BAJAJ BROKING
November 27, 2024
8 mins read
In this blog, we will discuss the role and objectives of the National Company Law Tribunal. We will also talk about its functions in detail.
The NCLT stands at a unique place in the Indian corporate spectrum. It is a quasi-judicial body with the responsibility to settle corporate disputes and ensure compliance with laws pertaining to companies. Since it came under the Companies Act, 2013, the NCLT has emerged as an important institution that facilitates dispute resolution, insolvency proceedings, and corporate governance, paving the way for an efficient business environment in India.
It’s important for investors and other stakeholders of businesses to have a good understanding of how the NCLT works and what it does. If you are thinking of entering the Indian stock market (which is quite simple actually - just open demat account online), you should probably learn about NCLT too.
When corporate cases are too special for the civil courts and require business expertise the NCLT steps in. It has the power to adjudicate matters relating to company registrations, mergers, insolvency, and shareholder disputes. With this single window, it accelerates the solution of the disputes thus simplifying the operational setup in a legal sense for businesses.
Notably, the NCLT plays a very significant role in the resolution, insolvency, and liquidation process pertaining to the Insolvency and Bankruptcy Code, 2016. To ensure financial discipline and proper care of stakeholder interest in India's corporate environment, this institution assumes tremendous importance. Now that we know what is NCLT, let’s move on to learn more about it.
The NCLT operates through various benches spread across the country with the expectation of meeting regional demand and improving accessibility for the enterprises and other stakeholders. Each bench has jurisdiction over particular geographical regions. The NCLT benches along with their jurisdictions have been presented briefly below:
Bench | Location | Jurisdiction |
Principal Bench | New Delhi | Handles cases from Delhi and neighbouring regions. |
Mumbai Bench | Mumbai | Covers Maharashtra and adjoining areas. |
Kolkata Bench | Kolkata | Jurisdiction includes West Bengal and the northeast. |
Chennai Bench | Chennai | Handles corporate disputes in Tamil Nadu and southern regions. |
Hyderabad Bench | Hyderabad | Covers Telangana, Andhra Pradesh, and nearby states. |
Ahmedabad Bench | Ahmedabad | Jurisdiction includes Gujarat and western states. |
Bengaluru Bench | Bengaluru | Covers Karnataka and surrounding areas. |
Every bench is constituted by a judicial member accompanied by a technical member thereby giving legal and technical expertise as a balanced approach to corporate matters.
The NCLT was established with several key objectives to strengthen India’s corporate governance system. Below are its primary objectives:
1. Streamline dispute resolution
Providing an on point platform for resolution of corporate disputes stands among the specific objectives of NCLT. Matters relating to company law, insolvency, and corporate mismanagement cases were dispersed across several forums-those being the Company Law Board (CLB), the Board for Industrial and Financial Reconstruction (BIFR), as well as numerous high courts-as a matter of pre-reforms. Such disbursement with cases often had the malady of delay as well as paralysing inconsistencies in judgments.
This integrates the functions under one roof thus ensuring that one legal process overtakes, thereby reducing burdens on traditional courts as well as imparting a faster mechanism in resolving corporate disputes.
2. Fair hearing of disputes
It is basically the objective of NCLT that brings these resolutions to close in an efficient manner, with strict timelines. Specifically important, it is because matters relating to insolvency and bankruptcy under IBC can damage assets and lose stakeholder confidence if further delayed.
This is because the NCLT sets definite timelines for each step of the process. For example, the typical time for corporate insolvency resolution processes will be between 180 and 270 days.
3. Facilitating Business
The tribunal is important in enhancing ease of doing business in India. To attract the investments and foster a stable business environment, an effective system of dispute resolution is very critical. The NCLT achieves this through:
Addressing legal issues.
Ensuring accountability, and
Reducing litigation costs.
Its efficiency and transparency build trust among businesses and investors, thus making India a more favoured destination for all sorts of economic activity.
4. Provide insolvency restructuring
The NCLT, therefore, exercises the role of the adjudicating authority in cases of insolvency and bankruptcy filed under the IBC. Its job is particularly important due to the high piling of NPAs and stress among companies in India.
It ensures openness and effectiveness in dealing with the process of insolvency resolution by making appointment of resolution professionals, superintending over resolution plans, and balancing the interests of the respective stakeholders, including creditors and debtors. This has resulted in sizable reduction of time and complexity to the extent of resolving cases of insolvency.
5. Protecting Stakeholder Interest
The NCLT wants to ensure the validity of claims made by parties involved in corporate litigation.
Shareholders might have grievances in terms of oppression and mismanagement.
Fair treatment to creditors in the insolvency procedures.
Employees, their rights in case of corporate restructuring or even liquidation.
This is especially so with insolvency matters because it affects not only the creditors, but also employees, suppliers, and customers.
6. Enabling Corporate Restructuring
The NCLT primarily has the oversight functions of corporate restructuring, mergers, amalgamation, and demergers in relation to these in furtherance of being in accordance with legal provisions as well as interest of stakeholders. For example, in the case of mergers, while analysing the fairness of the scheme, the valuation done by experts, and the effect on the stakeholders, it supports the growth of corporations with equal transparency and accountability.
Now that we have covered the objectives of NCLT, let’s move on to the functions of National Company Law Tribunal.
The National Company Law Tribunal is a special judicial authority specifically responsible for the administrative oversight of corporations in India. Among its roles, it spans nearly all virtues-from dispute resolution to corporate restructuring-strikingly within the restraints of the law. Some of its most important functions are described in detail below.
