Companies & judges
GOI is planning to enhance the strength of the National Company Law Tribunal to 100 from the current sanctioned strength of 63. This will help compress the time taken to settle commercial disputes. NCLT has traditionally adjudicated on matters relating to company law. Its importance increased manifold when it became the adjudicating authority for insolvency cases in 2016. The Insolvency and Bankruptcy Code is the most important legislation India has to both help financial institutions recover their money when a borrower defaults and simultaneously ensure that the organisational capital in a firm is salvaged.
NCLT is at the heart of the insolvency process. It comes in at two stages. At the beginning, it’s NCLT that decides if an application meets the requirements for an insolvency process. Later, it plays a role in clearing the resolution package. The deadline for a resolution in IBC is 330 days. Between April and September 2023, the average time taken for resolution was 724 days, an overrun of more than two times. NCLT’s inadequate strength, sometimes compounded by large vacancies, is partially responsible for this delay. Keep in mind, time is crucial in ensuring creditors realise a fair value of the claims and a company’s value is largely preserved.
India has a modern IBC. However, its efficacy depends on how quickly the different links in the chain are able to complete their task. Research put out by the insolvency regulator IBBI showed that more than 74% of the cases pending before NCLT take more than 90 days to merely get admitted for insolvency proceedings. Unless the strength of NCLT is expanded and vacancies are kept at a minimum, it will be hard to compress these timelines. And time is everything.
This piece appeared as an editorial opinion in the print edition of The Times of India.
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