Tribunals: a tragic obsession

ARVIND P. DATAR

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OVER the last 25 years, Parliament has systematically taken away important judicial functions of the High Courts and the civil courts and vested them in quasi-judicial tribunals. The stature of our High Courts has been reduced and, if this trend continues, vitally important cases will come to be decided by tribunals that are wholly controlled by the executive. The tribunalization of our judicial system will lead to consequences that our country will bitterly regret. Despite the fact that the functioning of most tribunals is in a pathetic state, the zeal to create more tribunals has not abated. Very few have realized that the real solution lies in strengthening the existing courts and confining tribunals to a few specialized areas. It is equally important to ensure that specialized tribunals are not manned by generalist civil servants or judges.

The first blow came with the 42nd amendment to the Constitution, made during the Emergency promulgated in June 1975. Furious at the independence of the judiciary, Indira Gandhi was determined to drastically cut the power of this branch of government. On the ground that there were mounting arrears in the High Courts and there was a need to ensure speedy disposal of service and tax cases, Articles 323A and 323B were inserted. At the same time, major amendments were made to drastically curtail the powers of the High Courts under Articles 226 and 227.

After the Emergency, the Janata government passed the 44th amendment which removed most of the pernicious changes made by the 42nd amendment. Unfortunately, they forgot to delete Articles 323A and 323B. Later Supreme Court decisions failed to note that these two articles were deliberately planned to strip away important functions of the High Courts and vest them in tribunals. As mentioned later, the Supreme Court has failed to halt the steady stripping away of judicial power by laying down a clean demarcation line and impregnable boundary wall that would ensure that the principle of separation of powers is obeyed in letter and spirit.

Tribunals began with the setting up of the Income Tax Appellate Tribunal (ITAT) in 1941, which acquired a reputation for impartiality and fairness. Many famous lawyers developed their argumentative skills in cases before the ITAT. It is said that Nani Palkhivala, perhaps, argued more cases before this tribunal than any other forum. After independence, the ITAT pattern of a two-member tribunal was followed by the creation of sales tax tribunals in several states. These tax tribunals were outside the mainstream judiciary; within the judiciary functioned the rent control, motor vehicle and industrial tribunals. Till date, election petitions are also heard by a High Court judge who functions as the Election Tribunal.

 

The Company Law Board (CLB), created in 1988, began functioning in May 1991. It was also patterned on the ITAT and marked a major departure in the creation of tribunals. Till then, all tribunals outside the judiciary dealt with disputes between the citizen and government departments. For the first time private disputes between two shareholders or between the shareholders and the company were shifted to a quasi-judicial body. The functions discharged by the High Court for almost 80 years were now shifted to four benches of the Company Law Board. Strangely, for the last two decades, the government has been unable to recruit even nine members for this tribunal and, over the years, cases which were heard by two members are now being heard by a single member.

Following the establishment of the CLB, the Debt Recovery Tribunals (DRT) were set up. The rationale was that there were too many cases pending before the civil courts and banks had to wait for several years to recover their money. In 2002, the constitutional validity of these tribunals was upheld in the Delhi Bar Association1 case. The DRT experiment is now accepted to be a miserable failure and Parliament had to introduce a Securitization Act2 which enabled banks to attach assets of defaulters without recourse to any kind of judicial process. It never occurred to anyone that instead of creating two or three Debt Recovery Tribunals in Tamil Nadu or other states, it would have been easier (and cheaper) to dedicate three civil courts to deal exclusively with bank cases.

 

Flush with this success, the National Company Law Tribunal (NCLT)/ National Company Law Appellate Tribunal (NCLAT) were created in 2002; the National Tax Tribunal (NTT) and the Intellectual Property Appellate Board (IPAB) in 2003. In a span of two years, the jurisdiction of the High Courts in company law, taxation and intellectual property were simply taken away. Fortunately, the creation of NCLT/NCLAT and NTT has been halted because of certain judgments which are discussed later.

The ostensible reason for creating tribunals is often attributed to the huge backlog of cases and the need for specialization. However, the real reason is that tribunals are an excellent source of post-retirement opportunities for several bureaucrats and High Court judges. For instance, the National Company Law Tribunal (NCLT) required 62 members throughout India, the majority of whom will most certainly be retired civil servants. The term of office is deliberately restricted to five years so that no self-respecting and competent lawyer will apply. Similarly, the National Taxation Tribunal (NTT) contemplates a strength of 50 members. Thus, creating more tribunals generates more post-retirement opportunities for the bureaucracy.

