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KEY TAKEAWAYS

  • A company as defined in the landmark case of Salomon v A Salomon & Co Ltd [(1896) UKHL 1] is a "legal person" or "legal entity" separate from and capable of surviving beyond its members.
  • The Companies Act, 2013 is an Act of Parliament enacted to frame and regulate laws related to companies.
  • It aims at improving corporate governance standards and holding companies accountable.
  • The National Company Law Tribunal (NCLT) is the leading forum in India to adjudicate issues and hear appeals concerning companies.
  • Anyone aggrieved by the NCLT orders can appeal to the National Company Law Appellate Tribunal (NCLAT).
  • Section 423 of the Companies Act, 2013 provides for appeal to the Supreme Court on NCLAT orders.

INTRODUCTION

Business organizations are fruitful for society's development and empowerment. They attract competent individuals to showcase their potential and improve community living standards. The ripple effect it creates, encourages more businesses, income, and jobs in a country. Hence, it becomes essential to have laws governing the same. A company is defined in the landmark case of Salomon v A Salomon & Co Ltd [(1896) UKHL 1] as a "legal person" or "legal entity" separate from and capable of surviving beyond its members.

The Companies Act, 2013 was introduced to formulate provisions related to companies. An appeal can be defined as a request made by the aggrieved person to a superior court/ authority to reconsider a decision of a subordinate forum. Under the Companies Act, 2013, anyone aggrieved by a decision can appeal to a tribunal. If a person is still dissatisfied with the tribunal's order, he can further appeal to the appellate tribunal as per the provisions of the Act. Adherence to the procedural requirements outlined in the Act for appeal is a must. The National Company Law Tribunal is the top forum in India to adjudicate issues and hear appeals concerning companies. Anyone aggrieved by the NCLT orders can appeal to the National Company Law Appellate Tribunal (NCLAT). This article intends to look at the appeal procedure under the Companies Act in detail.

COMPANIES ACT, 2013

Indian company law is heavily inspired by English laws. The first Companies Act in India came into force in 1950 after the Joint Stock Companies Act of 1844 was passed in England. It facilitated joint-stock company formation through registration. The 1844 Act provided a framework for the Indian Company Law Acts. However, all the earlier acts were repealed by the Joint Stock Companies Act 1856. This Act provided for the regulation, adjudication, and incorporation of a company. It was further amended in 1882 to align itself with the changes English Company Law had seen up to that period. Indian Companies Act, 1913, received Governor General's assent on 27th March 1913. This Act contained general provisions included in the English Companies (Consolidation) Act of 1908 and was based on it. In 1936, it was amended by the government. The Companies Act, 1956 came into force on 18 January 1956. It was amended and repealed by the current existing law governing companies i.e., the Companies Act, 2013. It is an Act of Parliament enacted to frame and regulate company laws. Section 2(20) of the Act defines companies. According to this section, a company means a company incorporated under this Act or any previous company law.

The primary goal for which this Act was enacted is the proper functioning of companies. Company laws protect investors and hold companies accountable. It aims at improving the standard of corporate governance. The Act contains 470 sections currently and has provisions relating to the formation and registration of companies, duties, and liabilities of directors and secretaries, shareholders' agreements, etc.

PROVISIONS RELATED TO APPEAL UNDER THE COMPANIES ACT, 2013

Section 421 of the Companies Act, 2013 provides for appeals from tribunal orders. It states that if anyone is dissatisfied with the tribunal's order, they can appeal it to the Appellate Tribunal [Section 421 (1)]. However, any order passed by the tribunal with the consent of the parties cannot be appealed [Section 421 (2)]. Within 45 days of the aggrieved person's receipt of the tribunal's order, the appeal should be filed. It should also contain the prescribed fee amount [Section 421 (3)]. If the appellate court is satisfied that the aggrieved person couldn’t file the appeal within the prescribed time due to sufficient cause, the period for filing the appeal can extend up to 45 days. Both parties must be given a reasonable opportunity to be heard. After the hearing, the appellate tribunal can confirm, modify, or quash the tribunal's order [Section 421 (4)]. The appellate tribunal must send a copy of the order to the respective parties and the tribunal. [Section 421(5)].

