The government is likely to notify provisions concerning the National Company Law Tribunal (NCLT) and its appellate body (NCLAT) in phases. The timeline for such notifications, however, has not yet been decided, but experts said these might not come too soon.
Till date, around 60 per cent of the Companies Act, 2013 — which has a total of 470 sections and seven schedules — has been notified and enforced. Most of the remaining provisions of the Act are related to NCLT, a body which would replace the existing Company Law Board (CLB), the Board for Industrial and Financial Reconstruction (BIFR) and assume the high court’s power on clearing mergers and acquisition (M&As) and amalgamation.
On May 14, the Supreme Court, in a case filed by the Madras Bar Association, upheld the constitutional validity of NCLT and NCLAT under the Companies Act, 2013.
The court, however, deemed the selection process of the members of NCLT and NCLAT under the applicable provisions of the new Companies Act as unconstitutional. Further, it held the constitution of the selection committee - which is empowered to select members of NCLT and NCLAT — as constitutionally invalid.
As a result, the government has been left with no option but to align the Companies Act, 2013, with the decision of the Supreme Court.
“This can be through an amendment in the Act, which requires parliamentary approval or by exercising the powers vested in it under Section 470 of passing the Removal of Difficulty Orders as per the process laid down therein. In view of the above, the actual constitution of NCLT, NCLAT may take long,” said Mehul Modi, senior director, Deloitte India.
According to a senior government official, who did not wish to be named, the Centre is planning to use the powers of Section 470, in order to implement NCLT provisions in phases.
At present, for merger, de-merger, amalgamations etc., the applicable provisions of the Companies Act, 1956 and Companies (Court) Rules are in force. Companies have to approach the jurisdictional high court for sanctioning the scheme of merger, amalgamation etc. However, post-NCLT in force, the powers of the high court will be exercised by NCLT.
“We expect material changes in procedural aspects aligned with the requirements of the Companies Act, 2013, which cannot be ascertained currently,” said Modi.
NCLT - AT A GLANCE
- NCLT to replace CLB and BIFR
- It will take final decisions on mergers, replacing high courts in this respect
- Supreme Court upheld the constitutional validity of NCLT and NCLAT in May
- Government to align new Companies Act with SC ruling 40 per cent of the new Companies Act, mostly related to NCLT, is yet to be notified
Business Standard, New Delhi, 4th August 2015
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