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National Company Law Tribunal
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  • Date: 19 Sep 2019
  • Commmercial Contracts
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On 01 June 2016, the Ministry of Corporate Affairs has issued three notifications for setting and developing the National Company Law Tribunal (NCLT) and National Company Law Appellate Tribunal (NCLAT). Now, MCA after the constitution of NCLT and NCLAT has come up with the notification of rules, the procedure for filing the application, petition or appeal on 21 July 2016.

The Government establishes the Tribunals under section 8 of the Companies Act, 2013 with effect from 01 June 2016. They have also established the Debt Recovery Tribunal to deal with all insolvency cases speedily.

In the first phase, eleven benches have been set up. The Principal Bench is located at New Delhi and regional benches at New Delhi, Ahmedabad, Allahabad, Bengaluru, Chandigarh, Chennai, Guwahati, Jaipur, Hyderabad, Kolkata and Mumbai. Any company that wants to continue against its debtors can approach NCLT for Winding Up, Liquidation to recover their dues or Strike Off.

'The Corporate Insolvency Resolution Process (CIRP)’ can be initiated by making an application to the NCLT by the Financial Creditors under Section 7 of Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as "IBC") or by Operational Creditors under Section 9 and by the Corporate Debtor himself under Section 10.

Significance of NCLT and NCLAT

It is a semi-legal specialist institution formed by the suggestion provided by the Eradi Committee to promote the amicable settlement amongst corporate matters. It is formed by the notification provided in the official gazette and with an intent to reduce the burden on the traditional court of law. NCLT helps to set off corporate claims, declare the corporate rights, undo the wrong done further deciding the punishment and penalties for the person held liable for the violation of the provision of Companies Act, 2013 and matters incidental to. NCLT is an institutional version of courtroom specifically dealing in matters relating to companies/ corporate entity for filtering the futile claims in providing a conclusion to request coming up to the authority smoothly without unnecessary delays. NCLT is the product of the Eradi Committee which filtered or eliminated all the lacunas of the previous institutions established previously. NCLAT, on the other hand, is a type of audit institution on the decisions provided by NCLT. It is an appellate tribunal handling appeals of in cases filed with the NCLT, by the aggrieved by the decision was given, then to file an appeal against the same. Further, if any person is aggrieved by the decision given by the NCLAT, then he/she may refer the matter to the High Court or Supreme Court.

National Company Law Tribunal powers

NCLT, as a new institution, has been given a few additional powers that were attributed to the previous authorities, all the powers had to be read as additional to previous powers and not in isolation. 

Following are the powers of NCLT:

Class Action SuitA class action suit is to be filed in National Company Law Tribunal when suit consisting of claims are standard for more than one person or people at large. This new pattern of filing a complaint against the company was new method making it is more accessible to people located in different areas, for claims like this an agent is appointed to deal with the matter that had been filed in NCLT.

Registration of Companies: A new stringent scrutinizing committee has been formed to scrutinize the document and other incidental requirements for registering a company under the guidelines issued by the NCLT. It also has been allotted with the powers of wiping out the registration of the company/ companies. A new method of de-registration has supplemented the powers given by the law to authorities.

Order for the Investigation: NCLT now can order a special investigation under the certain order established by the law in this behalf, an order for investigation of the companies result in in-depth checking of the transaction, company affairs and any other matter incidental to company or stated in the investigation order.

Conversion of Company from Public Ltd. to Private Ltd.: A prior approval from NCLT is to be taken for the process of changing status from public to private ltd company, Nclt may after receiving the application for such change of status provide direction to reduce the deviation or providing the precautionary measure for avoiding the violation of provisions of Companies Act, 2013.

