REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL ORIGINAL JURISDICTION
WRIT PETITION (C) NO. 1072 OF 2013
|MADRAS BAR ASSOCIATION |.....PETITIONER(S) |
|VERSUS | |
|UNION OF INDIA & ANR. |.....RESPONDENT(S) |
J U D G M E N T
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[1]
(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.
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 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 against that
judgment of the Madras High Court. Those appeals were decided by the
Constitution Bench, as mentioned above.
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 sub-section
(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.”
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.”
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.
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."
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;
407. 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.
408. Constitution of National Company Law Tribunal
The Central Government shall, by notification, constitute, with effect from
such date as may be specified therein, a Tribunal to be known as the
National Company Law Tribunal consisting of a President and such number of
Judicial and Technical members, as the Central Government may deem
necessary, to be appointed by it by notification, to exercise and discharge
such powers and functions as are, or may be, conferred on it by or under
this Act or any other law for the time being in force.
409. Qualification of President and Members of Tribunal
(1) The President shall be a person who is or has been a Judge of a High
Court for five years.
(2) A person shall not be qualified for appointment as a Judicial Member
unless he—
(a) is, or has been, a judge of a High Court; or
(b) is, or has been, a District Judge for at least five years; or
(c) has, for at least ten years been an advocate of a court.
Explanation.—For the purposes of clause (c), in computing the period during
which a person has been an advocate of a court, there shall be included any
period during which the person has held judicial office or the office of a
member of a tribunal or any post, under the Union or a State, requiring
special knowledge of law after he become an advocate.
(3) A person shall not be qualified for appointment as a Technical Member
unless he -
(a) has, for at least fifteen years been a member of the Indian Corporate
Law Service or Indian Legal Service out of which at least three years shall
be in the pay scale of Joint Secretary to the Government of India or
equivalent or above in that service; or
(b) is, or has been, in practice as a chartered accountant for at least
fifteen years; or
(c) is, or has been, in practice as a cost accountant for at least fifteen
years; or
(d) is, or has been, in practice as a company secretary for at least
fifteen years; or
(e) is a person of proven ability, integrity and standing having special
knowledge and experience, of not less than fifteen years, in law,
industrial finance, industrial management or administration, industrial
reconstruction, investment, accountancy, labour matters, or such other
disciplines related to management, conduct of affairs, revival,
rehabilitation and winding up of companies; or
(f) is, or has been, for at least five years, a presiding officer of a
Labour Court, Tribunal or National Tribunal constituted under the
Industrial Disputes Act, 1947.
410. Constitution of Appellate Tribunal
The Central Government shall, by notification, constitute, with effect from
such date as may be specified therein, an Appellate Tribunal to be known as
the National Company Law Appellate Tribunal consisting of a chairperson 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, for
hearing appeals against the orders of the Tribunal.
411. Qualifications of chairperson and Members of Appellate Tribunal
(1) The chairperson shall be a person who is or has been a Judge of the
Supreme Court or the Chief Justice of a High Court.
(2) A Judicial Member shall be a person who is or has been a Judge of a
High Court or is a Judicial Member of the Tribunal for five years.
(3) A Technical Member shall be a person of proven ability, integrity and
standing having special knowledge and experience, of not less than twenty-
five years, in law, industrial finance, industrial management or
administration, industrial reconstruction, investment, accountancy, labour
matters, or such other disciplines related to management, conduct of
affairs, revival, rehabilitation and winding up of companies.
412. Selection of Members of Tribunal and Appellate Tribunal
(1) The President of the Tribunal and the chairperson and Judicial Members
of the Appellate Tribunal, shall be appointed after consultation with the
Chief Justice of India.
(2) The Members of the Tribunal and the Technical Members of the Appellate
Tribunal shall be appointed on the recommendation of a 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.
(3) The Secretary, Ministry of Corporate Affairs shall be the Convener of
the Selection Committee.
(4) The Selection Committee shall determine its procedure for recommending
persons under sub-section (2).
