# UNION OF INDIA v. R. GANDHI, PRESIDENT, MADRAS BAR ASSOCIATION

- **Citation:** [2010] 6 S.C.R. 857
- **Court:** Supreme Court of India
- **Decided:** 2010-05-11
- **Case number:** Civil Appeal No. 3067 of 2004
- **Bench:** K.G. Balakrishnan, R.V. Raveendran, D. K. Jain, P. Sathasivam, J.M. Panchal
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/union-of-india-v-r-gandhi-president-madras-bar-association-26841
- **Pages:** 100

## Headnote

Companies Act, ; 956 - Chapters 1 B and 1 C - Creation
A
B
of National Company ;_aw Tribunal (NCLT) and National. C
Company Law Appellate Tribunal (NCLA T) - For adjudication
of cases which were adjudicated by CLB, BIFR, A.A/FR and
High courl in its company jurisdiction -
Validity of - Held:
Creation of NCLT and NCLA T and vesting in them jurisdiction
of High Courl is not unconstitutional - Parliament has the o
legislative competence to make laws providing for constitution
of tribunals to deal with company matters even though it is
not mentioned in Arlie/es 323A and 3238 - Such legislation
is subject to constitutional limitations - It should not encroach
upon the independence of judiciary and should not be
E
voilative of doctrines of rule of law and separation of powers
- Such legislation is subject to judicial review if the courl 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
F
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 G
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
857
H
858
SUPREME COURT REPORTS
[2010] 6 S.C.R.
A 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
B 1 B and 1 C 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 1 B
c and 1C- Constitution of India, 1950-Articles 226, 323A and
3231.3; Seventh Schedule, List I Entries 77, 78, 79 and 40 rlw
Entry 5, List Ill Entries 11 A rlw Entry 46.
Constitution of India, 1950:
o
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 -
E
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.
F
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 -
G Legislation cannot be held invalid for violating basic structure
of the Constitution - Constitution of India, 1950.
H
Judicial Fora -
Courts and Tribunals -
Distinction
between.
Accepting the recommendations of Eradi Committee,
UNION OF INDIA v. R. GANDHI, PRESIDENT, MADRAS
859
BAR ASSOCIATION
Government passed Company (Second amendment) Act,
A
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
B
(CLB), Board of Industrial and Financial Reconstruction
(BIFR), Appellate Authority for Industrial and Financial
Reconstruction (AAIFR) and the High Court.
Madras Bar As

## Text

_Characters 0–39,946 of 189,256. This is a partial read: ask again with offset=39946 for what follows._

[2010] 6 S.C.R. 857
UNION OF INDIA
v.
R. GANDHI, PRESIDENT, MADRAS BAR ASSOCIATION
(Civil Appeal No. 3067 of 2004 etc.)
MAY 11, 2010
[K.G. BALAKRISHNAN, CJI, R.V. RAVEENDRAN, D. K.
JAIN, P. SATHASIVAM AND J.M. PANCHAL, JJ.]
Companies Act, ; 956 - Chapters 1 B and 1 C - Creation
A
B
of National Company ;_aw Tribunal (NCLT) and National. C
Company Law Appellate Tribunal (NCLA T) - For adjudication
of cases which were adjudicated by CLB, BIFR, A.A/FR and
High courl in its company jurisdiction -
Validity of - Held:
Creation of NCLT and NCLA T and vesting in them jurisdiction
of High Courl is not unconstitutional - Parliament has the o
legislative competence to make laws providing for constitution
of tribunals to deal with company matters even though it is
not mentioned in Arlie/es 323A and 3238 - Such legislation
is subject to constitutional limitations - It should not encroach
upon the independence of judiciary and should not be
E
voilative of doctrines of rule of law and separation of powers
- Such legislation is subject to judicial review if the courl 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
F
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 G
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
857
H
858
SUPREME COURT REPORTS
[2010] 6 S.C.R.
A 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
B 1 B and 1 C 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 1 B
c and 1C- Constitution of India, 1950-Articles 226, 323A and
3231.3; Seventh Schedule, List I Entries 77, 78, 79 and 40 rlw
Entry 5, List Ill Entries 11 A rlw Entry 46.
Constitution of India, 1950:
o
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 -
E
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.
