One Person Company

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Date added: 17-06-26

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Title of the Article-“Company Law, 2013: Demystifying NCLT and One Person Company”

Abstract

The Companies Act 2013 has been a mixed bag of affairs. It has come up with new rules regarding various institutions that were not there till now like the NCLT and the NCLAT and the provisions of one person company. These new introductions are revolutionary steps and a relief for the investors and the companies. The new law has changed six decades old legislation that needed new reforms and a new outlook with the changing time to bring a new prospective to the companies act. The new act has been brought to enhance self-regulation, raise levels of transparency and importantly to protect the interest of the investors and creditors. In the present paper we have tried to explain the effectiveness of enforcing the Companies Act 2013.

Introduction

The Companies Act 2013 came into force on 30 August 2013. The 2013 Act brings new concepts and it also gave new definitions to simplify the provisions. In this paper we have covered some of the new sections which have been introduced in Companies Act 2013. A few of these aspects are discussed in detail which are as follows: One person Company, National Company Law Tribunal and National Company Law Appellate Tribunal. The Companies Act, 2013 is designed in a way to make a business friendly environment, and it will also help in improving corporate governance. The replacement of high court with tribunal in 2013 act has reduced the burden of the High Court.

OPC- One Person Company

Provision of “One Person Company” was introduced in Companies Act 2013. Concept of One Person Company has not evolved in India only but it is well established in practice in different countries like USA, UK and in many European Countries. This theory was firstly introduced in India by Dr. Jamshed J. Irani, Chairman of The Expert Committee on Company Law in 2005. This theory provides the whole new opportunity for those individuals who want to do their own business. It is defined as a company which has only one member.[1] This provision, which is brought by the amendment act, has one exception which is that the person should have been born and be residing in India in order to be eligible to incorporate a one person company. One person company is a new concept in the Indian entrepreneurship. A one person company is a private limited company with having of single member.[2] In the old Companies Act, 1956 it was mandatory for the private company to have minimum two member to start a business. This was a barrier for the individual who wanted to do individual business. This will bring revolution in the Indian business. This new concept may take time to work efficiently but with the passage of time it will bring big entrepreneurs to the country. It will be truly helpful for the small entrepreneurs, as it will give a platform to them to start their venture and in future they may achieve recognition globally. The important question which arises in one person company is that at the time of incorporation of a company, it has to provide details of the nominee who shall take command of the ownership of the office when original member will not be in capacity to work in the office.

Evolution of NCLT and NCLAT

Recommendation of Eradi Committee:

The history of setting of National tribunals can be traced from the recommendations of Eradi committee report[3] on ‘insolvency law’. The department of company’s affair constituted a committee under Justice V. Balakrishna Eradi to examine, draft and recommend amendments in the companies act. The committee recommended an introduction of a separate constitutional amendment bill for setting up of the national tribunal. The report suggested amendments to part VII of the companies act, 1956 to include provisions for setting up of national tribunals that would have jurisdiction that was exercised by the company law tribunal by the 1956 act. Further the power to rehabilitation and revival of companies which is entrusted to BIFR and AAIFR under the sick industrial companies act and the power, jurisdiction of winding up of companies was given to court should be given to the NCLT along with pending winding up proceedings, hence NCLT helped in creating a platform whereby the entire process of revival, reconstruction, amalgamation and winding up of sick companies came under one roof.[4] The paper will discuss various cases that have helped in the formation of NCLT and NCLAT and shaping it to the form in which it is today.

Thiru. R. Gandhi vs Union of India[5]

