Case Notes

by B.C. Thiruvengadam, Thiru & Thiru, Advocates

A technical member of the National Company Law Tribunal and National Company Appellate Tribunal should have expertise in company law.

A constitutional bench of the Supreme Court of India in Union of India vs. R.Gandhi, President, Madras Bar Association, 2010 (5) SCALE 514, upheld the creation of the National Company Law Tribunal and the National Company Appellate Tribunal, and vested in them the powers and jurisdiction exercised by the High Court with  regard to company matters that are constitutional in nature.  Moreover, the Court held that members of these tribunals should be persons of rank, capacity, and status as nearly equal as possible to the rank, capacity, and status of High Court judges.  While deciding this case, the Supreme Court endorsed the view of the Eradi Committee that company law jurisdiction should be transferred from High Courts to tribunals on account of inordinate delay in the disposal of cases by the High Courts.  The Companies (Second Amendment) Act, 2002 had provided for appointment of members from the bureaucracy as technical members of the tribunal.  The Supreme Court held that merely because a person has served in the cadre of the Indian Company Law Service, he cannot be considered an expert qualified to be appointed as a technical member, unless he has expertise in corporate law.

The Supreme Court emphasized that persons having ability, integrity standing, special knowledge, and professional experience in industrial finance, industrial reconstruction, investment, and accountancy may be considered as persons having expertise and may be appointed as technical members.  The Supreme Court further stated that the selection committee should be comprised of the Chief Justice of India or his nominee as its chairperson, a senior judge of the Supreme Court or a Chief Justice of a High Court as member, and a secretary from the Ministry of Finance and Company Affairs, or Ministry of Law and Justice as members.  The Supreme Court noted that, to function effectively, tribunals should appoint younger members who have a reasonable period of service rather than persons who have retired.  The Supreme Court mandates that every bench shall have a judicial member.  The Government of India has agreed before the Supreme Court to implement the order effecting the necessary amendments.

May a member of the public, on the basis of a letter of authorization, appear on behalf of a party before the National Tax Tribunal?

The Supreme Court of India addressed  this question in Madras Bar Association vs. Union of India, [2010] 324 ITR 166 (SC).  The Madras Bar Association had challenged the constitutional validity of the National Tax Tribunal Act, 2005 (Act) before the Supreme Court of India on the basis that:

(i) Section 13 of the Act permitted “any person” duly authorized to appear before the National Tax Tribunal.  The Bar Association claimed that the right to appear should be exclusively restricted to advocates.

(ii) Section 5(5) of the Act provides for the Central Government to transfer a member (the presiding officer of the tribunal) from one bench in one state to another bench in another state.  This was challenged on the ground that it would restrict the independence of the tribunal.

(iii) Section 7 of the Act provides for a selection committee comprised of the Chief Justice of India, or a judge of the Supreme Court nominated by him, a  Secretary from the Ministry of Law and Justice, and a Secretary from the Ministry of Finance, and that the secretaries forming the majority may override the selection of the Chief Justice or of his nominee.

Initially, this matter had come up before a three judge bench, wherein the Government of India agreed to implement an amendment that would ensure that only lawyers, chartered accountants, and the parties themselves would be permitted to appear before the National Tax Tribunal, and that the opinion of the Chief Justice or his nominee would prevail in the selection of members to the tribunal or the transfer of members from one state to another.  However, the case was referred to a constitutional bench, which determined that the matter should be addressed separately because the petitioner also had challenged Article 323B of the Constitution of India.

Art. 323B was added to the Indian Constitution under the Constitution (75th Amendment) Act, 1963.  It authorizes the legislature to create and constitute tribunals, and supplements Art. 323A, which empowers the parliament to create tribunals for matters relating to the Union list.

By this case, the court will determine whether the exclusivity granted to advocates to appear before any court prevails over legislation diluting such rights.

May the Central Government seek the removal of managerial personnel of a company who conduct the affairs of the company in a manner prejudicial to the interest of the members, creditors, the company and the general public?

In Union of India  vs. Design Auto Systems Ltd., [2010] 156 Comp cas 272 (CLB), the Principal Bench of the Company Law Board ruled that the power of the Board to remove managerial personnel of a company under Sec. 408 of the Companies Act was wide enough to cover present and past acts of mismanagement.  In this petition by the Central Government under Sections 388B, 397, 398, along with Sections 401, 406 and 408 against the Company and its managerial personnel, the Company Law Board held that the language “being conducted” in Section 408 of the Act, cannot be interpreted so as to restrict its scope to the present acts of the managerial personnel.  Rather the expression is wide enough to cover enquiries related to past conduct whose impact continued or would reasonably be assumed to continue to operate in a manner prejudicial to the interest of the company or the public interest.  The Court further observed that the power of the Central Government under Section 408 is preventive in nature, exercised to ensure that the affairs of the Company are conducted in a manner that is not prejudicial to the interests of the company, its members, or to the public interest.




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