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Supreme Court holds that the RBI Circular of 12 Feb 2018 not valid

Hon’ble Supreme Court, in Dharani Sugars and Chemicals Ltd v Union of India and Others, on 02 April 2019 held the constitutional validity of Ss. 35AA and 35AB of the Banking Regulations Act, 1949 (the Banking Regulation Act) and also held that the RBI circular of 12.02.2018 directing banking and non-banking companies to initiate action under the Insolvency and Bankruptcy Code 2016 (the Insolvency Code) as invalid being violative of Section 35AA of the said Act and hence action under the said circular shall fail. Here is the brief analysis of the said judgement.

The Banking Regulation (Amendment) Ordinance, 2017 introduced Sections 35AA and 35AB as amendments to the Banking Regulation Act on 04.05.2017. The same reads as under:

“35AA. The Central Government may by order authorise the Reserve Bank to issue directions to any banking company or banking companies to initiate insolvency resolution process in respect of a default, under the provisions of the Insolvency and Bankruptcy Code, 2016. 

Explanation. – For the purposes of this section, “default” has the same meaning assigned to it in clause (12) of section 3 of the Insolvency and Bankruptcy Code, 2016. 

35AB. (1) Without prejudice to the provisions of section 35A, the Reserve Bank may, from time to time, issue directions to the banking companies for resolution of stressed assets. 

(2) The Reserve Bank may specify one or more authorities or committees with such members as the Reserve Bank may appoint or approve for appointment to advise banking companies on resolution of stressed assets.” 

Hon’ble Supreme Court has upheld the constitutional validity of Sections 35AA and 35AB of the Banking Regulation Act, 1949.

The constitutional validity is upheld by replying upon the following principles:

(i) economic legislation to be viewed with great latitude (referring to para 85 of Swiss Ribbons Pvt. Ltd. and Anr. v. Union of India and Ors., 2019 (2) SCALE 5).

(ii) Petitioners failed to point out how either of these provisions are manifestly arbitrary [referring to ‘manifestly arbitrariness’ as in Shayara Bano v. Union of India, (2017) 9 SCC 1]. And further observing that these provisions (Ss. 35AA and 35AB) are not different in quality from any of the sections which have already conferred such powers (Sections 14A, 17, 18, 20, 21, 22 – Sec.22(3) in particular, 25, 29, 30 and 31 of the Banking Regulation Act). Further, Hon’ble Court also found that the amendment does not suffer from adequate guidelines [referring to Harishankar Bagla v. State of M. P., (1955) 1 SCR 380 – para 9]; and Gwalior Rayon Silk Mfg. (Wvg.) Co. Ltd. v. The Assistant Commissioner of Sales Tax and Ors. – paras 13, 15, 17 and 18].

Section 35AA makes it clear that the Central Government may, by order, authorise the RBI to issue directions to any banking company or banking companies when it comes to initiating the insolvency resolution process under the provisions of the Insolvency Code. The first thing to be noted is that without such authorisation, the RBI would have no such power. 

In exercise of power under section 35AA, the Central Government authorised the RBI vide its order dated 05.05.2017 to take defaulters to NCLT under the Insolvency and Bankruptcy Code, 2016 (‘the Insolvency Code’). Thereupon, the RBI issued circular dated 12.02.2018.

The salient features of the RBI circular dated 12.02.2018 are that restructuring in respect of borrower entities de hors the Insolvency and Bankruptcy Code, 2016 can only occur if the resolution plan that involves restructuring is agreed to by all lenders, i.e., 100 per cent concurrence. Secondly, what has been chosen to be the subject matter of the circular is debts with an aggregate exposure of INR 2000 crore and over on or after 01.03.2018. With respect to such debts, if default persists for 180 days from 01.03.2018, or if the date of first default is after 01.03.2018, then 180 days calculated with effect from that date, lenders shall file applications singly or jointly under the Insolvency Code within 15 days from the expiry of the aforesaid 180 days. In short, unless a restructuring process in respect of debts with an aggregate exposure of over INR 2000 crore is fully implemented on or before 195 days from the reference date or date of first default, the lenders will have to file applications as financial creditors under the Insolvency Code.