(5) No appointment of the Members of the Tribunal or the Appellate Tribunal
shall be invalid merely by reason of any vacancy or any defect in the
constitution of the Selection Committee.
413. Term of office of President, chairperson and other Members
(1) The President and every other Member of the Tribunal shall hold office
as such for a term of five years from the date on which he enters upon his
office, but shall be eligible for re-appointment for another term of five
years.
(2) A Member of the Tribunal shall hold office as such until he attains,—
(a) in the case of the President, the age of sixty-seven years;
(b) in the case of any other Member, the age of sixty-five years:
Provided that a person who has not completed fifty years of age shall
not be eligible for appointment as Member:
Provided further that the Member may retain his lien with his parent
cadre or Ministry or Department, as the case may be, while holding office
as such for a period not exceeding one year.
(3) The chairperson or a Member of the Appellate Tribunal shall hold office
as such for a term of five years from the date on which he enters upon his
office, but shall be eligible for re-appointment for anonther term of five
years.
(4) A Member of the Appellate Tribunal shall hold office as such until he
attains,—
(a) in the case of the Chairperson, the age of seventy years;
(b) in the case of any other Member, the age of sixty-seven years:
Provided that a person who has not completed fifty years of age shall
not be eligible for appointment as Member:
Provided further that the Member may retain his lien with his parent
cadre or Ministry or Department, as the case may be, while holding office
as such for a period not exceeding one year.
414. Salary, allowances and other terms and conditions of service of
Members
The salary, allowances and other terms and conditions of service of
the Members of the Tribunal and the Appellate Tribunal shall be such as may
be prescribed:
Provided that neither the salary and allowances nor the other terms
and conditions of service of the Members shall be varied to their
disadvantage after their appointment.
425. Power to punish for contempt
The Tribunal and the Appellate Tribunal shall have the same
jurisdiction, powers and authority in respect of contempt of themselves as
the High Court has and may exercise, for this purpose, the powers under the
provisions of the Contempt of Courts Act, 1971, which shall have the effect
subject to modifications that—
(a) the reference therein to a High Court shall be construed as including a
reference to the Tribunal and the Appellate Tribunal; and
(b) the reference to Advocate-General in section 15 of the said Act shall
be construed as a reference to such Law Officers as the Central Government
may, specify in this behalf.”
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.
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.
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[2], 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.
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.
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.”
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.
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.
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.
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'.
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.
For all these reasons, we hold that there is no merit in this issue.
ISSUE NO.2
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. In order to
appreciate this argument, we show the comparative provisions contained in
Act, 1956 as well as in the Act, 2013:
|ACT 1956 | |ACT 2013 |
|(1) 10-FD (3) (a) (b) (c) and | |(1) Section 409 (3) |
|(d) | | |
| | | |
|(3) A person shall not be | |(3) A person shall not be |
|qualified for appointment as | |qualified for appointment as |
|Technical Member unless he- | |a Technical Member unless he-|
| | | |
|(a) has held for at least | |(a) has, for at least fifteen|
|fifteen years a Group 'A' post| |years been a member of the |
|or an equivalent post under | |Indian Corporate Law Service |
|the Central Government or a | |or Indian Legal Service out |
|State Government [including at| |of which at least three years|
|least three years of service | |shall be in the pay scale of |
|as a Member of the Indian | |Joint Secretary to the |
|Company Law Service (Accounts | |Government of India or |
|Branch) in Senior | |equivalent or above in that |
|Administrative Grade in that | |service; or |
|Service]; or | | |
| | | |
|(b) is, or has been, a| |(b) is, or has been, in |
|Joint Secretary to the | |practice as a chartered |
|Government of India under the | |accountant for at least |
|Central Staffing Scheme, or | |fifteen years; or |
|any other post under the | | |
|Central Government or a State | | |
|Government carrying a scale of| | |
|pay which is not less than | | |
|that of a Joint Secretary to | | |
|the Government of India for | | |
|at least five years and | | |
|has adequate knowledge of,| | |
