Insolvency law: Limit case load at NCLT, says report

K. R. Srivats New Delhi | Updated on January 12, 2018 Published on January 17, 2017

Alvarez & Marsal calls for beefing up machinery, judicial Bench strength

The Corporate Affairs Ministry (MCA) and the Insolvency and Bankruptcy of India (IBBI) should limit the number of pending bankruptcy and insolvency cases referred to the National Company Law Tribunal, an Alvarez & Marsal report has suggested.

NCLT, which was constituted on June 1, 2016, has been positioned as the single adjudication authority for corporate default cases.

With over 25,000 pending corporate insolvency cases expected to move from various forums to NCLT, there is now major concern as to whether the tribunal will be able to cope with the projected case load.

“Our suggestion is don’t overload NCLT at the beginning itself. Set a threshold and send only cases above this threshold to NCLT,” Nikhil Shah, Managing Director, Alvarez & Marsal India, an expert in turnaround management, told BusinessLine.

Having taken great steps in enacting the Insolvency and Bankruptcy Code, the government and IBBI should ensure that it works smoothly at the ground level and beef up the administrative machinery in NCLT across the country.

Clearing backlog

Assuming that 25,000 cases move to NCLT, the judicial bench strength is ramped up to 50 in three years and a judge can handle 60 cases at any given point in time, it will take more than seven years to clear the current backlog, the report said.

It is, therefore, imperative to establish some success stories in the beginning to set the right tone, which is only possible if the number of cases at NCLT is limited from the beginning, said the report, titled ‘The National Company Law Tribunal (NCLT) Readiness — Insolvency and Bankruptcy Code’.

Shah said there should be more NCLT benches and more NCLT judges to cope with the workload. “If there are too many cases, there won’t be adequate infrastructure — both physical and in terms of judges — to handle the volumes,” he added.

Shah also said that MCA and IBBI should release a guideline on the transfer of pending cases to NCLT from the Debt Recovery Tribunal or Board for Industrial & Financial Reconstruction (BIFR), based on the size of exposure, size of consortium, case length etc.

The report includes recommendations on how to make the insolvency resolution process at the tribunal more efficient, based on feedback from large Indian lenders, lawyers and best practices from the US and the UK.

It has also suggested that authorities should put in place adequate legal and administrative staff to ensure that judges’ time is used only for judicial duties. Legal staff should ensure adherence to procedures and administrative staff should ensure scheduling etc.

In the first phase, the Ministry has set up 11 NCLT benches, one principal bench in New Delhi and one regional bench in New Delhi, Ahmedabad, Allahabad, Bengaluru, Chandigarh, Chennai, Guwahati, Hyderabad, Kolkata and Mumbai.

These benches will be headed by the President and include 16 judicial members and nine technical members at different locations. The proposed total strength is not more than 62, including judicial and technical members.

Published on January 17, 2017
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