F
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 -
G Legislation cannot be held invalid for violating basic structure
of the Constitution - Constitution of India, 1950.
H
Judicial Fora -
Courts and Tribunals -
Distinction
between.
Accepting the recommendations of Eradi Committee,
UNION OF INDIA v. R. GANDHI, PRESIDENT, MADRAS
859
BAR ASSOCIATION
Government passed Company (Second amendment) Act,
A
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
B
(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 1 B and 1 C. High Court held that creation of the
C
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 1 B and 1 C i.e. Sections 10-FD(f)(g)(h), 10-FE,
10-FF, 10-FL(2), 1 O-FR(3) and 10-FT were defective and
D
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.
E
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 1 O-FD(3)(f), (g) and (h) and 10F
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
G
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 I 227) can be transferred to tribunals;
'(ii) Is there a demarcating line for the Parliament to vest
H
860
SUPREME COURT REPORTS
[2010] 6 S.C.R.
A
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
B 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.
c
Partly allowing the appeals, the Court
HELD:
Difference between Courts and Tribunals:
1.1. The term 'Courts' refers to places where justice
o is administered or refers to Judges who exercise judicial
functions. Courts are established by the State for
administrMion of justice that is for exercise of the judicial
power ot'the State to maintain and uphold the rights, to
punish wrongs and to adjudicate upon disputes.
E 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.
F
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
G of the Constitution and tribunals for other matters under
Article 323B) of the constitution or statutory tribunals
which are created under a statute. [Para 12] [901-E-H;
902-A]
H
Harinagar Sugar Mills Ltd. vs. Shyam Sundar
UNION OF INDIA v. R. GANDHI, PRESIDENT, MADRAS 861
BAR ASSOCIATION
Jhunjhunwala - (1962) 2 SCR 339; Jaswant Sugar Mills vs.
A
Lax mi Chand - 1963 Supp (1) SCR 242; Associated
Cement Companies Ltd. vs. P. N. Sharma - (1965) 2 SCR
366; Kihoto Ho/Johan vs. Zachil/hu - 1992 Supp (2) SCC
651; S. P. Sampath Kumar vs. Union of India - (1987) 1 SCC
124, referred to.
B
1.2. Though both courts and tribunals exercise
judicial power and discharge similar functions, there are
certain well-recognised differences between courts and
tribunals. They are: (i) Courts are established by the State
and are entrusted with the State's inherent.judicial power C
for administration of justice in general. Tribunals are
established under a statute to adjudicate upon disputes
arising under the said statute, or disputes of a specified
nature. Therefore, all courts are tribunals. But all tribunals
I
are not courts. (ii) Courts are exclusively manned by D
Judges. Tribunals can have a Judge as the sole member,
or can have a combination of a Judicial Member and a
Technical Member who is an 'expert' in the field to which
Tribunal relates. Some highly specialized fact finding
tribunals may have only Technical Members, but they are
E
rare and are exceptions. (iii) While courts are governed
by detailed statutory procedural rules, in particular the
CPC and Evidence Act, requiring an elaborate procedure
in decision making, tribunals generally regulate their own
procedure applying the provisions of the CPC only where
it is required, and without being restricted by the strict
rules of Evidence Act. [Para 14] [907-8-F]
Independence of Judiciary and Separation of Powers:
F
2.1. Impartiality, independence, fairness and G
reasonableness in decision making are the hallmarks of
Judiciary. If 'Impartiality' is the soul of Judiciary,
'Independence' is the life blood of Judiciary. Without
independence, impartiality cannot thrive. Independence
.is not the freedom for Judges to do what they like. It is
H
862
SUPREME COURT REPORTS
[2010) 6 S.C.R.
