The much-awaited new rules governing the functioning of the National Company Law Tribunal (NCLT) would be notified soon, paving the way for the setting up of admission benches , which are designed to put the Corporate Insolvency Resolution Process (CIRP) on the fast track, a government official aware of the matter told FE.
The admission benches would have the responsibility of admitting/rejecting the application of initiating a CIRP within 14 days of receiving it. They will also prioritise the cases for hearing by the tribunal.
“The government is in the advanced stage of finalising the rules.. these will be notified soon,” the official said. The current delays in admitting resolution plans are attributable to NCLT benches questioning the company’s default, even after it is established by the Committee of Creditors (CoC). They shouldn’t do it…as it delays the process and erodes the value of the assets, the source said.
Earlier this month, the Reserve Bank of India Governor Shaktikanta Das had flagged the inordinate delays in completion of the CIRP, and had said that it leads to erosion in asset value.
As per the Insolvency and Bankruptcy Code, in all cases where an application to initiate a CIRP is filed, the Adjudicating Authority (AA), or NCLT, should admit it within 14 days of receiving the application.
The AA has the authority to decline an application from a financial creditor, an operational creditor, or a corporate applicant if it is deemed incomplete. However, prior to rejection on these grounds, the applicant must be afforded a seven-day period (from the receipt of notice from the AA) to address any deficiencies in the application.
Despite the law stipulating a 14-day period for admitting the application, in practice, the admission process often takes considerably longer. This delay is primarily attributed to the insufficient staffing of benches in the NCLT, resulting in prolonged processing times.
Currently, the NCLT has a strength of 63 members, which experts say are inadequate to complete CIRP in the mandated 330 days. As per IBBI data, the average time taken for the completion of the resolution process takes more than 600 days.
“The government is aware of the low strength of NCLT and is working on increasing it,” said the official. The NCLT was constituted under the provisions of the Companies Act, 2013.
When the IBC regime was introduced in 2016, the NCLT was entrusted to act as the AA for the matters under the code as well. Experts say that while the general procedural rules were easily adopted for the purposes of adjudicating the matters under the Code, the NCLT rules framed with the lens of company law do need a revamp to specifically fit the procedural requirements of the Code as well.
“Even though we don’t have sight on what exactly these rules will be, any revamp on the procedure and on speedy disposal mechanism by the adjudicating authorities would be a welcome change,” said Sushmita Gandhi, Partner, INDUSLAW.
Sudhir Chandi Partner, Resurgent Resolution Professional says: “several steps may be required to ease pressure on NCLT to reduce pendency and to ensure speedy handling of the cases. This may include the raising of the pecuniary jurisdiction of the cases from the existing Rs 1 crore to Rs 10 crore, considering the average value of the cases so far handled.” “The cases involving liquidation and agreeable resolution process should be segregated and allotted to different benches for a focused approach,” he said.