The stages of Resolution Process are as below;

  1. Notice Publication - The RP publishes a notice in newspapers to call for filing claims against the Corporate Debtor by a stipulated time.
  2. Processing of Claim - After RP receives the claims, it will check the same from the records of the Corporate Debtor.
  3. Memorandum - After the claims have been verified, the RP prepares the Memorandum which contains all information of Assets and Liabilities of the Corporate Debtor. Moreover, that Memorandum will be sent to all Financial Creditors of the Corporate Debtor, whose claims have been accepted.
  4. Meetings of Committee of Creditors - After sending the Memorandum, a meeting of Committee of Creditors will decide whether the information mentioned in the Memorandum has been correctly prepared or not. The Committee of Creditors will include the financial creditors of the Corporate Debtor.
  5. Resolution Plan - The RP after the formation of the Memorandum will invite the resolution plans for the debtor by an advertisement in the newspaper.
  6. Rejection or Acceptance of Resolution Plan - After receiving the plan of the resolution, the RP will conduct a meeting of Committee of Creditors to check the plan which will result in acceptation or rejection, and after that, the plan is submitted before NCLT for final approval.
  7. Extension - The duration for the completion of the CIRP is 180 days, and if the Committee Of Creditors (COC) does not accept the Resolution Plan within 180 days then they can extend the duration for not less than 90 days.

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National Company Law Tribunal

By: Commmercial Contracts 19 Sep 2019

On 01 June 2016, the Ministry of Corporate Affairs has issued three notifications for setting and developing the National Company Law Tribunal (NCLT) and National Company Law Appellate Tribunal (NCLAT). Now, MCA after the constitution of NCLT and NCLAT has come up with the notification of rules, the procedure for filing the application, petition or appeal on 21 July 2016.

The Government establishes the Tribunals under section 8 of the Companies Act, 2013 with effect from 01 June 2016. They have also established the Debt Recovery Tribunal to deal with all insolvency cases speedily.

In the first phase, eleven benches have been set up. The Principal Bench is located at New Delhi and regional benches at New Delhi, Ahmedabad, Allahabad, Bengaluru, Chandigarh, Chennai, Guwahati, Jaipur, Hyderabad, Kolkata and Mumbai. Any company that wants to continue against its debtors can approach NCLT for Winding Up, Liquidation to recover their dues or Strike Off.

'The Corporate Insolvency Resolution Process (CIRP)’ can be initiated by making an application to the NCLT by the Financial Creditors under Section 7 of Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as "IBC") or by Operational Creditors under Section 9 and by the Corporate Debtor himself under Section 10.

Significance of NCLT and NCLAT

It is a semi-legal specialist institution formed by the suggestion provided by the Eradi Committee to promote the amicable settlement amongst corporate matters. It is formed by the notification provided in the official gazette and with an intent to reduce the burden on the traditional court of law. NCLT helps to set off corporate claims, declare the corporate rights, undo the wrong done further deciding the punishment and penalties for the person held liable for the violation of the provision of Companies Act, 2013 and matters incidental to. NCLT is an institutional version of courtroom specifically dealing in matters relating to companies/ corporate entity for filtering the futile claims in providing a conclusion to request coming up to the authority smoothly without unnecessary delays. NCLT is the product of the Eradi Committee which filtered or eliminated all the lacunas of the previous institutions established previously. NCLAT, on the other hand, is a type of audit institution on the decisions provided by NCLT. It is an appellate tribunal handling appeals of in cases filed with the NCLT, by the aggrieved by the decision was given, then to file an appeal against the same. Further, if any person is aggrieved by the decision given by the NCLAT, then he/she may refer the matter to the High Court or Supreme Court.

National Company Law Tribunal powers

NCLT, as a new institution, has been given a few additional powers that were attributed to the previous authorities, all the powers had to be read as additional to previous powers and not in isolation. 

Following are the powers of NCLT:

Class Action SuitA class action suit is to be filed in National Company Law Tribunal when suit consisting of claims are standard for more than one person or people at large. This new pattern of filing a complaint against the company was new method making it is more accessible to people located in different areas, for claims like this an agent is appointed to deal with the matter that had been filed in NCLT.

