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NCLTs, meant to resolve the bad debt mess in days, are understaffed and overburdened

The NCLTs have helped resolve insolvency & bankruptcy proceedings involving more than Rs 80,000 crore in 2018, but many big-ticket cases drag on.

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New Delhi: Jaypee Infratech, which owes an IDBI-led consortium of banks around Rs 9,800 crore and failed to deliver over 25,000 flats to homebuyers, remains stuck in bankruptcy proceedings at the National Company Law Tribunal (NCLT) two years after they began.

So does Essar Steel, dragged to the quasi-judicial tribunal for corporate disputes by SBI and more than two dozen banks over a Rs 52,000 crore debt. And Bhushan Power, besides at least six other companies that have come to be identified as the RBI’s ‘dirty dozen’ defaulters since the central bank ordered bankruptcy proceedings against them.

The proceedings against the companies remain stuck at different stages despite the fact that the Insolvency and Bankruptcy Code (IBC) lays down a 180-day deadline for their conclusion, with only one 90-day extension allowed.

Three years after the NCLT was launched as a big-ticket, much-lauded initiative to tackle bad debt in a quick manner, a series of impediments continue to stalk its functioning, often delaying the complex matters entrusted to it.

‘Doing good work’

The NCLTs were established in 2016 to resolve corporate disputes, including those arising from bad debt.

One of their key and most keenly-welcomed mandates was to tackle bad debt by allowing creditors to initiate bankruptcy proceedings against defaulters and chart out the road ahead.

The resolution deadline was kept short to check the endemic delays associated with bankruptcy proceedings in India.

The adjudication process at the NCLT involves the setting up of a committee of creditors to chart the way ahead for the revival of a defaulter. The plan is then put before the NCLT, which takes a final call on it. If the committee fails to reach a conclusion or the NCLT does not approve the plan, the company is liquidated, with a National Company Law Appellate Tribunal (NCLAT) available for appeals.

The NCLTs reportedly helped resolve insolvency and bankruptcy proceedings involving more than Rs 80,000 crore in 2018, including big-ticket cases like those involving Bhushan Steel and Binani Cement. This sum is expected to cross Rs 1 lakh crore in 2019, with several big-ticket default cases pending.

According to a January 2019 blog post by then finance minister Arun Jaitley, 1,332 cases pertaining under the code have been admitted by the NCLT in the past two years. Out of these, 66 have been resolved while 260 cases were ordered for liquidation, Jaitley said, adding that another 4,452 were disposed of at the pre-admission stage.

However, while several experts agree that the work done by NCLT is phenomenal, they say the panel could do much better if freed of the several problems it currently faces, including a severe staff shortage.


Also read: Insolvency and Bankruptcy Code, NCLT have improved borrowing & lending since Congress era


Overburdened

The NCLT was constituted under the Companies Act 2013 to adjudicate on corporate disputes under the law. But it was also given the additional task of hearing corporate insolvency cases under the Insolvency and Bankruptcy Code (IBC).

With this, the NCLT had to takeover related cases pending before the high courts (approx. 5,200), Company Law Boards (approx. 4,000), Board of Industrial and Financial Reconstruction (approx. 700), and the Debt Recovery Tribunal (approx. 15,000).

Then, there are the 12,000 cases filed since the implementation of the IBC, as Corporate Affairs Secretary Injeti Srinivas was quoted as saying this March (half of which he said were yet to be admitted).

All these were to be handled by 13 NCLT benches across the country (one not yet functional), which currently have 28 members against a targeted strength of 63 (including the bench president).

The Centre did promulgate the Companies Amendment (Ordinance) 2018 on 2 November to de-clog the NCLT by decriminalising several offences under the Companies Act, besides increasing the financial jurisdiction of the regional director from Rs 5 lakh to Rs 25 lakh, so they could handle more cases and fewer reached the NCLT. The actual impact of the ordinance on the functioning of NCLTs, however, is yet to be seen.

Speaking about the case burden, advocate Deepak Joshi told ThePrint that “the bureaucracy didn’t apprehend there would be a spurt of IBC cases”.

Staff crunch

The 13 benches of the NCLT include a principal one at New Delhi, besides others at Ahmedabad, Allahabad, Bengaluru, Chandigarh, Chennai, Cuttack, Guwahati, Hyderabad, Jaipur, Kolkata, Mumbai and Kochi.

Many lawyers who ThePrint spoke to complained about the lack of permanent judicial members at NCLTs, apart from the one in Delhi. While Delhi has four NCLT benches, including the principal one, there are some regional tribunals that have just one.

“For example, we have a lot of matters in Chandigarh NCLT, which only functions on Thursdays and Fridays. There are only temporary members, who travel and hold court only on the two days,” said advocate Piyush Singh, a partner at Delhi-based PSP Legal.

