UOI vs. R. Gandhi (Supreme Court – 5 Judges)

DATE: (Date of pronouncement)
DATE: May 13, 2010 (Date of publication)

Click here to download the judgement (gandhi_company_law_tribunal.pdf)

Parliament is competent to constitute Tribunals for special Acts. However, the failure to ensure independence of judiciary and separation of judicial and executive power renders the Company Law Tribunal unconstitutional. Suggestions given on how to remedy the defects

The Companies (Second Amendment) Act 2002 provides for the constitution of the National Company Law Tribunal (‘NCLT’) and National Company Law Appellate Tribunal (‘NCLAT’) to take-over the functions which are being performed by the CLB, BIFR, AAIFR and the High Court. The constitutional validity of the said amendment was challenged before the Madras High Court. The High Court upheld the creation of the NCLT and the vesting the powers thereto as being constitutional though it took the view that certain provisions were violative of the basic constitutional scheme of (i) separation of judicial power from the Executive and Legislative power and (ii) independence of judiciary enabling impartial exercise of judicial power. In an appeal to the Supreme Court, the UOI accepted to rectify some of the defects pointed out by the High Court though it challenged the other findings. HELD by the Supreme Court:

(i) The fundamental right to equality before law under Article 14 of the Constitution includes a right to have the person’s rights adjudicated by a forum which exercises judicial power in an impartial and independent manner. When access to courts to enforce such rights is sought to be abridged etc by directing him to approach an alternative forum, such legislative act is open to challenge if it violates the right to adjudication by an independent forum;

(ii) Parliament has the legislative competence to make a law providing for constitution of Tribunals to deal with disputes and matters arising out of special enactments like the Companies Act by taking away the jurisdiction vested in the High Courts. However, this power is subject to constitutional limitations and cannot encroach upon the independence of the judiciary and must keep in view the principles of Rule of Law and separation of powers. If Tribunals are to be vested with judicial power hitherto vested in or exercised by courts, such Tribunals should possess the independence, security and capacity associated with courts;

(iii) The eligibility criteria and qualifications for being appointed as members can be examined by the superior courts in exercise of the power of judicial review. If the qualifications and eligibility criteria provided for selection of members is not proper and adequate to enable them to discharge judicial functions and inspire confidence and conducive for the proper functioning of the Tribunal, it will result in invalidation of the constitution of the Tribunal;

(iv) A Tribunal packed with members who are drawn from the civil services and who continue to be employees of different Ministries or Government Departments by maintaining lien over their respective posts, amounts to transferring judicial functions to the executive which would go against the doctrine of separation of power and independence of judiciary;

(v) When a Tribunal is substituted in place of the High Court it is essential that the standards applied for appointing such members should be as nearly as possible as applicable to High Court Judges. Only persons with a judicial background and eligible for appointment as High Court Judges, can be considered for appointment of Judicial Members;

(vi) On facts, the qualifications in s. 10FD for appointment as a member are so dilute as to suggest that the qualifications prescribed are tailor made to provide sinecure for a large number of officers to serve up to 65 years in Tribunals exercising judicial functions. The Tribunals cannot become providers of sinecure to members of civil services, by appointing them as Technical Members;

(vii) There is also the dilution of independence. If any member of the Tribunal is permitted to retain his lien over his post with the parent cadre or ministry or department in the civil service for his entire period of service as member of the Tribunal, he would continue to think, act and function as a member of the civil services. A litigant may legitimately think that such a member will not be independent and impartial. The independence of members discharging judicial functions in a Tribunal cannot be diluted;

(viii) If the members are selected as per s. 10FD, there is every likelihood of most of the members, including the ‘Judicial Members’ not having any judicial experience or company law experience and such members being required to deal with and decide complex issues of fact and law;

(ix) There is also lack of security of tenure with regard to the short term of three years, the provision for routine suspension pending enquiry and the lack of any kind of immunity which requires to be remedied;

(x) Several other defects in Parts 1B and 1C of the Act pointed out which render them unconstitutional and invalid. Suggestions given as how to make them operational.

Note: The challenge to the validity of the National Tax Tribunal (NTT) is pending before the Supreme Court. Meanwhile, a stay on the NTT has been granted by the Bombay, Madras, Gujarat & Punjab & Haryana High Courts. See Also: Goodbye NTT, Hello ITAT! & No NTT No Cry!

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