A
the independence of judicial thought. It is the freedom
from interference and pressures which provides the
judicial atmosphere where he can work with absolute
commitment to the cause of justice and constitutional
values. It is also the discipline in life, habits and outlook
B
that enables a Judge to be impartial. Its existence
depends however not only on philosophical, ethical or
moral aspects but also upon several mundane things -
security in tenure, freedom from ordinary monetary
worries, freedom from influences and pressures within
c (from others in the Judiciary) and without (from the
Executive). Independence of Judiciary has always been
recognized as a part of the basic structure of the
Constitution [Para 15 and 16] [907-G-H; 908-A-C; 911-B]
Union of India vs. Sankalchand Himatlal Sheth 1977 (4)
D SCC 193; Supreme Court Advocates-on-Record Association
and Ors. v. Union of India (1993) 4 SCC 441; L. Chandra
Kumar v. Union of India (1997) 3 SCC 261; State of Bihar
vs. Bal Mukund Shah 2000 (4) SCC 640; Shri Kumar Padma
Prasad vs. Union of India 1992 (2) SCC 428; All India Judges
E Association vs. Union of India 2002 (4) SCC 247, referred
to.
'The Framing of India's Constitution' by B. Shiva Rao,
volume 1-8, Page 196);
F
2.2. The doctrine of separation of powers has also
been always considered to be a part of the basic structure
of the Constitution. [Para 17] [914-8]
Rai Sahib Ram Jawaya Kapur vs. The State of Punjab
1955 (2) SCR 225; Chandra Mohan vs. State of UP AIR 1966
G SC 1987; Indira Nehru Gandhi vs. Raj Narain 1975 Supp
SCC 1; L. Chandra Kumar v. Union of India (1997) 3 SCC
261; Keshavananda Bharati vs. State of Kera/a 1973 (4) SCC
225, State of Bihar vs. Bal Mukund Shah 2000 (4) SCC 640;
I. R. Coelho vs. State of Tamil Nadu 2007 (2) SCC 1,
H referred to.
UNION OF INDIA v. R. GANDHI, PRESIDENT, MADRAS 863
BAR ASSOCIATION
Recommendations for better working of Tribunals:
A
3.1. Only if continued judicial independence is
assured, tribunals can discharge judicial functions. In
order to make such independence a reality, it is
fundamental that the members of the tribunal shall be
8
independent persons, not civil servants. They should
resemble courts and not bureaucratic Boards. Even the
dependence of tribunals on the sponsoring or parer:it
department for infrastructural facilities or personnel may
undermine the independence of the tribunal. [Para 20]
[917-F-G]
C
3.2. In India tribunals have not achieved full
independence. The Secretary of the concerned
'sponsoring department' sits in the Selection Committee
for appointment. When the tribunals are formed, they are
D
mostly dependant on their sponsoring department for
funding, infrastructure and even space for functioning.
The statutes constituting tribunals routinely provide for
members of civil services from the sponsoring
departments becoming members of the tribunal and
continuing their lien with their parent cadre. [Para 23]
[921-0-E]
E
L. Chandra Kumar v. Union of India (1997) 3 SCC 261,
followed.
Judicial Review by De Smith 6th Edn., Page 50;
'Administrative Law' by H. W.R. Wade & C. F. Forsyth (10th
Edn., pp. 773, 774 and 777); Leggatt Committee's Report,
referred to
F
Extent of power of Government to transfer the judicial
G
functions traditionally performed by courts· to tribunals:
4.1. The legislative competence of Parliament to
provide for creation of courts and tribunals can be traced
to Entries 77, 78, 79 and Entries 43, 44 read with Entry
H
864
SUPREME COURT REPORTS
[2010] 6 S.C.R.
A 95 of List I, Item 11 A r/w Entry 46 of List Ill of the Seventh
Schedule of the Constitution. Articles 323A and 3238 of
the Constitution are enabling provisions whi<:h enable the
setting up of tribunals contemplated therein; and that the
said Articles, however, cannot be interpreted to mean that
B they prohibited the legislature from establishing tribunals
not covered by those Articles, as long as there is
legislative competence under the appropriate Entry in the
Seventh Schedule. [Para 28] [926-H; 927-A·C]
Union of India v. Delhi High Court Bar Association 2002
C (4) SCC 275; State of Kamataka v. Vishwabharathi House
Building Co-operative Society and Ors. 2003 (2) SCC 412;
Navinchandra Mafatla/ vs The Commissioner of Income-Tax
1955 (1) SCR 829; Union of India vs. Harbhajan Singh
[)
Dhillon 1971 (2) sec 779, relied on
4.2. The power of Parliament to enact a law which is
not covered by an entry in Lists II and Ill of Seventh
Schedule is absolute. The power so conferred by Article
246 is in no way affected or controlled by Article 323A or
E 3238. Even though revival/rehabilitation/regulation/
winding up of companies are not matters which are
mentioned in Article 323A and 3238, the Parliament has
the legislative competence to make a law providing for
constitution of tribunals to deal with disputes and matters
F arising out of the Companies Act. [Paras 29 and 31] [928B; 929-D-E]
Associated Cement Companies Ltd. vs. P. N. Sharma
(1965) 2 SCR 366, relied on.