“This means that once we file a matter, it takes a long time to get a date of hearing. In Delhi, it comes up the very same day,” he added.

Insiders also pointed to a lack of trained support staff, including those skilled in stenography, filing etc, even though applications often run into thousands of pages.

According to Singh, there is only one administrative staff in Chandigarh, with the Jaipur bench facing the same difficulties.

Several judges from Delhi, insiders say, tend to two benches throughout the day, especially when their brother judges travel to regional benches to address the matters there.

“Because of this travelling, their rosters, matters and the cause list for those days gets hampered,” said Joshi.

“Obviously, the other members have not read the files. So more often than not, dates are set for when the member originally handling the case is available,” he added.

“Judges are trying their best to handle the workload, but there’s a human limit to everything…” said advocate Aditya Parolia.

“They’ve been doing excellent work, but that good work is only concentrated to a few benches because other benches are constrained due to lack of resources and infrastructure,” he added, emphasising the need for recruitment.

However, some respite on this count is in the offing.

The Ministry of Corporate Affairs (MCA) Thursday appointed 12 judicial members and 18 technical members to different NCLT benches.

Hailing the move, Joshi said, “It is hoped that the practice of a member sitting at an outstation bench once a week will not continue anymore.”

As for the NCLAT, the Supreme Court had directed the Centre this January to set up circuit benches within six months, after which the latter approved the creation of posts for three additional judicial members and as many technical members.

However, with the increasing workload, circuit benches, which would be established for short to medium term, might not be enough.

Several advocates have also called for an Indian Tribunals Service on the lines of the civil services to recruit judicial and technical members from a pool not confined to judges and bureaucrats.


Also read: Insolvency plea against Jet Airways — here’s what lies ahead for the airline


NCLT-Kochi missing for a year

For an overburdened system, it is no help that one bench currently exists only in name.

The NCLT bench at Kochi was constituted through an MCA notification in July 2018 with jurisdiction over Kerala and Lakshadweep, both of which were overseen by NCLT-Chennai until then.

However, almost a year later, the bench has yet to begin functioning, and Chennai continues to hear matters from these two territories despite the July 2018 notification divesting it of jurisdiction to hear their matters. The Chennai bench also oversees matters from Tamil Nadu and Puducherry.

The Kerala bench is likely to start functioning in the second week of July, with the MCA having appointed judicial and technical members, as well as supporting staff.

‘Not too long’

Asked about the delay during an event this March, Corporate Affairs Secretary Srinivas said it would not be fair to say that cases have dragged on.

“In (the case of) Essar, more than Rs 42,000 crore would be (recovered). That is a very big sum and involves many creditors… I think for such very large cases, there would be some amount of litigation and one year or little over one year for such a large case to be settled is not too long.”

Nodal agency

In 1997, the apex court, in its landmark judgment L. Chandra Kumar v Union of India & Ors, suggested that all tribunals be brought under one central agency, noting that such a body will “remove many of the ills of the present system”.

The lack of any such body 22 years later was pointed out by a five-judge Constitution bench of the apex court in March this year.

“There cannot be any manner of doubt that to ensure the efficient functioning and to streamline the working of tribunals, they should be brought under one agency, as already felt and observed by this court in L. Chandra Kumar (supra),” the court had observed.

However, Attorney General K.K. Venugopal said the Ministry of Law and Justice is “overburdened” and, hence, would not be able to function as the nodal agency. The court had then sought the Centre’s response on the issue.

Infrastructural challenges

Another challenge is space constraint at the NCLT’s Delhi’s premises, the CGO Complex, which is also home to the NCLAT. Lawyers practising here talk about the chaos of daily proceedings because the premises are just not capable of handling the visitors that drop in for the tribunal’s 60-matters-a-day rosters.

According to advocate-on-record Pallav Mongia, during the hearing of the high-profile IL&FS matters, lawyers struggle to even enter the building,

Both the Delhi High Court and the Reserve Bank of India (RBI) have highlighted the need for an infrastructural upgrade for the NCLTs.

“In view of the large number of cases that may be referred to National Company Law Tribunal (NCLT) in the near future, there may be a case for strengthening the NCLT infrastructure in order to ensure that it can deliver on its promise of time-bound resolution,” the RBI noted in its ‘Report on Trend and Progress of Banking in India 2017-18’.

The high court took note of the space crunch at the tribunals during the hearing of a petition filed by the NCLT Bar Association, and set up a committee to examine the issues being faced by members of the bar and litigants, asking the panel to even consider the possibility of shifting the tribunals to a different complex.

The matter will next be heard on 4 July.


Also read: Madam, don’t send us to court, firms keen to avoid bankruptcy law tell SBI


 

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