It was contended before Hon’ble Supreme Court that the RBI already had such power under Section 35A of the Banking Regulation Act, however it was countered by the Petitioners that when section 35A was introduced in the said Act, at that time the Code was not prevalent and hence RBI directing banks and NBFCs to take action under the Code u/s.35A cannot be accepted.

Held, all statutes are to be interpreted as “always speaking statutes”, unless they reveal a contrary intention. Meaning with change of time meaning in words in statute also gets changed. And thus, has section 35AA not been brought to the Statute book, RBI could have exercised its power u/s. 35A of the Banking Regulations Act, even for IBC.

“The corollary of this is that prior to the enactment of Section 35AA, it may have been possible to say that when it comes to the RBI issuing directions to a banking company to initiate insolvency resolution process under the Insolvency Code, it could have issued such directions under Sections 21 and 35A. But after Section 35AA, it may do so only within the four corners of Section 35AA. 

The matter can be looked at from a slightly different angle. If a statute confers power to do a particular act and has laid down the method in which that power has to be exercised, it necessarily prohibits the doing of the act in any manner other than that which has been prescribed.

The contention that though RBI had enough power u/s. 21 and u/s.35A, new section 35AA was introduced to the Banking Regulation Act as an abundant caution, was not accepted. Hon’ble Supreme Court held that it cannot be so accepted as (i) two conditions precedent introduced in section 35AA, without which, powers cannot be exercised by RBI; and (ii) it is well settled that Parliament does not legislate when no legislation is called for.

Further Hon’ble Supreme Court concluded that “Therefore, the scheme of Sections 35A, 35AA, and 35AB is as follows: 

  • (a)  When it comes to issuing directions to initiate the insolvency resolution process under the Insolvency Code, Section 35AA is the only source of power.
  • (b)  When it comes to issuing directions in respect of stressed assets, which directions are directions other than resolving this problem under the Insolvency Code, such power falls within Section 35A read with Section 35AB. This also becomes clear from the fact that Section 35AB(2) enables the RBI to specify one or more authorities or committees to advise any banking company on resolution of stressed assets. This advice is obviously de hors the Insolvency Code, as once an application is made under the Insolvency Code, such advice would be wholly redundant, as the Insolvency Code provisions would then take over and have to be followed. 
  • Further Hon’ble Supreme Court concluded that it is clear also from the Press Note dated 05.05.2017 of the Central Government (Ministry of Finance), which introduced the Ordinance and specifically referred to resolution of “specific” stressed assets which will empower the RBI to intervene in “specific” cases of resolution of NPAs. The Statement of Objects and Reasons for introducing Section 35AA also emphasises that directions are in respect of “a default”. Thus, it is clear that directions that can be issued under Section 35AA can only be in respect of specific defaults by specific debtors. This is also the understanding of the Central Government when it issued the notification dated 05.05.2017, which authorised the RBI to issue such directions only in respect of “a default” under the Code. Thus, any directions which are in respect of debtors generally, would be ultra vires Section 35AA. 

Then Section 13 of the General Clauses Act, 1897 [“General Clauses Act”] was relied upon to state that the singular would include the plural. To which Hon’ble Court noted that there is no doubt whatsoever that this would be so unless the context otherwise requires, as is provided by Section 13 of the General Clauses Act itself. In the present case, the context of Section 35AA makes it clear that the power to be exercised under the authorisation of the Central Government requires “due deliberation and care” to refer to specific defaults. 

Finally it is held that “Consequently, all actions taken under the said circular, including actions by which the Insolvency Code has been triggered must fall along with the said circular. As a result, all cases in which debtors have been proceeded against by financial creditors under Section 7 of the Insolvency Code, only because of the operation of the impugned circular will be proceedings which, being faulted at the very inception, are declared to be non-est.”