 

The rewards to civil servants are so enormous that the government has insisted on creating more and more tribunals, even though most of them have failed to achieve the objective of speedy and specialized disposal of cases. There was no justification for creating more than twenty benches of the NCLT in various states with 62 members when the admitted arrears in company cases was just 6000. Indeed, the creation of a Company Law Board was never a part of the initial reference to Justice Eradi who headed the committee. Most of the responses were against the creation of the NCLT. The Reserve Bank of India was also against taking away the jurisdiction of the High Courts.

When the National Taxation Tribunal with a strength of 50 members was mooted, the parliamentary committee strongly opposed its creation. In the past, the Wanchoo Committee and the Chokshi Committee had recommended that Taxation Tribunals must be specialized benches of the existing High Courts. The two committees repeatedly emphasized that such tax benches should not be created as quasi-judicial tribunals. All these warnings went unheeded as the possibility of getting 50 post-retirement opportunities was too salivating for retired members of the Indian Revenue Service.

The fact that the bureaucracy will heed no warning is also made clear by the fact that not a single suggestion made by the Constitution Bench of the Supreme Court in Union of India v Madras Bar Association3 has been implemented till date. The Supreme Court too must share part of the blame, as it has failed to check the unbridled growth of tribunals.

 

When the Company Law Board was formed, the rules were structured in such a manner that only civil servants could man the board. These rules were challenged and partly struck down although the creation of a quasi-judicial tribunal was upheld.4 After the Supreme Court upheld the constitutionality of the Debt Recovery Tribunal, the bureaucracy was emboldened to create NCLT which would have been the largest tribunal in the country. Without any proper study and relying on half-baked recommendations, the Companies Act, 1956 was amended in 2002 to constitute a 62 member NCLT and a three-member National Company Law Appellate Tribunal (NCLAT) to hear appeals against orders passed by the NCLT. A final appeal could be made before the Supreme Court. The entire structure of the amendment made it clear that the NCLT would be a tribunal of the bureaucracy, for the bureaucracy and by the bureaucracy. The qualifications for a technical member showed that experience in any field was enough and no expertise in company law was required. The section is so startling that it deserves to be reproduced:

‘S. 10FD(3)(f): is a person of ability, integrity and standing having special knowledge of, and professional experience of not less than twenty years in science, technology, economics, banking, industry, law, matters relating to industrial finance, industrial management, industrial reconstruction, administration, investment, accountancy, marketing or any other matter, the special knowledge of, or, professional experience in, which would be in the opinion of the Central Government useful to the Tribunal...’

Thus, barring animal husbandry and cinematography, experience in any field was enough. What is two decades of experience in ‘science’, ‘administration’ or ‘economics’? How does that qualify a candidate to decide complex question of company law? What is even more shameful is that the ministry issued an advertisement for the recruitment of members, and even High Court judges were eligible to apply! The application form required fixation of a passport size photograph and details to be furnished, starting from the candidate’s school leaving certificate. This form was shown to the Madras High Court which immediately granted an interim stay. It is distressing that no less than 31 retired High Court judges applied for the post! They never thought it insulting or demeaning to paste their photographs and agree to be interviewed by a panel of five secretaries headed by a Supreme Court judge (whose presence was not mandatory).

 

The constitutional validity of this tribunal was challenged before the Madras High Court by the Madras Bar Association (MBA). It is unfortunate that several bar associations were initially reluctant to take up the challenge and there was a huge outcry in various departments because of the potential loss of almost 62 plum post-retirement posts. In a brilliant judgment, the Madras High Court struck down several provisions of the act but did not go to the extent of striking down the NCLT itself. The matter was then taken to the Supreme Court by the Union of India and the MBA. Mercifully, the Supreme Court did not stay the operation of the decision of the Madras High Court and refused to allow the recruitment of members to the NCLT and NCLAT pending the final hearing of the appeals.