4.3. The Constitution contemplates judicial power
G being exercised by both courts and tribunals. Except the
powers and jurisdictions vested in superior courts by the
Constitution, powers and jurisdiction of courts are
controlled and regulated by Legislative enactments. High
Courts are vested with the jurisdiction to entertain and
H hear appeals, revisions and references in pursuance of
UNION OF INDIA v. R. GANDHI, PRESIDENT, MADRAS 865
BAR ASSOCIATION
provisions contained in several specific legislative A
enactments. If jurisdiction of High Courts can be created
by providing for appeals, revisions and references to be
heard by the High Courts, jurisdiction can also be taken
away by deleting the provisions for appeals, revisions or
references. It also follows that the legislature has the
B
power to create tribunals with reference to specific
enactments and confer jurisdiction on them to decide
disputes in regard to matters arising from such special
enactments. Therefore it cannot be said that Legislature
has no power to transfer judicial functions traditionally c
performed by courts to tribunals. [Para 32] [929-F-H]
4.4. 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
D
'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. [Para 33] [930-CD]
E
4.5. 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
F
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 G
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
H
866
SUPREME COURT REPORTS
[2010] 6 S.C.R.
A
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
s 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
c 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. [Para 35]
[93"1-E-H; 932-A-C]
D
R. K. Jain vs. Union of India, 1993 (4) SCC 119, relied
on
L. Chandra Kumar v. Union of India (1997) 3 SCC 261,
referred to.
E
4.6. If the Act provides for a tribunal with a Judicial
Member and a Technical Member, whether there would
be limitations upon the power of the legislature to
prnscribe the qualifications for such technical member
depends upon the nature of jurisdiction that is being
F
transferred from the courts to tribunals. Logically and
necessarily, depending upon whether the jurisdiction is
being shifted from High Court, or District Court or a Civil
Judge, the yardstick will differ. [Para 37] [933-A-C]
4.7. It is for the court which considers the challenge
G to the qualification, to determine whether the legislative
power has been exercised in a manner in consonance
with the constitutional principles and constitutional
guarantees. While the Legislature can make a law
providing for constitution of tribunals and prescribing the
H eligibility criteria and qualifications for being appointed
UNION OF INDIA v. R. GANDHI, PRESIDENT, MADRAS
867
BAR ASSOCIATION
as members, the superior courts in the country can, in
A
exercise of the power of judicial review, examine whether
the qualifications and eligibility criteria provided for
selection of members is proper and adequate to enable
them to discharge judicial functions and inspire
confidence. [Paras 37 and 39) [933-C-D; 934-E-F]
B
Kesavananda Bharati v. State of Kera/a AIR 1973 SCC
1461, referred to.
4.8. Legislative measures are not subjected to basic
features or basic structure or basic framework. The C
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. [Para 40] [935-G-H;
936-A]
Indira Gandhi vs. Raj Narain 1975 Supp SCC 1; Ku/dip
Nayar vs. Union of India 2006 (7) SCC 1; State of Andhra
Pradesh vs. McDowell and Co. 1996 (3) SCC 709; State of
Karnataka vs. Union of India 1977 (4) SCC 608, relied on.
4.9. Rule of Law has several facets, one of which is
that disputes of citizens will be decided by Judges who
D
E
are independent and impartial; and that disputes as to
legality of acts of the Government will be decided by
Judges who are independent of the Executive. Another
F
facet of Rule of Law is equality before law. The essence
-
of equality is that it must be capable of being enforced
and adjudicated by an independent judicial forum.
Judicial independence and separation of judicial power
from the Executive are part of the common law traditions
G
implicit in a Constitution like the Constitution of India
which is based on the Westminster model. [Para 40] [938D-F]
4.10. The fundamental right to equality before law
and equal protection of laws guaranteed by Article 14 of H
868
SUPREME COURT REPORTS
[2010] 6 S.C.R.
