The average time taken for the conclusion of the corporate insolvency resolution process (CIRP) has surged to 680 days, as of March 2024, from 611 days a year ago, official data shows. This primarily reflects the huge backlog of cases that the NCLT is finding difficult to grapple with, say experts.
Finance Minister Nirmala Sitharaman had said during her Budget speech last month that appropriate changes to the IBC, reforms and strengthening of the tribunal and appellate tribunals will be initiated to speed up insolvency resolution. Following which, an official told FE that the government is likely to double the strength of NCLTs, in a few months.
The plan is to increase the NCLT benches to 30, and its member-strength to 115, from 15 and 32, respectively, currently.
As per the latest available data, almost 21,000 cases are pending before the 15 NCLT benches, of which around 13,000 cases are of IBC and the rest are of the Companies Act. This is mainly the reason behind the delay in conclusion of the CIRP, which officially is mandated to be concluded in 330 days.
“CIRP approval time matters a lot,” noted Siddharth Srivastava, partner at Khaitan & Co. “Timely resolution is relevant to prevent value erosion of businesses. Especially in cases of tech heavy companies, the technology may become outdated if resolution takes time leading to successful bidders backing out.”
Abhishek Mukherjee, partner, Cyril Amarchand Mangaldas (CAM) said that the delay is not only on account of capacity constraints (in terms of members and benches) but also because of multiple litigations initiated by unsuccessful resolution applicants, promoters and in some cases, by some creditors, which causes unwarranted disruptions in the CIRP process.
Hence, a need arises to build adequate infrastructure (including technology based) and improve expertise in handling complex matters to ensure that frivolous litigations are not allowed to continue for a long time, he said.
Experts, however, point out that delays in the CIRP is not necessarily leading to lower realisable value of the stressed assets of the corporate debtors (CDs), and subsequently recoveries by creditors, but there is a scope for improvement.
Data sourced from the Insolvency and Bankruptcy Board of India (IBBI) showed that till June 2024, the approved resolution plans, on average, yielded 84.93% of fair value of stressed assets of the Corporate Debtors (CDs) as realisable value, which is higher than 83.89% recorded till June 2023. Also, the realisable value, as a percentage of admitted claims, rose to 32.06% till June 2024, from 31.62% till June 2023.
“This trend underscores the nuanced relationship between approval time and realisable value, suggesting that factors such as market conditions and the robustness of resolution plans may significantly influence the ultimate recovery, beyond the mere duration of the CIRP,” noted Jidesh Kumar, managing partner, King Stubb & Kasiva.
Sumant Batra, founder, Insolvency Law Academy, however, said if delays are reduced, the value erosion can be curtailed significantly, thereby increasing recoveries. “The recoveries would have been much more had there been no delays,” he said.
“Delays erode the confidence in IBC from potential investors, who want to invest in the stressed companies. An efficient turnaround restructuring mechanism in an economy is necessary to boost the investor confidence,” Batra added.
CAM’s Mukherjee said that the relationship between approval time and realisable value is a bit more nuanced than it appears. “While there might not be a direct correlation here, there exists multiple factors which may apply differently in different cases,” he said.