While the appeal was pending before the Supreme Court, an ordinance was promulgated to create the National Taxation Tribunal (NTT). As mentioned earlier, a parliamentary committee had gone into the provisions of this act and strongly recommended that it should not be constituted. The constitutional validity of this tribunal was also challenged before the Madras and other High Courts and all cases were transferred to the Supreme Court. The challenge to both the tribunals were taken up together for hearing.

 

The Union of India initially pleaded that these appeals should be dismissed because of the Supreme Court’s decision in the Delhi Bar Association5 case. It was argued that the legislative competence of Parliament to create tribunals could not be questioned. Reliance was also placed on the earlier decisions of the Supreme Court in the case of Sampath Kumar6 and Chandra Kumar.7 After a three-day hearing, the Supreme Court was persuaded to refer the matter to a five judge bench. It was pointed out that there was a systematic attempt to take away the jurisdiction of the High Courts and vest them in tribunals. After the NCLT, we had the NTT, the Intellectual Property Appellate Board and, if this trend continues, the High Courts would be left with nothing but civil appeals, writ petitions and criminal cases. Indeed, if the arguments of the Union of India were to be accepted, even criminal cases arising under the Negotiable Instruments Act could be referred to tribunals manned by bureaucrats. The Supreme Court was also informed about the practice of appointing High Court judges initially as chairperson and then ensuring that civil servants occupied the presiding post.

 

During arguments, extensive reference was made to cases arising in the United States and other Commonwealth countries to point out that any attempt to take away the inherent jurisdiction of the civil courts has always been struck down. In Canada, a green tribunal was constituted to decide rent control cases. This tribunal was based on the report of a committee which noted that there were large arrears in rent control cases and therefore a tribunal was justified. The Canadian Supreme Court held the tribunal to be unconstitutional after extensively analyzing the case law on the subject.8 It held that tribunals could not take away the core functions and judicial power vested in the judiciary. Where the dispute was primarily civil in nature, the case has to be heard only by the established judiciary and not by quasi-judicial tribunals.

In the United States, the Supreme Court struck down the bankruptcy tribunal on the sole ground that the term of office of the member was 14 years, whereas judges who heard cases of bankruptcy had a life tenure. The Supreme Court pointed out the dangers of creating tribunals that encroached into the established functions of the judiciary.9 This decision also examined the American law on the subject and held that no branch of government could aggrandize itself at the expense of other branches. Equally important were decisions of the Privy Council10 and the Australian High Court,11 which held that any attempt to take away judicial power and vest them in a tribunal was not permissible.

It was also pointed out that in no Commonwealth country or even in the United States has there been a company law tribunal. A reference was made to the statutory provisions in Canada, Singapore, Ireland, Nigeria, Australia and the United Kingdom and none of them have such a tribunal. The obvious reason was that disputes under the Companies Act are civil in nature and cannot be heard by a quasi-judicial tribunal. Thus, even in countries which have a robust tribunal system, disputes under the Companies Act are heard only by the established courts. Except India, no country had divested such important and essential judicial functions to a tribunal. It is unfortunate that the enormous research and extensive material placed before the Supreme Court was brushed aside in a single paragraph stating that these foreign decisions were not applicable!

 

The initial bench of three judges rightly formulated some basic questions that required consideration: (a) Does Parliament have the legislative competence to vest intrinsic judicial functions, traditionally performed by courts, in any tribunal or authority outside the judiciary? (b) Is there any limit to transferring judicial power of courts to quasi-judicial tribunals which are outside the judiciary? And (c) Whether creation of such quasi-judicial tribunals violate the constitutional scheme of separation of powers and independence of the judiciary?

 

A five-judge bench of the Supreme Court missed the golden opportunity of clearly laying down the role of tribunals in the overall justice delivery system. It could have demarcated the areas to be covered by tribunals and those which must exclusively vest with the judiciary. For example, civil suits and criminal cases cannot be decided by a quasi-judicial tribunal outside the judiciary. It would be unconstitutional to create a fast track tribunal manned by two civil servants to decide large money claims. Similarly, one cannot have an appellate arbitration tribunal to decide the correctness of awards passed by arbitrators. Similarly, one cannot have a tribunal consisting of a retired banker and a retired IAS officer to decide cases relating to bounced cheques on the ground that they are clogging the criminal justice system. These persons may have more intelligence than judges of the criminal courts, but our constitutional scheme does not permit the vesting of essential judicial power outside the judiciary. The only remedy is to create more courts and tribunals and, as the Canadian Supreme Court rightly pointed out, a large backlog can never be a justification for creating tribunals.

