POWERS OF NCLT & TRANSITIONAL

PROVISIONS
LAKSHMI GURUNG
FCS, ICWA, M.COM, LL.B

https://www.nclt.in/

D-12, LAJPAT NAGAR-III,

NEW DELHI 110024
09313004529
[email protected]

 No. 1932 (E) dated 01.06.2016 constituted

NCLAT w.e.f. 01.06.2016

No. 1933 (E) dated 01.06.2016 conferred
powers by section 410 of Companies Act,
2013 for hearing appeals against orders of
NCLT, w.e.f. 01.06.2016
No. 1934 (E) dated 01.06.2016 : appointed
01.06.2016 as date on which following
sections shall come into force:

o Sec 7(7) : Incorporation

o Sec 14(1) : Alteration of Articles
o Sec14 (2)
o Sec 55(3) : Issue & Redemption of Pref.Shares
o Sec 61(1) :
o Sec
o Sec
o Sec
o Sec

62 (4) to (6) : Further issue of Share Capital

71 (9) to (11) : Debentures
75 : Damages for fraud
97, 98, 99 : To call meetings of members

Contd.
Sec 119 (4) : Inspection of minutes books
Sec 130, 131 : Reopening of accounts, revision of

financial statements
Sec 140 (4) & (5) : Removal of auditors
Sec 169 (4) : Removal of Directors
Sec 213, 216 (2), 218, 221, 222, 224 (5):Investigation
Sec 241, 242 except (1) (b), (2) (c) and (g)
Sec 243, 244, 245
399 (2) : Production of documents
Sec 415 to 433 : Functioning of NCLT
Sec 434 (1) (a) and (b), 434 (2) :
Sec 441 : Compounding
Sec 466 : Dissolution of CLB

 No. 1935 (E) dated 01.06.2016 : constituted

11 Benches of NCLT including Principal

Bench, ND and 10 other Regional Benches
No. 1936 (E) dated 01.06.2016 under sec 434
transferring all matters or proceedings or
cases pending before the Board of Company
Law Administration to NCLT to dispose of all
matters as per provisions of NCLT

Cases of oppression
Corresponds to sec. 397, 398 & 401 of 1956 Act.
Section 241
Any member, who has right to apply, complaints
Affairs of Co
Prejudicial to public interest
Prejudicial or oppressive to him or any other
member (s)
Prejudicial to the interests of Co.
Material change in management or control
Alteration in BoD, ownership of Co
Is likely to run in a manner prejudicial to:
o its interests or

o Interest of its members or class of members

C.G. if prejudicial to public interest

POWERS OF TRIBUNAL
Section 242
(1)If, on any application made under section 241, the
Tribunal is of the opinion
(a)that the companys affairs have been or are being
conducted in a manner prejudicial or oppressive to any
member or members or prejudicial to public interest or
in a manner prejudicial to the interests of the company;
and
(b)that to wind up the company would unfairly prejudice
such member or members, but that

Contd.
otherwise the facts would justify the making of a
winding-up order on the ground that it was just and
equitable that the company should be wound up (not
notified),
the Tribunal may, with a view to bringing to an end the
matters complained of, make such order as it thinks fit.

Contd.
(2) Tribunal order may provides for
the regulation of conduct of affairs of the company;
the purchase of shares or interests of any

members of the company by other members

thereof or by the company;
in the case of a purchase of its shares by the
company as aforesaid, the consequent
reduction of its share capital; (Not notified)

Contd.
restrictions on the transfer or allotment of the

shares of the company;

the termination, setting aside or modification,
of any agreement, howsoever arrived at,
between the company and the managing
director, any other director or manager, upon
such terms and conditions as may, in the
opinion of the Tribunal, be just and equitable
in the circumstances of the case;

Contd.
the termination, setting aside or modification of

any agreement between the company and any

person other than those referred to in clause (e):
Provided that no such agreement shall be terminated,

set aside or modified except after due notice and after

obtaining the consent of the party concerned;
the setting aside of any transfer, delivery of goods,

payment, execution or other act relating to

property made or done by or against the company
within 3 months, fraudulent preference; (Not
notified)

Contd.
Removal of MD, manager or any Director
recovery of undue gains made by any MD,

manager or Director during the period of his

appointment as such and the manner of
utilisation of the recovery including transfer to
Investor Education and Protection Fund or
repayment to identifiable victims;

Contd.
the manner in which the MD may be appointed

subsequent to an order removing the existing

MD of the company made under clause (h);
appointment of such number of persons as
directors, who may be required by the Tribunal to
report to the Tribunal on such matters as the
Tribunal may direct;
imposition of costs as may be deemed fit by the
Tribunal;
any other provision which is just and equitable

Contd.
(3)A certified copy of the order of the Tribunal
under sub-section (1) shall be filed by the
company with the Registrar within 30 days of the
order of the Tribunal.

