Company (Second amendment) Act, 2002 was passed by the government that added chapters 1B and 1C in Companies Act, 1956 which provided for establishment of National Company Law Tribunal (NCLT) and National Company Law Appellate Tribunal (NCLAT) to take over the functions which were being performed by Company Law Board (CLB), Board of Industrial and Financial Reconstruction (BIFR), Appellate Authority for Industrial and Financial Reconstruction (AAIFR) and the High Court. Madras Bar Association challenged the validity of the Chapters 1B and 1C. When the case went to the High Court, it held that creation of the tribunal and vesting therein the powers exercised by High Court and Company Law Board was not unconstitutional. However, it held that several provision of chapters 1B and 1C i.e. Sections 10-FD(f)(g)(h), 10-FE, 10-FF, 10-FL(2), 10-FR(3) and 10-FT were faulty and thus violative of basic feature of separation of power and independence of judiciary; and that unless the provisions were amended by removing the defects, it would be unconstitutional to constitute NCLT and NCLAT. Pursuant to the judgment of the High Court, Union of India agreed to rectify almost all defects pointed out by the High Court. It has, however, not accepted the defects so far as Sections 10-FD(3)(f), (g) and (h) and 10- FX were concerned.
- To what extent the powers and judiciary of High Court (excepting judicial review under Article 226/ 227) can be transferred to Tribunals?
- Is there 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?
It was argued that the power to provide for establishment of NCLT and NCLAT was derived from Article 245 read with several entries in List I of the Seventh Schedule and did not originate from Article 323B. It was also contended that various provisions in Parts 1B and 1C of the Act relating to the constitution of NCLT and NCLAT were intended to provide for selection of proper persons to be their President or Chairperson or members and for their proper functioning. It was submitted in S. P. Sampath Kumar vs. Union of India  similar provisions relating to establishment of other alternative institutional mechanisms such as Administrative Tribunals, Debt Recovery Tribunals and Consumer forum, had the approval of the Court.
Union of India contends that the High Court having held that the Parliament has the competence and power to establish NCLT and NCLAT, ought to have dismissed the writ petition. It is submitted that some of the directions given by the High Court to reframe and recast Parts 1B and 1C of the Act amounts to converting judicial review into judicial legislation. However, as Union of India has agreed to rectify several of the defects pointed out by the High Court (set out above), the appeal by the Union Government is now restricted to the findings of the High Court relating to sections 10FD(3)(f), (g) and (h) and 10FX.
On the other hand, Madras Bar Association in its appeal contends that the High Court ought not to have upheld the constitutional validity of Parts 1B and 1C of the Act providing for establishment of NCLT and NCLAT; that the High Court ought to have held that constitution of such Tribunals taking away the entire Company Law jurisdiction of the High Court and vesting it in a Tribunal which is not under the control of the Judiciary, is violative of doctrine of separation of powers and the independence of Judiciary which are parts of the basic structure of the Constitution. MBA also contends that the decisions of this Court in Union of India vs. Delhi High Court Bar Association, with reference to constitutional validity of the provisions of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 providing for constitution of the Debt Recovery Tribunals and State of Karnataka v Vishwabharathi House Building Co-op. Society in regard to the constitutional validity of Consumer Protection Act, 1986 providing for constitution of consumer fora require reconsideration.
Difference between Courts and Tribunals
The term ‘Courts’ refers to places where justice is administered or refers to Judges who exercise judicial functions. Courts are established by the state for administration of justice that is for exercise of the judicial power of the state to maintain and uphold the rights, to punish wrongs and to adjudicate upon disputes. Tribunals on the other hand are special alternative institutional mechanisms, usually brought into existence by or under a statute to decide disputes arising with reference to that particular statute, or to determine controversies arising out of any administrative law. Courts refer to Civil Courts, Criminal Courts and High Courts. Tribunals can be either private Tribunals (Arbitral Tribunals), or Tribunals constituted under the Constitution (Speaker or the Chairman acting under Para 6(1) of the Tenth Schedule) or Tribunals authorized by the Constitution (Administrative Tribunals under Article 323A and Tribunals for other matters under Article 323B) or Statutory Tribunals which are created under a statute (Motor Accident Claims Tribunal, Debt Recovery Tribunals and consumer fora). Some Tribunals are manned exclusively by Judicial Officers (Rent Tribunals, Motor Accidents Claims Tribunal, Labour Courts and Industrial Tribunals). Other statutory Tribunals have Judicial and Technical Members (Administrative Tribunals, TDSAT, Competition Appellate Tribunal, Consumer fora, Cyber Appellate Tribunal, etc).
In Harinagar Sugar Mills Ltd. vs. Shyam Sundar Jhunjhunwala , succinctly explained the difference between Courts and Tribunals, thus: “All Tribunals are not courts, though all courts are Tribunals”. The word “courts” is used to designate those Tribunals which are set up in an organized state for the administration of justice. By administration of justice is meant the exercise of juridical power of the state to maintain and uphold rights and to punish “wrongs”. Whenever there is an infringement of a right or an injury, the courts are there to restore the vinculum juris, which is disturbed…
In Jaswant Sugar Mills vs. Laxmi Chand , this Court observed that in order to be a Tribunal, a body or authority must, besides being under a duty to act judicially, should be invested with the judicial power of the state. Union of India vs. Delhi High Court Bar Association
In Kihoto Hollohan vs. Zachillhu, a Constitution Bench reiterated the above position and added the following : Where there is a lis – an affirmation by one party and denial by another – and the dispute necessarily involves a decision on the rights and obligations of the parties to it and the authority is called upon to decide it, there is an exercise of judicial power. That authority is called a Tribunal, if it does not have all the trappings of a court.”
