Facts:
The brief facts of the case goes like, The government passed the Company (Second Amendment) Act, 2002, which added chapters 1B and 1C to the Companies Act, 1956, establishing the National Company Law Tribunal (NCLT) and National Company Law Appellate Tribunal (NCLAT) to take over the functions previously performed by the Company Law Board (CLB), Board of Industrial and Financial Reconstruction (BIFR), Appellate Authority for Industrial and Financial Reconstruction (AAIFR), and the High Court. The Madras Bar Association contested the legality of Chapters 1B and 1C. When the matter was heard by the High Court, it ruled that the establishing of the tribunal and vesting in it the powers of the High Court and the Company Law Board was not unconstitutional. However, it held that several provisions of chapters 1B and 1C, namely Sections 10-FD(f)(g)(h), 10-FE, 10-FF, 10-FL(2), 10-FR(3), and 10-FT, were faulty and thus violated the basic feature of separation of powers and independence of the judiciary; and that it would be unconstitutional to constitute NCLT and NCLAT unless the provisions were amended to remove the defects. According to the High Court’s decision, the Union of India consented to correct practically all of the High Court’s findings. It has, however, refused to accept the flaws in Sections 10-FD(3)(f), (g), and (h), as well as Section 10-FX.
Issues:
- To what degree may the High Court’s powers and judiciary (save for judicial review under Article 226/ 227) be delegated to Tribunals?
- Is there a limit that Parliament must cross before vesting intrinsic judicial tasks historically performed by courts in any Tribunal or authority other than the judiciary?
- Whether the “bulk transfer of powers” planned by the Companies (Second Amendment) Act, 2002 would violate the constitutional framework of separation of powers and judiciary independence by elevating one branch over the other?
Comments:
For the first issue, it was argued that several provisions in Parts 1B and 1C of the Act relating to the constitution of NCLT and NCLAT were intended to provide for the selection of appropriate persons to be its President, Chairperson, or members, as well as for their proper functioning. It was written in S. Similar provisions pertaining to the formation of various alternative institutional structures, such as Administrative Tribunals, Debt Recovery Tribunals, and Consumer Forums, were approved by the Court in S. P. Sampath Kumar vs. Union of India[1].
In case of breach or violation, the victim can file a claim in the general civil court. As instruments of government, these courts have state jurisdiction, and their powers are derived from the Constitution or the laws that enacted them. Their number is usually fixed, usually permanent, and complaints or cases can be heard within jurisdictions. This number can fluctuate, but it is almost always permanent, and we use the heavy term “yard”. Therefore, the central government certainly does not fall into this category. With the development of civilization and the problems of modern life, many administrative courts have appeared. This court has the legal power to adjudicate rights of value. They act in accordance with judicial process and evidence under oath, but are not part of a general civil court. They are common to the exercise of jurisdiction by states, but are created to carry out specific administrative policies or to solve problems arising from administrative law. They are comparable to, but not the same as, courts. When the Constitution refers to “Courts” in Articles 136, 227, or 228 or Arts. 233 to 237, or in the Lists, it refers to Civil Judicature Courts but not other Tribunals. This is why both terms are used in the arts. 136 and 227. Courts of Civil Judicature are intended by “Courts,” and “Tribunals” are bodies of persons appointed to settle issues originating under particular special statutes. The authority to resolve such issues is one of the State’s powers. This is without a doubt one of the qualities of the State, and it is appropriately referred to as the judicial authority of the State. A distinct split is thus visible in the use of this authority. Therefore, there is a clear distinction between the use of this permission. Usually, some specific entities are tried in courts and others are tried in general civil courts. The method may be different, but the function is the same. What sets them apart has never been clearly defined.
The Union of India rebut that the High Court should have dismissed the writ suit after ruling that the Parliament had the competence and capacity to form the NCLT and NCLAT. Some of the High Court’s directives to reframe and recast Parts 1B and 1C of the Act, it is argued, amount to transforming judicial review into judicial legislation. However, because the Union of India has agreed to correct some of the faults identified by the High Court (as detailed above), the Union Government’s appeal is now limited to the High Court’s findings on sections 10FD(3)(f), (g), and (h), and 10FX.