Our comments:
Consequently, proceedings taken by banks and /or NBFCs by virtue of the RBI Circular by taking corporate persons to NCLT under the Insolvency Code has become nullity and without support of law. However, that does not mean that banks / NBFCs are not entitled to recover their debts. Banks/ NBFCs may decide to restructure the debt of such cases outside the Insolvency Code, including under the Sashakt Project. And also equally possible that any one of the Banks / NBFCs may initiate fresh action under the Insolvency Code.

It is believed that the RBI may issue a fresh circular and thereby direct banks and/or NBFCs on steps to be taken due to strike down of its Circular dt. 12.02.2018 by Hon’ble Supreme Court.

Genesis of the RBI Circular 12.02.2018 and impact of the judgement in Dharani Sugars case: To better understand the situation, it is relevant to know the genesis in brief.

Asset Quality Review (AQR) for banks was implemented by RBI in the second half of 2015 and it revealed the true picture of NPA problem. The gross NPAs of Scheduled Commercial Banks (SCBs) rose to Rs.10.4 trillion in March 2018 from Rs.3.2 trillion in March 2015. The problem was more severe for the Public Sector Banks (PSBs) with gross NPAs reaching Rs.9 trillion from Rs.2.8 trillion during the same period.

RBI tried to resolve the NPA problem through several initiatives, including CDR, SDR, S4A, JLF etc.  Two major initiatives have been the Prompt Corrective Action (PCA) by RBI and the recapitalisation of the PSBs by the Government. In April 2017, RBI revised the PCA framework and in October 2017 the Government announced Rs.2.11 trillion recapitalisation package for ailing PSBs, of which Rs.1.53 trillion would be infusion by Government and balance to be raised from the market. 

As these experiments failed, and upon implementation of the IBC, the RBI scrapped all these initiatives and issued a revised guideline on 12 Feb. 2018 for early resolution of stressed assets.

Thereafter, in July 2018, the scheme, called ‘Sashakt’, was recommended by a bankers’ committee and accepted by the government. It is inter-lenders agreement. And it proposes to have a resolution plan for defaulting borrowers and the same to be implemented in a time bound manner. The nature of the resolution plans approved under the inter-creditor agreements would be similar to those under consideration as part of the Insolvency process. However, in this case promoters would continue to be in-charge.

Since this was not enough, particularly after remaining in ICU under PCA for over two years, merger of PSBs is also adopted, as has been done since bank nationalisation. A compulsory merger of banks under section 45 of the Banking Regulation Act, 1949. Amalgamation of Vijaya Bank and Dena Bank with Bank of Baroda has been notified on January 2, 2019. The notification has come into force on April 1, 2019.

And now comes the ruling of the Hon’ble Supreme Court of India, whereby it precludes the RBI from issuing any general directions to banks to initiate insolvency under the Insolvency and Bankruptcy Code, 2016. What is now left for the RBI and the Government is action under Section 35AA and 35AB of the Banking Regulations Act. The Central Government may now analyse specific cases of defaults and issue directions to the RBI in respect of those specific cases. 

Technically, the judgment revives the ability of borrowers to rely on CDR, SDR, S4A, JLF and other restructuring measures (“Traditional Measures”), which were repealed by the RBI Circular of 12 Feb. 2018. However, the market awaits clarity from the RBI on these Traditional Measures.

Given that these Traditional Measures have not achieved much success in resolving NPA issue, Banks are likely to exercise their rights to initiate insolvency proceedings on their own, being their statutory right under section 7 the Code as a financial creditor, probably after taking defaulting borrowers through the Sashakt framework. However, in deserving cases, Banks may take defaulting borrowers directly to NCLT under the Code instead of the Sashakt framework. The Code has given lenders ‘stick’ to deter enough the defaulting Corproate Borrowers to remain on edge.

