Madras Bar Association v. Union of India

In the Supreme Court of India

Name of the CaseMadras Bar Association v. Union of India
Citation1. (2004) 2 CTC 561 2.(2010) 11 SCC 1 3. (2015) 8 SCC 583
Year of the case2003, 2010,2014,2015
PetitionerThiru.R Gandhi , President, Madras Bar Association
RespondentUnion of India
Bench/JudgesR.Jayasimha Babu, M. KarpagavinayagamR.V Raveendran, D.K Jain, Sathasivam, J.M Panchal  
Acts InvolvedCompanies Act 1956 Companies (second amendment Act) 2002 Companies Act 2013
Important SectionsSection 323-A,323-B, 32, 226 of the Indian Constitution, Sections 10FD, 10FE,10FF,10FL,10FR,10FT of the Companies Act 1956, Section 409, 411 of the Companies Act 2013

Abstract

Tribunals are quasi-judicial institutions that are set up to deal with problems relating to tax and administration. It is needed to lessen the burden on the courts. In the following case, the petitioner moved to court against the establishment of the NCLT and NCLAT claiming it as unconstitutional and the Courts in all their judgements upheld the constitutionality of the NCLT and NCLAT and directed amendments in the Provisions that violated the basic structure of the constitution or were invalid.

Keywords:

  • CLB : Company Law Board
  • NCLT: National Company Law Tribunal
  • NCLAT: National Company Law Appellate Tribunal
  • NTT : National Tax Tribunal

Introduction

Article 323-A and 323-B allows the formation of tribunals, the former deals with Administrative Tribunals and the latter with tribunals of  other types. The petitioner challenged the creation of  NCLT and NCLAT along with certain other provisions which were incorporated by the legislature in Parts 1B and 1C of the Companies Act, 1956 by Companies (Second Amendment Act) 2002.

Background

The first writ petition was filed by the president of the Madras Bar Association Thiru.R. Gandhi. The judgement of this petition was given on 30.03.2004 stating that the establishment of the NCLT and NCLAT is constitutional and the provisions that are breaching the basic structure must be amended. This judgement dissatisfied both parties leading to further rounds of appeals headed by the titles : Union of India vs R Gandhi (2010), Madras Bar Association v. Union of India (2015). In all the judgements the previous judgement was used as a basis to uphold the same verdict and the functioning of the NCLT and NCLAT along with the necessary amendments were recommended at the earliest.

Facts

· The Petitioner, Thiru. R. Gandhi, President of the Madras Bar Association challenged the constitutional validity in the establishment of the NCLT and NCLAT as well certain provisions which were incorporated by the legislature in Parts 1B and 1C of the Companies Act 1956 by the Companies (Second Amendment) Act 2002.

· On 30.03.2004 the High Court held that the establishment of NCLT and vesting powers formerly exercised by the HC and CLB is not unconstitutional however it pointed out certain provisions of Part  1B and1C   a few sections namely, Sections 10FD(3)(f)(g)(h), 10FE, 10FF, 10FL(2),10FR(3), 10FT that were unconstitutional and violated the constitutional scheme of separation of powers and that until these sections were amended it would be unconstitutional to constitute the NCLT And NCLAT.

· The petitioner felt aggrieved that the establishment of the NCLT AND NCLAT was held constitutional whereas the Union of India felt dissatisfied that provisions contained in section 1B and 1C of the Companies Act 1965  were held as defective or unconstitutional. Hence, both the parties filed appeals against the judgement dated 30.03.2004.

· The judgement dated 11.05.2010 upheld the decision made by the High Court in its judgement date 30.03.2004

· In September 2014, the Parliament passed a new company law in the form of the Indian Companies Act, 2013 which replaced the earlier Act of 1956.

· The petitioner filed a writ petition alleging that the provisions incorporated in the Act of 2013 relating to the constitution of a Selection Committee, qualifications for appointing of President/Chairperson and Members (judicial & technical) of both NCLT and NCLAT were along the same lines as the provisions incorporated in the Act of 1956. Hence, it is unconstitutional and does not adhere to the 2010 judgement.

· In the judgement dated 14.04.2015, the Court declared that the constitutionality of the NCLT and NCLAT had already been upheld and judgement of 2010 is of a constitution bench and is binding on this bench. It also declared the comparison of the NTT to the NCLT and NCLAT to prove unconstitutionality as having no basis since NTT was a matter of judicial review formerly vested in the HC being transferred to the NTT which is impermissible.