|and experience in, dealing | | |
|with problems relating to | | |
|company law; or | | |
| | | |
|(c) is, or has been, for at | |(c) is, or has been, in |
|least fifteen years in | |practice as a cost accountant|
|practice as a chartered | |for at least fifteen years; |
|accountant under the | |or |
|Chartered Accountants Act, | | |
|1949 (38 of 1949); or | | |
| | | |
| | | |
|(d) is, or has been, for at | |(d) is, or has been, in |
|least fifteen years in | |practice as a company |
|practice as a cost | |secretary for at least |
|accountant under, the Costs | |fifteen years; or |
|and Works Accountants Act, | | |
|1959 (23 of 1959); or | | |
| | | |
| | |(e) is a person of proven |
| | |ability, integrity and |
| | |standing having special |
| | |knowledge and experience, of |
| | |not less than fifteen years, |
| | |in law, industrial finance, |
| | |industrial management or |
| | |administration, industrial |
| | |reconstruction, investment, |
| | |accountancy, labour matters, |
| | |or such other disciplines |
| | |related to management, |
| | |conduct of affairs, revival, |
| | |rehabilitation and winding up|
| | |of companies; or |
| | | |
| | |(f) is, or has been, for at |
| | |least five years, a presiding|
| | |officer of a Labour Court, |
| | |Tribunal or National Tribunal|
| | |constituted under the |
| | |Industrial Disputes Act, |
| | |1947. |
| | | |
|(2) 10-FR | |(2) Section 411(3) |
| | | |
|10FR. Constitution of | |411(3) A Technical Member |
|Appellate Tribunal: (1) The | |shall be a person of proven |
|Central Government shall, by | |ability, integrity and |
|notification in the Official| |standing having special |
|Gazette, constitute with | |knowledge and experience, of |
|effect from such date as may | |not less than twenty-five |
|be specified therein, an | |years, in law, industrial |
|Appellate Tribunal to be | |finance, industrial |
|called the "National Company| |management or administration,|
|Law Appellate Tribunal" | |industrial reconstruction, |
|consisting of a | |investment, accountancy, |
|Chairperson and not more | |labour matters, or such other|
|than two Members, to be | |disciplines related to |
|appointed by that Government, | |management, conduct of |
|for hearing appeals against | |affairs, revival, |
|the orders of the Tribunal | |rehabilitation and winding up|
|under this Act. | |of companies. |
| | | |
|(2) The Chairperson of the | | |
|Appellate Tribunal shall be a | | |
|person who has been a Judge of| | |
|the Supreme Court or the Chief| | |
|Justice of a High Court. | | |
| | | |
|(3) A Member of the Appellate | | |
|Tribunal shall be a person of | | |
|ability, integrity and | | |
|standing having special | | |
|knowledge of, and professional| | |
|experience of not less than | | |
|twenty-five years in, science,| | |
|technology, economics, | | |
|banking, industry, law, | | |
|matters relating to labour, | | |
|industrial finance, | | |
|industrial management, | | |
|industrial reconstruction, | | |
|administration, investment, | | |
|accountancy, marketing or | | |
|any other matter, the | | |
|special knowledge of, or | | |
|professional experience in | | |
|which, would be in the opinion| | |
|of the Central Government | | |
|useful to the Appellate | | |
|Tribunal. | | |
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.
109. 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
111. 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 a `Judicial
Member' and a `Technical 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.”
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
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 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
sub-section (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.”
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.
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 a
person 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 Group `A' 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.”
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
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.”
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.”
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 been included. 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.
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.
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.
The upshot of the aforesaid discussion is to allow this writ petition
partly, in the manner mentioned above.
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.
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.
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.
Writ petition stands disposed of in the aforesaid manner.
.............................................CJI.
(H.L. DATTU)
.............................................J.
(A.K. SIKRI)
.............................................J.
(ARUN MISHRA)
.............................................J.
(ROHINTON FALI NARIMAN)
.............................................J.
(AMITAVA ROY)
NEW DELHI;
MAY 14, 2015.
