In its recent order dated 22.11.2019, the Hon’ble National Company Law Tribunal, Principal Bench at New Delhi (“Principal Bench”), in the matter of Oriental Bank of Commerce v. Sikka Papers Ltd. & Ors., has directed that the Ministry of Corporate Affairs (MCA) be made party to all applications filed under the Insolvency and Bankruptcy Code, 2016 as well as under the Companies Act. While the same does not form part of the final order as the matter is lis-pendens, the said direction only forms part of the interim order referred above.
Stating that making MCA a party would ensure availability of records for proper appreciation of matters, the Principal, vide the said order, has directed the Deputy Registrars of all National Company Law Tribunals to ensure that the direction is complied with.
In this article, the author has made a humble attempt to critically examine the direction issued by the Principal Bench, and if at all the same serves a fruitful purpose in the extant operational structure.
The extant framework
It is a well-settled principle that an order/ judgment of the Hon’ble Supreme Court, being the apex court of India becomes the “law of the land” and is applicable to the whole of India; whereas the orders of the Hon’ble National Company Law Appellate Tribunal (NCLAT) though over and above that of any National Company Law Tribunal, are subject to the order of the Apex Court.
Having said so, it is important to note that while the orders of Supreme Court and NCLAT have a pan-India applicability, orders of NCLT are only limited to their territorial jurisdiction. While an order by a particular bench may be referred to before another bench, no particular bench is bound by the order of another.
While the above deals with territorial jurisdiction, the Principal Bench of NCLT has been constituted on the basis of monetary jurisdiction- wherein the companies have paid-up share capital of Rs. 50 lakhs or more.
Powers of the Principal Bench
In the instant case, the President of the Principal Bench, has directed the Registrar of all NCLT benches to implead MCA as a party to all cases filed under the Code as well as other Company Petitions. At the very outset that question that arises here is if at all the Principal Bench has the power to do so.
Rule 16 of Part II of the National Company Law Tribunal Rules, 2016 (“NCLT Rules”) explicitly lays down the functions of the President of the Principal Bench which includes giving directions to the Registry for performance of its functions. Further, Rule 19 of the NCLT Rules also bestow upon the President the power to assign to the Registrars of NCLT as it may deem necessary for execution of any function as required by the President.
Hence, it can be said that such direction is well within the ambit of powers vested upon the Principal Bench.
Feasibility of the directions-
While the same may be within the powers of the Principal Bench, the author begs to differ in terms of the rationale on such order was passed.
Duplicity of Records
While the idea cited by the Principal Bench behind such direction was availability of first-hand information with the MCA so as to ensure proper appreciation of records, with humility, it is submitted that the rationale behind such order may been seen from another perspective viz. several reporting requirements which are to be mandatorily adhered to by the applicants under the Code and Companies Act, require a notice to the Ministry, either by way of intimation and/ or service of a copy of such application. Hence, if the said direction is put to effect, it shall lead to duplicity in terms if reporting to MCA; where on one hand MCA shall be made a party to the application, the applicants shall continue to adhere to the reporting requirements it was otherwise required to follow.
For instance, in an application for merger under section 232 of the Companies Act, 2013, the applicant company is required to serve a copy of the application to all regulatory authorities including the MCA, seeking the latter’s observation, if any. In such a set-up, if MCA is also impleaded as a party to the application, it may lead to duplicity of records with MCA, which in turn may not be fruitful.
Again, in case of an application under the Code, the Insolvency Resolution Professional/ Resolution Professional/ Liquidator is required to intimate the Registrar of Companies about initiation of corporate insolvency resolution/ liquidation process, as the case may be. Hence, it would again lead to duplicity. One may argue that the MCA shall, on basis of applications under the Code, maintain a record of the debts owed by a company; however, it is significant to note that for the said purpose, Information Utilities have already been put in place.
Hence, the author humbly submits that while the said direction does no explicit harm, per se, it does not seem to be as fruitful as is intended.
The author further humbly submits that the said direction may also lead to escalated delays. Extended time-lags between filing of an application and hearing of the same is a chronic issue that has been persistently faced in the Indian legal system. The author believes that impleadment of MCA as a party to all ensuing applications under the Code and Companies Act, by its sheer magnitude, will lead to further elongated time-gaps between initiation and disposal of matter; and hence, is not advisable. It is also pertinent to note that by virtue of the number of cases that are being filed before NCLT, impleadment of MCA as a party all such matters, is likely to result in unwarranted pressure upon MCA, without reaping any commensurate benefits.
Another tangent in the said scenario is whether the actual impact of the direction is limited to the NCLT Benches, or has the same percolated to the applicants? The author humbly submits that as a result of the direction, NCLT Benches are required to “ensure” that MCA is impleaded as a party to all applications; as a result, the actual obligation falls upon the applicant who must now adhere to the same. Further, end result of the time-lags as discussed above, will actually impact the applicants who sit at the end of the chain.
In the above pretext, author begs to differ from the rationale as cited by the Principal Bench, and further submits that similar to the “tip of the ice-berg” theory, the said direction only deals with the end result which is meagre as compared to the underlying toil.