Time is ripe for reserving some of the NCLT Benches for handling insolvency cases involving “very large amounts,” V Anantha Nageswaran, Chief Economic Advisor to the Finance Ministry, has suggested. This is required to speed up resolution of bankruptcies in the country.
Setting aside a specified number of National Company Law Tribunals (NCLTs) to hear cases of large defaults would be consistent with the recommendations of the Parliamentary Standing Committee as well, Nageswaran said. His article, “Insolvency and Bankruptcy Code: A Path Well Travelled”, written for IBBI’s latest annual publication was released by Finance Minister Nirmala Sitharaman here on Saturday.
This article, co-authored with Aakanksha Arora, Deputy Director in Economic Advisory Council to Prime Minister, has highlighted the challenge of the actual time taken for the resolution being much longer than what is prescribed in the Code.
Nageswaran has suggested that there is also a case for removing some decisions to require a NCLT mandate, such as replacement of Insolvency Resolution Professional (IRP) with Resolution Professional (RP), extension of Corporate Insolvency Resolution Procesd (CIRP) time etc. The authors have highlighted that there are not yet enough provisions for cross-border insolvency and group insolvencies in the IBC and suggested these should be introduced.
“The IBC is still a new law and newer issues keep appearing. Though the government has been very proactive in bringing about changes in the Code whenever required,” Nageswaran added.
It maybe recalled that the Standing Committee on Finance (2020-21) had noted the huge pendencies with NCLT, which is the adjudicating authority for IBC cases. As per the report of the Committee, as many as 13,740 bankruptcy cases were pending with NCLTs as of August 2021. About 71 per cent of such cases have been under process for more than 180 days.
Further, there are several minor procedural and uncontested matters requiring NCLT approval, such as: replacement of IRP with RP; extension of CIRP from 180 data to 270 days; exclusion of time period; admission of CD into liquidation and appointment of a liquidator.
Delays in proceedings
Given the issues with sanctioned strength of the NCLT, these approvals often take very long, causing unnecessary delays in the process of admission/and or liquidation.
The Code prescribes a period of 14 days for admission of insolvency applications. However, in reality, the admission usually takes a much longer time than that. A consultation paper released by the IBBI on April 13,2022 noted that the average time taken for admission of an insolvency application by an Operational Creditor has increased from 468 days in 2020-21 to 650 days in 2021-22. This is longer than even the stipulated deadline for completion of a CIRP under the Code.
Currently, NCLT has a sanctioned strength of 63 members, but only has about 25 functioning members. It is reckoned that the primary cause for delay at NCLT is insufficient human resources. NCLT often functions at less than 50 per cent of its sanctioned strength and these kinds of delays affect the process, according to Nageswaran.