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One stroke, two dead

K. Srinivasan

THE Company Law Board (CLB) was always, technically, a tribunal. A proposal to rechristen it formally as a tribunal and clothe it with more authority was made in clauses 416 to 423 (Part XI) of the Companies Bill, 1997. Clause 422 of the Bill sought to p rovide the Company Law Tribunal (CLT) with the jurisdiction and authority to take the necessary action in respect of `contempt', as wielded by the High Courts. There was, however, no intention to divest the High Courts of their non-writ jurisdiction unde r the provisions of the Companies Act; nor did it appear to have occurred to the Government earlier, to vest the Tribunal with a national status or appellation, whatever it may mean.

Rank, no guinea-stamp

Under the regime now outlined in the Companies (Amendment) Bill, 2001, there will no longer be a company judge, sanctioning amalgamation schemes and hearing appeals from the orders of the CLB. The High Courts will have no role to play in company law -- n ot even in the supervision of company liquidation. All that they have been required to do so far will be done by the Tribunal. Appeals against the orders of the Tribunal itself will lie to a new National Company Law Appellate Tribunal. It will not be a m ere change in nomenclature.

The law itself specifies upgradation in levels of pay and perquisites, maximum age limiting a tenure, and so on. While the president of the Tribunal will be a sitting or a retired High Court judge, the chairperson of the Appellate Tribunal shall be a per son who is or has been a judge of the Supreme Court or the Chief Justice of a High Court. The selection of the chairperson and members of the Appellate Tribunal, as well as the president and members of the Tribunal, will be made by a high-profile committ ee chaired by the Chief Justice.

The committee members would be Secretaries to the Government of India in the Ministries of Finance, Labour, Law (Legislative Department) and Law (Department of Company Affairs.) The proposed involvement of the Tribunal with industrial sickness has not ap parently been considered sufficient to rope in the Secretary, the Ministry of Industries, into the committee.

Why is it felt that the new Tribunal and Appellate Authority should be a cut above the income-tax and other Tribunals. (Or is it a precursor for the new thinking that all Tribunals deserve a better deal?) What is the provocation for the sudden recognitio n of jobs which were considered to be humdrum till the other day? Evidently, change in designation and improvement in pay are expected to attract the best talent available, as the existing scales of pay that posts of judicial members in the CLB carry hav e not found any takers for years, despite the Madras High Court's emphasis on the need for every Bench of the CLB to include a member drawn from the stream of law. It is not an uncommon practice in administration to upgrade posts for which recruitment ha s become difficult otherwise.

It is not easy to fathom the factors that have weighed with the Ministry of Law in its providing prospects of promotion as a technical member of the Tribunal to the accounts branch of the Indian Company Law Service, and presiding officers of the Labour C ourts. If you have a judicial member, how will you gain by having also a technical member with special knowledge of law, as provided in clause 10FD(3)(f)?

Facilitating revival?

The Finance Ministry's cure for industrial sickness in 1985 was the establishment of the Board for Industrial and Financial Reconstruction (BIFR). The first chairman of the BIFR was the then Expenditure Secretary to the Government. The joke about the BIF R has been that it has served as a convenient refuge for retired civil servants. But if the age limits prescribed for the new Tribunal are any indication, any change in the policy followed so far in regard to the BIFR is improbable.

The Government's argument has rightly been that there could not have been a better pool of men with acknowledged expertise and record of service than the BIFR has had. But while it might have been true that the BIFR never lacked talent or varied experien ce, the statute that it had to administer was bad and unworkable. It has been so heavily loaded in favour of the inefficient and unscrupulous that its repeal has become necessary in the public interest.

There were 1,062 cases of sick industrial companies pending with the Board at the end of the year 2000, including 17 registered with the Board in 1987, 13 registered in 1988, and so on. The total number of cases registered with the BIFR from 1987 to 2000 was 3,068, of which, only 264 could be revived. Though the repeal of the Sick Industrial Companies (Special Provisions) Act has been in the air for the past few years, registrations showed a curious spurt to 233 in 1997, 370 in 1998, 413 in 1999 and 201 in 2000. Thanks to the Justice Eradi Committee, SICA may go at long last but a new Chapter VIA will arise out of its ashes, like Phoenix, in the Companies Act. The National Company Law Tribunal will be required to undertake the responsibility for nursin g and resuscitating sick industrial companies and also protecting workers' interests, as highlighted in the Statement of Objects and Reasons, accompanying the Companies (Amendment) Bill, 2001.

What a Company Law Tribunal has to do with industrial sickness passes comprehension. If the fact that some of the sick undertakings are operated by companies is enough to saddle the Tribunal with the duty of lending to them and also extending financial r elief to their workmen, the Tribunal should play the part of a good Samaritan in so many other activities in which the corporate sector is facing rough weather. And what is the special qualification of the Tribunal -- how will its members be better equip ped than the BIFR -- to justify the hope that its performance will be better than that of the BIFR?

Funding rehabilitation

If there is no ground for raising the hope that the new Tribunal will be more effective than the BIFR, the scheme for funding the expected rehabilitation through a cess on the turnover or gross receipts of all companies is totally indefensible. What is s uggested is actually a subsidy to industrial companies other than companies owning small-scale industries (which are outside the purview of Part VI in view of the definitions of an industrial company in clause 2(19AA) and an industrial undertaking in cla use 2(19AB)).

Why should companies which are ineligible for assistance from the proposed fund be burdened with a cess from which they are not entitled to benefit? Why should we rob Peter to pay Paul? A cess is not in the nature of a general tax. The casual manner in w hich the cess has been suggested is surprising. There is no indication of thought having been given to all the implications of the proposal. To what extent will it overlap with sales tax? Will it not amount to trespassing into a State subject under the S eventh Schedule to the Constitution, particularly where the turnovers or receipts are entirely or even mostly of the nature of sales of goods? Will receipts, for the purpose of the levy, include capital receipts, like proceeds of sales of building or lan d or machinery? Will foreign companies having permanent establishments in India be liable to the cess? Will foreign companies not having any regular business connection in India but making occasional sales to Indian parties or parties in India also be hi t by the cess? There is no clue as to how the levy is to be made. The equity of the cess is also open to question. Why should any company which does not stand to gain in any manner from the cess, say, a company running a small-scale industry or engaged i n non-industrial activities, be called upon to contribute to the salvaging of a large industrial company?

(By arrangement with Corporate Law Adviser, New Delhi.)