a five-member Selection Committee with Chief Justice of
India (or his nominee) as Chairperson and two Secretaries from the Ministry of
Finance and Company
Affairs and the Secretary in the Ministry of Labour and Secretary in the
Ministry of Law and Justice as members mentioned in section 10FX, the
Selection Committee should broadly be on the following lines:
(a) Chief Justice of India or his nominee – Chairperson (with a casting vote);
(b) A senior Judge of the Supreme Court or Chief Justice of High Court –
Member;
(c) Secretary in the Ministry of Finance and Company Affairs – Member; and
(d) Secretary in the Ministry of Law and Justice – Member.”
27) Notwithstanding the above, there is a deviation in the composition of Selection
Committee that is prescribed under Section 412 (2) of the Act, 2013. The deviations are as
under:
(i) Though the Chief Justice of India or his nominee is to act as Chairperson,
he is not given the power of a casting vote. It is because of the reason that
instead of four member Committee, the composition of Committee in the
impugned provision is that of five members.
(ii) This Court had suggested one Member who could be either Secretary in the
Ministry of Finance or in Company Affairs (we may point out that the word
“and” contained in Clause (c) of sub-para (viii) of para 120 seems to be
typographical mistake and has to be read as “or”, as otherwise it won’t make
any sense).
(iii) Now, from both the Ministries, namely from the Ministry of Corporate
Affairs as well as Ministry of Finance, one Member each is included. Effect of
this composition is to make it a five members Selection Committee which was
not found to be valid in 2010 judgment. Reason is simple, out of these five
Members, three are from the administrative branch/bureaucracy as against two
from judiciary which will result in predominant say of the members belonging
to the administrative branch, is situation that was specifically diverted from.
The composition of Selection Committee contained in Section 412(2) of the
Act, 2013 is sought to be justified by the respondents by arguing that the
recommended composition in the 2010 judgment was in broad terms. It is
argued that in view of subsuming of BIFR and AAIFR which are in the
administrative jurisdiction of Department of Financial Services, Secretary DFS
has beenincluded. No casting vote has been provided for the Chairman as over
the period of time the selection processes in such committees have crystallized
in a manner that the recommendations have been unanimous and there is no
instance of voting in such committees in Ministry of Corporate Affairs.
Moreover other similar statutory bodies/tribunals also do not provide for
‘casting vote’ to Chairperson of Selection Committee. Further, the Committee
will be deciding its own modalities as provided in the Act. The following
argument is also raised to justify this provision: (i) Robust and healthy
practices have evolved in deliberations of Selection Committees. Till now
there is no known case of any material disagreement in such committees. (ii)
The intention is to man the Selection Committee with persons of relevant
experience and knowledge.
28) We are of the opinion that this again does not constitute any valid or legal justification
having regard to the fact that this very issue stands concluded by the 2010 judgment which is
now a binding precedent and, thus, binds the respondent equally. The prime consideration in
the mind of the Bench was that it is the Chairperson, viz. Chief Justice of India, or his
nominee who is to be given the final say in the matter of selection with right to have a casting
vote. That is the ratio of the judgment and reasons for providing such a composition are not
far to seek. In the face of the all pervading prescript available on this very issue in the form of
a binding precedent, there is no scope for any relaxation as sought to be achieved through the
impugned provision and we find it to be incompatible with the mandatory dicta of 2010
judgment. Therefore, we hold that provisions of Section 412(2) of the Act, 2013 are not valid
and direction is issued to remove the defect by bringing this provision in accord with sub-para
(viii) of para 120 of 2010 judgment.
29) We now deal with some other issues raised in the petition. It was feebly argued by Mr.
Datar that power to punish for contempt as given to the NCLT and NCLAT under Section
425 of the Act is not healthy and should be done away with. It was also argued that power
given to the Central Government to constitute the Benches is again impermissible as such
power should rest with President, NCLT or Chairman, NCLAT. However, we hardly find any
legal strength in these arguments. We have to keep in mind that these provisions are contained
in a statute enacted by the Parliament and the petitioner could not point out as to how such
provisions are unconstitutional.
30) The upshot of the aforesaid discussion is to allow this writ petition partly, in the manner
mentioned above.
31) Before we part, we must mention that the affidavit dated 07.05.2015 is filed on behalf of
the respondents mentioning therein the steps that have been taken till date towards setting up
of NCLT and NCLAT. It is pointed out that the approval for creation of one post of
Chairperson and five posts of Members of NCLAT as well as one post of President and 62
posts of Members of NCLT and two posts of Registrar one each for NCLT and NCLAT and
one post of Secretary, NCLT was obtained and the approval was also obtained for creation of
246 posts of supporting staff of NCLT and NCLAT. It is also mentioned that following draft
Rules have already been prepared in consultation with the Legislative Department, Ministry
of Law:
(i) NCLAT (Salaries, Allowances and other terms and conditions of service of the
Chairperson and other Members) Rules, 2014, (ii) NCLT (Salary, Allowances and other
Terms and Conditions of Service of President and other Members) Rules, 2013. Draft
Recruitment Rules for the supporting staff were also prepared in consultation with Legislative
Department, Ministry of Law. It is further mentioned that draft Rules with regard to manner
of functioning of NCLT/NCLAT etc. were prepared in order to place them before the
Chairperson/President of NCLAT/NCLT on their appointment for finalization as per the
provisions of the Companies Act, 2013. These Rules cover provisions with regard to manner
of functioning of NCLT/NCLAT; manner in which applications for various approvals shall be
made by applicants and approved; and specific procedural requirements with regard to
applications/matters relating to compromises/arrangements/ amalgamations; prevention of
oppression and mismanagement; revival and rehabilitation of sick companies; winding up and
other miscellaneous requirements. Space for Principal Bench and other Benches of NCLT,
including a special Bench at Delhi to deal with transferred cases of BIFR and AAIFR had also
been identified.
Process initiated for renting space in some locations, which was discontinued in view of the
pending petition, can be restarted at a short notice. Budget heads have been created for
meeting the expenditure for NCLT and NCLAT. Allocated funds for 2014-2015 had to be
surrendered in view of the delay in settling up the Tribunals. 32) From the aforesaid, it seems
the only step which is left to make NCLT and NCLAT functional is to appoint President and
Members of NCLT and Chairperson and Members of NCLAT.
33) Since, the functioning of NCLT and NCLAT has not started so far and its high time that
these Tribunals start functioning now, we hope that the respondents shall take remedial
measures as per the directions contained in this judgment at the earliest, so that the NCLT &
NCLAT are adequately manned and start functioning in near future.
34) Writ petition stands disposed of in the aforesaid manner.
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