-----------------------
[1] (2010) 11 SCC 1
[2] (2014) 10 SCC 1
IN THE SUPREME COURT OF INDIA
CIVIL ORIGINAL JURISDICTION
WRIT PETITION (C) NO. 1072 OF 2013
|MADRAS BAR ASSOCIATION |.....PETITIONER(S) |
|VERSUS | |
|UNION OF INDIA & ANR. |.....RESPONDENT(S) |
J U D G M E N T
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[1]
(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.
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 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 against that
judgment of the Madras High Court. Those appeals were decided by the
Constitution Bench, as mentioned above.
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 sub-section
(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.”
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.”
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.
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."
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;
407. 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.
408. Constitution of National Company Law Tribunal
The Central Government shall, by notification, constitute, with effect from
such date as may be specified therein, a Tribunal to be known as the
National Company Law Tribunal consisting of a President and such number of
Judicial and Technical members, as the Central Government may deem
necessary, to be appointed by it by notification, to exercise and discharge
such powers and functions as are, or may be, conferred on it by or under
this Act or any other law for the time being in force.
409. Qualification of President and Members of Tribunal
(1) The President shall be a person who is or has been a Judge of a High
Court for five years.
(2) A person shall not be qualified for appointment as a Judicial Member
unless he—
(a) is, or has been, a judge of a High Court; or
(b) is, or has been, a District Judge for at least five years; or
(c) has, for at least ten years been an advocate of a court.
Explanation.—For the purposes of clause (c), in computing the period during
which a person has been an advocate of a court, there shall be included any
period during which the person has held judicial office or the office of a
member of a tribunal or any post, under the Union or a State, requiring
special knowledge of law after he become an advocate.
(3) A person shall not be qualified for appointment as a Technical Member
unless he -
(a) has, for at least fifteen years been a member of the Indian Corporate
Law Service or Indian Legal Service out of which at least three years shall
be in the pay scale of Joint Secretary to the Government of India or
equivalent or above in that service; or
(b) is, or has been, in practice as a chartered accountant for at least
fifteen years; or
(c) is, or has been, in practice as a cost accountant for at least fifteen
years; or
(d) is, or has been, in practice as a company secretary for at least
fifteen years; or
(e) is a person of proven ability, integrity and standing having special
knowledge and experience, of not less than fifteen years, in law,
industrial finance, industrial management or administration, industrial
reconstruction, investment, accountancy, labour matters, or such other
disciplines related to management, conduct of affairs, revival,
rehabilitation and winding up of companies; or
(f) is, or has been, for at least five years, a presiding officer of a
Labour Court, Tribunal or National Tribunal constituted under the
Industrial Disputes Act, 1947.
410. Constitution of Appellate Tribunal
The Central Government shall, by notification, constitute, with effect from
such date as may be specified therein, an Appellate Tribunal to be known as
the National Company Law Appellate Tribunal consisting of a chairperson 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, for
hearing appeals against the orders of the Tribunal.
411. Qualifications of chairperson and Members of Appellate Tribunal
(1) The chairperson shall be a person who is or has been a Judge of the
Supreme Court or the Chief Justice of a High Court.
(2) A Judicial Member shall be a person who is or has been a Judge of a
High Court or is a Judicial Member of the Tribunal for five years.
(3) A Technical Member shall be a person of proven ability, integrity and
standing having special knowledge and experience, of not less than twenty-
five years, in law, industrial finance, industrial management or
administration, industrial reconstruction, investment, accountancy, labour
matters, or such other disciplines related to management, conduct of
affairs, revival, rehabilitation and winding up of companies.
412. Selection of Members of Tribunal and Appellate Tribunal
(1) The President of the Tribunal and the chairperson and Judicial Members
of the Appellate Tribunal, shall be appointed after consultation with the
Chief Justice of India.
(2) The Members of the Tribunal and the Technical Members of the Appellate
Tribunal shall be appointed on the recommendation of a 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.
(3) The Secretary, Ministry of Corporate Affairs shall be the Convener of
the Selection Committee.
(4) The Selection Committee shall determine its procedure for recommending
persons under sub-section (2).