(4)Make any interim order which it thinks fit for

regulating the conduct of the companys affairs
upon such terms and conditions as appear to it
to be just and equitable.

Contd.
(5) Where an order of the Tribunal under subsection(1) makes any alteration in the MOA or
AOA, then, notwithstanding any other
provision of this Act, the company shall not
have power, except to the extent, if any,
permitted in the order, to make, without the
leave of the Tribunal, any alteration
whatsoever which is inconsistent with the
order, either in the memorandum or in the
articles.

Contd.
(6)Subject to the provisions of sub-section (1),
the alterations made by the order in the MOA
or AOA shall, in all respects, have the same
effect as if they had been duly made by the
company in accordance with the provisions of
this Act.
(7)A certified copy of every order altering, or
giving leave to alter, a companys MOA or
AOA shall be filed with ROC within 30 days
after the making thereof.

Contd.
Fine for contravention of sub-sec 5
shall not be less than Rs.1 Lakh but which
may extend to Rs.25 Lakh; and
Every officer of the company who is in default
shall be punishable with imprisonment for a
term which may extend to 6 months or with
fine which shall not be less than Rs.25,000/but which may extend to Rs.1 lakh or with
both.

CONSEQUENCES OF TERMINATION
OR MODIFICATION OF AGREEMENTS
Sec 243
Such order shall not give rise to any claims against

the company for damages or for compensation for

loss of office or in any other respect;
Such MD or other Director whose agreement is so
terminated or set aside shall, for a period of 5 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 MD or Director:
Provided notice served on the Central Government and

that Government has been given

opportunity of being heard in the matter.

reasonable

If contravention of 243 (1)(b)

Knowingly acts as a MD or Director or manager in

contravention of clause (b) of sub-section (1), and

every other director of the company who is
knowingly a party to such contravention, shall be
punishable with imprisonment for a term which
may extend to 6 months or with fine which may
extend to Rs.five lakh rupees, or with both.

Right To Apply Under Section 241

Sec 244

(1) Following members shall have the right to apply:

In the case of a company having a share capital, not
less than
one hundred members of the company;
one-tenth of the total number of its members,
whichever is less,
or any member or members holding not less than
one-tenth of the issued share capital of the company,
Provided, applicant(s) have paid all calls and other
sums due on his or their shares;

Contd.
In the case of a company not having a share

capital:
not

less than one-fifth of the total number of its

members:

Provided that the Tribunal may, on an application

made to it in this behalf, waive all or any of the

requirements specified in clause (a) or clause (b)
so as to enable the members to apply under
section 241.

Contd.
Explanation.For the purposes of this sub-section, where
any share or shares are held by two or more persons jointly,
they shall be counted only as one member.
(2) Where any members of a company are entitled to make an
application under subsection (1), any one or more of them
having obtained the consent in writing of the rest, may make
the application on behalf and for the benefit of all of them.

CLASS ACTION
Sec 245
(1) Such number of member(s), depositor(s) 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 on behalf of the
members or

depositors for seeking all or any of the

following orders, namely:
(a) to restrain the company from committing an
act which is ultra vires the articles or
memorandum of the company;
(b) to restrain the company from committing
breach of any provision of the companys
memorandum or articles;
(c) to declare a resolution altering the
memorandum or articles of the company as
void

if the resolution was passed by suppression of

material facts or obtained by mis-statement to
the members or depositors;
(d)to restrain the company and its directors
from acting on such resolution;
(e)to restrain the company from doing an act
which is contrary to the provisions of this Act
or any other law for the time being in force;
(f)to restrain the company from taking action
contrary to any resolution passed by the
members;

Contd.
(g) to claim damages or compensation or demand
any other suitable action from or against
(i) the company or its directors for any
fraudulent, unlawful or wrongful act or
omission or conduct or any likely act or
omission or conduct on its or their part;
(ii) the auditor including audit firm of the
company for any improper or misleading
statement of particulars made in his audit
report or for any fraudulent, unlawful or
wrongful act or conduct;

Contd.
(iii) any expert or advisor or consultant or any
other person for any incorrect or misleading
statement made to the company or for any
fraudulent, unlawful or wrongful act or conduct
or any likely act or conduct on his part;
(h) to seek any other remedy as the Tribunal
may deem fit.

Contd.
(2)
Where the members or depositors seek any
damages or compensation or demand any
other suitable action from or against an audit
firm, the liability shall be of the firm as well as
of each partner who was involved in making
any improper or misleading statement of
particulars in the audit report or who acted in
a fraudulent, unlawful or wrongful manner.

Contd.
(3)(i) The requisite number of members:
(a) If company having a share capital,
not less than 100 members

or
not less than
such percentage of the total number
of
its
members as may be prescribed, whichever is
less, or

any member or members holding not less

than such percentage of the issued share

capital of the company as may be
prescribed,

Contd.
subject to the

condition that the applicant or

applicants has or have paid all calls and other sums
due on his or their shares;

(b) in the case of a company not having a share

capital, not less than one-fifth of the total
number of its members.