In its appeal, the Madras Bar Association contends that the High Court should not have upheld the constitutional validity of Parts 1B and 1C of the Act, which provide for the establishment of NCLT and NCLAT; that the High Court should have held that the establishment of such Tribunals, which takes away the entire Company Law jurisdiction of the High Court and vests it in a Tribunal that is not under the control of the Judiciary, is a violation of the doctrine of separation of powers.
They also claimed that the decisions of this Court in Union of India vs. Delhi High Court Bar Association[2], pertaining to the constitutional validity of the provisions of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 providing for the establishment of Debt Recovery Tribunals, and State of Karnataka v Vishwabharathi House Building Co-op. Society[3] must examine the constitutional legality of the Consumer Protection Act of 1986, which provides for the establishment of consumer fora.
Every State has administrative bodies or authorities that are mandated to handle problems under their purview in an administrative way. These bodies or authorities’ judgments are referred to as administrative decisions. Administrative bodies are able to and frequently do so when making judgments on matters of administration.
It is not unlikely that, even during this process of establishing administrative divisions, administrative bodies or authorities are required to act fairly and objectively, and in many cases must adhere to natural justice principles; however, the authority to make decisions bestowed on such administrative bodies is clearly separate and distinct from the judicial power conferred on courts, and the decisions pronounced by administrative bodies are similarly independent and distinct.
Judgement:
Parliament has unrestricted authority to pass legislation that is not covered by an entry in Lists II or III of the Seventh Schedule. The power so provided by Article 246 is in no manner modified or regulated by Article 323A or 323B. Even though revival/rehabilitation/regulation/winding up of companies are not mentioned in Articles 323A and 323B, the Parliament has the legislative authority to pass legislation establishing tribunals to deal with situations and matters arising under the Companies Act.
When a tribunal is established under the Companies Act to deal with disputes arising under the Act, and the legislation replaces the phrase “Tribunal” for “High Court,” there is a ‘wholesale transfer’ of company law matters to the tribunals. Therefore, is an unavoidable result of the tribunal’s establishment for such conflicts, and it has no bearing on the statute that established the tribunal.
When it is stated that the Legislature has the competence to make laws determining which disputes will just be decided by courts and which disputes will be decided by tribunals, it is subject to constitutional limitations, without compromising the independence of the judiciary and keeping in mind the principles of the Rule of Law and separation of powers. Tribunals should have the independence, security, and capability associated with courts if they are to be empowered with judicial authority formerly bestowed in or exercised by courts. If the tribunals are intended to serve an area that requires specialized knowledge or expertise, Technical Members, in addition to Judicial Members, are undoubtedly possible. However, if power to try particular categories of matters is transferred from courts to tribunals solely to expedite hearing and disposition or to ease the rigors of the Evidence Act and procedural regulations, there is plainly no need for any non-judicial Technical Member. Only members of the Judiciary shall serve as Presiding Officers or as members of such tribunals. As a result, when transferring the jurisdiction exercised by courts to tribunals, the only goal is to expedite the disposal and relax the procedure, a provision for Technical Members in addition to or in substitution of judicial members would clearly be a case of dilution of and encroachment on the independence of the Judiciary and Rule of Law, and would be unconstitutional.
Legislative measures are not subject to fundamental characteristics, fundamental structure, or fundamental framework. Only two reasons can be used to declare legislation illegal or invalid: (i) a lack of legislative competence and (ii) a breach of any basic rights or any provision of the Constitution.
The Legislature has the authority to transfer any particular jurisdiction from courts to tribunals, provided that the tribunals exercise judicial power and the individuals appointed as President/Chairperson/Members are of a standard that is reasonably close to the standards of main stream judicial functioning. On the other hand, packing a tribunal with members drawn from the civil services and who continue to be employees of different Ministries or Government Departments by maintaining lien over their respective posts would amount to transferring judicial functions to the executive, which would be contrary to the doctrine of separation of powers and independence of the judiciary. An independent judiciary can only exist if the judicial institutions are staffed by people who are competent, capable, and independent, as well as having impeccable character.
[1] 1987 (1) SCC 124
[2] 2002 (4) SCC 275
[3] 2003 (2) SCC 412
Author: Munmun Mohanty,
BML Munjal University, 4th Year, Student