Economic Survey 2024-25 has called for separate rules for the National Company Law Tribunal (NCLT) in it’s role as the adjudicating authority under the Insolvency and Bankruptcy Code (IBC), stating that this would improve efficiency in the Tribunals’ functioning.
The Survey noted that IBC provides a non-adversarial resolution process but has not been enabled in practice at the NCLT.
The design and execution of procedures in the NCLT may be revisited, keeping the quasi-judicial nature of the mandate as a foundational tenet, Survey suggested.
The Survey has also suggested that Tribunals could improve the time taken for admission with the use of technology and the aid of the court registry for verification, scrutiny and clearing of defects in the application.
The proposed integrated platform for use by various stakeholders can include such features, it suggested.
This would eliminate the need for pre-admission hearings.
In the case of applications filed by operational creditors, a voluntary mediation mechanism, if made applicable, may help address default and hence obviate the need for admission.
Another source of delays at the Adjudicating Authority (AA) during the CIRP is the adjudication of inter-locutory applications. It includes procedural requirements like the appointment of an insolvency professional, appointment of an authorised representative, consideration of delayed claims, the constitution of the CoC, etc. and frivolous applications. In instances where an objective criterion to determine the achievement of a procedural milestone can be assessed or when decisions are arrived at by consensus among stakeholders, it can be taken on record of the AA.
It may not be considered for formal posting before the court. Extending engineering principles, the process, method, and output of repetitive procedural tasks, which are amenable for standardisation, should be standardised such as, the use of template-based submissions and orders.
In dealing with frivolous applications, the Tribunal needs to be more stringent, and using prevention by way of the imposition of high costs would have the necessary deterrent effect, the Survey added.
Financial regulators
In case of the financial sector, it is reasonable to expect that financial regulators hold themselves to the same standards that they expect of regulated entities, the Survey said.
At the same time, in the chapter on ‘Monetary and Financial Sector Developments’, the Survey also cautions against the risk of financialisation and asset price bubbles that are now endemic to the West. “That is why some measures India’s regulators took to rein in excessive and financially-ruinous speculation for investors were necessary, not just for systemic stability. They were welfare measures in effect,” noted CEA Anantha Nageswaran.
The Economic Survey has also suggested that Regulatory Impact Assessment (RIA) must be institutionalised for all regulations in the financial sector.
Cost of compliance
As financial sector regulators take steps to address the review of regulations and shortcomings in the regulation-making process, it would be an opportune time to institutionalise a systematic approach such as the RIA. There is vast evidence of the benefits of RIAs in terms of better quality of regulations and reduced compliance burden, thereby reducing the cost of compliance for businesses, Survey noted.
RIA is also effective in improving the transparency and responsiveness of the independent regulatory bodies (IRBs), thereby improving credibility.
One credible approach to RIA would be to set up an independent agency under the regulator to evaluate the rules. This agency will report to the Board and not to the management. It can provide an impartial and objective assessment of the regulatory processes and outcomes, including the economic and social impacts of regulations, suggested the Survey.
An economic and social cost-benefit analysis of regulations will prove useful to regulators in making them effective and purposeful rather than broad-based, cumbersome, and inhibiting legitimate economic activity and risk-taking. Such a move will signal that regulators are willing to live by the principles they expect regulatory entities to follow. This will strengthen the credibility of the process regulators follow and improve the acceptance of the proposed measures.
Regulation in the financial sector must strike an optimal balance between the imperative of stability and the goals of fostering innovation, efficiency, and competition, stated the Survey.
Given the country’s low financial literacy and lower-middle-income status, ensuring stability is essential to prevent systemic risks and protect consumers. However, this should not come at the expense of stifling creativity, innovation, or healthy market dynamics. At the same time, an excessive focus on innovation and competition without adequate safeguards can lead to financial instability, resource misallocation, and erosion of trust in the system.
“Striking this balance is particularly critical for India, considering its vast and diverse economy, growing aspirations, and substantial investment needs to sustain high growth and development. Regulators must consistently strive to achieve this equilibrium,” the Survey added.
On pension sector reforms, the Economic Survey 2024-25 has called for steps to make pension sector more accessible to the informal sector, noting that scalability in practice of APY remains an area for further development