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Judgement
R. V. Raveendran, J.
1.These appeals arise from the order dated 30.3.2004 of the Madras High Court in WP No.
2198/2003 filed by the President of Madras Bar Association (MBA for short) challenging the
constitutional validity of Chapters 1B and 1C of the Companies Act, 1956(‘Act’ for short)
inserted by Companies (Second Amendment) Act 2002 (‘Amendment Act’ for short)
providing for the constitution of National Company Law Tribunal (‘NCLT’ or ‘Tribunal’) and
National Company Law Appellate Tribunal (‘NCLAT’ or ‘Appellate Tribunal’).
- In the said writ petition, Madras Bar Association (‘MBA’) raised the following contentions:
(i) Parliament does not have the legislative competence to vest intrinsic judicial functions that
have been traditionally performed by the High Courts for nearly a century in any Tribunal
outside the Judiciary.
(ii) The constitution of the National Company Law Tribunal and transferring the entire
company jurisdiction of the High Court to the Tribunal which is not under the control of the
Judiciary is violative of the doctrine of separation of powers and independence of the
Judiciary which are parts of the basic structure of the Constitution.
(iii) Article 323B of the Constitution enables the appropriate Legislature to provide for
adjudication or trial by Tribunals of disputes, complaints or offences with respect to all or any
of the matters specified in clause (2). Clause (2) enumerates the matters in regard to which
Tribunals can be constituted. The said list is exhaustive and not illustrative. The list does not
provide for constitution of Tribunal for insolvency, revival and restructuring of the company.
In the absence of any amendment to Article 323B providing for a National Tribunal for
revival of companies and winding up companies, there is no legislative competence to
provide for constitution of NCLT and NCLAT. - Union of India contends that the High Court having held that the Parliament has the
competence and power to establish NCLT and NCLAT, ought to have dismissed the writ
petition. It is submitted that some of the directions given by the High Court to reframe and
recast Parts IB and IC of the Act amounts to converting judicial review into judicial
legislation. - On the other hand, MBA in its appeal contends that the High Court ought not to have
upheld the constitutional validity of Parts IB and IC of the Act providing for establishment of
NCLT and NCLAT; that the High Court ought to have held that constitution of such
Tribunals taking away the entire Company Law jurisdiction of the High Court and vesting it
in a Tribunal which is not under the control of the Judiciary, is violative of doctrine of
separation of powers and the independence of Judiciary which are parts of the basic structure
of the Constitution. MBA also contends that the decisions of this Court in Union of India vs.
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Delhi High Court Bar Association – 2002 (4) SCC 275, with reference to constitutional
validity of the provisions of the Recovery of Debts Due to Banks and Financial Institutions
Act, 1993 providing for constitution of the Debt Recovery Tribunals and State of Karnataka
vs. Vishwabharathi House Building Co-op., Society – 2003 (2) SCC 412 in regard to the
constitutional validity of Consumer Protection Act, 1986 providing for constitution of
consumer fora require reconsideration. - When these civil appeals came up for hearing before a three-Judge Bench of this Court,
the Bench was of the view that the decisions in L. Chandra Kumar v. Union of India (1997) 3
SCC 261, Union of India v. Delhi Bar Association (2002) 4 SCC 275 and State of Karnataka
v. Vishwa Bharati Housing Building Cooperative Societies & Anr. (2003) 2 SCC 412 holding
that Parliament and State legislatures possessed legislative competence to effect changes in
the original jurisdiction in the Supreme Court and High Court, had not dealt with the
following issues:
(i) To what extent the powers and judiciary of High Court (excepting judicial review under
Article 226/227) can be transferred to Tribunals?
(ii) Is there a demarcating line for the Parliament to vest intrinsic judicial functions
traditionally performed by courts in any Tribunal or authority outside the judiciary?
(iii) Whether the “wholesale transfer of powers” as contemplated by the Companies (Second
Amendment) Act, 2002 would offend the constitutional scheme of separation of powers and
independence of judiciary so as to aggrandize one branch over the other?
Therefore the Three Judge Bench, by order dated 13.5.2007 directed the appeals to be heard
by a Constitution Bench, observing that as the issues raised are of seminal importance and
likely to have serious impact on the very structure and independence of judicial system.
Difference between Courts and Tribunals - The term ‘Courts’ refers to places where justice is administered or refers to Judges who
exercise judicial functions. Courts are established by the state for administration of justice
that is for exercise of the judicial power of the state to maintain and uphold the rights, to
punish wrongs and to adjudicate upon disputes. Tribunals on the other hand are special
alternative institutional mechanisms, usually brought into existence by or under a statute to
decide disputes arising with reference to that particular statute, or to determine controversies
arising out of any administrative law. Courts refer to Civil Courts, Criminal Courts and High
Courts. Tribunals can be either private Tribunals (Arbitral Tribunals), or Tribunals constituted
under the Constitution (Speaker or the Chairman acting under Para 6(1) of the Tenth
Schedule) or Tribunals authorized by the Constitution (Administrative Tribunals under
Article 323A and Tribunals for other matters under Article 323B) or Statutory Tribunals
which are created under a statute (Motor Accident Claims Tribunal, Debt Recovery Tribunals
and consumer fora). Some Tribunals are manned exclusively by Judicial Officers (Rent
Tribunals, Motor Accidents Claims Tribunal, Labour Courts and Industrial Tribunals). Other
statutory Tribunals have Judicial and Technical Members (Administrative Tribunals, TDSAT,
Competition Appellate Tribunal, Consumer fora, Cyber Appellate Tribunal, etc).