In the above case questions pertaining to the constitutionality of the NCLT were challenged in the madras bar. The issues raised were - a) Growing tribunalization of justice by composition of more and more tribunals would lead to erosion of judicial independence and will ultimately lead to trivialization of justice. b) The company law tribunal that came into existence through companies (amendment) act 1988 will be abolished and its powers would be vested with the NCLT after the amending act of 2002 comes in force. The parliament has power to create NCLT and NCLAT under Entry 43 and 44 of List I. Following were the provisions of the tribunal that were proposed by the central government through the amendment act of 2002: Members: The tribunal would consist of the president and members belonging to the judicial and technical streams that are deemed fit by the central government, by notification in the official gazette provided that such person is not above sixty two years of age. Benches of tribunal: The president of the tribunal has the power to transfer case, during the hearing of case if it appears to him that the case is of such a nature that it ought to be transferred to a bench consisting of two members. The president would have the power to form special bench compromising of three or more members for the purpose of disposing of cases in areas of rehabilitation, restructuring and winding up of company. There shall be a principal bench in New Delhi in addition to other benches which shall be presided by the president of the tribunal. Order of the tribunal: A) after hearing the case from both the sides, adhering to the principle of natural justice, the tribunal can pass the judgment as it thinks fits. B) The tribunal within two years of passing its judgment can amend the order with the view to rectify its order. C) The tribunal has to send a copy of the order passed to each party concerned. The tribunal is also granted with the power to review its orders. Appellate Tribunal A person/party aggrieved by the order of the tribunal can appeal to the appellate tribunal provided that the appeal should be with 45 days of which the copy of order made by the tribunal is received by the appellate. The appellate tribunal shall consist of a chairperson and not more than two members appointed by the central government for the purpose of hearing appeals. The chairperson should be a Judge of the Supreme Court or the chief justice of a high court. Appeal to the Supreme Court: a person aggrieved by the decision of the appellate tribunal can appeal to the supreme court of India within sixty days of communication of the order of the tribunal to him. The Supreme Court in the case of Associated Cement Companies Ltd. vs. P.N.Sharma [6] observed that tribunals are there to entrust them with special matters and questions, one thing that is similar between a tribunal and a court is that both are created by the state and are entrusted with judicial instead of executive and administrative power. They are there to settle disputes between the parties and offer a resolution. Article 323A of the constitution provides for the creation of administrative tribunal and further 323-B enables appropriate legislature by law for trials by tribunals on disputes, complaints. A bare perusal of the aforesaid provisions does not leave an iota of doubt on the legislative competence of the parliament for the creation of special courts and tribunals. The arguments provided by the opposite side questioned the qualifications, tenure, competence, independence and suitability of the members of the tribunal as no article corresponds to the tribunal (except articles 136 and 227 which only provide for appeal to the supreme court with leave and judicial review of the orders of the tribunal by the high courts) further it is not clear whether the jurisdiction of the tribunals is substitute to the court or subordinate to it. Federal spirit is enshrined in our constitution with provisions of separation of powers where each organ is independent from the other organ, the constitution has inscribed for an independent and impartial judiciary. In L.Chandra Kumar vs. Union of India[7] it is laid down that the power of the judicial review over the legislative action is vested with the high court under article 226 and article 32 is an integral part of the constitution and constitutes the part of the basic structure. Hence the formations of tribunals in a way is interference with this power. The main contention was that if the parliament is not stopped at the right time then it would lead to horrendous results as the temptation to resist power is too much and the parliament is growing its roots into the judiciary deeper and deeper The court held that part of the companies (amendment ) Act, 2002 that have been found defective and the breach of the constitutional scheme of separation of power and independence of judiciary are amended it would be unconstitutional to create a tribunal or an appellate tribunal to exercise jurisdiction now exercised by the high courts or the company law tribunal. The following case provided for the first time a rough draft for the tribunal and suggested its lacunas and the path that it has to follow, some of the provisions of the tribunal were volatile of the constitution and were in a contravention to the basic structure of the constitution. The above case was appealed in the Supreme Court by the Union of India to challenge the impugned order of the madras high court and decide the constitutionality of the National Company Law Tribunal and National Company Law Appellate Tribunal.

Madras Bar Association vs Union of India & Anr[8]

The issues in the following case were:
  1. Constitutionality of national tax tribunal.
  2. Constitutionality of section 46 of the Constitution (Forty- second Amendment) Act, 1976[9] and Article 323B of Constitution of India.
  3. Noncompliance of tribunals with normal rules of evidence as contained in Evidence act.
It was put forward that the above section was ultra vires the basic structure of the constitution as it encourages the growth of tribunal systems that lead to interference in the judiciary and further create a parallel system of administration of justice as it takes away power of review from the high court. The Indian legal system follows the golden rule of innocent until proven guilty, this rule is established with the help of evidence act, tribunals are not bound by these strict rules and they follow their own summary procedures and its members are also not legally trained. However the apex court held that since National Company Law Tribunal does not involve article 323 B and its roots are derived from entries in list I and III hence there is no challenge to this article.

Highlights of changes between the Companies Act 2013 and Companies act 1956

  • In the new act the term of the president who is a High Court Judges for atleast 5 years but the same was not defined in the for the High court be appointed as a president.
  • The criteria for appointing the judicial member and technical member is also changed and NCLAT will have both members but not more than 11 while in old act only 2 members were there.
  • The new act also provide office of president to the serving supreme court judges or chief justice of high court but in the old act only retired judges of either Supreme court or High Court was appointed as the chairman of National Company Law Appellate Tribunal
  • In the new act the time period of disposal of cases is also defined is 3 months while this was not there in the old act of 1956.

[1] 2(62) of the Companies Act, 2013. [2]3(1) (c) of the Companies Act, 2013. [3] Justice Eradi Committee on Law Relating to Insolvency of Companies (March 30, 2014), http://pib.nic.in/focus/foyr2000/foaug2000/eradi2000.html [4] Richa Mishra, Eradi panel proposals on insolvency law -- Core Group to examine changes in Cos Act, The Hindu, September 3, 2000. http://www.hindu.com/businessline/2000/09/03/stories/14031801.htm [5] Thiru. R. Gandhi v. Union of India (2004) 120CompCas510 (Mad). [6] Associated Cement Companies Ltd. vs. P.N.Sharma, (1965) AIR SC 1595. [7] L.Chandra Kumar vs. Union of India, (1997) 3 S.C.C 261. [8]Madras Bar Association vs Union Of India & Anr (2010) 2CompLJ 640(SC). [9]The Constitution (forty-second amendment) Act, 1976 (March 30, 2014), http://www.constitution.org/cons/india/tamnd42.htm.
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