Way forward: 

Upon request of RBI, from time to time, the Central Govt. to consider ‘specific’ cases for taking under the Insolvency Code and authorise RBI to issue direction to banks and NBFCs to take such specific defaulting borrowers to NCLT under the Insolvency Code. Obviously, such ‘specific’ cases could be where banks on their own are not taking companies to NCLT under the Code.

Alternatively, the Government (mostly after election) may either modify / scrap section 35AA of the Banking Regulations Act and thus enable RBI to bring back the general circular, based on observation of Hon’ble Supreme Court in Dharani Sugars case that RBI could have issued circular similar to circular dt. 12.2.2018 had section 35AA was not legislated. And before deciding on such actions, the Government need to take policy decision on whether to allow further time to specific sectors like power, cement etc. considering their contribution to employment and the economy.

While some of the defaulting corporate borrowers might be happy for now, it’s not going to last long.

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Frequent Buzz on Corporate Laws: Legal Updates 16 Feb., 2016

Some of the important Court decided judgements:

  • Negotiable Instruments Act, 1881 – S. 142(2)(a), vests jurisdiction for initiating proceedings under S. 138, inter alia, in the territorial jurisdiction of court, where cheque is delivered for collection (through an account of branch of bank where payee or holder in due course maintains an account). Again, insofar as offence under S. 138 is concerned, on the issue of jurisdiction, provisions of CrPC would have to give way to provisions of instant enactment on account of non obstante clause in S. 142-A(1). [Bridgestone India (P) Ltd. v. Inderpal Singh, (2016) 2 SCC 75]

 

  • Women can be Karta of Hindu Undivided Family (HUF): A vital question addressed in this judgement is: whether a female being the first born (eldest) amongst the coparceners of the Hindu Undivided Family (HUF) property, particularly after her marriage, would by virtue of her birth, be entitled to be a  Karta? In a path breaking decision the Bench of Najmi Waziri, J., observed that the law provides no restrictions so as to prevent the eldest female coparcener of a HUF, from being its Karta. [Sujata Sharma v. Manu Gupta, 2015 SCC OnLine Del 14424, decided on 22-12-2015]

 

  • Patna High Court:  Deciding the moot question as to whether a Division Bench of a High Court can exercise its power of superintendence under Article 227 of the Constitution  against an order made in a suit by a Single Bench, the Court held that a Single Judge or a Single Bench of a High Court is not a court subordinate to the Division Bench and, therefore, the power of superintendence vested in a High Court by Article 227, is not exercisable against an order or decision of its own Single Bench. [Anil Kumar Shrivastava  v. Shaurya Sunil, 2016 SCC OnLine Pat 21 decided on January 20, 2016]
  • ICAI issues Guidance notes on accounting for Depreciation: The Accounting Standard (AS) 6, deals with Depreciation Accounting in the case of companies. However, some issues have arisen due to the practical application of Schedule II to the Companies Act, 2013, in the context of AS 6. With a view to provide an authoritative position of ICAI on the issues arising out of Schedule II to the Companies Act, 2013, ICAI has formulated the Guidance Note on Accounting for Depreciation in companies in the context of Schedule II to the Companies Act, 2013. The same can be accessed from http://resource.cdn.icai.org/41241research31047.pdf
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Stay of retrospective effect of the Payment of Bonus (Amendment) Act, 2015

The Payment of Bonus (Amendment) Act, 2015 had received assent of the President of India on 31 December 2015. The said Amendment Act provides for changes in the eligibility limit and calculation of bonus of the employees.

Eligibility Limit increased: The eligibility of payment of bonus to employees has been increased from drawn salary of Rs 10,000/- to Rs 21,000/-.

Calculation of Bonus: For calculating bonus, the salary limit is increased from Rs 3,500/- to Rs 7,000/-.

