NCLT has a crucial role to play, but does it have enough capacity for it? | Business Standard Column–14.05.2018

The adjudicating authority for insolvency resolution under the Insolvency and Bankruptcy Code is the National Company Law Tribunal or NCLT. Since the Code’s enactment in 2016, not a day passes without a piece of news pertaining to what the NCLT has been doing about insolvency resolution or liquidation of an unviable asset.

The obvious question, therefore, is how adequate is the capacity of the NCLT in dealing with the biggest challenge the Indian economy faces on account of its twin balance sheet problem. Both in terms of resolving the banks’ problem of stressed assets and helping India Inc clean up its balance sheet, the effectiveness and efficiency of the NCLT are going to play a crucial role.

As of now, the NCLT has 11 benches that operate from different cities across the country — New Delhi, which has two benches, Mumbai, Bengaluru, Chennai, Hyderabad, Kolkata, Ahmedabad, Chandigarh, Allahabad and Guwahati. The NCLT website says there are just 17 judicial persons and nine technical members available at its disposal to conduct the various benches.

It, therefore, should surprise nobody if these benches with only a handful of judicial and technical members at their disposal are inundated with work. Industry representatives have of late complained that the NCLT’s attention is focused so much on insolvency resolution that other equally important cases pertaining to mergers and acquisitions are suffering on account of delays.

Ironically, the NCLT, set up under the Companies Act, was expected to reduce delays in adjudicating on company law cases, which earlier used to remain pending with various high courts. And now with the mounting pressure of a time-bound clearance of insolvency resolution petitions, a host of other legal company matters are getting delayed.

Consider why the work pressure on the NCLT has risen. At the end of March 2018, the number of active companies registered in the country was 1.17 million. Maharashtra accounted for the largest of them at 0.23 million and the NCLT’s bench in Mumbai has to handle cases pertaining to not only these companies but also about 11,000 companies registered in Goa and Chhattisgarh.

The two benches in Delhi, which has the second largest concentration of active registered companies at 0.21 million, consider cases pertaining to companies registered in the union territory of Delhi and also the state of Rajasthan (about 37,000 companies).

The Kolkata bench appears to be even more burdened with its jurisdiction covering the states of West Bengal, Bihar, Jharkhand and Odisha, in addition to the union territory of Andaman & Nicobar Islands. Remember that West Bengal has the third largest concentration of active companies in the country, estimated at 0.13 million. The three other states under Kolkata have an estimated registered company strength of over 45,000.

The plight of other benches is not as bad as those in Mumbai, New Delhi and Kolkata, because the number of companies registered in the states covered by the other benches are only in thousands, hovering at around the 70-80,000 mark only for those in Ahmedabad, Hyderabad, Allahabad, Chennai and Bengaluru.

With such a heavy burden of work for each of these benches, delays and accumulation of pending cases are only to be expected. The rise in the number of insolvency resolution applications and the priority accorded to them have only aggravated the problem.

Starting with an estimated 38 petitions for insolvency resolution admitted in the January-March quarter of 2017, the NCLT admitted a much higher number of such applications in the following two quarters — 128 in the April-June quarter and 234 in the July-September quarter of 2017. The pace slowed down a bit at 140 applications in the October-December quarter. But considering that in the whole of 2017, 540 petitions for corporate insolvency resolution were admitted, the additional load on the NCLT can be easily gauged.

As at the end of December 2017, the NCLT has approved 10 resolution plans and initiated commencement of liquidation procedures in 30 other cases. While 39 applications have been subjected to a review, the remaining 461 cases are under various stages of the resolution process.

With the Insolvency and Bankruptcy Board of India already focused on training insolvency professionals and the Reserve Bank of India enforcing stricter norms on income recognition and classification of stressed assets, the number of applications before the NCLT for insolvency resolution will only rise in the coming months. It is also becoming clear that the state capacity to complete the resolution process for insolvency cases has to be increased.

Just about 11 benches with 26 members to oversee them are not enough. The government needs to set up more benches and hire more judicial and technical members to speed up the process of insolvency resolution.

via NCLT has a crucial role to play, but does it have enough capacity for it? | Business Standard Column

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