MADRAS BAR ASSOCIATION V. UNION OF INDIA & ANR. WRIT PETITION (C) NO. 1072 OF 2013 DECISION ON 14TH MAY, 2015

MADRAS BAR ASSOCIATION V. UNION OF INDIA & ANR. WRIT PETITION (C) NO. 1072 OF 2013 DECISION ON 14TH MAY, 2015               

 

FACTS

• This writ petition filed by the petitioner, namely, the Madras Bar Association, is sequel to the earlier proceedings which culminated in the judgement rendered by the Constitution Bench of this Court in Union of India v. R. Gandhi, President, Madras Bar Association (hereinafter referred to as the '2010 judgement').
• The petitioner, Madras Bar Association, filed a writ petition challenging the constitutional validity of the National Company Law Tribunal (NCLT) and the National Company Law Appellate Tribunal (NCLAT), along with certain provisions pertaining to them, which were incorporated in the Companies Act, 1956.
• Writ petition, in this behalf, was filed by the petitioner in the High Court of Madras which culminated into the judgement 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.
• However, both the Union of India as well as the petitioner filed appeals against that judgement of the Madras High Court.

 

ISSUE

• Whether the NCLT and Nclat are constitutionally valid?
• Whether the qualifications of the members of NCLT and Nclat are valid?
• Whether the constitution of the Selection Committee for selecting the Members of NCLT and Nclat is valid?

 

HELD
The Supreme Court upheld the validity of Nclat and held that the issue cannot be reopened. The Court also held that the qualifications of Technical Members of NCLT/Nclat suffer from the same vice as the one upheld earlier and are, therefore, invalid. The Court further held that the provisions relating to the Selection Committee for selecting the Members of NCLT and Nclat are valid.

• The Court emphasised the importance of an independent and impartial judiciary to render justice. It held that reducing the standards or qualifications for appointment will result in a loss of confidence in the Tribunals. The Court also expressed concern over the erosion of the independence of the judiciary and the gradual dilution of the standards and qualifications prescribed for persons to decide cases which were earlier being decided by the High Courts.

ISSUE NO. 1

• In the first instance, as mentioned above, insofar as NCLAT is concerned, its validity has already been upheld and this issue cannot be reopened. Judgement in the case of 2010 judgement is of a Constitution Bench and that judgement of a co-ordinate Bench binds this Bench as well.
• Secondly, reading of the Constitution Bench judgement in the matter of National Tax Tribunal would manifest that not only the 2010 judgement 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.
• 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.
• The court found no merit in this issue.

ISSUE NO. 2

• 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 the dicta pronounced in 2010 judgement.
• The court held that Section 409(3)(a) and (c) are invalid as these provisions suffer from the 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 judgement 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 the 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.
• The structure of the Selection Committee was found fault with by the Constitution Bench in 2010 judgement. 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.
• The court held 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 judgement.
• “Since, the functioning of NCLT and NCLAT has not started so far and it's high time that these Tribunals start functioning now, we hope that the respondents shall take remedial measures as per the directions contained in this judgement at the earliest, so that the NCLT & NCLAT are adequately manned and start functioning in near future.
  34) Writ petition stands disposed of in the aforesaid manner.”