Apex court clears company law tribunal

Now that the Supreme Court has finally approved formation of the National Company Law Tribunal (NCLT), the government must quickly constitute the body to deal with corporate insolvency and other corporate law matters.


Modern economies must allow companies to restructure swiftly, close down businesses that no longer make commercial sense, sell assets or parts of the business if the situation so demands.


Speedy redeployment in production of assets — land, physical and human capital — locked up in unviable units is essential for an economy's efficiency. Unfortunately, restructuring companies has been difficult and winding up operations near impossible, given the slow pace of judicial decision-making and societal aversion to closure of any enterprise. Managements would be reviled for selling off assets.


What resulted was sub-optimal employment of various factors of production, with limited mobility for factors from less productive to more productive activities. In many instances, plant and machinery have rusted into junk, while the company awaited rehabilitation by the Board for Industrial and Financial Reconstruction (BIFR). These have had a real negative blow towards the economy and employment of the country.


Also, capital worth thousands of crore rupees would be locked up in these companies, burdening banks and creditors.


In that sense, the Supreme Court's decision to uphold the constitution of the tribunal as envisaged by the 2002 Companies Amendment Act, although much delayed, is welcome.


The verdict raises hope that the tribunal once created, would speed up the process for restructuring or winding up companies, for mergers and acquisitions as well as for addressing shareholder grievances, and that cases would be decided in a time-bound manner.


The NCLT is envisaged to be a companies' court subsuming the functions of the Company Law Board, and the BIFR, and the high court's mandate to approve M&A and liquidation of companies.


The quality of justice dispensed by the new tribunal will ultimately depend on the quality of its members and technical staff. The government would need to appoint the right people, and with dispatch.

This piece have been taken from the net. I was not aware of this news until I met my friend who was talking to me about one of the law firms in India - Jus Novum. While talking about law he came up with this news. I scrambled across the web and found the news, that I thought worth of posting in my blog. This legal firm is also a renowned LPO in India.

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