Retrospective Amendment: The said Amendment Act is made retrospectively applicable from 1 April 2014. However, the Kerala High Court has, in the United Planters’ Association of Southern India and S. B. Prabhakar v. Union of India, on 27 January 2016 stayed the applicability of the amendment Act with retrospective effect, vide an interim order, and until disposal of writ petition, the said Amendment Act shall be applicable prospectively from 2015-16.

Copy of the said Keral High Court order can be access from here.

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Supreme Court upheld constitutional validity of NCLT and NCLAT while some provisions held unconstitutional

Supreme Court upheld constitutional validity of NCLT and NCLAT while some provisions held unconstitutional

The present judgment, delivered by a bench headed by Chief Justice H L Dattu, emphasised on the principles of independence of the judiciary and separation of powers, underlined in the 2010 judgment.

According to the court, many of the amended provisions- did not meet the conditions set by the earlier judgment. The main illegalities were related to the selection and appointment of technical members and heads of the tribunals.

However, the Supreme Court upheld the validity of constituting National Company Law Tribunal and National Company Law Appellate Tribunal.

A five-judge constitution bench asked the government to set up NCLT and its appellate forum without further delay.

Month of May seems to be the month of judgement on NCLT.

Apex court in its judgement of 14 May 2015 observed the entire writ petition takes umbrage under the Constitution Bench’s 2010 judgement, which was delivered on 11th May 2010. Hence it is necessary to briefly consider the 2010 judgement to appreciate outcome of 2015 judgement. Madras Bar Council had earlier filed writ petition in Madras High Court challenging constitutional validity of creation of National Company Law Tribunal (‘NCLT’ for short) and National Company Law Appellate Tribunal (‘NCLAT’ for short) which were incorporated by the Legislature in Parts 1B and 1C of the Companies Act, 1956. Which culminated into Order dated 30 March 2004 of the Madras High Court.  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 part 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 before apex court against that judgment of the Madras High Court.

Those appeals were decided by the Constitution Bench of the apex court on 11th May 2010 (2010) 11 SCC 1. The Constitution Bench vide the said 2010 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.

Briefly, in 2010 judgement, it was held as under:

(i) Constitution of NCLT and NCLAT is valid.

(ii) Appointment of Judicial Members of NCLT can be from: Judges and Advocates.

(a) Amongst Judges, only High Court Judges or Judges who have served as District Judge for atleast 5 years can be Judicial member.

(b) Amongst Advocates, a person who has practiced as a Lawyer for ten years. [section 10FD(2)(c) and (d) held invalid].

(iii) Appointment of Technical Members of NCLT can be from:

(a) Officers who are holding the ranks of Secretaries or Additional Secretaries. 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 NCLT.

(b) 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. [section 10FD (3) (f) partly].

(c) Person is or has been, a Presiding Officer of a Labour Court, Tribunal or National Tribunal constituted under the Industrial Disputes Act, 1947 can be appointed as Technical member of NCLT [Section 10FD (3) (g)] subject to minimum experience of 5 years.

(d) Person is or has been, for at least 15 years in practice as a CA, CWA, CS or special knowledge of, and experience in the matters related to labour can be appointed as Technical member of NCLT. [Section 10FD (3) (c), (d), (e) and (h)]

(iv) Salary and perks of a High Court Judge shall be given to the members of NCLT.

Further, 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, cannot be appointed as member (Judicial or technical) of NCLT.

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.[section 10FD (3) (a), (b) and (f) held invalid].

(v) The Selection Committee [section 10FX modified] 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.

(vi) 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. [sections 10FE and 10FT modified].

(vii) The President and members cannot retain lien with their parent cadre/ministry/department for more than a year. [second proviso to Section 10FE].

(viii) 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.

It vested authority with Central Government, which was held to be invalid.

(ix) The administrative support for NCLT and NCLAT 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. [Sections 10FK and 10GA modified].

