Notification of Sections Relevant for NCLT

Yesterday late evening, I posted here about press release issued by Ministry of Corporate Affairs. Soon thereafter, two files uploaded on Official Gazette website with two notifications in each. In earlier post here today, we discussed establishment and jurisdiction of various NCLT benches.

In this post, we will have a bird’s eye view on Sections notified on 1^st June 2016 related to NCLT.

Fraudulent incorporation of company

Sub – section (7) of section 7 except its clause (c) and (d) deals with power of NCLT where a company has been got incorporated by furnishing any false or incorrect information or representation or by suppressing any material fact or information in any of the documents or declaration filed or made for incorporating such company or by any fraudulent action.

We have discussed this provision earlier here.

Clause (c) and (d) of section 7(7) respectively deals with removal of name and winding up. These clauses have no mention in 11^th Schedule of the Insolvency and Bankruptcy Code, 2016.

Conversion of Public Company into Private Company

Second proviso to sub-section (1) of section 14 says that effect of conversion of a public company into a private company shall not take effect except with the approval of the Tribunal. We have discussed this provision earlier here.

Filing of order of Tribunal

Sub-section (2) of section 14 requires filing of a copy of order of Tribunal along with copy of altered articles of company with registrar. We have discussed this provision earlier here.

Issue of further redeemable preference shares

Sub-section (3) of section 55 requires issue further redeemable preference shares equal to the amount due, including the dividend thereon, in respect of the unredeemed preference shares with approval of the Tribunal. We have discussed this provision earlier here.

Consolidation and Division of Shares

According to proviso to Clause (b) of sub-section (1) of section 61 no consolidation and division which results in changes in the voting percentage of shareholders shall take effect unless it is approved by the Tribunal. We have discussed this provision earlier here.

Conversion of Government Loan into shares

Sub-sections (4) to (6) of section 62 gives right to a company to approach the Tribunal in case, terms of government order converting any debentures issued, or loan obtained from any Government by a company is not acceptable to the company. We have discussed this provision earlier here.

Power of Debenture Trustees to approach Tribunal

Sub-sections (9) to (11) of section 71 deals with power of debenture trustee to approach the Tribunal, to stop company form incurring further liabilities on assets and to get redeem debenture on maturity, where company fail to do so. We have discussed this provision earlier here.

Damage for Fraud

Where deposits had been accepted with intent to defraud the depositors or for any fraudulent purpose, damages may be claimed under Section 75. We have discussed this provision earlier here.

Power of Tribunal to Call Annual General Meeting

According to Section 97, the Tribunal may on the application of any member of the company, call, or direct the calling of, an annual general meeting of the company. We have discussed this provision earlier here.

Power of Tribunal to Call Meetings

According to Section 98, the Tribunal may, either suo motu or on the application of any director or member of the company may call a meeting of members with such directions as it deemed fit. We have discussed this provision earlier here.

Punishment for non compliance of Sections 97 and 98

According to section 99, if any default is made in holding a meeting of the company in accordance with section 96 or section 97 or section 98 or in complying with any directions of the Tribunal, the company and every officer of the company who is in default shall be punishable. We have discussed this provision earlier here.

Order allowing Member for Inspection

According to Section 119(4), where company does not allow member for inspection of minutes of any general meeting or resolution passed by postal ballot, the Tribunal may direct that copy be sent to the Member. We have discussed this provision earlier here.

Re – opening of Accounts

On an application made under Section 130, the Tribunal may, on an application, order to re-open of books of account and recast financial statements of a company. We have discussed this provision earlier here.

Voluntary revision of Financial Statements pr Board’s Report

Directors may prepare revised financial statement or a revised report in respect of any of the three preceding financial years after obtaining approval of the Tribunal on an application made by the company under Section 131. We have discussed this provision earlier here.

Removal of Auditor

The Tribunal either suo motu or on an application made to it, if it is satisfied that the auditor of a company has acted in a fraudulent manner or abetted or colluded in any fraud by, or in relation to, the company or its directors or officers, may, by order under Section 140(5), direct the company to change its auditors.

According to second proviso to sub-section (4), the copy of the representation made by auditor may not be sent and not be read out at the meeting, if Tribunal so direct, in case of removal of auditor by company.

We have discussed this provision earlier here.

Removal of Director

According to proviso to sub-section (4) of section 169, the copy of the representation made by a director may not be sent and not be read out at the meeting, if Tribunal so direct, in case of removal of director by company. We have discussed this provision earlier here.

Investigation into Company’s Affairs

The Tribunal may under Section 213 order; that (a) for conducting an investigation into the affairs of the company or (b) the affairs of the company ought to be investigated by an inspector or inspectors appointed by the Central Government. We have discussed this provision earlier here.

Investigation of ownership

The Central Government shall appoint one or more inspectors, if the Tribunal directs under section 216, by an order that the affairs of the company ought to be investigated as regards the membership of the company and other matters relating to the company. We have discussed this provision earlier here.

Protection of Employees

During the course of any investigation of the affairs and other matters of or relating to a company, other body corporate or person or of membership  etc such company, other body corporate or person proposes shall obtain approval under Section 218 of the Tribunal of the action proposed against any employee. We have discussed this provision earlier here.

Freezing of Assets

Where it appears to the Tribunal, on a reference made to it by the Central Government or in connection with any inquiry or investigation into the affairs of a company or on any complaint made by such number of members or a creditor having one lakh amount outstanding against the company or any other person having a reasonable ground to believe that the removal, transfer or disposal of funds, assets, properties of the company is likely to take place in a manner that is prejudicial to the interests of the company or its shareholders or creditors or in public interest, it may by order under Section 221 direct that such transfer, removal or disposal shall not take place during such period not exceeding three years as may be specified in the order or may take place subject to such conditions and restrictions as the Tribunal may deem fit. We have discussed this provision earlier here.