A the Constitution clearly includes a right to have the
person's rights, adjudicated by a forum which exercises
judicial power in an impartial and independent manner,
consistent with the recognized principles of adjudication.
Therefore wherever access to courts to enforce such
B rights is sought to be abridged, altered, modified or
substituted by directing him to approach an alternative
forum, such legislative act is open to challenge if it
violates the right to adjudication by an independent
forum. Therefore, though the validity of the provisions of
c a legislative act cannot be challenged on the ground it
violates the basic structure of the constitution it can be
challenged as violative of constitutional provisions which
enshrine the principles of Rule of Law, separation of
power and independence of Judiciary. [Para 41) [938-GD H; 939-A-C]
The State of West Bengal v. Anwar Ali Sarkar AIR 1952
SC 75, relied on
"Orderly & Effective Insolvency Procedures - Key Issues"
E annexed to Eradi Committee Report, referred to.
4.11. All courts are tribunals. Any tribunal to which
any existing jurisdiction of courts is transferred should
also be a Judicial Tribunal. This means that such tribunal
should have as members, persons of a rank, capacity and
F status as nearly as possible equal to the rank, status and
capacity of the court which was till then dealing with such
matters and the members of the tribunal should have the
independence and security of tenure associated with
judicial tribunals. [Para 44] [941-B-C]
G
4.12.
The Legislature can
re-organize the
jurisdictions of judicial tribunals. For example, it can
provide that a specified category of cases tried by a
higher court can be tried by a lower court or vice versa
(A standard example is the variation of pecuniary limits
H of courts). Similarly while constituting tribunals, the
UNION OF INDIA v. R. GANDHI, PRESIDENT, MADRAS 869
BAR ASSOCIATION
Legislature can prescribe the qualifications/eligibility A
criteria. The same is however subject to judicial review.
If the court in exercise of judicial review is of the view that
such tribunalisation would adversely affect the
independence of j,1diciary or the standards of judiciary,
the court may interfere to preserve the independence and
B
standards of judiciary. Such an exercise will be part of
the checks and balances measures to maintain the
separation of powers and to prevent any encroachment,
intentional or unintentional, by either the legiSlature or by
the executive. [Para 44] [941-G-H; 942-A-B]
c
Validity of constitution of NCLT and NCLAT under Parts
1 B and 1 C of Companies Act
5.1. The Legislature has the competence to transfer
any particular jurisdiction from courts to tribunals
D
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
E
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
F
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. [Paras 45 and 46] [942-D-F; ~; G
943-A]
5.2. When the legislature proposes to substitute a
tribunal in place of the High Court to exercise the
· jurisdiction which the High Court is exercisi_ng, it goes
without saying that the standards expected from the
H
870
SUPREME COURT REPORTS
[2010] 6 S.C.R.
A Judicial Members of the Tribunal and standards applied
for appointing such members, should be as nearly as
possible as applicable to High Court Judges, which are
apart from a basic degree in law, rich experience in the
practice of law, independent outlook, integrity, character
B and good reputation. It is also implied that only men of
standing who have special expertise in the field to which
the tribunal relates, will be eligible for appointment as
Technical Members. Therefore, only persons with a
judicial background, that is, those who have been or are
c Judges of the High Court and lawyers with the prescribed
experience, who are eligible for appointment as High
Court Judges, can be considered for appointment of
Judicial Members. [Para 46] [943-A-D]
5.3. A lifetime of experience in administration may
D make a member of the civil services a good and able
administrator, but not a necessarily good, able and
impartial adjudicator with a judicial temperament capable
of rendering decisions which have to (i) inform the
parties about the reasons for the decision; (ii)
E demonstrate fairness and correctness of the decision
and absence of arbitrariness; and (iii) ensure that justice
is not only done, but also seem to be done. [Para 47]
[943-E-F]
F
S. P. Sampath Kumar v. Union of India (1987) 1 SCC
124, referred to
5.4. As far as the Technical Members are concerned,
the officer should be of at least Secretary Level officer
with known competence and integrity. Reducing the
G standards or qualifications for appointment will result in
loss of confidence in the tribunals. It is not competence
alone but various other factors which make a person
suitable. Therefore, when the legislature substitutes the
Judges of the High Court with Members of the tribunal,
H the standards applicable should be as nearly as equal in
UNION OF INDIA v. R. GANDHI, PRESIDENT, MADRAS 871
BAR ASSOCIATION
the case of High Court Judges. That means only A
Secretary Level officers (that is those who were
Secretaries or Additional Secretaries) with specialized
knowledge and skills can be appointed as Technical
Members of the tribunal. [Para 48] [944-8-F]
26. It is a matter of concern that there is gradual
erosion of the independence of the judiciary, and
shrinking of the space occupied by the Judiciary and
gradual increase in the number of persons belonging to
8
the civil service discharging functions and exercising
jurisdiction which was previously exercised by the High C
Court. There is also a gradual dilution of the standards .
