In a judgement expected to have a strong positive impact on the business environment, a five-judge constitution bench of the Supreme Court has upheld the legality of the Companies (Second Amendment) Act 2002, providing for the establishment of the National Company Law Tribunal and National Company Law Appellate Tribunal to deal exclusively with company cases for their speedy disposal.

At the same time the five-judge bench, comprising Chief Justice K G Balakrishnan and Justices R V Raveendran, D K Jain, P Sathasivam and J M Panchal, came down hard on the practice of filling posts in such tribunals with bureaucrats rather than judicially qualified members, saying adjudication of these matters needed a judicial bent of mind.

Justice Raveendran, writing the judgment for the Bench, said that bureaucrats at best could be made technical members of the tribunals and all appointments to the post of presiding officers had to be made in consultation with a committee headed by CJI (the Chief Justice of India) or his nominee and comprising a judge of the Supreme Court or a HC, secretaries in the ministries of company affairs and law and justice.

The judgement means that by eliminating several intermediate steps, NCLT will expedite the disposal of corporate disputes and winding up petitions.

At present, disputes are first raised at the level of the Company Law Board (CLB) and then the high courts.

Similarly, the winding up of companies is referred to the Board for Industrial and Financial Reconstruction, an appellate body, and then the high courts. Once the changes are implemented, the references will be made directly to NCLT, the appellate tribunal and finally to the Supreme Court.

According to M R Umarji, one of the architects of the security enforcement law, this will quicken insolvency proceedings. ''India's rating as a business destination suffered since there was no way to close down unviable businesses and dispose of assets. This will change. Now chartered accountants and legal practitioners can be official liquidators,'' he said.

The apex court delivered its judgement on a petition filed by the union government, which had appealed against an earlier Madras high court order. The high court had ruled that the amendment to the Companies Act 1956 to set up the NCLT and NCLAT was unconstitutional.

Earlier, a three-judge bench of the Supreme Court headed by Chief Justice Balakrishnan had referred the matter to a five judge constitution bench, saying that the issues raised in the appeals are of 'seminal importance' and are likely to have serious impact on the very structure and independence of the judicial system.

''We have been waiting for the establishment of NCLT for a long while,'' said a senior official of the ministry of company affairs, while indicating that the government would shortly proceed on the amendments proposed by SC. ''It is well timed as the new Companies Act is expected to be passed (soon).''