330 - This court had attempted to point out the difference between Court and Tribunal in several
decisions. We may refer a few of them.
13.1) In Harinagar Sugar Mills Ltd. vs. Shyam Sundar Jhunjhunwala – (1962) 2 SCR 339,
Hidayatullah J., succinctly explained the difference between Courts and Tribunals, thus:
“All Tribunals are not courts, though all courts are Tribunals”. The word “courts” is used to
designate those Tribunals which are set up in an organized state for the administration of
justice. By administration of justice is meant the exercise of juridical power of the state to
maintain and uphold rights and to punish “wrongs”. Whenever there is an infringement of a
right or an injury, the courts are there to restore the vinculum juris, which is
disturbed……..When rights are infringed or invaded, the aggrieved party can go and
commence a querela before the ordinary Civil Courts. These Courts which are
instrumentalities of Government are invested with the judicial power of the State, and their
authority is derived from the Constitution or some Act of Legislature constituting them. Their
number is ordinarily fixed and they are ordinarily permanent, and can try any suit or cause
within their jurisdiction. Their numbers may be increased or decreased, but they are almost
always permanent and go under the compendious name of “Courts of Civil Judicature”. There
can thus be no doubt that the Central Government does not come within this class.
With the growth of civilization and the problems of modern life, a large number of
administrative Tribunals have come into existence. These Tribunals have the authority of law
to pronounce upon valuable rights; they act in a judicial manner and even on evidence on
oath, but they are not part of the ordinary Courts of Civil Judicature. They share the exercise
of the judicial power of the State, but they are brought into existence to implement some
administrative policy or to determine controversies arising out of some administrative law.
They are very similar to Courts, but are not Courts. When the Constitution speaks of ‘Courts’
in Articles 136, 227, or 228 or in Articles 233 to 237 or in the Lists, it contemplates Courts of
Civil Judicature but not Tribunals other than such Courts. This is the reason for using both the
expressions in Articles 136 and 227.
By “Courts” is meant Courts of Civil Judicature and by “Tribunals”, those bodies of men who
are appointed to decide controversies arising under certain special laws. Among the powers of
the State is included the power to decide such controversies. This is undoubtedly one of the
attributes of the State, and is aptly called the judicial power of the State. In the exercise of this
power, a clear division is thus noticeable. Broadly speaking, certain special matters go before
Tribunals, and the residue goes before the ordinary Courts of Civil Judicature. Their
procedures may differ, but the functions are not essentially different. What distinguishes them
has never been successfully established.”
In my opinion, a Court in the strict sense is a Tribunal which is a part of the ordinary
hierarchy of Courts of Civil Judicature maintained by the State under its constitution to
exercise the judicial power of the State. These Courts perform all the judicial functions of the
State except those that are excluded by law from their jurisdiction.
The word “judicial”, be it noted, is itself capable of two meanings. They were admirably
stated by Lopes, L.J. in Royal Aquarium and Summer and Winter Garden Society v.
Parkinson [1892] 1 Q.B. 431, in these words:
331
“The word ‘judicial’ has two meanings. It may refer to the discharge of duties exercisable by a
judge or by justices in court, or to administrative duties which need not be performed in court,
but in respect of which it is necessary to being to bear a judicial mind – that is, a mind to
determine what is fair and just in respect of the matters under consideration.”
That an officer is required to decide matters before him “judicially” in the second sense does
not make him a Court or even a Tribunal, because that only establishes that he is following a
standard of conduct, and is free from bias or interest. Courts and Tribunals act “judicially” in
both senses, and in the term “Court” are included the ordinary and permanent Tribunals and
in the term “Tribunal” are included all others, which are not so included”.
(emphasis supplied)
13.3) In Associated Cement Companies Ltd. vs. P. N. Sharma – (1965) 2 SCR 366, another
Constitution Bench of this Court explained the position of Tribunals thus:
“The expression “court” in the context denotes a Tribunal constituted by the State as a part of
the ordinary hierarchy of courts which are invested with the State’s inherent judicial powers.
A sovereign State discharges legislative, executive and judicial functions and can legitimately
claim corresponding powers which are described as legislative, executive and judicial powers.