Registration of Companies: A new stringent scrutinizing committee has been formed to scrutinize the document and other incidental requirements for registering a company under the guidelines issued by the NCLT. It also has been allotted with the powers of wiping out the registration of the company/ companies. A new method of de-registration has supplemented the powers given by the law to authorities.

Order for the Investigation: NCLT now can order a special investigation under the certain order established by the law in this behalf, an order for investigation of the companies result in in-depth checking of the transaction, company affairs and any other matter incidental to company or stated in the investigation order.

Conversion of Company from Public Ltd. to Private Ltd.: A prior approval from NCLT is to be taken for the process of changing status from public to private ltd company, Nclt may after receiving the application for such change of status provide direction to reduce the deviation or providing the precautionary measure for avoiding the violation of provisions of Companies Act, 2013.

The stages of Resolution Process are as below;

  1. Notice Publication - The RP publishes a notice in newspapers to call for filing claims against the Corporate Debtor by a stipulated time.
  2. Processing of Claim - After RP receives the claims, it will check the same from the records of the Corporate Debtor.
  3. Memorandum - After the claims have been verified, the RP prepares the Memorandum which contains all information of Assets and Liabilities of the Corporate Debtor. Moreover, that Memorandum will be sent to all Financial Creditors of the Corporate Debtor, whose claims have been accepted.
  4. Meetings of Committee of Creditors - After sending the Memorandum, a meeting of Committee of Creditors will decide whether the information mentioned in the Memorandum has been correctly prepared or not. The Committee of Creditors will include the financial creditors of the Corporate Debtor.
  5. Resolution Plan - The RP after the formation of the Memorandum will invite the resolution plans for the debtor by an advertisement in the newspaper.
  6. Rejection or Acceptance of Resolution Plan - After receiving the plan of the resolution, the RP will conduct a meeting of Committee of Creditors to check the plan which will result in acceptation or rejection, and after that, the plan is submitted before NCLT for final approval.
  7. Extension - The duration for the completion of the CIRP is 180 days, and if the Committee Of Creditors (COC) does not accept the Resolution Plan within 180 days then they can extend the duration for not less than 90 days.

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The IndiGo Promotors Feud

By: admin Commmercial Contracts 31 Jul 2019

Facts relating to the feud

  1. Rakesh Gangwal owns 37% shares of IndiGo as compared to co-promotor Rahul Bhatia, who along with his affiliates, owns 38%.
  2. The ongoing feud between the promoters of Indigo has taken a serious turn as one of the promoters seeks SEBI’s intervention in this matter. 
  3. Mr Gangwal has flagged serious corporate governance lapses at IndiGo, in his letter addressed to the SEBI.
  4. The Shareholder Agreement is the root cause of conflict between the promoters. 
  5. This Agreement between the promoters grants Mr Bhatia certain unusual controlling rights that are allocated and exercised through the IGE Group(an affiliate owned by Mr Bhatia). 
  6. Mr Gangwal alleges that this is the main cause as to why governance matters have taken such a back seat at IndiGo. 
  7. Mr Gangwal has requested SEBI to probe into and ask the Company to make necessary changes to the unusual controlling rights available to the IGE Group.

Issues raised:

  1. Those mentioned above unusual controlling rights permit the IGE Group, a minority shareholder, significant influence over the decisions of IndiGo.
  2. Mr Bhatia organised for different companies to enter into various Related Party Transactions (RPT) with IndiGo.  An RPT is a business arrangement between two entities who share a pre-existing relationship. It is not uncommon for companies to seek the services of parties they are acquainted with. Such transactions are completely legal but hold the potential to create a conflict of interest. Hence, these RPT’s should only exist if they are in the best interest of the Company.
  3. Under these questionable RPT’s various fundamental governance norms and laws are not being adhered to as they are not approved by the Audit Committee
  4. Board decisions and resolutions on critical matters were being implemented at IndiGo without basic governance protocols and laws being followed. 
  5. Mr Gangwal has accused IGE group of taking away the authority vested by SEBI to the Nomination and Remuneration Committee NRC} for identifying persons who may be appointed in senior management. This was done through a Board resolution that gave the IGE Group the right to select these candidates.
  6. IndiGo has since its inception had an ‘independent director’ as its Chairman. However, the provision in the Articles of Association stating "The Chairman of the Board shall be appointed on the nomination of the IGE Group" can take away the independence of the Chairman completely.
  7. The Company has not appointed an independent woman director, a requisite that SEBI gave time to the Company since May 2018 to comply with.