(5) No appointment of the Members of the Tribunal or the Appellate Tribunal
shall be invalid merely by reason of any vacancy or any defect in the
constitution of the Selection Committee.
413. Term of office of President, chairperson and other Members
(1) The President and every other Member of the Tribunal shall hold office
as such for a term of five years from the date on which he enters upon his
office, but shall be eligible for re-appointment for another term of five
years.
(2) A Member of the Tribunal shall hold office as such until he attains,—
(a) in the case of the President, the age of sixty-seven years;
(b) in the case of any other Member, the age of sixty-five years:
Provided that a person who has not completed fifty years of age shall
not be eligible for appointment as Member:
Provided further that the Member may retain his lien with his parent
cadre or Ministry or Department, as the case may be, while holding office
as such for a period not exceeding one year.
(3) The chairperson or a Member of the Appellate Tribunal shall hold office
as such for a term of five years from the date on which he enters upon his
office, but shall be eligible for re-appointment for anonther term of five
years.
(4) A Member of the Appellate Tribunal shall hold office as such until he
attains,—
(a) in the case of the Chairperson, the age of seventy years;
(b) in the case of any other Member, the age of sixty-seven years:
Provided that a person who has not completed fifty years of age shall
not be eligible for appointment as Member:
Provided further that the Member may retain his lien with his parent
cadre or Ministry or Department, as the case may be, while holding office
as such for a period not exceeding one year.
414. Salary, allowances and other terms and conditions of service of
Members
The salary, allowances and other terms and conditions of service of
the Members of the Tribunal and the Appellate Tribunal shall be such as may
be prescribed:
Provided that neither the salary and allowances nor the other terms
and conditions of service of the Members shall be varied to their
disadvantage after their appointment.
425. Power to punish for contempt
The Tribunal and the Appellate Tribunal shall have the same
jurisdiction, powers and authority in respect of contempt of themselves as
the High Court has and may exercise, for this purpose, the powers under the
provisions of the Contempt of Courts Act, 1971, which shall have the effect
subject to modifications that—
(a) the reference therein to a High Court shall be construed as including a
reference to the Tribunal and the Appellate Tribunal; and
(b) the reference to Advocate-General in section 15 of the said Act shall
be construed as a reference to such Law Officers as the Central Government
may, specify in this behalf.”
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.
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.
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[2], 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.
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.
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.”
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.
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.
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.
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'.
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.
For all these reasons, we hold that there is no merit in this issue.
ISSUE NO.2
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. In order to
appreciate this argument, we show the comparative provisions contained in
Act, 1956 as well as in the Act, 2013:
|ACT 1956 | |ACT 2013 |
|(1) 10-FD (3) (a) (b) (c) and | |(1) Section 409 (3) |
|(d) | | |
| | | |
|(3) A person shall not be | |(3) A person shall not be |
|qualified for appointment as | |qualified for appointment as |
|Technical Member unless he- | |a Technical Member unless he-|
| | | |
|(a) has held for at least | |(a) has, for at least fifteen|
|fifteen years a Group 'A' post| |years been a member of the |
|or an equivalent post under | |Indian Corporate Law Service |
|the Central Government or a | |or Indian Legal Service out |
|State Government [including at| |of which at least three years|
|least three years of service | |shall be in the pay scale of |
|as a Member of the Indian | |Joint Secretary to the |
|Company Law Service (Accounts | |Government of India or |
|Branch) in Senior | |equivalent or above in that |
|Administrative Grade in that | |service; or |
|Service]; or | | |
| | | |
|(b) is, or has been, a| |(b) is, or has been, in |
|Joint Secretary to the | |practice as a chartered |
|Government of India under the | |accountant for at least |
|Central Staffing Scheme, or | |fifteen years; or |
|any other post under the | | |
|Central Government or a State | | |
|Government carrying a scale of| | |
|pay which is not less than | | |
|that of a Joint Secretary to | | |
|the Government of India for | | |
|at least five years and | | |
|has adequate knowledge of,| | |
|and experience in, dealing | | |