Under our Constitution, the judicial functions and powers of the State are primarily conferred
on the ordinary courts which have been constituted under its relevant provisions. The
Constitution recognised a hierarchy of courts and their adjudication are normally entrusted all
disputes between citizens and citizens as well as between the citizens and the State. These
courts can be described as ordinary courts of civil judicature. They are governed by their
prescribed rules of procedure and they deal with questions of fact and law raised before them
by adopting a process which in described as judicial process. The powers which these courts
exercise are judicial powers, the functions they discharge are judicial functions and the
decisions they reach and pronounce are judicial decisions.
In every State there are administrative bodies or authorities which are required to deal with
matters within their jurisdiction in an administrative manner and their decisions are described
as administrative decisions. In reaching their administrative decisions, administrative bodies
can and often to take into consideration questions of policy. It is not unlikely that even in this
process of reaching administrative divisions, the administrative bodies or authorities are
required to act fairly and objectively and would in many cases have to follow the principles of
natural justice; but the authority to reach decision conferred on such administrative bodies is
clearly distinct and separate from the judicial power conferred on courts, and the decisions
pronounced by administrative bodies are similarly distinct and separate in character from
judicial decision pronounced by courts. Tribunals which fall under the purview of Article
136(1) occupy a special position of their own under the scheme of our Constitution. Special
matters and questions are entrusted to them for their decision and in that sense, they share
with the court one common characteristic; both the courts and the Tribunals are constituted by
the state and are invested with judicial as distinguished from purely administrative or
executive functions (vide Durga Shankar Mehta v. Raghuraj Singh – 1955 (1) SCR 267).
They are both adjudicating bodies and they deal with and finally determine disputes between
parties which are entrusted to their jurisdiction. The procedure followed by the courts is
332
regularly prescribed and in discharging their functions and exercising their powers, the courts
have to conform to that procedure. The procedure which the Tribunals have to follow may not
always be so strictly prescribed, but the approach adopted by both the courts and the
Tribunals is substantially the same, and there is no essential difference between the functions
that they discharge. 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.”
(emphasis supplied)
In S.P. Sampath Kumar vs. Union of India – (1987) 1 SCC 124, this Court expressed the view
that the Parliament can without in any way violating the basic structure doctrine make
effective alternative institutional mechanisms or arrangements for judicial review.
- Though both Courts and Tribunals exercise judicial power and discharge similar
functions, there are certain well-recognised differences between courts and Tribunals. They
are:
(i) Courts are established by the State and are entrusted with the State’s inherent judicial
power for administration of justice in general. Tribunals are established under a statute to
adjudicate upon disputes arising under the said statute, or disputes of a specified nature.
Therefore, all courts are Tribunals. But all Tribunals are not courts.
(ii) Courts are exclusively manned by Judges. Tribunals can have a Judge as the sole member,
or can have a combination of a Judicial Member and a Technical Member who is an ‘expert’
in the field to which Tribunal relates. Some highly specialized fact finding Tribunals may
have only Technical Members, but they are rare and are exceptions.
(iii) While courts are governed by detailed statutory procedural rules, in particular the Code of
Civil Procedure and Evidence Act, requiring an elaborate procedure in decision making,
Tribunals generally regulate their own procedure applying the provisions of the Code of Civil
Procedure only where it is required, and without being restricted by the strict rules of
Evidence Act. - The fundamental right to equality before law and equal protection of laws guaranteed by
Article 14 of the Constitution clearly includes a right to have the person’s rights, adjudicated
by a forum which exercises judicial power in an impartial and independent manner, consistent
with the recognized principles of adjudication. Therefore wherever access to courts to enforce
such rights is sought to be abridged, altered, modified or substituted by directing him to
approach an alternative forum, such legislative act is open to challenge if it violates the right
to adjudication by an independent forum. Therefore, though the challenge by MBA is on the
ground of violation of principles forming part of the basic structure, they are relatable to one
or more of the express provisions of the Constitution which gave rise to such principles.
Though the validity of the provisions of a legislative act cannot be challenged on the ground it
violates the basic structure of the constitution, it can be challenged as violative of
constitutional provisions which enshrine the principles of Rule of Law, separation of power
and independence of Judiciary.
333 - 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. - We may now attempt to examine the validity of Part 1B and 1C of the Act by applying the
aforesaid principles. The issue is not whether judicial functions can be transferred from courts
to Tribunals. The issue is whether judicial functions can be transferred to Tribunals manned
by persons who are not suitable or qualified or competent to discharge such judicial powers or
whose independence is suspect. We have already held that the Legislature has the competence
to transfer any particular jurisdiction from courts to Tribunals provided it is understood that
the Tribunals exercise judicial power and the persons who are appointed as
President/Chairperson/ Members are of a standard which is reasonably approximate to the
standards of main stream judicial functioning. On the other hand, if a Tribunal is packed with
members who are drawn from the civil services and who continue to be employees of
different Ministries or Government Departments by maintaining lien over their respective
posts, it would amount to transferring judicial functions to the executive which would go
against the doctrine of separation of power and independence of judiciary.
334 - Legislature is presumed not to legislate contrary to 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. - 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.