and qualification prescribed for persons to decide cases
which were earlier being decided by the High Courts.
[Para 49] [944-G-H; 945-A]
5.5. Such dilution is by insertion of Chapters 18 in
the Companies Act, 1956 with effect from 1.4.2003
providing for constitution of a NCLT with a President and
D
a large number of Judicial and Technical Members (as
many as 62). There is a further dilution in the
E
qualifications for members of NCLT which is a substitute
for the High Court, for hearing winding up matters and
other matters which were earlier heard by High Court. A
member need not even be a Secretary or Addi. Secretary
Level Officer. All Joint Secretary level civil servants. (that
F
are working under Government of India or holding a post
under the Central and State Government carrying a scale
of pay which is not less than that of the Joint Secretary
to the Government of India) for a period of five years are
eligible. Further, any person who has held a Group-A
post for 15 years with three years' of service as a member G
of Indian Company Law Service (Account) Branch, or
who has 'dealt' with any problems relating to Company
Law can become a Member. This means that the cases
which were being decided by the Judges of the High
Court can be decided by two-members of the civil
H
872
SUPREME COURT REPORTS
[2010] 6 S.C.R.
A services - Joint Secretary level officers or officers holding
Group 'A' posts or equivalent posts for 15 years, can now
discharge the functions of High Court. This again has
given room for comment that qualifications prescribed
are tailor made to provide sinecure for a large number of
B Joint Secretary level officers or officers holding Group 'A'
posts to serve up to 65 years in tribunals exercising
judicial functions. Further, the proposed Companies Bill,
2008 contemplates that any member of Indian Legal
Service or Indian Company Law Service (Legal Branch)
c with only ten years service, out of which three years
should be in the pay scale of Joint Secretary, is qualified
to be appointed as a Judicial Member. The speed at
which the qualifications for appointment as Members is
being diluted is, to say the least, a matter of great concern
0 for the independence of the Judiciary. [Para 49] [946-FH; 947-A-H]
5.6. The fact that senior officers of civil services could
function as Administrative Members of Administrative
Tribunals, does not necessarily make them suitable to
E function as Technical Members in Company Law
Tribunals or other tribunals requiring technical expertise.
The tribunals cannot become providers of sinecure to
members of civil services, by appointing them as
Technical Members, though they may not have technical
F expertise in the field to which the tribunals relate, or
worse where purely judicial functions are involved. While
one can understand the presence of the members of the
civil services being Technical Members in Administrative
Tribunals, or Military Officers being members of Armed
G Forces Tribunals, or Electrical Engineers being members
of Electricity Appellate Tribunal, or Telecom Engineers
being members of TDSAT, there is no logic in members
of general Civil Services being members of Company
Law Tribunals. [Para 50] [948-A-E]
H
5.7. There is also dilution of independence. If any
UNION OF INDIA v. R. GANDHI, PRESIDENT, MADRAS 873
BAR ASSOCIATION
member of the Tribunal is permitted to retain his lien over
A
his post with the parent cadre or ministry or department
in the civil service for his entire period of service as
member of the tribunal, he would continue to think, act
and function as a member of the civil services. A litigant
may legitimately think that such a member will not be
B
independent and impartial. Independence, impartiality
and fairness are qualities which have to be nurtured and
developed and cannot be acquired overnight. The
independence of members discharging judicial functions
in a tribunal cannot be diluted. [Para 51] [948-E-H; 949C
A]
The Douglas Letters. Selections from the Private Papers
of William Douglas, edited by Melvin L. Urofsky - 1987,
Edition page 162 referred to.
