The 14-member expert committee set up by the government to suggest decriminalisation of less-significant violations of the companies law has favoured an increase in the threshold for cases referred to the National Company Law Tribunals (NCLTs).
It has also backed decentralisation of power to the registrar of companies (RoCs), regional directors and an in-house adjudication mechanism to free up the overburdened NCLT benches. That could help speed up the resolution of banks’ bad loans as the tribunals are central to the Insolvency and Bankruptcy Code (IBC) process. The changes can be implemented through modification of rules and won’t require amendments to law.
The tribunals currently hear violations involving fines of more than Rs 5 lakh. The decision on what the new limit should be has been left to the government.
“The enhancement of this limit, along with simultaneous operation of in-house adjudication mechanism, will lead to de-clogging of routine matters pending with NCLT,” a senior government official said.
The ministry of corporate affairs is also planning to refer routine matters such as conversions to privately held from publicly held companies either to the in-house mechanism or to RoCs and regional directors.
“Referring routine matters such as conversion from public company to private company to NCLT needlessly burdens NCLT. Shifting jurisdiction of such matters to other judicial mechanisms available would further unburden the NCLT,” the official said, adding that the recommendations would be implemented soon by changing the rules. The Companies Act has three broad categories of violations–minor, major and others.
Minor violations are procedural in nature, covered under 18 sections, and settled through the in-house mechanism. Major violations largely involve fraud and invite both fines and imprisonment. Most violations fall in the ‘others’ category–more serious than minor violations but not involving fraud.
The major and other violations are tried by special courts. Most of these relate to non-filing of financial statements and annual results. Around 15 of these violations, including filing-related ones, could also be shifted to the in-house mechanism.
“This is a welcome relief for the already over-burdened NCLT benches,” said Anshul Jain, partner, Luthra & Luthra Law Offices. “Not only will it help in reducing a lot of workload from the NCLT benches but it will also help in making the whole process more efficient.”
Currently, about 9,000 cases are pending before NCLT benches in the country for insolvency and other routine matters. More than 5,000 cases are in Mumbai and about 2,100 are in New Delhi.
The ministry is also working on the one-time resolution of cases related to deregistration, liquidation, restoration and relief to ease pressure on the NCLT benches and other special courts to free them up to handle more insolvency cases.