SEBI’s Intervention

  1. The government wants SEBI to intervene and inspect the role of all the board members and every entity associated with the two main promoters: Rakesh Gangwal and Rahul Bhatia, and to take strict actions for all the wrongdoings.
  2. SEBI has been probing into this matter since the feud between the two promoters have surfaced as there was an indication of violations relating to corporate governance, disclosure regulations, fair market trade and insider trading rules.
  3. In relation with the above scrutiny, the SEBI has summoned IndiGo’s company secretary Sanjay Gupta.
  4. SEBI is also investigating into whether the InterGlobe Aviation Chief Executive Officer- Ronojoy Dutta, downplayed the tussle between the promoters.
  5. SEBI has sought details from IndiGo’s parent company, InterGlobe Aviation in relation with alleged lapses. The Company had to reply to the letter composed by Mr Gangwal, comprising of the above-mentioned issues, by 19th July 2019.
  6. The Company has submitted its response to the letter by Mr Gangwal and the responses provided by the company are merely defending the decisions taken by Mr Bhatia and the IGE Group. Mr Bhatia has claimed that his rivals are hiding behind ‘sources’ and spreading a ‘false narrative’ about this dispute.
  7. Both SEBI and the Ministry of Corporate Affairs (MCA) have directed IndiGo to submit crucial documents, including the EY report on questionable RPT that had been commissioned by IndiGo Chairman in January. 
  8. In addition to the above documents, SEBI has also sought the shareholders' agreement. The regulator is examining whether the company had received shareholder approval for the unusual controlling rights that Mr Bhatia enjoys over the airline, including the right to name its managing director, CEO and president.  

Settlement in the process?

The promoters have reached a truce of some sorts. The Board of directors have decided to amend the Articles of Association to expand the size of the company’s board to 10 from the current 6 and will include an independent woman director, as a measure to address some of the concerns raised by Gangwal. However, despite this amendment, there is still a long way to go for a settlement.
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More about Joint Venture

By: admin Commmercial Contracts 30 Jul 2019

A Joint Venture is an alliance where two or more business parties form a partnership to share their intellectual property, markets, knowledge, assets and profit. It is different from amalgamation and merger because there is no transfer of ownership in a Joint Venture. Some large companies decide to form a joint venture with a smaller business.

A Joint Venture (JV) is defined as a business entity created by two or more parties, characterized by shared ownership, shared governance and shared returns and risks. Companies typically follow the system of the joint venture for several reasons to access a new market, to gain scale efficiencies by combining assets and operations; emerging markets; to share the risk for significant investments or projects; or to access skills and capabilities of the companies.

When two or more persons, along with individuals come together to form a partnership temporarily for carrying out a particular project, such collaboration is known as a joint venture. The parties of the JV are known as "Co-venturers". A significant advantage of a JV is that it helps to grow the business faster, increase its productivity and generate an ample amount of profit.

Advantages of a Joint Venture:

  1. introduction  to new markets and distribution networks 
  2. increased capacity
  3. sharing of risks and costs (i.e. liability) with a partner who has access to more significant resources, including specialized staff, technology, and finance
  4. flexibility in the business.

For example, a Joint Venture has a limited lifespan and can only cover a part of the whole business of the parties. Thus it limits the commitment and the business exposure for both parties. The advantages of the joint venture may exceed the disadvantages; however; one should keep in mind that faith and risk play a vital role in the success of the business.