5.8. The only reason given by Eradi Committee for
suggesting transfer of the company law jurisdiction from
High Courts to tribunals is delay. Tribunals with only
Judicial Members would have served the purpose sought
to be achieved. It did not suggest that such Tribunals
should have technical members. Nor did it suggest
introduction of officers of civil services to be made
technical members. The jurisdidion relating to company
case which the High Courts are dealing with can be dealt
with by tribunals with Judicial Members alone. [Para 53]
[949-F; 951-C-D]
5.9. Parts IC and ID of the Companies Act proposes
to shift the company matters from the courts to tribunals,
where a 'Judicial Member' and a 'Technical Member' will
decide the disputes. If the members are selected as
contemplated in Section 1 OFD, there is every likelihood
of most of the members, including the so called 'Judicial
Members' not having any judicial experience or company
law experience and such members being required to deal
with and decide complex issues of fact and law. Whether
D
E
F
G
874
SUPREME COURT REPORTS
(2010] 6 S.C R
A
the tribunals should have only Judicial Members or a
combination of judicial and technical members is for the
Legislature to decide. But· if there should be technical
members, they should be persons with expertise in
company law or allied subjects and mere experience in
B civil service cannot be treated as Technical Expertise in
company law. The candidates falling under sub-section
2(c) and (d) and sub-sections 3(a) and (b) of section 1 OFD
have no experience or expertise in deciding company
matters. [Para 54] [951-E-H; 952-A]
c
5.10. The short term of three years, the provision for
routine suspension pending enquiry and the lack of any
kind of immunity, are aspects which required to be
considered and remedied. [Para 55] [952-E]
0
Corrections to set right the defects in Parts 1 B and 1 C of
Companies Act:
6.1. Only Judges and Advocates can be considered
for appointment as Judicial Members of the Tribunal. Only
the High Court Judges, or Judges who have served in the
E
rank of a District Judge for at least five years or a person
who has practiced as a Lawyer for ten years can be
considered for appointment as a Judicial Member.
Persons who have held a Group A or equivalent post
under the Central or State Government with experience
F
in the Indian Company Law Service (Legal Branch) and
Indian Legal Service (Grade-1) cannot be considered for
appointment as judicial members as provided in subsection 2(c) and (d) of Section 1 OFD. The expertise in
Company Law service or Indian Legal service will at best
G enable them to be considered for appointment as
Technical Members. [Para 56] [952-F-H; 953-A]
6.2. As the NCLT takes over the functions of High
Court, the members should as nearly as possible have the
same position and status as High Court Judges. This can
H
·•
UNION OF INDIA v. R. GANDHI, PRESIDENT, MADRAS
875
BAR ASSOCIATION
be achieved, not by giving the salary and perks of a High
A
Court Judge to the members, but by ensuring that
,persons who are as nearly equal in rank, experience or
competence to High Court Judges are appointed as
members. Therefore, only officers who are holding the
ranks of Secretaries or Additional Secretaries alone can
B
be considered for appointment as Technical members of
the National Company Law Tribunal. Clauses (c) and (d)
of sub-section (2) and Clauses (a) and (b) of sub-section
(3) of section 1 OFD which provide for persons with 15
years experience in Group A post or persons holding th£: c
post of Joint Secretary or equivalent post in Central or
State Government, being qualified for appointment as
Members of tribunal is invalid. [Para 56] [953-8-D]
6.3. A 'Technical Member' presupposes an
experience in the field to which the tribunal relates. A
D
member of Indian Company Law Service who has worked
with Accounts Branch or officers in other departments
who might have incidentally dealt with some aspect of
Company Law cannot be considered as 'experts'
qualified to be appointed as Technical Members.
E
Therefore Clauses (a) and (b) of sub-section (3) of
Section 10 FD are not valid. [Para 56] [953-E-F]
6.4. The first part of clause (f) of sub-section (3) of
Section FD providing that any person having special
. knowledge or professional experience of 15 years in
science, technology, economics, banking, industry could
be considered to be persons with expertise in company
law, for being appointed as Technical Members in NCLT,
is invalid. [Para 56] [953-G]
6.5. Persons having ability, integrity, standing and
special knowledge and professional experience of not
less than fifteen years in industrial finance, industrial
management, industrial reconstruction, investment and
accountancy, may however be considered as persons
F
G
H
876
SUPREME COURT REPORTS
[2010) 6 S.C.R.