Section 423 of the Companies Act, 2013 provides for appeal to the Supreme Court. It states that if anyone is dissatisfied with the appellate tribunal order, they can appeal it to the Hon’ble Supreme Court of India. This appeal must be filed within 60 days of the aggrieved person's receipt of the appellate tribunal's order. The appeal can be made to settle any question of law arising out of the order. Additionally, if the court is satisfied that the aggrieved person could not make the application within the stipulated time due to sufficient cause, the period to file an appeal can extend up to 60 days.

COMPANIES (ADJUDICATION OF PENALTIES) RULES, 2014

Section 469 of the Companies Act empowers the central government to make rules regarding any subject matter to carry out the provisions of the act. This can be done through a notification in the official gazette. Section 454 of the Companies Act empowers the central government to appoint adjudicating officers for adjudging penalties. Through the exercise of the powers bestowed upon the central government by section 469 and section 454 of the Companies Act, the Companies (Adjudication of Penalties) Rules, 2014 were introduced.

Rule 4 of the Companies (Adjudication of Penalties) Rules provides for appeals against adjudicating officers' orders. Sub-section 1 states that an appeal against the order of the adjudicating officer should be filed with the Regional Director who has jurisdiction over the subject matter at hand. The appeal should be made within 60 days of the availability of a copy of the order to the aggrieved person. The appeal should be filed in the prescribed form, containing the grounds for appeal along with a copy of the order appealed against. If the party is represented by an authorized representative, the appeal should contain a copy of such authorization along with the representative's consent. Every appeal under this rule should also be accompanied by the prescribed fee amount.

Rule 5 provides for appeal registration. It states that once the appeal is received by the Regional Director, he will endorse a date on the appeal and sign it. Sub-clause 2 of Rule 5 states that once the appeal is found in order, it will be registered and given a serial number. In case the appeal consists of certain defaults, the Regional Director shall allow the appellant to rectify the defaults within 14 days. If the appellant fails to do so, the director has all authority to cancel the appeal registration. This cancellation should be intimated to the appellant within 7 days and should include the reasons for cancellation in writing. Moreover, if the regional director is satisfied that the appellant could not rectify the defaults within the stipulated time due to sufficient cause, he can extend the rectification time to fourteen days.

Rule 6 provides for appeal disposal. It states that a copy of the appeal should be served on the adjudicating officer who passed the order appealed against. This should be served along with a notice requiring him to reply within 21 days. If the regional director is satisfied that the officer could not file his reply within the stipulated time due to sufficient cause, he can extend the time for a further twenty-one days. A copy of every reply, application, or written representation filed by the adjudicating officer should be served to the appellant. The Regional Director can notify the parties about the hearing date, which should not be within 30 days of notification of the hearing date. The director has the authority to adjourn the hearing as he deems fit. He can even dismiss the hearing in the case of one party's absence. It is to be noted that the appeal can be restored by the director if such absence was due to a legitimate cause. Sub-clause 6 and sub-clause 7 of this rule provide that every order passed should be dated and signed by the Regional Director, and subsequently be communicated to the respective parties.

CONCLUSION

The Companies Act, 2013 replaced the earlier legislation, the Companies Act, of 1956, and established a better framework for companies in India. The right to appeal is not absolute unless expressly provided by the statute. Sections 421, and 423 of the Act along with the Companies (Adjudication of Penalties) Rules lay down the provisions regarding the appeal. Nevertheless, amendments to India's company laws are frequent. In 2020, the Companies (Amendment) Bill, 2020 was passed by the Parliament to further modify the Companies Act and decriminalize several compoundable offences as well as promote business in the country


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