|with problems relating to | | |
|company law; or | | |
| | | |
|(c) is, or has been, for at | |(c) is, or has been, in |
|least fifteen years in | |practice as a cost accountant|
|practice as a chartered | |for at least fifteen years; |
|accountant under the | |or |
|Chartered Accountants Act, | | |
|1949 (38 of 1949); or | | |
| | | |
| | | |
|(d) is, or has been, for at | |(d) is, or has been, in |
|least fifteen years in | |practice as a company |
|practice as a cost | |secretary for at least |
|accountant under, the Costs | |fifteen years; or |
|and Works Accountants Act, | | |
|1959 (23 of 1959); or | | |
| | | |
| | |(e) is a person of proven |
| | |ability, integrity and |
| | |standing having special |
| | |knowledge and experience, of |
| | |not less than fifteen years, |
| | |in law, industrial finance, |
| | |industrial management or |
| | |administration, industrial |
| | |reconstruction, investment, |
| | |accountancy, labour matters, |
| | |or such other disciplines |
| | |related to management, |
| | |conduct of affairs, revival, |
| | |rehabilitation and winding up|
| | |of companies; or |
| | | |
| | |(f) is, or has been, for at |
| | |least five years, a presiding|
| | |officer of a Labour Court, |
| | |Tribunal or National Tribunal|
| | |constituted under the |
| | |Industrial Disputes Act, |
| | |1947. |
| | | |
|(2) 10-FR | |(2) Section 411(3) |
| | | |
|10FR. Constitution of | |411(3) A Technical Member |
|Appellate Tribunal: (1) The | |shall be a person of proven |
|Central Government shall, by | |ability, integrity and |
|notification in the Official| |standing having special |
|Gazette, constitute with | |knowledge and experience, of |
|effect from such date as may | |not less than twenty-five |
|be specified therein, an | |years, in law, industrial |
|Appellate Tribunal to be | |finance, industrial |
|called the "National Company| |management or administration,|
|Law Appellate Tribunal" | |industrial reconstruction, |
|consisting of a | |investment, accountancy, |
|Chairperson and not more | |labour matters, or such other|
|than two Members, to be | |disciplines related to |
|appointed by that Government, | |management, conduct of |
|for hearing appeals against | |affairs, revival, |
|the orders of the Tribunal | |rehabilitation and winding up|
|under this Act. | |of companies. |
| | | |
|(2) The Chairperson of the | | |
|Appellate Tribunal shall be a | | |
|person who has been a Judge of| | |
|the Supreme Court or the Chief| | |
|Justice of a High Court. | | |
| | | |
|(3) A Member of the Appellate | | |
|Tribunal shall be a person of | | |
|ability, integrity and | | |
|standing having special | | |
|knowledge of, and professional| | |
|experience of not less than | | |
|twenty-five years in, science,| | |
|technology, economics, | | |
|banking, industry, law, | | |
|matters relating to labour, | | |
|industrial finance, | | |
|industrial management, | | |
|industrial reconstruction, | | |
|administration, investment, | | |
|accountancy, marketing or | | |
|any other matter, the | | |
|special knowledge of, or | | |
|professional experience in | | |
|which, would be in the opinion| | |
|of the Central Government | | |
|useful to the Appellate | | |
|Tribunal. | | |
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.
109. 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
111. 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 a `Judicial
Member' and a `Technical 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.”
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
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 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
sub-section (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.”
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.
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 a
person 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 Group `A' 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.”
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
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.”
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.”
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 been included. 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.
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.
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.
The upshot of the aforesaid discussion is to allow this writ petition
partly, in the manner mentioned above.
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.
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.
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.
Writ petition stands disposed of in the aforesaid manner.
.............................................CJI.
(H.L. DATTU)
.............................................J.
(A.K. SIKRI)
.............................................J.
(ARUN MISHRA)
.............................................J.
(ROHINTON FALI NARIMAN)
.............................................J.
(AMITAVA ROY)
NEW DELHI;
MAY 14, 2015.
-----------------------
[1] (2010) 11 SCC 1
[2] (2014) 10 SCC 1
