Companies Act, 356 Chapters 18 and 1C - Creation of National Company Law Tribunal (NCLT) and National Company Law Appellate Tribunal (NCLAT) - For adjudication of cases which were adjudicated by CLB, BIFR, AAIFR and High court in its company jurisdiction Validity of - Held: Creation of NCLT and NCLAT and vesting in them jurisdiction of High Court is not unconstitutional Parliament has the legislative competence to make laws providing for constitution of tribunals to deal with company matters even though it is not mentioned in Articles 323A and 323B - Such legislation is subject to constitutional limitations - It should not encroach upon the independence of judiciary and should not be violative of doctrines of rule of law and separation of powers - Such legislation is subject to judicial review if the court finds that the tribunalisation would adversely affect the independence of judiciary or the standards of judiciary - Appointment of the Member of Tribunals from civil services who continue to be employee of the Government by maintaining their lien would amount to transfer of judicial function to executive which goes against the doctrine of separation of power and independence of judiciary - In case where jurisdiction is transferred from courts to tribunals for expeditious disposal and where specialized knowledge is not required appointment of Technical Member is not necessary - In such case, if Technical Member is appointed, it would amount to encroachment upon the independence of judiciary and Rule of Law and would be unconstitutional - It is for the legislature to decide whether the tribunal should have only Judicial Member or a combination of Judicial of Technical Member - When Judges of the High Court are substituted with Members of tribunal, the standards should be approximate to the standards of mainstream judicial functioning - Chapters 1B and 1C presently structured, are unconstitutional as they dilute the independence of tribunal and standards of qualification of Members of the tribunal They can be made operational on making suitable amendments thereof - Corrections suggested to set right the defect in Chapter 1B C and 1C - Constitution of India, 1950 - Articles 226, 323A and 323B, Seventh Schedule, List I Entries 77, 78, 79 and 40 r/w Entry 5, List III Entries 11A r/w Entry 46.

Constitution of India, 1950:

Article 14 - Right to equality - Includes a right to adjudication by a forum exercising judicial power in impartial and independent manner consistent with the recognized principles of adjudication.

Articles 246, 323A and 3238, Seventh Schedule List I - Power of Parliament to enact law in List I is absolute - The power so conferred by Article 246 is not affected or controlled by Article 323A and 3238.

Legislation - Challenge to validity of legislation Basis for - Held: Legislation can be declared unconstitutional or invalid only on the grounds of legislative competence or for violation of fundamental rights or constitutional provisions including the provisions which enshrine the principles of Rule of Law, separation of power and independence of judiciary - Legislation cannot be held invalid for violating basic structure of the Constitution - Constitution of India, 1950.

Judicial Fora - Courts and Tribunals - Distinction between.

Accepting the recommendations of Eradi Committee Government passed Company (Second amendment) Act, 2002 inserting 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. High Court 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 defective and thus violative of basic constitutional scheme 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 many of the 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.

A three judges Bench of Supreme Court held that the judicial pronouncements by the Supreme Court, holding that Parliament and the State Legislatures possessed legislative competence to effect changes in the original jurisdiction of the Supreme Court and the High Court, had not dealt with the issues i.e. (i) To what extent the powers and judiciary of High Court (except judicial review under Article 226/227) can be transferred to tribunals; (ii) 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; and (iii) 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. Therefore, the three judges Bench directed these appeals to be heard by a Constitution Bench.