(x) 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. [section 10FL (2)]

The cause for filing the present petition by the petitioner was the allegation of the petitioner that notwithstanding various directions given in 2010 judgment, the new provisions in the Companies Act, 2013 (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 was, thus, emphasized by the petitioner that these provisions which are contained in Sections 408, 409, 411(3), 412, 413, 415, 418, 424, 425, 426, 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.

Since no arguments were made on Sections 415, 418, 424, 426, 431 and 434 the same are not discussed in the judgement.

Briefly, issues before the apex Court were:

(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; Main objection was on qualifications of Technical members.

(iii) Challenge to the structure of the Selection Committee for appointment of President/Members of the NCLT and Chairperson/ Members of the NCLAT.

(iv) 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.

Court referred to its 2010 Judgement – “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.”

Though the constitution of NCLAT was upheld in 2010 Judgement, the Petitioner made reference to Apex Court’s jugdement holding National Tax Tribunal (NTT) as unconstitutional and argued that based on NTT case (2015 SCC OnLine SC 388), constitution of NCLAT be held illegal.

However, disagreeing with the same, the apex Court noted that in NTT case it had spelled out the distinguishing features between NCLT/NCLAT on the one hand and NTT on the other hand in arriving at a different conclusion. Giving several reasons, including noting that “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”, contention of petitioner that constitution of NCLAT is ultra vires was rejected.

Held: (i) the constitution of NCLT and NCLAT is valid;

It may be noted that by Notification dated 12.09.2013, the Central Government has constituted the NCLT and NCLAT.

(ii) 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.

Section 409(3)(a) and (c) are invalid.

Section 411(3) providing for qualifications of technical Members, is also held to be invalid.

(iii) Chief Justice of India or his nominee is to act as Chairperson of Selection Committee, with the power of a casting vote. Casting vote is not covered under section 412 (2) (a) of 2013 Act and hence held invalid.

Apex court in 2010 judgement had suggested 4 members of Selection Committee (2 judicial and 2 administrative members). Section 412 (2) prescribes 5 members of selection committee (three are from the administrative branch/bureaucracy) and hence to that extent is invlaid. Hon’ble court has suggested that one Member who could be either Secretary in the Ministry of Finance or in Company Affairs can be member and not both.

(iv) Central Government can constitute the Benches of NCLT and thus, section 419 is valid.

(v) NCLT and NCLAT can punish for its contempt and thus, section 425 is valid.

Apex Court Directed Central Government to expedite in modifying the Companies Act 2013 as suggested so that NCLT and NCLAT starts functioning in near future.

Hopefully, in monsoon session Government will bring changes to the Companies Act 2013, as suggested by the apex Court. It may be noted that the Companies Amendment Bill 2014 bringing amendment to the Companies Act 2013 was earlier passed by Lok Sabha. In Budget Session the same is passed by Rajya Sabha but with changes and hence the same needs to be placed again before Lok Sabha for its approval in monsoon session of Parliament. Now, Government may either insert amendments to the Amendment Bill 2014 related to NCLT and NCLAT as suggested by the apex Court or may bring new bill (only for amendment related to NCLT and NCLAT or all amendments afresh).

It may be noted that provisions for NCLT were made following justice Eradi Committee report which recommended that jurisdiction for winding up of companies should be vested in NCLT and not high courts, as is presently. It further recommended that NCLT should deal with rehabilitation and revival of sick industrial companies, a jurisdiction presently entrusted with BIFR under Sick Industrial Companies (Special Provisions) Act, 1985.

This not only is expected to bring much awaited change in Corporate Insolvency and speedy disposal of Corporate Cases – be it matter before BIFR, AAIFR, Company Law Board, High Court – for winding-up, merger, demergre, reduction of share capital or any arrangement or reconstruction; but also open vast opportunities for Professionals especially Company Secretaries. Hopefully, soon “friendly neighbourhood” PCS will provide said litigation services besides acting as expert, liquidator and valuer.

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