National Company LAw Tribunal

NCLT – Powers & Functions under Companies Act, 2013
Meaning of NCLT & NCLAT
The NCLT or “Tribunal” is a quasi-judicial authority created under the Companies Act,

2013 to handle corporate civil disputes arising under the Act. It is an entity that has
powers and procedures like those vested in a court of law or judge. NCLT is obliged to
objectively determine facts, decide cases in accordance with the principles of natural
justice and draw conclusions from them in the form of orders. Such orders can remedy a
situation, correct a wrong or impose legal penalties/costs and may affect the legal rights,
duties or privileges of the specific parties. The Tribunal is not bound by the strict judicial
rules of evidence and procedure. It can decide cases by following the principles of natural
justice.
NCLAT or “Appellate Tribunal” is an authority provided for dealing with appeals arising
out of the decisions of the Tribunal. It is formed for correcting the errors made by the
Tribunal. It is an intermediate appellate forum where the appeals lie after order of the
Tribunal. The decisions of Appellate Tribunal can further be challenged in the Supreme
Court. Any party dissatisfied by any order of the Tribunal may bring an appeal to contest
that decision. The Appellate Tribunal reviews the decisions of the Tribunal and has
power to set aside, modify or confirm it.
Difference between NCLT and NCLAT
The NCLT has primary jurisdiction whereas NCLAT has appellate jurisdiction. NCLAT
is a higher forum than NCLT. Evidence and witnesses are generally presented before
NCLT for taking the decisions and NCLAT generally reviews decisions of NCLT and
checks it on a point of law or fact. Fact finding and evidence collection is primarily a task
of Tribunal whereas the Appellate Tribunal decide cases based on already collected
evidences and witnesses.
Background of NCLT
NCLT was conceptualized by Eradi Committee. It was initially introduced in Companies

Act, 1956 in 2002 but the provisions of Companies (Second Amendment) Act, 2002 were
never notified as they got mired in litigation surrounding constitutionality of NCLT. 2013
Act was enacted and the concept of NCLT was retained. However, the powers and
functions of NCLT under 1956 Act and 2013 Act are different. The constitutionality of
NCLT related provisions were again challenged and this case was finally decided in May
2015. The Apex Court upheld the constitutionality of the concept of NCLT but some of
the provisions on constitution and selection process were found defective and
unconstitutional.
Transition from CLB to NCLT

The Act has set out in detail the procedure to deal with cases which are pending in
various forums in Section 434. The Government has notified 1 st June 2016 for transfer of
matters from CLB to NCLT. On that date, all the pending proceedings before CLB will
be transferred to NCLT and Tribunal will dispose of such matters in accordance with the
provisions of law. Tribunal has discretion to take up the pending CLB proceeding from
any stage. At its discretion, it can take up the matter at stage where it was left by CLB or
start the proceedings afresh or from any stage it deems fit.
Powers vested in NCLT

Some of the important powers that are presently vested with NCLT are as follows:
1. Class Action:
Protection of the interest of various stakeholders, especially non-promoter shareholders

and depositors, has always been the concern of company law. There were several frauds
and improprieties that were noticed where the key losers were the shareholders and
depositors. The shareholders who invested in listed companies saw their investments and
savings drying up when the companies that they invested in cheated the investors.
The Companies Act, 2013 has provided a very good combination of remedies where the
offender will be punished and the people who are involved (whether it is the company or
directors or auditor or experts or consultants) will be liable even for a civil action
(namely class action), wherein they have to compensate the shareholders and depositors
for the losses caused to them on account of the fraudulent practices or improprieties.
A class action is a procedural device that permits one or more plaintiffs to file and
prosecute a lawsuit on behalf of a larger group, or “class”. It is in the nature of a
representative suit where the interest of a class is represented by a few of them. A huge
number of geographically dispersed shareholders/depositors are affected by the
wrongdoings. It is a useful tool where a few may sue for the benefit of the whole or
where the parties form a part of a voluntary association for public or private purposes,
and may be fairly supposed to represent the rights and interests of the whole.
Section 245 has been introduced in the new company law to provide relief to the
investors against a large set of wrongful actions committed by the company management
or other consultants and advisors who are associated with the company.
Class action can be filed against any type of companies, whether in the public sector or in
the private. It can be filed against any company which is incorporated under
the Companies Act, 2013 or any previous Companies Act. The Act provides only one
exemption i.e. banking companies.
2. Deregistration of Companies:
The procedural errors at the time of registration can now be questioned at any time. The
Tribunal is empowered to take several steps, including cancellation of registration and
dissolving the company. The Tribunal can even declare the liability of members
unlimited. Sec 7(7) provides this new way for deregistration of companies in certain
circumstances when there is registration of companies is obtained in an illegal or
wrongful manner. Deregistration is a remedy that is distinct from winding up and striking
off.
3. Oppression and Mismanagement:
The remedy of oppression and mismanagement is retained in 2013 Act. The nature of this
remedy has however changed to certain extent and it needs to be seen in light of the
changes made to the Companies Act, 2013. The 2013 Act has reset the bar for oppression
to a little lower level but has set the bar of mismanagement a little higher by applying the
test “winding up on just and equitable grounds” even to mismanagement matters. The Act
permits dilution of the eligibility criteria with the permission of Tribunal, where a
member below the eligibility criteria can apply in deserving cases.
4. Refusal to Transfer shares:
The power to hear grievance of refusal of companies to transfer securities and

