Legal Analysis of NCLT Members’ Tenure Dispute

Delve into the complexities of the NCLT Members’ tenure dispute where the Court provided a thorough legal analysis. The case revolves around the duration of Members’ appointments in the NCLT, scrutinizing the alignment with statutory provisions. Discover the nuanced legal perspectives brought forth by the Court in navigating this issue.

Facts

• Proceedings under Article 32 of the Constitution initiated by the National Company Law Tribunal Bar Association against the Union government in the Ministry of Corporate Affairs
• Concerns the continuation of 23 Members of the NCLT whose three-year term was ending
• Meeting of the Selection Committee held on 20 April 2022
• The Union government approved the revision of tenure for two Judicial Members and six Technical Members of the NCLT for a period of five years or until the age of 65, in line with the Companies Act 2013.
• The President of the NCLT highlighted that the tenure of 23 Members would end in June – July 2022, potentially causing difficulties in the NCLT’s nationwide functioning.
• The Selection Committee stated that it had no specific authority to address the revision of the Members’ office terms.
• The Selection Committee conducted personal interactions with shortlisted candidates on 20-22 June 2022 to fill 30 vacancies in the NCLT and has made recommendations for 15 vacancies.

Also Read: Balancing Power and Transparency: Electoral Bonds Struck Down, Disclosure Mandated

Arguments

• The petitioner contends that the notification appointing 28 candidates as Members of the National Company Law Tribunal for a tenure of three years is contrary to the provisions of the Companies Act 2013.
• The petitioner argues that Section 417 of the Companies Act 2013 provides a procedure for the removal of Members, and if any appointed Members are unfit for continuation, the removal procedure should be followed.
• It is noted that the Members themselves have not approached the Court regarding this matter.
• Entertaining the plea of removal at the request of the Bar Association could have negative consequences for the members whose term has not been extended.
• Some members have applied afresh in the ongoing selection process.
• The Court clarifies that it is not dealing with a situation of removal, but rather with the term of office coming to an end as per the impugned notification dated 20 September 2019.
• The issue of the term of appointment being less than the statutory term has been raised only towards the end of the tenure by the Bar Association and not by the Members themselves.
• Bar Association questioned the term of appointment of Members of the NCLT
• Union government stated that the appointment for three years was approved by the Appointments Committee of the Cabinet
• Members were given an offer of appointment for three years before joining the NCLT

Also Read: Recall of Resolution Plan Approval: Legal Analysis

Analysis

• Petitioner challenges impugned notification prescribing 3-year tenure for NCLT members
• Previous notifications prescribed 5-year tenure in line with Companies Act 2013
• Petitioner seeks correction of notification to align with Companies Act provision of 5-year tenure
• Union government filed affidavit explaining its position
• Preliminary objection raised on petition’s maintainability based on Madras Bar Association case challenge to Tribunal Rules 2020
• The Court is not considering a challenge to the Rules or the statute itself.
• The Bar Association’s interest is in filling vacancies expeditiously to ensure the Tribunal’s functioning is not hampered.
• An advertisement has been issued for the second tranche of 15 vacancies in the NCLT.
• The tenure of NCLT members is currently three years, which is not in line with the Companies’ Act 2013.
• The Selection Committee has started a new selection process, with some members reapplying.
• The Union Government extended the tenure of certain members based on performance reports.
• The Court is questioning whether it should intervene in directing the extension of tenures at this point.
• The first tranche of 15 members is concluding its selection process soon.
• The selection process for fresh appointments is already underway.
• The Court is cautious about interfering in the ongoing selection process.
• The system is being allowed to conclude the selection process within four to six weeks.
• Section 413(1) of the Companies Act 2013 mandates a five-year term for Members of the Tribunal.
• A Member can be reappointed for another term of five years.
• The Bar Association cannot decide on the membership of the Tribunal
• Membership of the Tribunal is likely determined by law or regulations
• This determination is beyond the scope of the Bar Association’s discretion

Also Read: SC Upholds Bank’s Right to Forfeit Earnest Money in Failed E-Auction Due to Lack of “Exceptional Circumstances”

Decision

• The Interlocutory Application is dismissed as withdrawn.
• The petitioner’s prayer for the extension of the tenures of 23 persons appointed on 20 September 2019 from three years to five years, subject to the age cap of 65 years, is not granted.
• The notification issued by the Union government on 14 June 2022 extending the tenure of eight Members for a period of five years or till they attain the age of sixty-five years, whichever is earlier, remains unaffected.
• The Petition is disposed of.
• Pending applications, including intervention/impleadment applications, are disposed of.
• The Union Government shall adhere to the statutory provisions of Section 413 of the Companies Act 2013 in future NCLT appointments.
• Counsel for the applicant in IA No 97722 of 2022 seeks permission to withdraw the Interlocutory Application.

Case Title: NATIONAL COMPANY LAW TRIBUNAL BAR ASSOCIATION Vs. UNION OF INDIA (2022 INSC 778)

Case Number: W.P.(C) No.-000180 / 2022

Click here to read/download original judgement