Need to reform NCLT processes to avoid judicial delays: Bibek Debroy

India needs to look into the functioning of National Company Law Tribunals (NCLT) and address the legal processes within such Tribunals that hinder speedier judicial outcomes, said Bibek Debroy, Chairman of Prime Minister Economic Advisory Council.

“It’s all very well to talk about the Insolvency and Bankruptcy Code (and its success), we should also talk about NCLT and the procedures in NCLT, which can be used to delay the judicial process”, Debroy said at a conference held in the capital, jointly organised by the Insolvency and Bankruptcy Board of India (IBBI), Vidhi Centre for Legal Policy and the Harris Manchester College at the University of Oxford.

Debroy recalled the situation arising out of the amendments made to the Civil Procedure Code in the years 2001 and 2002 so as to cap the average duration of a civil dispute in the country to one-and-a-half years. “It (one-and-half-years target) has not happened because there is a judicial process and that can also be circumvented”, he noted..

Short term costs

Debroy highlighted that India was moving away from the old way of doing business to newer and more efficient ways and this movement is unlikely to result in immediate gains for the country. There will be costs as efficiency gains happens in the long run. In the short term, there will be costs including growth costs, he said.

The expected 1.5-2 percentage points bump up in GDP growth on account of the reform measures (IBC, demonetisation and GST) will not come overnight, Debroy said.

Enable exits

He also stressed the need for reforms in the cpital markets so as to enable companies to have easier exits.

“In India, we are very unfamilar with the phenomenon of exit. In 1991, when reforms were introduced, it was always about liberalisation of the economy and allowing more players to come in. We need exit of companies and reforms of capital markets so that exit happens”, he said.

Fifteen years ago, if one had asked whether any promoters in India would exit from Indian companies, the answer would have been a flat ‘NO’, he said.

“Because we all know that there was a kind of a way of doing business which had a nexus to ensure that errant promoters were not going to exit. IBC has to some extent changed that and this is the first time we have witnessed exit and that too exit of promoters”, he said.

Debroy also said that the IBC like many other legislation is “work in progress” and it should be welcome that it gets tweaked along to improve it and make it better.

He welcomed the latest set of IBC amendments that are pending before Parliament and noted that they are desirable.

Direct creditor control

Kristin van Zwieten, Clifford Chance Associate Professor of Law and Finance at the University of Oxford made a case for India to move in the long term to an indirect creditor control model (by using a third party in Insolvency Professionals) from the current creditor control approach.

“In most jurisdictions (mostly creditor friendly ones) that I am aware of, they don’t give power to creditors to directly exercise control for day-to-day running. Bargaining with creditors is very expensive. It is expensive for everyone in the room (creditors) to agree.

“The current Indian approach is virtuous, but also expensive. If IPs are well regulated and their costs are controlled, it would be cheaper to have an indirect creditor control model in India”, she told BusinessLine .

At the same time, Zwieten said that she knew as to why India made that complete swing from ‘no creditor control’ system to one of ‘complete direct creditor control’ .

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