rectification of register of members under Section 58 and 59 of the new Act were already
notified and were being taken up by CLB. Now. The same are transferred to NCLT. The
remedy for refusal to transfer or transmission were restricted only to shares and
debentures under 1956 Act. The provisions for refusal to transfer and transmit
under Companies Act, 2013 Act extends to all securities. These sections gives express
recognition to contracts or arrangements for transfer of securities entered into between
two or more persons with respect to shares of a public company and thus clears any
doubts about the enforceability of these contracts.
5. Deposits:
Chapter V dealing with deposits was notified in phases in 2014 and powers to deal with
the cases under it were assigned in CLB. Now the said powers will be vested in NCLT.
The law on deposits is quite distinct under the Companies Act, 2013 as compared to
the Companies Act, 1956. The provision for deposits under 2013 Act were already
notified. Aggrieved depositors also have the remedy of class actions for seeking redressal
for the acts/omissions of the company which hurt their rights as depositors.
6. Reopening of Accounts & Revision of Financial Statements:
Several instances of falsification of books of accounts were noticed under the Companies

Act, 1956. To counter this menace, several measures have been provided in
the Companies Act, 2013. One such measure is the insertion of Section 130 and 131 read
with sec 447, 448 in the new Act. Section 130 read with sec 131 are newly inserted
provisions that prohibit the company from suo motu opening its accounts or revising its
financial statements. This can be done only in the manner provided in the Act. Section
130 and 131 provides the instances where financial statements can be revised/reopened.
Section 130 is mandatory, where the Tribunal or Court may direct the company to reopen
its accounts when certain circumstances are shown. Section 131 allows company to
revise its financial statement but do not permit reopening of accounts. The company can
itself approach the Tribunal under sec 131, through its director for revision of its financial
statement.
7. Tribunal Ordered Investigations:
Chapter XIV provides several powers to the Tribunal in connection with investigations.
The most important powers that are conferred to the Tribunal are:
a) power to order investigation: Under the Companies Act, 2013, only 100 members (as
against 200 members required under the Companies Act, 1956) are required to apply for
an investigation into the affairs of a company. Further, the power to apply for an
investigation is given to any person who is able to convince the Tribunal that
circumstances exist for initiating investigation proceedings. An investigation can be
conducted even abroad. Provisions are made to take as well as provide assistance to
investigation agencies and courts of other countries with respect to investigation
proceedings.
b) power to investigate into the ownership of the company
c) power to impose restriction on securities: The restriction earlier could be imposed

only on shares. Now, the Tribunal can impose restrictions on any security of the
company.
d) power to freeze assets of the company: The Tribunal is given the power to freeze
assets of the company which can not only be used when the company is under
investigation, but can also be initiated at the insistence of a wide variety of persons in
certain situations.
8. Conversion of public company into private company
Sections 13, 14, 15 and 18 of the Companies Act, 2013 read with rules regulate the
conversion of public limited company into private limited company. It requires approval
from the NCLT. Approval of the Tribunal is required for such conversion. The Tribunal
may at its discretion impose certain conditions subject to which approvals may be granted
(sec 459).
9. Tribunal Convened AGM:

General meetings are required to assess the opinion of shareholders from time to time.
The Act mandatorily requires one meeting to be called, which is termed as the “annual
general meeting” or ‘AGM’. Any other general meeting is termed as “extra ordinary
general meeting” or ‘EOGM’. If the AGM or EOGM cannot be held, called or convened
in the manner provided under the Act or the Rules by the Board or the Member due to
certain extraordinary circumstances, then the Tribunal is empowered under Section 97
and 98 of 2013 Act to convene general meetings under the Companies Act, 2013. The
provisions for convening an annual general meeting and extra ordinary general meeting
in the Companies Act, 2013 are almost similar to the provision provided in
the Companies Act, 1956. However, the draft rules have inserted an additional provisions
that require intimation of such cases to be given to ROC.
10. Compounding of Offence:
Provisions of compounding under the 2013 Act were notified before the constitution of
NCLT and were assigned to CLB. This power will now be vested with NCLT, and all
compounding matters which are above the prescribed monetary limit will be approved by
NCLT.
11. Change in Financial Year:
Section 2 (41) also has been already notified on 1 April 2014. The Act requires that every
company or body corporate, new or existing, must have a uniform financial year ending
on 31 March. It provides an exception where certain companies can apply to the Tribunal
to have a different financial year. A company or a body corporate can make an
application to the Tribunal. As the Tribunal was not notified at the time when this section
was notified, the power to alter the financial year on application was granted to the CLB.
The regulation provides the manner for making the application to CLB. The same has
notified on the site of CLB vide order dated 28 January 2015. All the application that are
not disposed of at the time when NCLT provisions are notified, will also be transferred to
the Tribunal.

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NCLT – Powers & Functions under Companies Act, 2013

Meaning of NCLT & NCLAT

The NCLT or “Tribunal” is a quasi-judicial authority created under the Companies Act,

Difference between NCLT and NCLAT

NCLT was conceptualized by Eradi Committee. It was initially introduced in Companies

Transition from CLB to NCLT

Powers vested in NCLT

Protection of the interest of various stakeholders, especially non-promoter shareholders

3. Oppression and Mismanagement:

4. Refusal to Transfer shares:

The power to hear grievance of refusal of companies to transfer securities and

6. Reopening of Accounts & Revision of Financial Statements:

Several instances of falsification of books of accounts were noticed under the Companies

7. Tribunal Ordered Investigations:

b) power to investigate into the ownership of the company

c) power to impose restriction on securities: The restriction earlier could be imposed

8. Conversion of public company into private company

9. Tribunal Convened AGM:

11. Change in Financial Year:

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