Is NCLAT - An "Efficacious" Remedy?

Pankaj Rai

16 May 2020 6:11 AM GMT

  • Is NCLAT - An Efficacious Remedy?

    Established under Sec 410 of Companies Act, NCLAT hears appeals against the orders of benches of NCLTs across the country under IBC and Companies Act as well as appealable orders of CCI. Till recently NCLAT had only one Bench at New Delhi. However, in a welcome move, vide notification dated 13 March 2020, Central Government announced that a bench has been constituted at Chennai which...

    1. Established under Sec 410 of Companies Act, NCLAT hears appeals against the orders of benches of NCLTs across the country under IBC and Companies Act as well as appealable orders of CCI. Till recently NCLAT had only one Bench at New Delhi. However, in a welcome move, vide notification dated 13 March 2020, Central Government announced that a bench has been constituted at Chennai which shall entertain appeals against orders passed by benches of NCLT in Andhra Pradesh, Telangana, Karnataka, Kerala, Tamil Nadu, Puducherry and Lakshwadeep. Therefore, NCLAT now has two benches ~ the Principal Bench at New Delhi and the Chennai Bench which shall be functional from 18 March 2020 but shall operate from New Delhi for some time.

    1. The setting up of the Chennai Bench undoubtedly after the verdict of the Apex Court in WP (Civil) No 99 of 2018 - Swiss Ribbons Private Ltd Vs Union of India on 25 Jan 2019 is a positive step forward in ensuring that NCLAT is considered an "efficacious" remedy. However, there shall still be exceptions where High Courts have stepped in and may continue to step in what is the ambit of NCLAT.

    1. This critique therefore is an attempt to analyse the setting up of Chennai Bench of NCLAT on the basis of the verdict of the Apex Court in Swiss Ribbons supra, established principles whereby High Courts can step in even when a forum for statutory appeal has been provided for in exceptional cases, and some case laws where High Courts have intervened and can continue to intervene. It is in the interests of the entire fraternity of IPs that NCLAT which has delivered some landmark judgments involving substantial questions of law becomes stronger by the day and intervention of High Courts under Article 226 and 227 would be a rare exception rather than the rule. There is no denying the fact that had it not been for NCLAT, matters which are now being adjudicated in a couple of months would have taken a year or more in cases that land in High Courts. Lex dilationes semper exhorret. The other justification for NCLAT is that with the perpetual shortage of judges which plagues the entire Indian justice delivery system, NCLAT is a necessity and not a luxury for India.

    4. Therefore, two questions arise for consideration:

    a. Is NCLAT an efficacious remedy? What can be done to strengthen NCLAT and make it efficacious?

    b. How can the doctrine of´ "Lex dilationes semper exhorret" be overcome in the context of NCLAT?

    1. It is no longer res integra that Central Government has the constitutional right to establish tribunals. The Central Government can enact a law transferring the jurisdiction exercised by courts in regard to any specified subject to any tribunal. NCLAT has the jurisdiction to decide on a substantial question of law. However, the issue is whether NCLAT as an "efficacious remedy" is legally acceptable.
      1. While referring to the judgment rendered in Madras Bar Association Vs Union of India [2014 10 SCC 1] in paragraphs 15 and 16 of the judgment in Swiss Ribbons supra, an argument was put forth that Sec 5(2) of the NTT Act had been considered to be legally unacceptable. According to the NTT Act, National Tax Tribunal was to ordinarily have its sittings in the National Capital Territory of Delhi. A litigant was thus deprived of the right to approach High Court in his own state. The litigant would be put to avoidable additional financial burden since he would have to travel to Delhi and identify a lawyer who would represent him before NTT. The Apex Court agreed with the reasoning put forth in the NTT matter and therefore, did not consider NCLAT to be an efficacious remedy. It also directed that, "And if that was not possible, at least a Circuit Bench required to be established at every place where an aggrieved party could avail of his remedy". The Supreme Court felt that though desirable it may not be feasible to have a full fledged Bench in every State. Hence, a Circuit Bench to begin with.
      2. It is in this context that the establishment of Chennai Bench should be seen and appreciated. Clearly, the Chennai Bench of NCLAT will reduce the workload of the Principal Bench at New Delhi. It would make it relatively cheaper for litigants to challenge orders of NCLT Benches in the Southern region. It is also commendable that instead of setting up a Circuit Bench a full-fledged Bench is being established at Chennai.
      3. Setting up the Chennai Bench cannot be an easy task. Besides resourcing Members, hiring and training staff for the administrative support and setting up the infrastructure has its own challenges. However, in keeping with the Apex Court judgment, the Government should establish at least two NCLAT Benches soon~ one at Mumbai/Ahmedabad to cater for the Western Region and one more at Kolkata to cater for the needs of the Eastern Region. It is also pertinent to add that NCDRC already has two circuit benches at Chandigarh and Jaipur.
      4. While setting up Benches across the country is a daunting task, Circuit Benches shall have to be established since that

    is the direction of the Supreme Court and this is also in the interests of litigants across the country. NCLAT as remedy was considered inefficacious because prior to establishment of NCLAT, a litigant could have approached High Court in his own home state.