The power of Parliament to enact a law which is not covered by an entry in Lists II and III of Seventh Schedule is absolute. The power so conferred by Article 246 is in no way affected or controlled by Article 323A or 323B. Even though revival/rehabilitation/regulation/ winding up of companies are not matters which are mentioned in Article 323A and 323B, the Parliament has the legislative competence to make a law providing for constitution of tribunals to deal with disputes and matters arising out of the Companies Act.
When a tribunal is constituted under the Companies Act, empowered to deal with disputes arising under the said Act and the statute substitutes the word ‘Tribunal’ in place of ‘High Court’ necessarily there will be ‘whole-sale transfer’ of company law matters to the tribunals. It is an inevitable consequence of creation of tribunal, for such disputes, and will in no way affect the validity of the law creating the tribunal.
When it is said that Legislature has the competence to make laws providing which disputes will be decided by courts and which disputes will be decided by tribunals, it is subject to constitutional limitations, without encroaching upon the independence of judiciary and keeping 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. If the tribunals are intended to serve an area which requires specialized knowledge or expertise, no doubt there can be Technical Members in addition to Judicial Members. Where however jurisdiction to try certain category of cases are transferred from courts to tribunals only to expedite the hearing and disposal or relieve from the rigours of the Evidence Act and procedural laws, there is obviously no need to have any non-judicial Technical Member. In respect of such tribunals, only members of the Judiciary should be the Presiding Officers/members of such tribunals. Therefore, when transferring the jurisdiction exercised by courts to tribunals, which does not involve any specialized knowledge or expertise in any field and expediting the disposal and relaxing the procedure is the only object, a provision for Technical Members in addition to or in substitution of judicial members would clearly be a case of dilution of and encroachment upon the independence of the Judiciary and Rule of Law and would be unconstitutional.
Legislative measures are not subjected to basic features or basic structure or basic framework. The Legislation can be declared unconstitutional or invalid only on two grounds namely (i) lack of legislative competence and (ii) violation of any fundamental rights or any provision of the Constitution.
The Legislature has the competence to transfer any particular jurisdiction from courts to tribunals provided it is understood that the tribunals exercise judicial power and the persons who are appointed as President/Chairperson/ Members are of a standard which is reasonably approximate to the standards of main stream judicial functioning. On the other hand, if a tribunal is 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, it would amount to transferring judicial functions to the executive which would go against the doctrine of separation of power and independence of judiciary. An independent judiciary can exist only when persons with competence, ability and independence with impeccable character man the judicial institutions.
When rights are infringed or invaded, the aggrieved party can go and commence a querela before the ordinary Civil Courts. These Courts which are instrumentalities of Government, are invested with the judicial power of the State, and their authority is derived from the Constitution or some Act of Legislature constituting them. Their number is ordinarily fixed and they are ordinarily permanent, and can try any suit or cause within their jurisdiction. Their numbers may be increased or decreased, but they are almost always permanent and go under the compendious name of “Courts of Civil Judicature”. There can thus be no doubt that the Central Government does not come within this class. With the growth of civilization and the problems of modern life, a large number of administrative Tribunals have come into existence. These Tribunals have the authority of law to pronounce upon valuable rights; they act in a judicial manner and even on evidence on oath, but they are not part of the ordinary Courts of Civil Judicature. They share the exercise of the judicial power of the State, but they are brought into existence to implement some administrative policy or to determine controversies arising out of some administrative law. They are very similar to Courts, but are not Courts. When the Constitution speaks of ‘Courts’ in Art.136, 227, or 228 or in Arts. 233 to 237 or in the Lists, it contemplates Courts of Civil Judicature but not Tribunals other than such Courts. This is the reason for using both the expressions in Arts. 136 and 227. By “Courts” is meant Courts of Civil Judicature and by “Tribunals”, those bodies of men who are appointed to decide controversies arising under certain special laws. Among the powers of the State is included the power to decide such controversies. This is undoubtedly one of the attributes of the State, and is aptly called the judicial power of the State. In the exercise of this power, a clear division is thus noticeable. Broadly speaking, certain special matters go before Tribunals, and the residue goes before the ordinary Courts of Civil Judicature. Their procedures may differ, but the functions are not essentially different. What distinguishes them has never been successfully established.”
In every State there are administrative bodies or authorities which are required to deal with matters within their jurisdiction in an administrative manner and their decisions are described as administrative decisions. In reaching their administrative decisions, administrative bodies can and often to take into consideration questions of policy. It is not unlikely that even in this process of reaching administrative divisions, the administrative bodies or authorities are required to act fairly and objectively and would in many cases have to follow the principles of natural justice; but the authority to reach decision conferred on such administrative bodies is clearly distinct and separate from the judicial power conferred on courts, and the decisions pronounced by administrative bodies are similarly distinct and separate in character from judicial decision pronounced by courts.
 S. P. Sampath Kumar vs. Union of India 1987 (1) SCC 124
 Union of India vs. Delhi High Court Bar Association 2002 (4) SCC 275,
 State of Karnataka vs. Vishwabharathi House Building Co-op. Society 2003 (2) SCC 412
 Harinagar Sugar Mills Ltd. vs. Shyam Sundar Jhunjhunwala (1962) 2 SCR 339
 Jaswant Sugar Mills vs. Laxmi Chand 1963 Supp (1) SCR 242
 Supra footnote 2
 Kihoto Hollohan vs. Zachillhu 1992 Supp (2) SCC 651
–By Vedika Kejriwal