Shedding the debt burden

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Shedding the debt burden

Saturday, 13 April 2019 | Chandra Wadhwa

The NCLT has been doing a stupendous job by disposing cases in a time-bound manner. However, resource issues need to be addressed

The Insolvency and Bankruptcy Code (IBC) has turned out to be a big success and is being discussed quite loudly in the media, industry, financial and banking circles. Today, the entire process of debt resolution under IBC takes about 300 days; whereas it used to take five to eight years under the Board for Industrial and Financial Reconstruction (BIFR). But nowhere was the important role played by the National Company Law Tribunal (NCLT) highlighted. As an institution, NCLT has accomplished the task as set under the IBC with limited resources and has completed the cases in a time-bound manner as directed by the IBC. The IBC, 2016 is the bankruptcy law of India that seeks to consolidate the existing framework by creating a single law for insolvency and bankruptcy cases. The enactment of the IBC on May 28, 2016, and the setting up the NCLT and the National Company Law Appellate Tribunal (NCLAT) were steps taken to unlock the vast amount of capital locked in defunct projects. This will help the financial and banking sector improve their balance sheet.

In a recent judgement, the Supreme Court, in the case of Swiss Ribbons Pvt Ltd vs Union Of India and others, upheld the Constitutional validity of the IBC, saying “the defaulters’ paradise is lost” and the economy’s rightful position has been regained. It further stated that the flow of financial resource to the commercial sector in India has increased exponentially as a result of financial debts being repaid. The  court also acknowledged the effective rate of disposal of the cases by the adjudicating authority — NCLT.

The NCLT is instrumental in the implementation and success of the IBC. The same was acknowledged by Union Minister Arun Jaitley, when he categorically stated, “The early harvest through the IBC process has been extremely satisfactory. It has changed the debtor-creditor relationship. The creditor no longer chases the debtor. In fact, it is otherwise. Upon the constitution of the NCLT and the implementation of IBC, its functionality had revealed the need for improvements in the law. Two legislative interventions since then have taken place.” 

Recent data procured from the Registrar, NCLT, showed that till date, 22,137 cases under the Companies Act and 7,225 cases under the IBC have been disposed of by the NCLT. The number of admitted cases under the IBC stood at 1,575 and 92 resolution plans were approved by the adjudicating authority as on February 28. Nearly Rs 3 trillion (Rs 3 lakh crore) worth  assets have been resolved through this process. This will help the banking and financial sector reduce their NPAs and improve their balance sheet, besides enabling them to pump more funds to the industry at lower interest. In this process, the liquidity problem, too, can be resolved.This will ultimately generate more employment.

As per an affidavit filed by the Union Government in the Supreme Court in the case of Madras Bar Association versus Union of India (Writ Petition No: 1072 of 2013), 63 members (President and 62 members) were envisaged for the matters under the Companies Act alone. Initially, the Union Government appointed 23 members to the tribunal. The jurisdiction of cases under the IBC was entrusted to the NCLT in December, 2016 but the strength of the members remained 23 till March, 2018. Five more members were added thereafter. At present, NCLT is functioning with 16 judicial members (including the President) and 10 technical members. Further, the members are also shouldering responsibility of newly-created benches at Jaipur and Cuttack to ensure speedy disposal of cases. Other notified benches at Kochi, Amravati and Indore are still not operational due to the non-availibility of members.

The facts and figures mentioned above are a testimony to the sincere efforts put by the tribunal at various benches, who work day-in and day-out to keep up with the pace of ever-increasing number of cases being filed on a daily basis. That the tribunal has been functioning with about one-third strength as notified and the amount of work done till date speaks volumes about its efficiency and effectiveness. NCLT’s accomplishment has been acknowledged by various sectors time and again.

It is worth mentioning that the kind of governance created within a span of two years is quite remarkable for NCLT. Looking at the performance, NCLT is able to resolve the cases of stressed assets having worth more than Rs 3 trillion (Rs 3 lakh crore). It is suggested that the remaining members at various benches be appointed at the earliest. To maintain credibility of this institution, it would be but natural to expect that new members must be appointed of the same calibre and skill.

(The writer is former president, Institute of Cost Accountants of India and Council Member, Institute of Chartered Accountants of India)

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