    1. From the Government order it is clear that appeals against orders of NCLT Benches in the Southern Region would be before the Chennai Bench. Appeals against orders of CCI would be before the Principal Bench at New Delhi. Therefore, this is something which has not been addressed but begs consideration.

    1. While the Supreme Court has ruled that tribunals can coexist with High Courts, a High Court can still exercise its jurisdiction notwithstanding the provision of statutory appeal to NCLAT:
      1. While Sec 61 of IBC makes it clear that all orders of NCLT can be challenged before NCLAT, this is not necessarily the case under Competition Act ("Act"). Sec 53(1)(A) provides NCLAT to hear and dispose appeals made by CCI under some of the sections only. To clarify, while an order passed under Sec 26(2) of the Act dismissing the information provided by an informant as not having made out a prima facie case for investigation can be challenged, an order of CCI directing investigation by Director General cannot be challenged before NCLAT.

    b. In CCI Vs SAIL [2010 10 SCC 744], it was ruled that orders which have not been made specifically appealable cannot be treated appealable by implication. In the instant case, Supreme Court set aside an order of the Appellate Tribunal which had set aside an order passed by CCI under Sec 26(1) of the Act.

    1. Again recently, in the Vodafone case where Supreme Court dismissed the appeal of CCI challenging the order of Bombay High Court [2019 2 SCC 521], it was held that High Court can interfere if CCI acted without jurisdiction.
    2. Therefore, the Central Government should amend the Act so that all orders of CCI are appealable before NCLAT.
    3. In two judgments notably, Satvati Deswal Vs State of Haryana [2010 1 SCC 126] and Harbanslal Sahnia Vs Indian Oil Corporation [AIR 2003 SC 2120], the Apex Court has described three exceptional situations where High Court can intervene even if there is provision of statutory appeal: denial of natural justice, order without jurisdiction or the vires of an Act is challenged and enforcement of fundamental rights. In this regard the recent judgment of Supreme Court in M/s Embassy Property Developments Private Ltd Vs State of Karnataka (SLP Civil No 22596 of

    2019) is worth perusal. The Supreme Court framed two questions of law (a) whether High Court ought to have interfered under Article 226/227 on an order passed by NCLT, ignoring the availability of a statutory remedy of appeal to NCLAT, and if so under which circumstances and

    (b) whether questions of fraud can be inquired into by NCLT/NCLAT in the proceedings initiated under IBC? While Supreme Court answered the second question in favour of NCLT/NCLAT, the first question was answered against NCLT. It was held that moratorium does not create a new right but moratorium maintains status quo and (b) the leased land did not exclusively belong to the Corporate Debtor. Thus, when it was held that NCLT Chennai Bench had acted in excess of its jurisdiction, Supreme Court held that intervention by High Court under Article 226/227 was justified. While dismissing the appeal, Supreme Court held that NCLT does not have jurisdiction of judicial review over administrative action of Government of Karnataka. Hence, the intervention of High Court. The legal principle of ouster clause/privative clause and Anisminic was dealt with whereby a distinction between a situation where NCLT was acting within powers conferred on it by law but committed an error in law was addressed

    7. To conclude:

    1. NCLAT Benches/Circuit Benches have to be established soon, so that the remedy is "efficacious", and cost of litigation is reduced and opportunities open up for advocates across the country.
    2. Amendment of Competition Act to ensure that all orders/directions of CCI can be challenged before NCLAT.
    3. In the wake of Corona outbreak, Supreme Court recently announced that e-filing and video conferencing shall be introduced to avoid 'people to people' contact. If these measures are also considered by Central Government, even with a fewer Benches NCLAT can still be an efficacious remedy.
    4. Unless the above mentioned steps are taken, High Court's intervention under Article 226/227 cannot be avoided. Given that High Courts are bursting at their seams from overflowing dockets, delays shall be inevitable and the objective of setting up NCLAT for speedy dispensation of justice will be defeated. Lex dilationes semper exhorret.
    5. Therefore, NCLAT has to be available to the country and not to a select few. Acta Non Verba.

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