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NCLAT's Tata-Mistry ruling

How does the National Company Law Appellate Tribunal’s ruling impact corporate governance?

December 22, 2019 12:02 am | Updated January 04, 2023 04:49 pm IST

The story so far: On December 18, the National Company Law Appellate Tribunal or NCLAT (as the appellate tribunal is known) declared as “illegal” the October 2016 removal of Cyrus P. Mistry as Executive Chairman of Tata Sons Limited and ordered his reinstatement to the post. In a 172-page order, a two-member bench of the NCLAT comprising its Chairperson Justice S.J. Mukhopadhaya and Member (Judicial) Justice Bansi Lal Bhat, set aside the judgment passed by the National Company Law Tribunal (NCLT), Mumbai, on July 9, 2018, and ordered that “disparaging” and “unsubstantiated” remarks made by the NCLT against the appellants, Mr. Mistry and others, be expunged. The appellate tribunal, however, suspended its order on Mr. Mistry’s reinstatement as Executive Chairman of Tata Sons — in place of the incumbent, whose appointment was deemed illegal — for a period of four weeks “with a view to ensure smooth functioning of the company”. In response, Tata Sons has said it “strongly believes in the strength of its case and will take appropriate legal recourse”.

What is the NCLAT?

As part of a comprehensive revamp of the adjudication of corporate law disputes, the NCLAT was constituted with effect from June 1, 2016, for hearing appeals against the orders of the NCLT, which, in turn, simultaneously replaced the erstwhile Company Law Board. Constituted under Section 410 of the Companies Act, 2013, the appellate tribunal was conceived as the dedicated appeals forum for resolving corporate law disputes and speeding up the resolution by taking over the role hitherto played by overburdened High Courts in adjudicating such appeals.

Besides deciding on prayers against the NCLT’s rulings, including in matters relating to the Insolvency and Bankruptcy Code (IBC), the NCLAT also serves as the appellate body for those aggrieved by decisions made by the Competition Commission of India or orders passed by the Insolvency and Bankruptcy Board of India under Sections 202 and 211 of the Insolvency and Bankruptcy Code (IBC).

Established in New Delhi, the NCLAT initially comprised five members: two members each on the judicial and technical sides and the Chairperson Justice S.J. Mukhopadhaya. As part of its efforts to strengthen the entire NCLT and NCLAT apparatus with a view to further reducing pendency, the Centre this year added a total of four new members to the NCLAT — two each in judicial and technical capacities. The government has also decided to set up a bench of the appellate tribunal at Chennai, Minister of State for Finance and Corporate Affairs Anurag Singh Thakur said in a written reply to a question in Lok Sabha on December 2, 2019

While a member (Judicial) of the NCLAT has to have been a judge of a High Court or a judicial member of the NCLT for five years, a technical member ought to possess proven ability and standing with domain knowledge and experience of not less than 25 years in areas such as law, industrial finance, industrial management, investment, accountancy, labour matters or corporate restructuring. The chairperson must have been a judge of the Supreme Court of India or a Chief Justice of a High Court.

How does the appeals process work?

A party aggrieved by a ruling by any of the NCLT’s numerous benches can file an appeal against it within 45 days of receipt of a copy of the order, with a further 45 days allowed if the NCLAT is satisfied that the appellant had sufficient cause that prevented the filing of the appeal within the stipulated period.

The NCLAT’s verdicts can in turn be challenged on a question of law in the Supreme Court, within a 60-day window.

Have the NCLAT’s rulings been challenged?

While the appellate body has adjudicated on several significant precedent setting cases, some of its recent decisions have faced intense judicial scrutiny including one pertaining to ArcelorMittal’s bid to acquire debt-laden Essar Steel.

The NCLAT ruling in this case was challenged in the Supreme Court, which overturned a significant portion of the verdict. In its November judgment, the top court upheld the primacy of financial creditors over operational creditors in the repayments waterfall, settling the disquiet spurred by the NCLAT’s decision to seemingly place secured financial creditors on a par with the operational creditors.

And earlier in September, the Supreme Court had first stayed and then overturned a ruling by the NCLAT in an IBC case pertaining to Amtek Auto. While the appellate tribunal had ordered the liquidation of the embattled auto parts maker, the court ordered that the resolution professional and lenders could invite fresh bids for the company.

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