By Sumant Batra
On October 30, 2023, the then Chief Justice of India (CJI) said in open court that “…NCLT (National Company Law Tribunal) and NCLAT (National Company Law Appellate Tribunal), except for its chairperson Justice Ashok Bhushan, (have) got down to a rot…”. A year later, in the Jet Airways judgment delivered on November 7, the Supreme Court (SC) made scathing remarks against the functioning of the NCLT and the NCLAT. A few days earlier, G20 Sherpa Amitabh Kant expressed dissatisfaction over the slow speed of disposal of cases by the NCLT in his keynote address on October 1, the foundation day of the Insolvency and Bankruptcy Board of India (IBBI).
The SC’s sweeping remarks discrediting both institutions are surprising. The NCLAT has been functioning well and quickly disposing of cases. Lawyers and litigants have no complaints. The insolvency regime boasts a large body of case law, with significant contributions from the NCLAT.
The NCLT’s performance has been a matter of discussion lately. There are many reasons behind the functional delays. First, the NCLT lacks enough members and benches to hear the disproportionately large number of cases filed before it. Apart from the Insolvency and Bankruptcy Code (IBC), 2016, the NCLT also decides cases under the Companies Act, 2013. The NCLT’s sanctioned strength is 62. The figure stood even after IBC jurisdiction was added in 2016, and the NCLT has sought expansion of its capacity. Second, many of the 62 positions remain vacant at any given point as members retire, and vacancies do not get filled in time. Many members have to man more than one bench. Third, the NCLT’s infrastructure, staffing, and overall administrative capacity is not commensurate with the importance of the institution. There are a few permanent employees, mostly on contract, with little certainty about continuity. These are emblematic of the capacity constraints in the NCLT, which has pulled down the efficiency and effectiveness of the institution, and, as a consequence, of the IBC. The NCLT president has cited data in many forums to claim it is trying its best to deliver, despite all odds.
In its judgment, the SC has made suggestions to Parliament to improve the efficiency of the IBC and the functioning of the NCLT and NCLAT. As the government considers the suggestions, I would like to add two of my own. The NCLT was conceived in 1999 on recommendations of the Eradi Committee. Acting on a recommendation, the 1956 Companies Act was amended in 2002 to provide for the NCLT. But it was not established for 16 years after being conceived in 2002, for one reason or another including two challenges to its constitutionality by the Madras High Court Bar Association. In 2016, when the IBC was enacted, the NCLT had yet not been notified.
In 2014, when the National Democratic Alliance government under Prime Minister Narendra Modi was formed, the Indian financial system was plagued with non-performing assets. There was an urgency to bring in a robust insolvency law to address the crisis in banking.
The Modi government introduced large-scale reforms and the IBC was one of the key outcomes. There was an urgency to operationalise the Code. The government set up institutions like the IBBI, but the jurisdiction of adjudicating authority under the IBC was given to the NCLT. Thus, the NCLT was operationalised on June 1, 2016. It started functioning as adjudicating authority from December 1, 2016. No separate or additional qualification for domain knowledge of insolvency was added in the 2013 Act or the IBC for the selection of members. To be fair, even if it were added, it would have been tough for the selection committee (of which CJI nominees are members) to find candidates within the insolvency domain as the IBC was a new law.
Fast-forward to eight years and there is now a repository of insolvency knowledge in the market. It would be fit to amend the law to include the requirement of knowledge and experience of insolvency as a qualification for appointment. An amendment should also be made to empower the selection committee to invite persons with expertise in insolvency and who fulfill other criteria to join the NCLT bench, like for courts.
The 2010 Madras High Court Bar Association judgment needs a review to allow appointments to economic law tribunals to be made differently than traditional tribunals. Insolvency law is not adversarial, yet disputes arise between parties. All such disputes end up at the NCLT’s doorstep, clogging its limited capacity. The use of mediation for settling disputes in many IBC processes can reduce the NCLT’s burden and bring about a behavioural shift towards alternative modes of dispute resolution.
The bankruptcy tribunal under the IBC is a commendable step, but the NCLT’s architecture is based on the realities of 1999. Things have changed dramatically since 2014. When the IBC was enacted in 2016 and the NCLT was operationalised, it was a different India — energetic, aspirational and taking steady strides into a free market economy. The NCLT, envisioned to solve the problems of 1999, was not designed as a 21st century institution for one of the fastest-growing economies. For a country aspiring to become developed by 2047, our institutions should represent the India of today.
The author is a policy expert and advocate, Supreme Court of India.
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