Thus, disputes arising between shareholders, mergers, or winding-up proceedings can only be dealt with by established courts and not by the NCLT. In the end, the Supreme Court focused its attention on qualifications of members and failed to deal with core constitutional questions. Mercifully, the Supreme Court delinked the cases pertaining to the National Taxation Tribunal, created under Article 323B of the Constitution. It is hoped that the next constitutional bench that hears these cases will grapple with and decide the complex question of the role of tribunals as part of the justice delivery system under our Constitution.

The functioning of tribunals was first examined by the Franks Committee and its report led to the Tribunals Act, 1948. In 2003, the functioning of tribunals was carefully scrutinized by a committee headed by Justice Legatt. In the United Kingdom, almost a million cases are decided each year by more than 70 tribunals. A reading of this report shows the urgent need for overhauling our tribunal system. Justice Legatt repeatedly emphasized that tribunals must not only be independent but seen to be independent by the public. They should not be seen as departments of ministries or as part of the executive branch of government. The independence of these tribunals could be ensured only by placing them fully under the control of the Lord Chancellor. The Indian tribunal system suffers from every evil pointed out by Justice Legatt. Our tribunals continue to be created on an ad hoc basis and their growth has been haphazard. There are no uniform recruitment conditions for service, retirement age and so on. These tribunals have to depend on the parent ministry for their daily existence.

 

A common feature of recent Indian tribunals is that they are created with great enthusiasm but soon abandoned. Most of them do not have adequate infrastructure. The Intellectual Property Appellate Board (IPAB) was established to deal with trade mark and patent cases. The decisions in these cases have international consequences, but the IPAB has an extremely small office and the chairperson does not even have an official car; a tourist taxi is hired for this purpose. The courtrooms of the Customs, Excise and Service Tax Appellate Tribunal at Chennai are cramped and hardly conducive to a dignified hearing. The Competition Appellate Tribunal, which is headed by a Supreme Court judge, is equally small. In the IPAB, the salaries and working conditions of its staff are substantially lower than that provided to similarly situated persons in other departments. Thus, the net result is that our tribunals are very poorly equipped in terms of infrastructure and supporting manpower. How does one attract good judicial talent to head tribunals which do not even have adequate space and where files are stored in courtrooms?

 

There is no doubt that tribunals are an essential part of the justice delivery system and have an important role to play. It is necessary to ensure that tribunals are confined to disputes between citizens and government departments and are not formed to decide disputes which are essentially civil or criminal in nature. If such tribunals are to be formed, they should be part of the judiciary itself like the rent control and motor-vehicle tribunals. Similarly, substantial questions of law cannot be decided by tribunals as this is the exclusive realm of the judiciary. It is equally necessary that all tribunals must come under the Ministry of Law and have uniform conditions of service. This was recommended in Chandra Kumar’s12 case in 1977.

Finally, one must realize that tribunals are primarily meant to resolve disputes; in India, their primary function is to provide employment to retired bureaucrats. Adjudicating disputes is ancillary or incidental to this object. Taking away disputes from courts and vesting them in tribunals has proved to be disastrous to the Indian legal system. The fatal attraction with tribunals has weakened the judiciary without any improvement in the disposal of case or in the quality of justice.

 

Footnotes:

1. Union of India v. Delhi High Court Bar Association (2002) 4 SCC 275.

2. Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.

3. (2010) 11 SCC 1.

4. V.Balachandran v Union of India (1993) 76 Comp Cas 67 (Mad).

5. (2002) 4 SCC 275.

6. S.P. Sampath Kumar v Union of India (1987) 1 SCC 124.

7. L. Chandra Kumar v Union of India (1997) 3 SCC 261.

8. Residential Tenancies (1981) 123 DLR(3d) 554.

9. Northern Pipeline Construction Co. v Marathan Pipeline Co. 73 Led 2d 675.

10. Hinds v Queen (1976) 1 All ER 533.

11. Harry Brandy v Human Rights and Equal Opportunity Commission (1995) 183 CLR 245.

12. L. Chandra Kumar v Union of India (1997) 3 SCC 261.

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