Jan 31, 2022

Powers of NCLT under Section 230 of the Companies Act, 2013

As affirmed by the NCLAT, the NCLT cannot exercise its inherent powers to go beyond the scope and purview of the provision, and therefore, cannot pass an in junction order, in the absence of any specific provision for the same.

In a recent judgment passed in the matter of the Reserve Bank
of India vs. SREI Equipment Finance Limited (“Judgment”)[1],
the National Company Law Appellate Tribunal (“NCLAT”) has
adjudicated upon an integral aspect of the scope of powers of the
National Company Law Tribunal (“NCLT”) under Section 230 of
the Companies Act, 2013(“Act”). Briefly, NCLT, Kolkata while allowing
the application for convening the meeting of creditors and shareholders,
passed orders directing all creditors and regulatory authorities to
maintain a ‘status quo’ with respect to the accounts of the applicant
companies. The NCLAT by its Judgment while examining the powers of
NCLT under Section 230 of the Act, set aside such direction.
This article discusses the scope of powers of NCLT in the context of
Section 230 of the Act and specifically if NCLT by passing interim
injunction order can circumscribe the powers of statutory authority on
account of pendency of approval of a scheme.

Voluntary Arrangement between parties

While a scheme of merger or demerger is a voluntary arrangement
between creditors and members of the company, it is required to
pass the dual tests of approval of the shareholders, creditors as well
as no- objections from relevant statutory authorities such as the RoC,
RD, Income Tax, SEBI, RBI, CCI and other sectoral regulators. The
underlying rationale of any scheme of arrangement is primarily to provide
companies, with the participation of its stakeholders, an opportunity to
enter into contractual arrangements which are mutually beneficial.

Section 230 of the Act is a complete code

To understand and examine the scope of the powers of NCLT, it is
important to understand that Section 230 is a complete code in itself.
In order to comply with the requirements, any orders that are passed
under such section must be in conformity with the same. Simply put, no
exemption can either be sought nor granted in compliance of the same.
On a perusal of Section 230 of the Act, it is evident that NCLT is not
conferred with the power to pass injunctions under the said provision.
If the NCLT proceeds to pass any direction/order which is outside
the realm of Section 230 of the Act, then such orders are non-est.
The NCLT simply cannot derive its powers from any other provision of
the Act or rules to pass orders which are not specifically provided under
Section 230 of the Act.

Lacks similar powers as under 1956 Act

Under the Companies Act, 1956 (“1956 Act”), Section 391(6) specifically
‘powered the court to pass an order directing stay on the commencement
or continuation of any suit or proceeding against the company during
the pendency of an approval of a scheme. Such a provision, however, is
conspicuously absent from Section 230 of the Act. This implies that the
legislative intent behind Section 230 of the Act was to not incorporate
a provision corresponding to Section 391(6) of the 1956 Act. If the
legislative intent was specifically not to in corporate a provision under the
Act conferring powers as granted under Section 391(6) of the 1956 Act, in the absence of an enabling provision, the power to injunct cannot be
treated to be implied under Section 230 of the Act.

Inherent Powers / Jurisdiction

The question to be examined whether NCLT can exercise inherent
jurisdiction to pass protective order(s) in a case of a scheme of
arrangement. NCLT is a creature of the statute and it cannot transcend
the powers bestowed upon it by virtue of the law. It is settled law that
that there cannot be any exercise of inherent powers by a tribunal on
an issue which is otherwise dealt within the main statute.[2] NCLT cannot
pass such protective order(s) by exercising its inherent powers which
are both, limited and which cannot be exercised against entities
performing statutory functions, and mere filing of a scheme of
arrangement under Section 230 of the Act cannot exempt a company
from the oversight of governmental bodies exercising statutory

No injunction on discharge of statutory functions

The Judgment, inter alia, stated that NCLT under Section 230 of
the Act, cannot pass injunctions against the discharge of statutory
functions or to act in accordance with law. Governmental and
regulatory authorities are not private parties and instead, are
discharging their roles and functions in their respective statutory

Section 230 of the Act is not a beneficial legislation

One argument that maybe made is that protective orders are
sometimes necessitated on account of the peculiar nature of facts
relating to a company. For example, sometimes a company may
envisage scheme of arrangement to thwart regulatory action like
declaration of a company’s account as an NPA, since a declaration of
such kind brings with itself an entire gamut of restrictions on further
borrowing(s), enforcement actions etc. It is also important to highlight
that all statutes which envisaged providing an interim protection or a
‘moratorium’ to further the process of revival/resolution of a company,
categorically provides for inter improtections / moratorium in the
statute itself. A tribunal cannot trump the lack of specific provisions for
protective order(s) by relying on its inherent powers. Section 230 of the Act is not
a beneficial legislation but a contractual arrangement
between private parties which is usually entered for better
management and efficient utilisation of resources.
Therefore, the principles which guide the granting of reliefs
aimed at revival/resolution of a company cannot be granted
under Section 230 of the Act.


It is therefore evident from the established jurisprudence on the subject that there must be absolute and due compliance of Section 230 of the Act, with the limited scope for review of the scheme in question. As affirmed by the NCLAT, the NCLT cannot exercise its inherent powers to go beyond the scope and purview of the provision, and therefore, cannot pass an in junction order, in the absence of any specific provision for the same. It was also observed that Section 230-232 of the Act cases limited obligation on NCLT to satisfy that the scheme is not contrary to public policy and not prejudicial to the company’s creditors and members.


[1] Judgment dated September 07, 2021 in CA (AT) 43 of2021

[2] Embassy Property Developments (P) Ltd. v. State of Karnataka,(2020)13SCC308; see also Gujarat Urja Vikas Nigam Limited vs. Solar Semiconductor Power Company
(India) Private Limited and Ors.(2017)16SCC498; Super Cassettes Industries Ltd. vs. Music Broadcast Pvt. Ltd., (2012) 5SCC488.

[3] Hindustan Lever v. State of Maharashtra, (2004) 9 SCC438





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