Disadvantages of a Joint Venture:

Restricted Flexibility: Flexibility is essential in some projects whereas sometimes it requires full concentration, and thus the concurrent work may become difficult. Such participant focuses more on the JV product, and the individual businesses suffer a lot.

Claims and Assets: It is essential to mention the assets and involvement of the participants in the joint venture agreement to prevent allegations of the other parties so that no issue and legal trouble arises in future.

Equal involvement of all parties is severe: The share of the profit is ideal, but it is impossible to maintain a contribution. For instance, if Company A is planning the process of production, Company B is given the duty of production and Company C is responsible for planning and implementing market strategies. Company A will not be active in the process of production and promotion, resulting in pressure on Company B and C; this can affect the individual business of the parties.

Dissolution of the Joint venture:

  1. The JV is not a permanent structure. It can get dissolved when:
  2. Aims of JV are met
  3. Objectives of the JV not achieved 
  4. If both or either of the parties develop new goals
  5. If both or either of the parties no longer agree with JV goals.
  6. If the time agreed for JV business has expired
  7. If legal or financial issues arise.
  8. If the market conditions evolved and changed then the JV is no longer appropriate or relevant
  9. If one party acquires the business of other

Types of the Joint Venture

To set up a JV depends on what the business is trying to achieve. Most common types of JV are:

Limited Co-operation: If one company agrees to collaborate with the other business in a limited way, it can be said as the limited co-operation in the business.  For example, a small business entrepreneur wants to sell his new exciting product through the network of distribution of the larger company. The two partners agree a contract setting out the terms and conditions of how this would work under the limited co-operation.

The Separate Business: If an individual set up a joint venture business separately, to handle a specific contract. To start a joint venture company is very flexible. The partners own shares individually in the company and agree on how they should manage them.

Business Partnerships: Sometimes, a limited company may not be the right choice. Instead, one can form a business partnership or a limited liability partnership. One can even merge the two businesses to form a joint venture.

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About Amalgamation In India

By: admin Commmercial Contracts 24 Apr 2019

Amalgamation is the blending of one or more companies into a new entity. When two or more companies come together to form a new company or when they decide to absorb or blend any one company by the other then the amalgamation takes place. An amalgamation of the company is different from the process of a merger. It is because neither of connecting companies survives as a legal entity at the end; a new entity is formed to house and consolidate the assets and liabilities of both companies.  

Amalgamation is the process carried out between two or more companies who are engaged in the same line of activity and the operations. The companies can also combine for diversification of the activities or expansion of services.

The main reason for amalgamating of companies is to acquire cash resources, to eliminate competition, do tax savings, to operate economies of large scale, to increase the value of shareholders, to reduce the degree of risk by diversification and to achieve growth and gain financially.

Amalgamation is like the merger that tries to minimize the risk of the assets and liabilities and maximize advantages as well as the shareholders' interests, and the business of the companies. No adjustments are made to book value. All assets of the transferor company become of the transferee company.

After the amalgamation, the business of the transferor company is carried on. Shareholders of the transferor company who holds a minimum of 90% face value of equity shares become shareholders of the transferee company.

When another acquires one company and shareholders of the transferor company discontinue to have a share as per decided proportion in the equity of the amalgamated company, an amalgamation like purchase occurs when conditions for amalgamation like merger are not met.

The procedure of an Amalgamation is as follows:

  • - The terms and condition of amalgamation are always finalized by the board of directors of the Companies.
  • - Approval is given by the respective High Court when the amalgamation scheme is prepared and submitted.
  • - Approval of the shareholders of the companies is obtained.
  • - Approval of SEBI is obtained.
  • - A new company is formed and issues shares to the shareholders of the transferor company.
  • - The transferor company is liquidated and all the assets, liabilities are taken over by the transferee company.

The main purpose of amalgamation is to achieve benefit which arises, with the combination of the two entities jointly. 

Various other objectives of Amalgamation are as follows:

- To obtain the economies of scale
- To reduce competition
- To gain Goodwill and reputation 
- To reduce the risk through diversification
- To improve managerial effectiveness.


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