Contd.
(ii) The requisite number of depositors provided
in sub-section (1) shall not be less than 100
depositors or not less than such percentage of
the total number of depositors as may be
prescribed, whichever is less, or any depositor
or depositors to whom the company owes
such percentage of total deposits of the
company as may be prescribed.

Contd.
(4) In considering an application under subsection
(1) the Tribunal shall take into account, in
particular
(a)whether the member or depositor is acting in
good faith in making the application for
seeking an order;
(b)any evidence before it as to the involvement
of any person other than directors or officers
of the company on any of the matters
provided in clauses (a) to (f) of subsection (1);

Contd.
(c)whether the cause of action is one which the
member or depositor could pursue in his own
right rather than through an order under this
section;
(d)any evidence before it as to the views of the
members or depositors of the company who
have no personal interest, direct or indirect, in
the matter being proceeded under this
section;
(e)where the cause of action is an act or
omission that is yet to occur, whether the act
or omission

Contd.
could be, and in the circumstances would be likely
to be
(i) authorised by the company before it occurs; or
(ii) ratified by the company after it occurs;
(f) where the cause of action is an act or omission
that has already occurred, whether the act or
omission could be, and in the circumstances
would be likely to be, ratified by the company.
(5)If an application filed under sub-section (1) is
admitted, then the Tribunal shall have regard to
the following, namely:
(a) public notice shall be served on admission of

Contd.
the application to all the members or depositors
of the class in such manner as may be
prescribed;
(b)all similar applications in any jurisdiction should
be consolidated into a single application and the
class members or depositors should be allowed
to choose the lead applicant and in the event the
members or depositors of the class are unable to
come to a consensus, the Tribunal shall have the
power to appoint a lead applicant, who shall be
in charge of the proceedings from the applicants
side;
(c)two class action applications for the same
cause of action shall not be allowed;

Contd.
(d) the

cost or expenses connected with the

application for class action shall be defrayed by the
company or any other person responsible for any
oppressive act.

(7) Failure to comply with an order passed by the

Tribunal under this section shall be punishable with
fine which shall not be less than Rs.5 lakh but
which may extend to Rs.25 lakh
Every officer who is in default shall be punishable
with imprisonment for a term which may extend to
3 years and with fine which shall not be less than
Rs.25000/- extendable to Rs. 1 Lakh.

Contd.
(8)If application is found to be frivolous or
vexatious, it shall, for reasons to be recorded in
writing, reject the application and make an order
that the applicant shall pay to the opposite party
such cost, not exceeding Rs. 1 lakh.
(9) Nothing contained in this section shall apply to a
banking company.
(10)Subject to the compliance of this section, an
application may be filed or any other action may
be taken under this section by any person, group
of persons or any association of persons

TRANSFER OF PENDING PROCEEDINGS

434
(1) On 01.06.2016:
(a) all matters, proceedings or cases pending
before the Board of Company Law
Administration (herein in this section referred
to as the Company Law Board) constituted
under sub-section (1) of section 10E of the
Companies

Act, 1956, 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;
(b) 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

60 days from the date of communication of

the decision or order of the Company Law
Board to him on any question of law arising
out of such order:
Provided that the High Court may if it is
satisfied that the appellant was prevented by
sufficient cause from filing an appeal within
the said period, allow it to be filed within a
further period not exceeding sixty days;

(c) all proceedings under the Companies Act

1956, including proceedings relating to
arbitration, compromise, arrangements and
reconstruction and winding up of companies,
pending immediately before such date before
any District Court or High Court, shall stand
transferred to the Tribunal and the Tribunal
may proceed to deal with such proceedings
from the stage before their transfer.
(NOT NOTIFIED)

(d) any appeal preferred to the Appellate

Authority for Industrial and Financial
Reconstruction or any reference made or
inquiry pending to or before the Board of
Industrial and Financial Reconstruction or any
proceeding of whatever nature pending before
the Appellate Authority for Industrial and
Financial Reconstruction or the Board for
Industrial and Financial Reconstruction under
the Sick Industrial Companies (Special
Provisions) Act, 1985
(NOT NOTIFIED)

immediately before the commencement of this

Act shall stand abated:
Provided that a company in respect of which
such appeal or reference or inquiry stands
abated under this clause may make a
reference to the Tribunal under this Act within
one hundred and eighty days from the
commencement of this Act in accordance with
the provisions of this Act:
Provided further that no fees shall be payable
for making such reference under this Act by a

company whose appeal or reference or

inquiry stands abated under this clause.
(2) 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.

 Rules not yet notified

Draft Rules issued
Rules on Prevention of Oppression and
Mismanagement
Rules on Compromises, Arrangements and
Amalgamation
Rules on Procedure to be followed by NCLT and
NCLAT

For more updates associated with

POWERS OF NCLT & TRANSITIONAL
PROVISIONS And
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