A having expertise in rehabilitation/revival of companies
and therefore, eligible for being considered for
appointment as Technical Members. [Para 56] [953-H; 954A-B]
6.6. In regard to category of persons referred in
8 clause (g) of sub-section (3) of Section 10 FD at least five
years experience should be specified. [Para 56] [954-8C]
6.7. Only Clauses (c), (d), (e), (g), (h), and later part of
c clause (f) in sub-section (3) of section 10FD and officers
of civil services of the rank of the Secretary or Additional
Secretary in Indian Company Law Service and Indian
Legal Service can be considered for purposes of
appointment as Technical Members of the Tribunal. [Para
D 56] [954-C-D]
6.8. Instead of a five-member Selection Committee
with Chief Justice of India (or his nominee) as
Chairperson and two Secretaries from the Ministry of
Finance and Company Affairs and the Secretary in the
E Ministry of Labour and Secretary in the Ministry of Law
and Justice as members mentioned in Section 10FX, the
Selection Committee should broadly be on the following
lines: (a)Chief Justice of India or his nominee -
Chairperson (with a casting vote); (b)A senior Judge of
F the Supreme Court or Chief Justice of High Court -
Member; (c)Secretary in the Ministry of Finance and
Company Affairs - Member; and (d) Secretary in the
Ministry of Law and Justice - Member. [Para 56] [954-EH]
G
H
6.9. The term of office of three years shall be changed
to a term of seven or five years subject to eligibility for
appointment for one more term. This is because
considerable time is required to achieve expertise in the
concerned field. A term of three years is very short and
UNION OF INDIA v. R. GANDHI, PRESIDENT, MADRAS 877
BAR ASSOCIATION
by the time the members achieve the required knowledge,
A
expertise and efficiency, one term-will be over. Further the
said term of three years with the retirement age of 65
years is perceived as having been tailor-made for persons
who have retired or shortly to retire and encourages
these tribunals to be treated as post-retirement havens.
B
If these tribunals are to function effectively and efficiently
they should be able to attract younger members who will
have a reasonable period of service. [Para 56] [955-A-C]
6.10. The second proviso to Section 10FE enabling
the President and members to retain lien with ttieir parent C
cadre/ministry/department while holding office as
President or Members will not be conducive for the
independence of member. Any person appointed as
member should be prepared to totally disassociate
himself from the Executive. The lien cannot therefore D
exceed a period of one year. [Para 56] [955-D-E]
6.11. To maintain independence and security in
service, sub-section (3) of section 10FJ and Section 10FV
should provide that suspension of the President/ E
Chairman or member of a tribunal can be only with the
concurrence of the Chief Justice of India. The
administrative support for all tribunals should be from the
Ministry of Law & Justice. Neither the tribunals nor its
members shall seek or be provided with facilities from the
F
respective sponsoring or parent Ministries or concerned
Department. [Para 56] [955-F-G]
6.12. Two-Member Benches of the tribunal should
always have a judicial member. Whenever any larger or
special benches are constituted, the number of Technical
G
Members shall not exceed the Judicial Members. [Para
56] [955-H; 956-A]
Conclusion:
7 .1. The creation of National Company Law Tribunal
H
878
SUPREME COURT REPORTS
[2010] 6 S.C.R.
A and National Company Law Appellate Tribunal and
vesting in them, the powers and jurisdiction exercised by
the High Court in regard to company law matters, are not
unconstitutional. [Para 57) [956-B-C]
8
7.2. Parts 1 B and 1 C of the Act as presently
structured are unconstitutional. However, Parts IB and IC
of the Act may be made operational by making suitable
amendments in addition to what the Union Government
has already agreed in pursuance of the impugned order
C of the High Court. [Para 57) [956-C-D]
S. P. Sampath Kumar vs. Union of India (1987) 1 SCC
124; L. Chandra Kumar v. Union of India (1997) 3 SCC 261,
Union of India v.