The Business Standard reported today:

Once the [NCLT] is established, all company-related matters pending with the Company Law Board (CLB), Board for Industrial and Financial Reconstruction (BIFR) and different high courts across the country will be transferred to the NCLT.

Ruling on a petition filed by the government against an order of the Madras High Court, a five-judge Constitution Bench headed by Chief Justice K G Balakrishnan today upheld the validity of the 2002 amendment with certain conditions.

The Bench, which included Justices R V Raveendran, D K Jain, P Sathasivam and J M Panchal, delivered the judgement on an appeal filed by the Centre against the Madras High Court verdict [in R. Gandhi v. Union of India].

Earlier, the amendment to the Companies Act 1956 to set up the NCLT was rendered unconstitutional by the Madras High Court on several counts.

The NCLT, which was to take over the functions hitherto performed by the BIFR, the Appellate Authority for Industrial and Financial Reconstruction and the CLB, was proposed in the Companies (Second Amendment) Act, 2002.

As per the proposal, all company-related matters pending in different high courts were to be transferred to the NCLT. The Central government had moved the Supreme Court against the Madras High Court ruling six years ago.

The apex court had completed hearings in the case more than a year ago."

The principal challenge to the constitutionality of the NCLT is based on the wholesale transfer of jurisdiction of the High Court in company matters to a quasi-judicial tribunal. It was argued by the petitioners that this transfer resulted in the vesting of intrinsic judicial functions in a quasi-judicial/executive body.

Jaisimha Babu J. of the Madras High Court had accepted this contention, holding that the power of the Parliament to create Tribunals does not ‘extend to rendering such new forums an extension of the legislative or executive branches of the Government, or as forums controlled, or designed to be dominated, or potentially dominated, by the legislative or executive wing of the state…’ It was held that the proposed model of the NCLT violated the constitutional principles of separation of powers and independence of the judiciary by vesting essential judicial functions in a non-judicial body."

Now, of course, some of these conclusions are rather broad – the Court is only laying down the shortcomings in the presently proposed model, and it is for the Government to take note of these principles and pass an appropriate law establishing the NCLT. Thus, the judgment has upheld the competence of the Parliament to set up the NCLT, but it has not upheld the actual establishment of the NCLT itself. Only after the Parliament modifies the present law will an actually existing and functional Tribunal be possible. It is perhaps in everyone’s interest that Parliament sticks to the Court’s views as closely as possible in enacting the new law, else another constitutional challenge would be in the offing. The ball is now back in the Parliament’s court."