Imposition of Restriction upon Securities

Where it appears to the Tribunal, in connection with any investigation or on a complaint made by any person in this behalf, that there is good reason to find out the relevant facts about any securities issued or to be issued by a company and the Tribunal is of the opinion that such facts cannot be found out unless certain restrictions, as it may deem fit, are imposed, the Tribunal may, by order, direct that the securities shall be subject to such restrictions as it may deem fit for such period not exceeding three years as may be specified in the order made under Section 222. We have discussed this provision earlier here.

Reporting of Fraud by inspector

Where the report made by an inspector states that fraud has taken place in a company and due to such fraud any director, key managerial personnel, other officer of the company or any other person or entity, has taken undue advantage or benefit, whether in the form of any asset, property or cash or in any other manner, the Central Government may file an application before the Tribunal for appropriate orders under Section 224(5) with regard to disgorgement of such asset, property, or cash, as the case may be, and also for holding such director, key managerial personnel, officer or other person liable personally without any limitation of liability. We have discussed this provision earlier here.

Oppression and Mismanagement

Any member, who has right to apply under Section 244, may apply to the Tribunal under Section 241.

An application may be filed for a complaint that:

• The affairs of the company have been or are being conducted  in a manner prejudicial to the public interest, or
  In an manner prejudicial or oppressive to him or any other member or members, or
  In a manner prejudicial to the interests of the company; or
• The material change has taken place in the management or control of the company, whether by;
  1. An alteration in the Board of Directors, or
  2. Manager, or
  3. In the ownership of the company’s share, or
  4. If it has no share capital, in its membership, or
  5. In any other manner whatsoever, and

that by reason of such change, it is likely that the affairs of the company will be conducted in a manner prejudicial to its interests or its members or any class of members. These changes should not be a change brought about by, or in the interests of, any creditors, including debenture holders or any class of shareholders of the company. We have discussed this provision earlier here.

Powers of Tribunal

Section 242 deals with power of Tribunal in case of oppression and mismanagement. Clause (b) of sub – section (1) of Section 242 which deals with power related to winding up in such cases, clause (c) of sub – section (2) of Section 242 which deals with reduction of share capital and clause (g) of sub – section (2) of Section 242 which deals with insolvency are not notified. We have discussed this provision earlier here.

Consequence of Termination or Modification of Agreements

According to Section 243, where an order made under section 242 terminates, sets aside or modifies an agreement—

• such order shall not give rise to any claims whatever against the company by any person for damages or for compensation for loss of office or in any other respect either in pursuance of the agreement or otherwise;
• no managing director or other director or manager whose agreement is so terminated or set aside shall, for a period of five years from the date of the order terminating or setting aside the agreement, without the leave of the Tribunal, be appointed, or act, as the managing director or other director or manager of the company. Tribunal shall not grant leave under this clause unless notice of the intention to apply for leave has been served on the Central Government and that Government has been given a reasonable opportunity of being heard in the matter.

We have discussed this provision earlier here.

Right to Apply under Section 241

Section 244 lists out requirement to have right to apply under Section 241. However, Tribunal may, on an application made to it in this behalf, waive all or any of the requirements specified, so as to enable the members to apply under section 241. We have discussed this provision earlier here.

Class Action Suit

Under Section 245, Members, Depositors or any class of them may, if they are of the opinion that the management or conduct of the affairs of the company are being conducted in a manner prejudicial to the interests of the company or its members or depositors, file an application before the tribunal for seeking all or any of the order specified under the Section. We have discussed this provision earlier here.

Inspection, Production and Evidence of Documents Kept by Registrar

Section 399 came into force on 1^st April 2016, however without reference to word “tribunal”under its sub –section (2). Now, this reference has also come into force. We have discussed this provision earlier here.

Administration of NCLT and NCLAT

Section 415 to Section 433 (both inclusive) has also came into force. These sections deals with administration of NCLT and NCLAT.

We have discussed this provisions earlier here and here.

Transfer of certain pending proceedings

All matters, proceedings or cases pending before the Board of Company Law Administration immediately before such date shall stand transferred to the Tribunal and the Tribunal shall dispose of such matters, proceedings or cases in accordance with the provisions of this Act. [Section 434(1)(a)]

Any person aggrieved by any decision or order of the Company Law Board made before such date may file an appeal to the High Court within sixty days. [Section 434(1)(b)]

Rest of the provisions of this sub – Section, except these two clauses, is not notified.

The Central Government may make rules consistent with the provisions of this Act to ensure timely transfer of all matters, proceedings or cases pending before the Company Law Board or the courts, to the Tribunal under this section. [Section 434(2)]

We have discussed this provision earlier here.

Compounding of Certain Offences

Now, Compounding application for certain offences shall be made before the Tribunal under Section 441. We have discussed this provision earlier here.

Dissolution of Company Law Board

Always, new era made an end to earlier one. Notification of Section 466 dissolves the Company Law Board. Notification of this section 466 makes last Chairman of CLB as Provisional and first Chairman of NCLT.

List of Sections so notified on 1^st June 2016

Please note: This blog invite readers to share their comments, suggestions, hardship, queries and everything in comment section. This blog post is not a professional advice but just a knowledge sharing initiative for mutual discussion.