Issues

  1. Whether the “wholesale transfer of powers” as contemplated by the Companies (Second Amendment) Act 2002 would offend the constitutional scheme of separation of powers?
  2. What is the extent to which powers and jurisdiction of the High Court (except judicial review under Article 226/227) can be transferred to tribunals?
  3. Whether there is a demarcating line for the Parliament to vest intrinsic judicial functions traditionally performed by courts in any Tribunal or authority outside the judiciary?

Related Provisions

Article 32 of the Indian Constitution:

This article allows a person to move to the Supreme Court  when they have been aggrieved and allows the Supreme Court to issue writs of Habeas Corpus, Mandamus, Certiorari, Prohibition, Quo Warranto for the enforcement of rights. The rights guaranteed by this article shall not be suspended as otherwise provided for by this Constitution.[i]

Article 226 of the Indian Constitution:

This article allows the High Court to issue writs for ensuring enforcement of rights.  The power conferred on the High Court under this article shall not be in derogation of the power conferred on the Supreme Court by clause(2) of Article 32.[ii]

Article 323-A of the Indian Constitution:

This article confers power upon the parliament for the creation of administrative tribunals of disputes and complaints with respect to recruitment and conditions of service of persons appointed to public services and posts in connection with the Union or of any State or of any local or other authority within the territory of India under the control of the Government of India or any other corporation owned or controlled by the Government.[iii]

Article 323-B of the Indian Constitution:

This article confers power upon the State Legislature for the creation of tribunals related to matters of levy, assessment, collection, enforcement of any tax, foreign exchange, import and export across customs frontiers, industrial and labour disputes, land reforms, ceiling on urban property etc.[iv]

Section 10FD(3)(f)(g)(h) of the Companies Act 1956:

This section deals with the qualifications required for the appointment of members in the NCLT. According to this the qualified persons include, a person having knowledge or experience of not less than 20 years in the field of science, technology, economics, banking, industry, law, matters relating to industrial finance,  management, reconstruction, administration, investment, accountancy, marketing, someone who has been or is a Presiding officer of a Labour Court, Tribunal or National Tribunal constituted under the Industrial disputes Act, 1947, a person having knowledge of not less than 15 years in matters relating to labour.[v]

Section 10FE of the Companies Act 1965:

This section deals with the term of office of the President and Members. The President and every member’s term last for three years and they can be reappointed provided that the President has not reached the age of 67 and the Member has not reached the age of 65.[vi]

Section 10FF of the Companies Act 1956:

This section deals with the financial and administrative powers of the members. The members shall have the authority to delegate his financial and administrative powers as he thinks fit to any other officer of the Tribunal subject to the condition that such officer shall under such delegation, continue to act under the direction, superintendence and control of the members.

Section 10FL(2) of the Companies Act 1956 :

This section deals with the constitution of benches. The President of the Tribunal is allowed to constitute one or more special benches consisting of judicial and technical members for the disposal of any case relating to rehabilitation, restructuring, or winding up of companies.[vii]

Section 10FR(3)  of the Companies Act 1956 :

This section deals with the constitution of the NCLAT. This clause states that a Member of the Appellate Tribunal shall be a person having experience, knowledge of not less than 25 years  in the field of science, technology, investment, accountancy, marketing,  industrial: management, finance, reconstruction or having special knowledge or experience which in the opinion of the Central Government would be useful to the Appellate Tribunal.[viii]

Section 10FT of the Companies Act 1956:

This section deals with the Term and Office of the Chairperson and members. The term of the chairperson and members shall be 3 years with the facility of getting reappointed provided the chairperson has not turned 70 years old  and the member has not turned 67 years old.[ix]

Section 409(3) of the Companies Act 2013:

This section deals with the qualifications of the President and Member of the Tribunal. According to this clause, A technical member shall be a person who has been a member  of the Indian Corporate Law Service for at least 15 years, a person who has been a chartered accountant in practice for at least 15 years or a cost accountant in practice for at least 15 years or has been a company secretary for at least 15 years or has been a person proven to have  ability, special knowledge, experience of not less than 15 years in the field of law, industrial finance, management, reconstruction etc, or is or  has been a presiding officer in the Labour Court for at least 5 years, Tribunal or National Tribunal under the Industrial Disputes Act,1947 .[x]

Section 411(3) of the Companies Act 2013:

This section deals with the qualifications of the chairperson and members. According to this clause , A  technical member shall be a person having knowledge and experience of not less than 25 years in the field of law, industrial finance, industrial management and administration, industrial reconstruction, accountancy, labour matters or disciplines related to management , conduct of affairs, revival, rehabilitation, and winding up of companies.[xi]

Related cases

Chandra Kumar v. Union of India And Others on 18 March 1997:

This case dealt with the issue that whether the power conferred upon the Parliament by clause 2(d) of Article 323-A or upon the State legislature under clause 3(d) of  Article 323-B runs contrary to the power of judicial review vested in the supreme court and high court under Article 32 and 226. It was held that these clauses exclude the jurisdiction of the HC and SC under Article 32 and 226 and are hence unconstitutional. Tribunals created under Article 323-A and 323-B are constitutional but will be subject to the scrutiny of a Division Bench of the HC within whose jurisdiction the tribunal falls.[xii]

Madras Bar Association v. Union of India & Anr on 25th September,2014

The judgement dated 25.09.2014 was given by a 3-judge bench including the CJ, consisting of CJ Jagdish Singh Kehar, J. Chelameshwar, A.K. Sikri, Rohinton Fali Nariman. The issue being dealt here was regarding the constitutional validity of the NTT Act 2005. It was held that the jurisdiction conferred on the  Supreme Court under Article 32 and on the High Courts under Article 226 of the constitution cannot be curtailed by any Act of the Parliament and hence such transfer of powers to the NTT was considered unconstitutional and impermissible by the court.[xiii]

Judgements

  • The judgement dated 30.04.2004 was given by a 3-judge bench consisting of R.Jayasimha Babu, M. Karpagavinayagam. It was held that the establishment of the NCLT and NCLT itself is not unconstitutional. However, the provisions in parts 1B and 1C  introduced by the Companies (second amendment ) Act 2002 breach the basic constitutional scheme of separation of powers and independence of the judicial function hence it would be unconstitutional to constitute a Tribunal and appellate Tribunal to exercise the jurisdiction exercised by the High Courts or the CLB.
  • The judgement dated 11.05.2010 upheld the previous judgement of 2004 and reiterated that the creation of NCLT and NCLAT for exercising the powers of the HC in regard to company law matters is not unconstitutional and provisions in Parts 1B and 1C are unconstitutional but could be made operational by making suitable amendments such as:
  • Only judges and Advocates to be appointed as Judicial Members of the Tribunal
  • Persons who have held a Group A or equivalent post under the Central or State Government with experience in the Indian Company law Service and Indian Legal Service(Grade-1) cannot be considered for appointment of judicial members as provided in subsection 2(c) and (d) of Section 10FD.
  • Members must be nearest to the position and status of the HC Judge to be a member. A member of the Indian Company Law Service does not qualify to be appointed as technical members and hence Clauses (a) and (b) of sub-section (3) are not valid.
  • The first part of clause(f) of sub-section(3) providing that any person having special knowledge or 20 years’ experience in science, technology, banking, the industry could be appointed as technical members is invalid
  •  Only Clauses (c), (d), (e), (g), (h), and later part of clause (f) in subsection (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.
  • The judgement dated 14.05.2015 was given by a 5-Judge bench consisting of H.L Dattu, A.K Sikri, Arun Mishra, Rohinton Fali Nariman and Amitava Roy. It was held that the constitutionality the NCLT and NCLAT had already been upheld in the previous judgement of 2010 and that judgement was of a constitution bench and is binding on this court and that the comparison of the judgement of the NTT with to NCLT and NCLAT to prove their unconstitutionality has no basis as the judgement regarding NTT dealt with the transfer of power of judicial review to the NTT which is unconstitutional and was declared impermissible . Provisions of section 409(3) and 411(3) of the 2013 Act were held invalid.

It was further stated by the Court that since there has been a delay in the functioning of the NCLT and NCLAT, it is time they start functioning and that the respondents shall take remedial measures as per the judgement.

Concepts Highlighted

Tribunals can and should be formed to reduce the workload of the Courts. These Tribunals should however not encroach on the jurisdiction of the existing  High Courts or  the Supreme Court and should consist of qualified members and should be independent of the executive so as to maintain the freedom of the judiciary in our country. Tribunals have power to decide cases delegated to them but shall remain under the scrutiny of other Courts under whose jurisdiction they shall fall.

References

Judgements:

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