Bankruptcy: NCLT delays compounded by lack of new appointments – The Economic Times

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Synopsis–The government’s prepackaged resolutions for MSMEs is also likely to put further strain on the system. Bankers, lawyers, Insolvency and Bankruptcy Board of India (IBBI) officials and NCLT members say that the neglect of NCLT could turn the government’s best reform into yet another failure.

The much delayed bankruptcy resolution process is set to be hit badly in the next few months crippling the already struggling lenders as operations at the National Company Law Tribunals (NCLT) across the country which already had a shortage of people will face a further contraction due to retiring judges.

The NCLT benches across the country are currently working with just 38 members out of a sanctioned strength of 63. This is set to come down to 32 accentuating the already acute shortage and causing further delays.

The government’s prepackaged resolutions for MSMEs is also likely to put further strain on the system. Bankers, lawyers, Insolvency and Bankruptcy Board of India (IBBI) officials and NCLT members say that the neglect of NCLT could turn the government’s best reform into yet another failure.

“NCLT cases need undiverted attention from judges, who devote hours in studying documents before they a pass order,” said Mukul Shrawat, a retired judge from the NCLT in Mumbai. “More judges are required to fast track pending cases as banks have been dealing with a huge amount of bad loans.”

There is a shortage of 25 judges across India which is likely to go up to 31 as about half a dozen judges will retire in the next four to six weeks.

The situation is so dire that both the senior most judges of NCLAT (chairperson) as well as NCLT (president) currently are only officiating in a ‘acting’ capacity for more than a year as permanent appointments have not been made.

Judges themselves are currently handling two or more centres. For example, a judiciary member is attending cases both in Ahmedabad and Hyderabad NCLTs. Similarly, another member is looking after NCLTs in Chennai and Cuttack both.

At the same time, judges are dealing with multiple benches as well. In the five benches in Mumbai NCLT for example, a judicial member has been shuttling between court 4 and 5 since long time due to lack of judges. Mumbai, where majority of cases are filed will see at least three retirements in next few weeks. There are currently about nine judges in Mumbai NCLT.

A member judge can get an extension in his term until the age of 65. There are many judges at the age of around 60.

“The issue has been so old it is frsutrating now. We have had vacancies as far back as three years. The government has not moved at all, instead they have annouced a new prepacked scheme for MSMEs which will require just 14 new appointments to get started. The law has been made useless” said a senior public sector banker.

Besides the MSME cases, the Surpeme Court‘s go ahead to try personal insolvencies will also open the floodgates of new cases which NCLT benches are unequiped to handle.

Lawyers said the knock on effects of these delays will be felt on the economy as resolutions are stalled and potentail investors walk away rather than wasting their time in courts.

“We needed more benches spread out across the country when this law was passed. Instead of doing that we have gone the opposite way. NCLT benches have other matters too to deal with like company law which means the burden is even bigger. A delay in resolution means deterioation in assets, higher costs for banks and even resolution professionals who are stuck with a single case for a long time. The damage is sometimes irreversible,” said Dina Wadia, partner at J Sagar Associates.

As many as 21,259 cases were pending before the NCLT as of December 31, 2020, and more than 2,270 cases were filed before the tribunal under the insolvency law in the first nine months of this fiscal, according to the government.

In Mumbai alone, there could be over 11,000 pending cases, a big number for a law which is less than five years old.

Interestingly, three out of four registrars have retired recently at NCLT, Mumbai. They were on deputation.

Government employees cannot hife their frustation. “It is an utter mess. We have been forced to outsource jobs, which has never happened in the history of NCLT,” said a senior executive with the knowledge of the matter.

For example, Mumbai is said to have outsourced jobs of court officers at a salary of about Rs 19,000 a month with poorer qualifications. A normal government employment would entail a salary in the range of Rs 45,000-70,000 a month depending on terms of employment.

Former Mumbai NCLT member Justice Shrawat said it is high time the government acts.

“If you want to meet the IBC deadline, we should fill vacancies immediately with new judges. This in turn, will enhance India’s image as a distress asset destination for global investors,” he said. Shrawat also had to serve Mumbai and Chandigarh NCLTs alternatively before his retirement.

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