Aapka Consultant Judgment Series- In this series, we are providing case analysis of Landmark Judgments of Hon’ble Supreme Court of India.
Union of India v. R. Gandhi, President, Madras Bar Association
(2010)2CompLJ577(SC), (2010)11SCC1, [2010]100SCL142(SC)
Hon’ble Judges/Coram: K.G. Balakrishnan, C.J., R.V. Raveendran, D.K. Jain, P. Sathasivam and J.M. Panchal, JJ.
Date of Decision: 11.05.2010
FACTS:-
These appeals arise from the order dated 30.3.2004 of the Madras High Court in WP No. 2198/2003 filed by the President of Madras Bar Association (MBA for short) challenging the constitutional validity of Chapters 1B and 1C of the Companies Act, 1956 (`Act’ for short) inserted by Companies (Second Amendment) Act 2002 (`Amendment Act’ for short) providing for the constitution of National Company Law Tribunal (`NCLT’ or `Tribunal’) and National Company Law Appellate Tribunal (`NCLAT’ or `Appellate Tribunal’).
ISSUES:-
- Whether there is a demarcating line for the Parliament to vest intrinsic judicial functions traditionally performed by courts in any Tribunal or authority outside the judiciary?
- Whether the “wholesale transfer of powers” as contemplated by the Companies (Second Amendment) Act, 2002 would offend the constitutional scheme of separation of powers and independence of judiciary so as to aggrandize one branch over the other?
JUDGMENT:-
The fundamental right to equality before law and equal protection of laws guaranteed by Article 14 of the Constitution, clearly includes a right to have the person’s rights, adjudicated by a forum which exercises judicial power in an impartial and independent manner, consistent with the recognized principles of adjudication. Therefore, wherever access to courts to enforce such rights is sought to be abridged, altered, modified or substituted 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.
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. That apart, superior courts in the country can, in exercise of the power of judicial review, examine whether the qualifications and eligibility criteria provided for selection of members is proper and adequate to enable them to discharge judicial functions and inspire confidence. This issue was also considered in Sampath Kumar v. Union of India (1987) 1 SCC 124, and it was held that where the prescription of qualification was found by the court, to be not proper and conducive for the proper functioning of the Tribunal, it will result in invalidation of the relevant provisions relating to the constitution of the Tribunal.
In this regard Court observed that 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. 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.
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 and the public may have legitimate perception that such a member will not be independent and impartial. Independence, impartiality and fairness are qualities which have to be nurtured and developed and cannot be acquired overnight. The independence of members discharging judicial functions in a Tribunal cannot be diluted.
Parts IC and ID of the Companies Act proposes to shift the company matters from the courts to Tribunals, where a `Judicial Member’ and a `Technical Member’ will decide the disputes. If the members are selected as contemplated in Section 10FD, there is every likelihood of most of the members, including the so called ‘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. Whether the Tribunals should have only judicial members or a combination of judicial and technical members is for the Legislature to decide. But if there should be technical members, they should be persons with expertise in company law or allied subjects and mere experience in civil service cannot be treated as Technical Expertise in company law.
There is an erroneous assumption that company law matters require certain specialized skills which are lacking in Judges. There is also an equally erroneous assumption that members of the civil services, (either a Group-A officer or Joint Secretary level civil servant who had never handled any company disputes) will have the judicial experience or expertise in company law to be appointed either as Judicial Member or Technical Member. Nor can persons having experience of fifteen years in science, technology, medicines, banking, industry can be termed as experts in Company Law for being appointed as Technical Members. The practice of having experts as Technical Members is suited to areas which require the assistance of professional experts, qualified in medicine, engineering, and architecture etc.
Lastly, the Court referred to lack of security of tenure, and observed that the short term of three years, the provision for routine suspension pending enquiry and the lack of any kind of immunity, are aspects which require to be considered and remedied.
HELD:-
Legislature has the power to create Tribunals with reference to specific enactments including companies Act but such constitution must not be violative of the doctrine of separation of powers and independence of the Judiciary which are parts of the basic structure of the Constitution. Keeping in mind the above principles, court held as follows:
- Decision of the High Court is upheld that the creation of National Company Law Tribunal and National Company Law Appellate Tribunal and vesting in them, the powers and jurisdiction exercised by the High Court in regard to company law matters, are not unconstitutional.
- It is declared that Parts 1B and 1C of the Act as presently structured, are unconstitutional for the reasons stated in the preceding para. However, Parts IB and IC of the Act, may be made operational by making suitable amendments, as indicated in the judgment, in addition to what the Union Government has already agreed in pursuance of the impugned order of the High Court.To Get Legal Opinion from Advocates/ Legal Experts, Please click here
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