1. Company Registration Disputes
NCLT deals with incorporation disputes of companies and makes sure companies are at par with the Companies Act 2013. Further, if there are allegations that a company has been fraudulently incorporated, the NCLT is authorised to investigate and take steps-including to cancel the registration-to which the company is so entitled.
2. Share Transfer Disputes
The tribunal is responsible for deciding disputes between shareholders or between shareholders and the company concerning the transfer or ownership of shares. It does not accept a transfer of shares: a shareholder can approach the NCLT if a company declines to register a transfer of shares. In cases of fraudulent share allotment or disputes over share ownership, the tribunal provides a fair resolution. This function ensures transparency and upholds shareholder rights, particularly in cases of oppression or mismanagement.
3. Resolving Deposit-Related Complaints
Public deposits by companies are strictly governed under the Companies Act. The jurisdictions of NCLT include the cases of non-compliances of norms such as:
the deposits never repaid back to investors, and
deposit-taking fraud involving fictitious schemes.
It has the power to order the company to pay back deposits with interest, besides imposing penalties in case companies default. This function ensures the interest of the small investor and establishes the concept of corporate governance on trust.
4. Freezing Assets During Investigations
The NCLT can freeze the assets of companies or any individual suspected to be involved in fraudulent or illegal activities. The freezing order ensures that fraudsters cannot steal away money gradually as companies stand frozen during the investigations. Its protection of creditors feature protects all the creditor and various stakeholders from losses resulting from misconduct by such corporate entities. Asset freezing is most relevant in cases of mismanagement, fraud, or insolvency.
5. Investigatory Power
The NCLT may order an investigation into the affairs of a company where there are suspicions of fraud, mismanagement, or any other type of misconduct.
- Examination of Books : It may insist on submitting company books for examination.
- Appointing Inspectors: The tribunal can appoint inspectors to investigate the company’s affairs and submit reports.
This function allows for corporate accountability and transparency in these transactions, preventing fraudulent activities.
6. Transformation of Companies
This court regulates the conversion of companies from one form to another, subject to the proper legal formalities.
- Private to Public: Companies seeking to expand their shareholder base and access public funding can approach the NCLT for conversion approval.
- Public to Private: Just like public companies that want to privatize must seek permission from NCLT for sustaining shareholder and stakeholder interests.
This function facilitates corporate flexibility while maintaining legal safeguards.
7. Solvency or Bankruptcy Procedure
Under the NCLT, 2016, the Insolvency and Bankruptcy Code deals with the adjudication process for a corporate insolvency case. Firms, creditors, or financial institutions may approach the NCLT to initiate the process of insolvency. The Tribunal appoints insolvency professionals to manage the resolution process. It examines and approves resolution plans worked out by the stakeholders whether or not they are in line with the legislation.
This function is crucial in addressing non-performing assets (NPAs) and enabling timely resolution of financial stress.
8. Facilitating Mergers and Amalgamations
The NCLT exercises supervisory powers over corporate restructuring activities like mergers, amalgamations, and demergers.
- Approval of Schemes: It approves proposed schemes of mergers or demergers to ensure the scheme is fair and equitable to all the stakeholders involved.
- Stakeholders' interests: there would be no harm to the minority shareholders or the creditors or employees because of reshuffling.
The NCLT enables corporate reorganisation and, therefore, promotes business competitiveness and growth.
9. Efficient Removal of Oppression and Misrule
The NCLT can also take cognizance over cases filed by minority shareholders or members claiming oppression or mismanagement by majority stakeholders of company directors. It will prevent the harassment of power by ensuring that no one single group and/or individual could misuse their authority within the organisation. It also provides remedies in the form of removal of directors, annulment of unfair decisions, or even dissolution of the company if deemed appropriate. This function helps to ensure balance and fairness in corporate governance.
10. Winding Up of Companies
The NCLT has the power to pass an order to wind up the company if considered necessary by it. Companies that can't pay off their debt are forced to sell off their assets. In some cases where the shareholders have opted for voluntary dissolution, the NCLT ensures that the legal process is followed. This function ensures that winding-up processes are conducted transparently, safeguarding the interests of creditors and other stakeholders.
The NCLT is the most critical institution in the corporate governance framework of India. Its focused specialism in unlocking corporate dispute resolution, improvements in the insolvency process, and rule of laws provides it as a pillar for a business or stakeholder. Centralization and simplification of the corporate dispute resolution processes by NCLT helped to create a robust and transparent business environment in India.
Disclaimer: Investments in the securities market are subject to market risk, read all related documents carefully before investing.
This content is for educational purposes only. Securities quoted are exemplary and not recommendatory.
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The component of an employee’s salary that remains fixed from month to month is called fixed pay. The main difference between fixed and variable salary is that while the former remains fixed from month to month, the latter can change significantly.
Fixed pay is usually the sum of an employee’s base salary, allowances (HRA + special allowance + transport allowance + medical allowance), PF contributions, and gratuity.
As the amount of salary remains constant, fixed pay makes employees feel financially secure. Fixed pay is also much easier to budget than variable pay because companies can easily predict how much fixed pay they will pay over a year.
When employees know that they can earn a sizeable part of their compensation in the form of variable pay, they feel motivated to work harder. That said, they can also get stressed if their extra efforts do not result in better productivity. This is because variable pay is linked to an employee’s productivity and not to the number of hours he is putting in.
Variable pay is common in profiles related to sales, business development, investment banking, technology, retail & corporate banking, and customer-facing roles.
Employees need to research their industry well to understand how much fixed and variable pay they can demand. When it comes to variable pay, they need to be clear about the criteria based on which variable compensation will be paid. Overall, they should understand the value they bring to the table and they must negotiate based on that.
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