The Corporate Affairs Ministry (MCA) is looking to bring in legal amendments to the insolvency and bankruptcy code (IBC) 2016 in the upcoming winter session as part of its overall effort to crunch the time taken for completion of Corporate Insolvency Resolution Process (CIRP) and avoid delays.
Inter-Ministerial consultations have been done and the draft cabinet note is ready, official sources said.
The outcomes and efficiency of the entire IBC process has recently come under question with the average time taken for completing CIRP exceeding six months.
“We are confident that the set of measures being contemplated including an increase in the number of NCLT Benches will help bring down the overall IBC time period (from 600 plus days)”, official sources said.
MCA is looking to address the challenges on multiple fronts including providing more strength for NCLT, more emphasis on admission stage issues and changes in law, they added.
Law matters
As on date, there are 31 courts (NCLT) with 63 members to look into IBC and company law matters. Now the NCLTs are having 90 percent capacity utilisation with 57 members already in place, sources said. The remaining ten percent should also be achieved in next couple of months with more recruitment and increase in benches likely, they added.
With the IBC mandating specific timeline for completion of cases, there was more focus by NCLT on IBC cases to the detriment of hearing cases on company law matters. However things have now been sorted out, official sources said, adding that the discomfort as regards company law matters has come down. MCA has also now requested NCLT to take up M&A cases on priority, sources said.
Challenges
One of the challenges facing the IBC system is the delay even at the admission stage. Although IBC mandates admission of application within 14 days, the reality is a worrisome picture. Part of the reason for this is that the average time taken by financial creditors in filing CIRP applications post occurrence of default is significantly long. It is observed that a substantial time of NCLT goes in determining the legal issues pertaining to interpretation and applicability of Limitation Act 1963.
A colloquium on functioning and strengthening of the IBC ecosystem had in November 2022 recommended as many as fifteen measures to ensure faster admission of cases. An early initiation of CIRP is crucial as it prevents asset erosion, loss of business and enterprise value.
As per recent survey carried out by the Indian Institute of Insolvency Professionals of India (IIIPI), the time taken for appointment of Resolution Professional (RP) is upto 60 days as against period prescribed under IBC of 10 days.
The time taken for various applications for decisions including that in respect of decision on resolution plan is about 90 days as against the ideal time line of 15 days.
Hari Hara Mishra, CEO, ARC Association, said “The timelines can be improved by greater use of prepack and fast track resolution frameworks and application of mediation at various stages of IBC.
The most important enabler will come once we progressively move towards integrated technology platform for insolvency ecosystem with use of Artificial Intelligence, Cloud Computing etc, as has been demonstrated in other jurisdictions.”
He said that the systems and processes during admission stage and resolution stage need to be dovetailed into a seamless process which addresses the factors leading to time overrun.
Siddharth Srivastava, Partner at Khaitan & Co said the possible solution to expedite the disposal of IBC cases would be definitely amending the Code in manner to clearly provide that NCLT may avoid entertaining challenge by the corporate debtor/promoters if the lender has established the default.
“This would go a long way in expeditious disposal of the application. Also government should prioritise filing vacancies and adding more benches to deal with heavy traffic of applications. Perhaps one more measure is NCLT levying heavy costs on frivolous applications by litigants intending to derail the admission of applications”, he said.