‘Tribunalisation’ of HC powers not unconstitutional: SC

Posted in UNCATEGORIZED by NNLRJ INDIA on May 17, 2010

In my column late last year, I had expressed views on attempts to sabotage any noble intent to reform India’s archaic judiciary system. An instance was the hanging fate of legislature’s intent to set up the National Tax Tribunal (NTT) replacing high courts for speedy disposal of tax disputes. The NTT Act was challenged in various High Courts on the ground of constitutional validity and principles on separation of powers between judiciary and legislature. In a much awaited trial, civil appeals involving public interest litigations on NTT and NCLT was finally pronounced by the constitutional bench last week just before the apex Court closed for summer vacation. In a similar well intended reform envisaged for company law matters, the Government upon recommendation of Eradi committee enacted the Companies (Second Amendment) Act, 2002 to set up the National Company Law Tribunal (NCLT).The constitutionality of the law was challenged primarily on the ground of transfer of High Court jurisdiction to a quasi-judicial body, dominated by civil servants. Disposing off appeals, the SC upheld transfer of judiciary powers (traditionally vested in High Courts) to specialized NCLT and held that it was not devoid of legislative competence as the Parliament has such powers under the Constitution. The Court held that Tribunal is an alternate judicial forum and should function as an independent body without interference from the executive in its routine functioning. It is now clear that barring judicial review on specific Constitutional matters, jurisdiction exercised by High Courts with regard to company law matters shall stand transferred to the Tribunals. It follows that all company law matters before the Company Law Board, the Board for Industrial and Financial Reconstruction and matters before multiple HC’s will be transferred to the NCLT. The SC however delinked the challenge to setting up of NTT and directed that it should be listed for separate hearing observing that the challenge to NTT Act was with respect to Article 323B of the Constitution and can not be combined with respect to validity of NCLT. Article 323B provides for legislature’s power to provide adjudication of trial by specialized Tribunals and exclude the jurisdiction of all courts except the apex Court in matter adjudicated by Tribunals.

Anomalies to be set right before implementing new legislation

While the SC upheld constitutionality of NCLT, setting up the two Tribunals (to deal with company law related disputes and appeals arising therein) would mean crossing more hurdles as the Court acknowledged the current legislation contained certain anomalies. The SC taking cognizance of irregularities in certain part of the proposed legislation, issued important directions for amending the law. Underlying the importance of independence and stability of members for effective functioning, the Court has issued guidance for constitution of Tribunal, its functioning including appointment of members, terms and conditions of appointment etc. It is clear that there is some ground to cover before Tribunals effectively assume judiciary powers from; in my view, equally daunting task for Tribunals is to restore faith in the Apex Court’s reformist move for power shift in almost a century old judiciary system.

Corporates can rejoice!

The decision clearly paves the way for setting up of a company law body; a long standing demand of leading chambers. The move would lead to remodeling the adjudication process in company law disputes and hopefully reform the appellate procedure. I am anticipating that the Tribunal structure would significantly reduce pendency of cases which has become habitual hazard for businesses. In a distinct possibility, the clichéd ‘Tribunalisation of justice’ can reduce the trial period to one tenth on matters with respect to winding-up proceedings wherein India ranks amongst the worst nations. For business restructuring, the new model is likely to herald expeditious resolution of business and capital restructuring cases and at the same time facilitating ease in re-organization. The new structure once implemented will do away with multiplicity of appeals/revision, since all appeals shall be streamlined and offered to the Appellate Tribunal which shall be exclusively dedicated for company law matters. The decision of the tribunal shall be subject to review only by the Supreme Court on points of law.

Fate of NTT undecided

NTT 2005 Bill was introduced for speedy disposal of tax cases, volumes for which is becoming worse and topped with inconsistent views of state level high courts. Statistics are harsh to believe – 28,000 tax cases pending in various high courts, which functions with ordinary disposal rate of 6,000 cases per year. The Supreme Court has a pendency of around 4 to 5 years. The appalling state of tax dispute resolution and an astronomical amount (approx 2 lac crores) in dispute had staged the background for setting up of Tribunal. It was supposed to be followed by the formation of 15 Tribunals – 10 for direct tax and five for indirect tax cases. However, the fate of NTT found its way into maze of controversy, some well intentioned and most of them vested!

The Apex court’s decision to delink challenge to constitutionality of NTT adds to unpredictability and delay in disposal of tax disputes. I will curiously wait for the outcome with the clock ticking and putting more pressure on the existing dispute resolution institution.

Well timed reform

The Court decision on NCLT is a well timed move with anticipated amendment to the Company law and host of changes on corporate governance front. Speedy redresses of disputes, timely approval of business re-organisation schemes and doing away with multiplicity of appeals /revisions would lend credence to our dispute resolution procedure and help us move up the ranking on ease of doing business in India. I am hoping that the Apex Court extends its reformist views to pave way for NTT. Until then, I can only hope that the challenge to NTT is heard and decided with the same fervor!

The author is a Partner with BMR, and was assisted by Sumit Singhania; views are entirely personal

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